U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended August 31, 1998
- --------------------------------------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 0-18253
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NDC Automation, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 56-1460497
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3101 Latrobe Drive, Charlotte, North Carolina 28211-4849
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(Address of principal executive offices)
(704) 362-1115
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(Issuer's telephone number)
N/A
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(Former name, former address, and former fiscal year,
if changed since last report)
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 September 15, 1998, there were 3,453,451 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes ; No X
-- --
<PAGE>
I N D E X
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
August 31, 1998 (Unaudited) and November 30, 1997 3-4
Condensed Statements of Operations
Three and Nine months ended August 31, 1998 and
August 31, 1997 (Unaudited) 5
Condensed Statements of Cash Flows
Nine months ended August 31, 1998 and
August 31, 1997 (Unaudited) 6
Notes to Condensed Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
(a) Exhibits -- Press Releases and other Exhibits 16
(b) Reports on Form 8-K 16
SIGNATURES 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NDC AUTOMATION, INC.
CONDENSED BALANCE SHEETS
AUGUST 31, November 30,
1998 1997
(UNAUDITED)
- ----------------------------------------------------------------------------
ASSETS (Note 4)
CURRENT ASSETS
Cash and cash equivalents $ 39,563 $ 72,368
Accounts receivables, net 669,663 670,489
Inventories 607,443 813,865
Costs and estimated earnings in excess of
billings on uncompleted contracts 66,276 23,406
Prepaid expenses and other assets 55,264 47,826
- ----------------------------------------------------------------------------
Total current assets $ 1,438,209 $ 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, 157,935 152,016
Machinery and equipment 79,480 76,814
- ----------------------------------------------------------------------------
$ 1,664,038 $ 1,655,453
Less accumulated depreciation 588,275 526,076
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$ 1,075,763 $ 1,129,377
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$ 2,513,972 $ 2,757,331
============================================================================
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>
AUGUST 31, November 30,
1998 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank (Note 4) $ 439,685 $ 427,634
Current maturities of long-term debt (Note 4) 1,257,361 65,022
Accounts payable and accrued expenses;
including affiliates $49,739 at 1998
and $393,928 at 1997 281,641 535,201
Billings in excess of costs and estimated
earnings on uncompleted contracts 10,184 29,838
- --------------------------------------------------------------------------------
Total current liabilities $ 1,988,871 $ 1,057,695
- --------------------------------------------------------------------------------
LONG-TERM DEBT (Note 4) $ 165,279 $ 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 $.01 per share;
11,000,000 shares authorized
at 1998 and 1997; 3,453,451 shares
issued at 1998 and 1997 34,534 34,534
Additional paid-in capital 4,211,566 4,211,566
Accumulated deficit (3,886,278) (3,588,519)
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$ 359,822 $ 657,581
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$ 2,513,972 $ 2,757,331
================================================================================
4
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
AUGUST 31, August 31, AUGUST 31, August 31,
1998 1997 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 1,085,698 $ 915,679 $ 2,726,895 $3,127,414
Cost of goods sold 603,289 672,193 1,575,874 2,015,731
- -------------------------------------------------------------------------------------
Gross profit $ 482,409 $ 243,486 $ 1,151,021 $1,111,683
- -------------------------------------------------------------------------------------
Operating expenses:
Selling $ 149,702 $ 178,275 $ 506,555 $ 525,818
General and administrative 194,969 284,708 758,904 1,060,495
Research and development - - - -
- -------------------------------------------------------------------------------------
$ 344,671 $ 462,983 $ 1,265,459 $1,586,313
- -------------------------------------------------------------------------------------
Operating income (loss) $ 137,738 $(219,497) $ (114,438) $(474,630)
- -------------------------------------------------------------------------------------
Net interest income (expense): $ (38,617) $ (57,401) $ (183,321) $(158,209)
- -------------------------------------------------------------------------------------
Income (loss) before income taxes $ 99,121 $(276,898) $ (297,759) $(632,839)
Federal and state income taxes (Note 2) - - - -
