U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
<TABLE>
<S> <C>
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
- -------------------------------------------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
- -------------------------------------------------------------------------------------
Commission file number 0-18253
- -------------------------------------------------------------------------------------
NDC Automation, Inc.
- --------------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 56-1460497
- --------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
3101 Latrobe Drive, Charlotte, North Carolina 28211-4849
- --------------------------------------------------------------------------------------
(Address of principal executive offices)
(704) 362-1115
- --------------------------------------------------------------------------------------
(Issuer's telephone number)
N/A
- --------------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last report)
</TABLE>
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS
As of March 14, 1998, there were 3,453,451 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes ; No X
--- ---
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<CAPTION>
I N D E X
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
February 28, 1998 (Unaudited) and November 30, 1997 3-4
Condensed Statements of Operations
Three months ended February 28, 1998 and February 28, 1997
(Unaudited) 5
Condensed Statements of Cash Flows
Three months ended February 28, 1998 and February 28, 1997
(Unaudited) 6
Notes to Condensed Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial 10-14
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
(a) Exhibits -- Press Releases and other Exhibits
(b) Reports on Form 8-K
SIGNATURES 16
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NDC AUTOMATION, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------
ASSETS (Note 4)
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 36,480 $ 72,368
Accounts receivable, net 677,355 670,489
Inventories 766,776 813,865
Costs and estimated earnings in excess of
billings on uncompleted contracts 23,406 23,406
Prepaid expenses and other assets 62,621 47,826
- ------------------------------------------------------------------------------------------------------------------
Total current assets $ 1,566,638 $ 1,627,954
- ------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land $ 300,000 $ 300,000
Building and improvements 1,126,623 1,126,623
Furniture, fixtures and office equipment, 152,609 152,016
Machinery and equipment 76,814 76,814
- ------------------------------------------------------------------------------------------------------------------
$ 1,656,046 $ 1,655,453
- ------------------------------------------------------------------------------------------------------------------
Less accumulated depreciation 547,142 526,076
- ------------------------------------------------------------------------------------------------------------------
$ 1,108,904 $ 1,129,377
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
$ 2,675,542 $ 2,757,331
==================================================================================================================
</TABLE>
Note: The Condensed Balance sheet at November 30, 1997 has been taken from the
Audited Financial Statements at that date.
See Notes to Condensed Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Note payable, bank $ 402,566 $ 427,634
Current maturities of long- term debt (Note 4) 66,792 65,022
Accounts payable and accrued expenses;
including affiliates $323,697 at 1998
and $307,815 at 1997 538,088 535,201
Billings in excess of costs and estimated
earnings on uncompleted contracts 164,353 29,838
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities $ 1,171,799 $ 1,057,695
- ------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT (Note 4 ) $ 1,024,933 $ 1,042,055
- ------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share
authorized 1,000,000 shares; no shares issued $ - $ -
Common stock, par value $.01 per share;
11,000,000 shares authorized
at 1998 and 1997; 3,453,451 shares
were issued at 1998 and 1997, respectively 34,534 34,534
Additional paid-in capital 4,211,566 4,211,566
Accumulated deficit (3,767,290) (3,588,519)
- ------------------------------------------------------------------------------------------------------------------
$ 478,810 $ 657,581
==================================================================================================================
$ 2,675,542 $ 2,757,331
==================================================================================================================
</TABLE>
4
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
February 28, February 28,
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $ 745,895 $ 991,953
Cost of goods sold 433,905 593,832
- ---------------------------------------------------------------------------------------------------------------
Gross profit $ 311,990 $ 398,121
- ---------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling $ 165,749 $ 153,500
General and administrative 260,416 377,676