- -------------------------------------------------------------------------------------
Net Income (loss) $ 99,121 $(276,898) $ (297,759) $(632,839)
=====================================================================================
Weighted average number of common
shares outstanding 3,453,451 3,453,451 3,453,451 3,453,451
- -------------------------------------------------------------------------------------
Earnings (loss) per common
share-basic (Note 3) $ 0.03 $ (0.08) $ (0.09) $ (0.18)
Earnings (loss) per common
share-diluted (Note 3) $ 0.03 $ (0.08) $ (0.09) $ (0.18)
=====================================================================================
Dividends per common share $ - $ - $ - $ -
=====================================================================================
</TABLE>
See Notes to the Condensed Financial Statements
5
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
AUGUST 31, August 31,
1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $(362,982) $ 317,326
- ---------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment $ 1,500 $ 6,535
Purchase of property and equipment (8,585) (28,464)
- ---------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES $ (7,085) $ (21,929)
- ---------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving credit
agreement $ 12,051 $(516,947)
Principal payments on long-term borrowings (81,156) (48,611)
Proceeds from current and long-term borrowings 402,182 -
- ---------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES $333,077 $(565,558)
- ---------------------------------------------------------------------------------
Effect of foreign currency exchage rates changes
on cash and cash equivalents $ 4,185 $ 5,440
- ---------------------------------------------------------------------------------
Decrease in cash and cash equivalents $(32,805) $(264,721)
Cash and cash equivalents:
Beginning 72,368 399,501
- ---------------------------------------------------------------------------------
Ending $ 39,563 $ 134,780
=================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for:
Interest $183,219 $ 171,021
=================================================================================
</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 August 31, 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 and nine months ended August 31, 1998 are not necessarily
indicative of the operating results for the full year.
NOTE 2. INCOME TAXES
The Company did not recognize any tax benefits in 1998 and 1997 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.
NOTE 3. EARNINGS (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 August 31, 1998:
<TABLE>
<CAPTION>
<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 October 31, 1998 or
upon demand by the lender. (1)(2) $ 439,685
=============================================================================================
Long-term debt consists of the following at August 31, 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 . The note is collaterized by the Company's land and
building with a carrying value of $989,260. The loan also contains certain
financial covenants to which the Company must adhere. As of August 31, 1998, the
Company had waivers for certain financial covenants as specified by the Mortgage
note agreement. $ 1,059,027
Note payable to Netzler & Dahlgren Co AB, based on a 16.0% fixed rate. Original
principal balance to be repaid in twenty-four (24) consecutive monthly principal
payments of 133,529 Swedih Krona, or approximately US$16,757 depending on the
exchange rate at time of payment, plus interest. The note is collaterized by the
Company's land and building with a carrying value of $989,260. 363,613
- --------------------------------------------------------------------------------------------
$ 1,422,640
Less current maturities: 1,257,361
- --------------------------------------------------------------------------------------------
$ 165,279
============================================================================================
(1) The prime rate at August 31, 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 August 31, 1998 are as follows:
Year Ending
August 31,
- --------------------------------------------------------------------------------------------
1999 $ 1,257,361
2000 165,279
============================================================================================
$ 1,422,640
============================================================================================
</TABLE>
8
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 5. CONTINUED OPERATIONS
The Company has suffered a significant loss from operations in 1997 and 1998.
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 adopted an operating plan to increase revenues and minimize
losses. This plan includes a reorganization of present resources and
reduction of fixed expenses 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.
There can be no assurance that the Company can successfully meet the objectives
of such plans.