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$ 426,165 $ 531,176
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Operating loss $ (114,175) $ (133,055)
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Net interest income (expense):
Interest income $ - $ -
Interest expense (64,596) (63,657)
- ---------------------------------------------------------------------------------------------------------------
$ (64,596) $ (63,657)
- ---------------------------------------------------------------------------------------------------------------
Loss before income taxes $ (178,771) $ (196,712)
Federal and state income taxes (Note 2) - -
- ---------------------------------------------------------------------------------------------------------------
Net loss $ (178,771) $ (196,712)
===============================================================================================================
Weighted average number of common
shares outstanding 3,453,451 3,453,451
- ---------------------------------------------------------------------------------------------------------------
Loss per common share - basic (Note 3) $ (0.05) $ (0.06)
Loss per common share - diluted (Note 3) $ (0.05) $ (0.06)
===============================================================================================================
Dividends per common share $ - $ -
===============================================================================================================
</TABLE>
See Notes to Condensed Financial Statements
5
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
February 28, February 28,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (5,350) $ 351,107
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment $ - $ 5,035
Purchase of property and equipment (594) (2,121)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY ( USED IN)
INVESTING ACTIVITIES $ (594) $ 2,914
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Payments on credit agreement $ (25,068) $(484,469)
Principal payments on long-term borrowings (15,352) (16,450)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN
FINANCING ACTIVITIES $ (40,420) $ (500,919)
- ---------------------------------------------------------------------------------------------------------------------
Effect of foreign currency exchage rates changes
on cash and cash equivalents $ 10,476 $ 10,986
- ---------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents $ (35,888) $ (135,912)
Cash and cash equivalents:
Beginning 72,368 399,501
- ---------------------------------------------------------------------------------------------------------------------
Ending $ 36,480 $ 263,589
=====================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for :
Interest $ 52,653 $ 71,499
=====================================================================================================================
</TABLE>
See Notes to the Condensed Financial Statements
6
<PAGE>
NDC AUTOMATION, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1.
The unaudited internal condensed financial statements and related notes have
been prepared by NDC Automation, Inc. (the "Company"), without audit pursuant to
the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and changes in cash flows at February 28, 1998, and for all periods
presented, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these condensed financial statements be
read in conjunction with the Company's audited financial statements and notes
thereto for the fiscal year ended November 30, 1997. The results of operations
for the three months ended February 28, 1998 are not necessarily indicative of
the operating results for the full year.
Note 2. Income Taxes
The Company did not recognize any income tax benefits in 1997 and 1998 for its
current losses as all prior taxes were recognized in the previous financial
statements and utilization of operating loss carryforwards in the future are not
assured to be realized.
Note 3. Loss per common share:
The Company adopted SFAS No. 128, Earnings per share, in 1998. The Statement
establishes new standards for computing and presenting earnings (loss) per
share, and requires a dual presentation of basic and diluted earnings (loss) per
share. Basic earnings (loss) per share exclude dilution and is computed by
dividing income (loss) available to common stockholders by the weighted average
number of shares outstanding for the period. Diluted earnings (loss) per share
reflect the potential dilution that could occur if securities or other contracts
to issue common stock were exercised. Earnings (loss) per share presentations
for all prior years have been restated to reflect the adoption of SFAS No. 128.
7
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 4. Pledged Assets, Note Payable, Bank and Long-Term Debt
The Company has the following note payable to a Bank at February 28, 1998:
<TABLE>
<S> <C>
The Loan Agreement allows the Company to borrow up to $1,250,000 and bears
interest at the lender's prime rate plus 1.50% per annum for the first $450,000
outstanding and prime plus 2.75% per annum for amounts in excess of $450,000.
The Company's loan outstanding shall not exceed the lesser of (a) U.S.
$1,250,000 or (b) 80% of qualified accounts receivable plus 50% of all Eligible
Inventory (as defined in the loan agreement) with a $400,000 cap on loans based
on Eligible Inventory. The loan agreement is further secured by 1) an Inventory
Repurchase Agreement and 2) a $450,000 irrevocable letter of credit issued by a
swedish bank. Netzler & Dahlgren Co. AB (NDCab) is obligated to repay the letter
of credit bank any funds it disburses under the letter of credit. The Company is
ultimately responsible to repay to NDCab for any amounts it pays in reimbursing
the letter of credit bank . The Repurchase Agreement guarantees that NDCab will
repurchase on certain conditions up to $400,000 worth of inventory, thereby
providing funds to pay lender should the Company be in default on its loan
obligations. The termination date of the Loan Agreement is
September 30, 1998 or upon demand by the lender. (1)(2) $ 402,566
================================================================================== ================ =================
Long-term debt consists of the following at February 28, 1998:
Mortgage note payable to a bank, based on a 9.5% fixed rate. Original principal
balance to be repaid in twenty-three (23) consecutive monthly principal and
interest payments of $13,912, with one final payment of approximately $1,007,403
due on May 16, 1999 (3). The note is collaterized by the Company's land and
building with a carrying value of $1,009,916 The loan also contains certain
financial covenants to which the Company must adhere. As of February 28, 1998,
the Company obtained waivers for certain
financial covenants as specified by the Mortgage note agreement. $ 1,091,726
Less current maturities: 66,792
- ---------------------------------------------------------------------------------- ---------------- -----------------
$ 1,024,934
================================================================================== ================ =================
</TABLE>
(1) The prime rate at February 28, 1998 was 8.50%
(2) The line of credit is secured by a first priority security interest in the
Company's accounts receivable, inventory, software and
intangibles.
Maturities of long-term debt at February 28, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ending
February 28
- ------------------- ---------------------------------------------------------------------------------- -----------------
1999 $ 66,792
2000 $ 1,024,934
=================== ================================================================================== =================
$ 1,091,726
=================== ================================================================================== =================
</TABLE>
8
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 5. Continued operations
The Company has suffered a significant loss from operations in 1997. Should such
losses continue its total liabilities will exceed its total assets. This raises
substantial doubt about the Company's ability to continue as a going concern.
Management has made plans in regards to these matters to develop an operating
plan that will increase revenues and minimize losses. This plan includes a
reorganization of present resources to support the following :
o Establish and develop strategic alliances with selected customers
o Pursue AGV system business in selected market niches
o Grow the distribution business by adding new supplementary products
o Develop a strong market position in the industrial truck market
o Expand the aftermarket sales business
The Company is also pursuing raising additional equity to assist in reaching its
goals.
Although the Company believes that its strategic plans will permit it to meet
its 1998 working capital needs, there can be no assurance that the Company can
successfully meet the objectives of such plans.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements (including the notes thereto) presented elsewhere
herein.
Overview
The Company derives virtually all of its revenues from the sale of
hardware, software and engineering services in connection with projects
incorporating its Automated Guided Vehicle (AGV) control technology. Prior to
1996 the Company was also actively involved in the sale of Radio Frequency
Identification (RFID) products. In years prior to 1995 the Company's net
revenues from AGV systems, vehicles and technology were derived primarily from
sales to customers serving two industries -- textiles and newspaper publishing.
Net revenues since 1995 however have been less concentrated in these industries.
The Company's results of operations can be expected to continue to depend
substantially upon the capital expenditure levels in those industries and in
other industries that it may enter. During 1996 and for the first three quarters
of 1997, the Company refocused its sales efforts to existing original equipment
manufacturers (OEMs) and system integrators in the AGV systems industry. Such
OEMs and system integrators have historically sold products to end users to whom
the Company occasionally had direct sales. The Company reduced its sales effort
to such end users to avoid competing with its intended OEM customers. In
September of 1997, the Company began to pursue AGV system sales directly to end
users in selected market niches to supplement revenues obtained from OEMs and
system integrators.
Due to the long sales cycle involved, uncertainties in timing of projects,
and the large dollar amount a typical project usually bears to the Company's
historical and current quarterly and annual net revenues, the Company has
experienced, and may be expected to continue to experience, substantial
fluctuations in its quarterly and annual results of operations.
The Company sells its products and services primarily in two ways.