NOTE 6. YEAR 2000
At the turn of the century, computer-based information systems will be faced
with the problems potentially affecting hardware, software, networks, processing
platforms, as well as customer and vendor interdependencies. The Company is in
the process of assessing the effect of Year 2000 on the Company's operating
plans and systems. The Company is developing a plan for identifying, renovating,
testing and implementing its systems for Year 2000 processing and internal
control requirements. The cost of becoming Year 2000 compliant has not been
determined; however, management feels such cost will not be material to the
Company's financial statements.
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. In prior years 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 derived from other
industries, e.g. automotive, CD manufacturing, food, paper. 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,
however, the Company began to again pursue AGV system sales directly to end
users in selected market niches to supplement revenues obtained from its 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, receivable 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: The Company will have to 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 conversions, 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 the OEM and system integrator's customers.
The Company's OEM strategy contributed greatly 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 be
selling 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 product 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. During the first nine month of 1998 the Company realized minimal
revenues from such activities.
MUNCK AGREEMENT: On October 6, 1997, the Company executed a Strategic
Alliance Agreement with Munck Automation Technology. Inc. ("Munck") of
Newport News, Virginia. Munck is a major supplier of automated material
handling systems including AGVS vehicles and systems and automatic storage
and retrieval systems ("AS/RS") to end users. The initial term of the
agreement is three years, subject to Munck reaching certain sale targets on
an annual basis. The Agreement extends, thereafter, in one year increments
subject to the approval of both companies.
Pursuant to the Agreement, Munck agrees to promote solely NDC AGVS
technology in its sales efforts of new AGV systems to end users. Munck also has
committed to use its best efforts to meet a target which would provide purchase
orders to NDCA for a minimum of $9,400,000 for hardware, software and
engineering services over the initial three year term of the Agreement. During
the first nine months of 1998 revenues from the agreement were well below the
targets and there can be no assurances that Munck will meet such targets. Under
the Agreement, NDCA will promote Munck products to end users.
Munck was acquired by Swisslog Management Ltd ("Swisslog"), headquarters
in Aurau, Switzerland in August of 1998. Swisslog is a major international
supplier of material handling automation including various types of conveying
technology, Warehouse Management Systems, AS/RS, AGVS, and robotic handling
systems. The ramifications of the Swisslog acquisition of Munck are not yet
known. The Company's management intends to meet with Munck/Swisslog
representatives on or about the first anniversary date to review performance
under the Munck Agreement.
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.
11
<PAGE>
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.
12
<PAGE>
RESULTS OF OPERATIONS
The table below shows (a) the relationship of income and expense items
relative to net revenues, and (b) the change between the comparable prior period
and current period, for the three-month and nine-month periods ended August 31,
1998 and 1997, respectively. This table should be read in the context of the
Company's condensed statements of income presented elsewhere herein:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Percentage of Change
Period to Period
Percentage of Net Revenues Increase (Decrease)
- --------------------------------------------------------------------------------------
Three Nine
Months Months
Three Months Nine Months Ended Ended
Ended Ended August 31, August 31,
August 31, August 31, August 31, August 31, 1997 to 1997 to
1998 1997 1998 1997 1998 1998
% % % % % %
- --------------------------------------------------------------------------------------
Net Revenues 100.0 100.0 100.0 100.0 18.6 (12.8)
Cost of Goods Sold 55.6 73.4 57.8 64.5 (10.3) (21.8)
- --------------------------------------------------------------------------------------
Gross Profit 44.4 26.6 42.2 35.5 98.1 3.5
- --------------------------------------------------------------------------------------
Operating expenses:
Selling 13.8 19.5 18.6 16.8 (16.0) (3.7)
General and
administrative 18.0 31.1 27.8 33.9 (31.5) (28.4)
- --------------------------------------------------------------------------------------
31.8 50.6 46.4 50.7 (25.5) (20.2)
- --------------------------------------------------------------------------------------
Operating income (loss) 12.6 (24.0) (4.2) (15.2) * (75.9)
Net interest expense: (3.5) (6.3) (6.7) (5.1) (32.7) 15.8
- --------------------------------------------------------------------------------------
Income (loss) before
income taxes 9.1 (30.3) (10.9) (20.3) * (53.0)
Federal and state
income taxes (benefit) - - - - NA NA
======================================================================================
Net income (loss) 9.1 (30.3) (10.9) (20.3) * (53.0)
======================================================================================
</TABLE>
* Because the data changes from negative to positive, or from positive to
negative, the percentage of change is not meaningful.