Vehicles, technology and other products and services may be sold in a "project"
that becomes an integrated AGV system. The primary business is to sell hardware,
software and services as standard items, with less involvement by the Company in
overall system design. The Company generally would recognize lower net revenue
but would realize a higher gross profit margin percentage in selling standard
items, in each case compared to the sale of a project, due to the inclusion in
project sales of other vendors' products and services with margins generally
lower than the Company's own products and services. Between any given accounting
periods, the levels of and mixture of standard item sales and project sales can
cause considerable variance in net revenues, gross profit, gross profit margin,
operating income and net income.
Revenues from standard item sales are recognized upon shipment, while
revenues from project sales are recognized under the "percentage of completion"
method. Under this method, with respect to any particular customer contract,
revenues are recognized as costs are incurred relative to each major component
of the project. Although the percentage of completion method will ordinarily
smooth out over time the net revenue and profitability effects of large
projects, such method nevertheless subjects the Company's results of operations
to substantial fluctuations dependent upon the progress of work on project
components. Such components can differ markedly from one another in amount and
in gross profit margin.
Project contracts are billed upon attainment of certain "milestones." The
Company grants payment terms of 30 to 90 days to its customers. It typically
receives a cash advance ranging from 10% to 20% of the total contract amount.
Bills are thereafter delivered as milestones are reached. Upon delivery of the
project, the customer typically reserves a "retainage" of 10% to 20% pending
system acceptance.
10
<PAGE>
Notwithstanding the receipt by the Company of cash advances and periodic
payments upon reaching project milestones, the Company requires external
financing for its costs and estimated earnings in excess of billings on
uncompleted contracts, inventories, receivables and other assets.
The Company's backlog consists of all amounts contracted to be paid by
customers but not yet recognized as net revenues by the Company.
Strategy diversification: At this time the Company believes it must convert
several OEM and system integrators away from their own in-house AGV technology
to the Company's technology to increase its present market share. Such
technology conversion, if they take place at all, can take one to several years
to complete. Such customers must also replace in volume and margin what the
Company could otherwise obtain selling direct to end users. The Company's
strategy of not selling directly to end users contributed to the losses incurred
by the Company during 1997. The Company changed its sales approach and began
soliciting its products directly to end users during the fourth quarter of 1997
to ensure that its technology is available to such end users. The Company will
not sell directly to end users in situations in which a qualified OEM or OEMs
are specifying NDC controls in their system solution to the potential end users.
There can be no assurances that such a strategy will be successful in the short
or long term.
Distribution of products and technology: The Company also intends to
pursue other related products lines that can be distributed to its targeted
customers to supplement its existing AGV business. This should allow the Company
to grow, while making the Company less dependent on its present product line.
There can be no assurance, however that this strategy will meet management's
objectives for growth.
Forward-looking statements: This report (including information included or
incorporated by reference herein) contains certain forward-looking statements
with respect to the financial condition, results of operation, plans,
objectives, future performance and business of the Company.
These forward-looking statements involve certain risk and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities:
a) Revenues from end user systems sales and new OEMs may be lower than
expected, or sales by Munck Automation may be substantially lower than the
target of $9,400,000 over the initial three years of the agreement.
b) New product lines from Thrige and Netzler and Dahlgren (Teach-in) may not
be well received in the North American industrial truck market, thereby
restricting growth opportunities for the Company.
c) The Company's existing bank relationships may not be extended which would
cause the Company to default on its current obligations.
d) The Company might be unable to raise the additional working capital needed
to finance the current business strategy which may have a serious impact on
the Company's ability to sell its current and future products, as well as
satisfy existing banking relationships.
e) General economic or business conditions, either nationally or in the
markets in which the Company is doing business, may be less favorable than
expected resulting in, among other things, a deterioration of market share
or reduced demand for its products.
11
<PAGE>
RESULTS OF OPERATIONS
The table below shows (a) the relationship of income and expenses relative
to net revenues, and (b) the change between the comparable prior period and
current period. This table should be read in the context of the Company's
condensed statements of operations presented elsewhere herein.
<TABLE>
<CAPTION>
Percentage of Change
Period To Period Increase
Percentage of Net Revenues (Decrease)
- ------------------------------------------- -- ---------------------------------------------- ---------------------------------
Three Months Ended
For the Three Months Ended February 28, 1997
February 28, 1998 February 28,1997 to February 28,1998
% % %
- ------------------------------------------- -- ---------------------------------------------- ---------------------------------
<S> <C> <C>
Net revenues 100.0 100.0 (24.8)
Cost of goods sold 58.2 59.9 (26.9)
- --------------------------------------------------- -------------- ------------------ -----------------------------------------
Gross profit 41.8 40.1 (21.6)
- --------------------------------------------------- -------------- ------------------ -----------------------------------------
Operating expenses:
Selling 22.2 15.5 8.0
General and administrative 34.9 38.0 (31.0)
- --------------------------------------------------- -------------- ------------------ -----------------------------------------
57.1 53.5 (19.8)
- --------------------------------------------------- -------------- ------------------ -----------------------------------------
Operating loss (15.3) (13.4) (14.2)
Net interest expense 8.7 6.4
1.5
- --------------------------------------------------- -------------- ------------------ -----------------------------------------
Loss before income taxes (24.0) (19.8)
(9.1)
Income taxes -
- -
- --------------------------------------------------- -------------- ------------------ -----------------------------------------
Net loss (24.0) (19.8) (9.1)
=================================================== ============== ================== =========================================
</TABLE>
12
<PAGE>
Quarter ended February 28, 1998 Compared to the Quarter Ended February 28, 1997
Net revenues decreased by $246,058, or 24.8% from $991,953 in the earlier period
to $745,895 in the latter period. The low opening backlog at November 30, 1997
contributed to the lower revenues in 1998 compared to 1997.
Cost of goods sold decreased from $593,832 to $433,905, or 26.9% as a percentage
of net revenues, cost of goods sold decreased from 59.9% to 58.2% . Gross profit
decreased by $86,131, or 21.6% from $398,121 to $311,990 due to lower revenues
in 1998 compared to the prior year. Gross profit as a percentage of revenues
increased from 40.1% to 41.8%.
Selling expenses increased from $153,500 to $165,749, or 8.0% primarily due to
increased travel sales expenses as well increased personnel cost. The Company
will be representing its products in April 1998 at the North American Material
Handling Show and Forum; the expenses related to the show will increase selling
expenses for the second quarter of 1998 compared to the first quarter of 1997.
General and administrative expenses decreased from $377,676 to $260,416, or
31.0% due to lower personnel , equipment leases, and depreciation cost compared
to the prior year . As a percentage of net revenues, general and administrative
expenses decreased from 38.0% to 34.9%.
Primarily as a result of the foregoing, operating loss decreased by $18,880 from
$133,055 in 1997 to an operating loss of $114,175 in 1998.
The net interest expense increased from $63,657 to $64,596.
The Company did not recognize any tax benefits in 1997and 1998 for its current
loss as all prior taxes were recognized in the previous financial statements and
utilization of operating loss carryforwards in the future are not assured to be
realized.
Primarily due to lower revenues in 1998 as described above the Company incurred
a net loss of $178,771 in 1998 compared to net loss of $196,712 in 1997.
Backlog. Backlog consists of all amounts contracted to be paid by customers but
not yet recognized as net revenues by the Company. At February 28, 1998, the
Company had a backlog of approximately $1,100,000 compared to approximately
$1,100,000 one year earlier.
13
<PAGE>
Liquidity and Capital Resources
The Company experiences needs for external sources of financing to support its
working capital, capital expenditures and acquisition requirements when such
requirements exceed its cash generated from operations in any particular fiscal
period. The amount and timing of external financing requirements depend
significantly upon the nature, size, number and timing of projects and
contractual billing arrangements with customers relating to project milestones.
The Company has relied upon bank financing under a revolving working capital
facility, as well as long-term debt and capital leases and proceeds of its
public offerings, and private offerings, to satisfy its external financing
needs.