QUARTER ENDED AUGUST 31, 1998 COMPARED TO THE QUARTER ENDED AUGUST 31, 1997
Net revenues increased by $170,019 or 18.6% from $915,679 in the earlier period
to $1,085,698 in the latter period, due primarily to increased system revenues
compared to the prior year.
Cost of goods sold decreased from $672,193 to $603,289 or 10.3% despite revenues
increasing. The decrease in cost of goods sold was due primarily to lower
engineering cost and product cost in 1998 compared to 1997. Gross profit
increased by $238,923 or 98,1% from $243,486 to $482,409, while gross profit as
a percentage of net revenues increased to 44.4% from 26.6% due to the same
factor.
Selling expenses decreased from $178,275 to $149,702, or, 16.0%, due primarily
to lower advertising and marketing expenses during 1998 compared to 1997.
General and administrative expenses decreased from $284,708 to $194,969, or
31.5% primarily due to lower depreciation cost, equipment leases, and general
cost reduction relating to a cutback in personnel in May of 1998 compared to the
prior year. As a percentage of net revenues, general and administrative expenses
decreased from 31.1% to 18.0%.
Primarily as a result of the foregoing, the operating loss decreased by $357,235
from $219,497 in the earlier period to an operating income of $137,738 in the
latter period.
Net interest expense decreased from $57,401 to $38,617, a decrease of $18,784.
The net decrease is primarily due
13
<PAGE>
to lower Bank fees and lower borrowings compared to the prior year.
Loss before income taxes decreased by $376,019 from $276,898 to an income of
$99,121, due primarily to the foregoing factors.
The Company did not recognize any tax benefits in 1998 domestically for its
current loss as all prior taxes have been recognized in the previous financial
statements and utilization of operating loss carryforwards in the future are not
assured.
Primarily due to increased revenues in 1998 and better margins as described
above the Company incurred a net income of $99,121 in 1998 compared to a net
loss of $276,898 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 August 31, 1998, the
Company had a backlog of approximately $900,000 compared to approximately
$440,000 one year earlier.
NINE MONTHS ENDED AUGUST 31, 1998 COMPARED TO NINE MONTHS ENDED AUGUST 31, 1997
Net revenues decreased by $400,519, or 12.8%, from $3,127,414 in the earlier
period to $2,726,895 in the latter period. The decline is primarily due to the
Company's realizing lower distribution revenues to OEM customers from its
Motor-in-wheel drive product line as well as its AGV product line. Such revenues
declined due to a lower demand for the Company's products and increased
competition.
Cost of goods sold decreased from $2,015,731 to $1,575,874, or 21.8%, due
primarily to the lower level of net revenues and reduced engineering cost from
the Company's recent cutback in personnel. As a percentage of net revenues,
cost of goods sold decreased from 64.5% to 57.8%. Gross profit increased by
$39,338, or 3.5%, from $1,111,683 to $1,151,021 despite the decrease in net
revenues, while gross profit as a percentage of net revenues increased from
35.5% to 42.2%.
Selling expenses decreased from $525,818 to $506,555 or 3.7%. To maintain costs
in line with the previous year the Company allocated personnel from other
departments to support sales while reducing advertising and marketing expenses.
General and administrative expenses decreased from $1,060,495 to $758,904, or
28.4%, primarily due to lower personnel costs, equipment leases, legal and
depreciation cost compared to the prior year.
Primarily as a result of the foregoing, the operating loss for the period was
$114,438 compared to an operating loss of $474,630 the prior year.