During the three months ended February 28, 1998 net cash used in operating
activities was $5,350.
The Company entered into a new Inventory and Accounts Receivable Loan and
Security Agreement ("Loan Agreement") February 28, 1997 with the National Bank
of Canada and National Canada Business Corp. (herein collectively called the
"Lender"). The Loan Agreement allows the Company to borrow up to a maximum of
$1,250,000. The new agreement provides for an increase in potential available
credit compared to the maximum available credit of $750,000 under the prior
credit arrangement with NationsBank, N.A.
Loans made under the new Loan Agreement are evidenced by a demand promissory
Note. The Loan Agreement allows the Company to borrow pursuant to a borrowing
formula which is secured by Company's personal property as collateral. The
Company's outstanding loan amount at any one time shall not exceed the lesser of
(a) U.S $1,250,000 or (b) 80% of qualified accounts receivable ( as defined in
the Loan Agreement) plus 50% of all eligible inventory ( as defined in the Loan
Agreement) with a $400,000 cap on loans based on eligible inventory. The
borrowed funds will bear interest at the Lender's prime rate plus 1.5% per annum
for the first $450,000 outstanding and prime plus 2.75% per annum for amounts
outstanding in excess of $450,000. The Loan Agreement is further secured by 1)
an Inventory Repurchase Agreement and 2) a $450,000 irrevocable Letter of Credit
issued by a Swedish bank. Netzler & Dahlgren Co. AB (NDCab) is obligated to
repay the letter of credit bank any funds it disburses under the Letter of
Credit. The Company is ultimately responsible to repay to NDCab for any amounts
it pays in reimbursing the letter of credit bank. The Repurchase Agreement
guarantees that NDCab will repurchase from the Company on certain conditions up
to $400,000 worth of inventory, thereby providing funds to pay the Lender should
the Company default on its loan obligations.
The lender, at its discretion, may demand payment upon written notice to the
Company. The maturity date of the Agreement was April 1, 1998 and has been
extended to September 30, 1998, or upon demand by the Bank. The extension is
conditional upon NDCab renewing a $450,000 irrevocable Letter of Credit before
May 1, 1998 .
During May 1997, the mortgage loan maturity date was extended from February 10,
1998 to May 16, 1999. The interest rate on the note was increased to 9.5% from
7.75% . The combined principle and interest monthly payment was changed to
$13,912 compared to $13,057 per the prior agreement.
As of April 1998, the Company has been delaying payments of approximately
$300,000 to its affiliate Netzler and Dahlgren so not to exceed current
borrowing maximums from the lender. Such deficiency in the cash flow may
possibly worsen if the Company does not generate enough new business. There can
be no assurance that such deferred payments will continue to be acceptable to
Netzler and Dahlgren. The Company is exploring the possibility of raising
additional equity capital or subordinated debt in order to improve its financial
position. There can be no assurance that the Company will be successful in
raising additional capital or subordinated debt to improve its financial
position. The Company's ability to continue as a going concern would be
adversely affected if such equity and/or debt financing was not obtained in the
near future.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
None
Press Releases:
.
None
(b) Reports on Form 8-K
None
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NDC AUTOMATION, INC.
(Registrant)
BY: /s/ Ralph Dollander
-----------------------
Ralph Dollander
President
(Chief Executive Officer)
BY: /s/ Claude Imbleau
----------------------
Claude Imbleau
VP - Finance & Administration
(Chief Financial Officer)
Date: April 9, 1998
16
<PAGE>
EXHIBIT INDEX
The following documents are included in this Form 10-QSB as an Exhibit:
<TABLE>
<CAPTION>
Designation Number
Under Item 601 of
Exhibit Number Regulation S-K Page
Exhibit Description Number
- ------------------ --------------------- ------------------------------------------------------------ -----------
(A) Exhibits:
<S> <C> <C>
1. 27 Financial schedule 18
</TABLE>
- ------------------
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000859621
<NAME> NDC AUTOMATION, INC.
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