Net interest expense increased from $158,209 to $183,321, an increase of 15.8 %.
The increase is primarily due to interest expense on late trade payables to
Netzler and Dahlgren Co AB in 1998 compared to 1997. The trade payable was
converted to a Note payable during the third quarter of 1998, and bearing a
16% annual interest charge.
Loss before income taxes decreased by $335,080, from a loss of $632,839 in 1997,
to a loss of $297,759 due primarily to the foregoing factors.
The Company did not recognize any tax benefits in 1998 for its current loss as
all prior taxes have been recognized in the previous financial statements and
utilization of operating loss carryforwards in the future are not assured.
Primarily due to the Company lowering its expenses in 1998 as described above
the Company reduced its net loss to $297,759 in 1998 compared to a net loss of
$632,839 in 1997.
14
<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 nine months ended August 31, 1998 net cash used in operating
activities was $362,982. The current accumulated loss of $297,759 was the
primary reason for the use of cash from operating activities. To offset such
uses the Company obtained a two year loan from Netzler & Dahlgren for
approximately $400,000 as described below.
The Company entered into an 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.
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 October 31, 1998, or upon demand by the Bank. The extension was
conditional upon Netzler & Dahlgren extending its $450,000 irrevocable Letter of
Credit to the Bank through May 1, 1999. To further secure Netzler & Dahlgren for
providing the Letter of Credit the Company entered into a Reimbursement
Agreement under which the Company granted to Netzler and Dahlgren a security
interest in the Company's land and building; such collateral is a junior lien to
the primary mortgage lender, security interest.
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.
During the second quarter of 1998 the Company had been delaying payments of
approximately $400,000 to its affiliate Netzler and Dahlgren so not to exceed
current borrowing maximums from the lender. On June 30, 1998 the Company signed
a promissory note to repay such debt over the next two years. The note is to be
repaid in 24 equal principal payments plus accrued interest at the rate of 16%
annually beginning July 31, 1998.
There are no assurances that the deficiency in the cash flow will not worsen if
the Company does not generate enough new business. 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 the 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 or revenues did not increase to consistently provide
earnings for the Company.
15
<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
16
<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
Date: October 2, 1998
BY: /s/ Claude Imbleau
-----------------------------------
Claude Imbleau
VP - Finance & Administration
(Chief Financial Officer)
Date: October 2, 1998
17
<PAGE>
EXHIBIT INDEX
The following documents are included in this Form 10-QSB as an Exhibit:
Designation
Number Under
Exhibit Item 601 of Page
Number Regulation S-K Exhibit Description Number
- ------------------------------------------------------------------------------
(A) Exhibits:
1. 27 Financial Schedule 19
18
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000859621
<NAME> NDC AUTOMATION, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> AUG-31-1998
<CASH> $ 39,563
<SECURITIES> $ 0
<RECEIVABLES> $ 724,663
<ALLOWANCES> $ 55,000
<INVENTORY> $ 607,443
<CURRENT-ASSETS> $ 1,438,209
<PP&E> $ 1,664,038
<DEPRECIATION> $ 588,275
<TOTAL-ASSETS> $ 2,513,972
<CURRENT-LIABILITIES> $ 1,988,871
<BONDS> $0
<COMMON> $ 34,534
$0
$0
<OTHER-SE> $ 325,288
<TOTAL-LIABILITY-AND-EQUITY> $ 2,513,972
<SALES> $ 2,726,895
<TOTAL-REVENUES> $ 2,726,895
<CGS> $ 1,575,874
<TOTAL-COSTS> $ 1,575,874
<OTHER-EXPENSES> $ 1,265,459
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $ (183,321)
<INCOME-PRETAX> $ (297,759)
<INCOME-TAX> $0
<INCOME-CONTINUING> $ (297,759)
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $ (297,759)
<EPS-PRIMARY> ($0.09)
<EPS-DILUTED> ($0.09)
</TABLE>
