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 February 28, 1999
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[ ] 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
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(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 March 31, 1999, 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
February 28, 1999 (Unaudited) and November 30, 1998 3-4
Condensed Statements of Operations
Three months ended February 28, 1999 and February 28, 1998
(Unaudited) 5
Condensed Statements of Cash Flows
Three months ended February 28, 1999 and February 28, 1998
(Unaudited) 6
Notes to Condensed Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial 10-15
Condition and Results of Operations
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
(b) Reports on Form 8-K
SIGNATURES 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NDC AUTOMATION, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, November 30,
1999 1998
(UNAUDITED)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Note 4)
CURRENT ASSETS
Cash and cash equivalents $ 40,983 $ 62,923
Accounts receivable, net 816,811 805,891
Inventories 465,776 593,794
Costs and estimated earnings in excess of
billings on uncompleted contracts 152,078 136,547
Prepaid expenses and other assets 23,349 47,583
- ------------------------------------------------------------------------------------------------
Total current assets $ 1,498,997 $ 1,646,738
- ------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land $ 300,000 $ 300,000
Building and improvements 1,126,623 1,126,623
Furniture, fixtures and office equipment, 147,140 138,746
Machinery and equipment 64,285 59,325
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$ 1,638,048 $ 1,624,694
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Less accumulated depreciation 585,312 564,782
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$ 1,052,736 $ 1,059,912
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$ 2,551,733 $ 2,706,650
================================================================================================
</TABLE>
Note: The Condensed Balance sheet at November 30, 1998 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,
1999 1998
(UNAUDITED)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank (Note 4) $ 417,870 $ 346,657
Current maturities of long- term debt (Note 4) 1,238,373 1,239,472
Accounts payable and accrued expenses;
including amounts owed to affiliates of $254,761 at 1999
and $169,837 at 1998 530,637 508,002
Billings in excess of costs and estimated
earnings on uncompleted contracts 74,865 116,332
- ------------------------------------------------------------------------------------------------
Total current liabilities $ 2,261,745 $ 2,210,463
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LONG-TERM DEBT (Note 4 ) $ 65,466 $ 114,889
- ------------------------------------------------------------------------------------------------
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 1999 and 1998; 3,453,451 shares
were issued at 1999 and 1998, respectively 34,534 34,534
Additional paid-in capital 4,211,566 4,211,566
Accumulated deficit (4,021,578) (3,864,802)
- ------------------------------------------------------------------------------------------------
$ 224,522 $ 381,298
- ------------------------------------------------------------------------------------------------
$ 2,551,733 $ 2,706,650
================================================================================================
</TABLE>
4
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
FEBRUARY 28, February 28,
1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $ 932,029 $ 745,895
Cost of goods sold 575,881 433,905
- ---------------------------------------------------------------------------------------------
Gross profit $ 356,148 $ 311,990
- ---------------------------------------------------------------------------------------------
Operating expenses:
Selling $ 191,759 $ 165,749
General and administrative 258,479 260,416
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$ 450,238 $ 426,165
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Operating loss $ (94,090) $ (114,175)
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Net interest income (expense):
Interest income $ - $ -
Interest expense (62,686) (64,596)
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$ (62,686) $ (64,596)
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Loss before income taxes $ (156,776) $ (178,771)
Federal and state income taxes (Note 2) - -
- ---------------------------------------------------------------------------------------------
Net loss $ (156,776) $ (178,771)
=============================================================================================
Weighted average number of common
shares outstanding 3,453,451 3,453,451
- ---------------------------------------------------------------------------------------------
Loss per common share - basic (Note 3) $ (0.05) $ (0.05)
Loss per common share - diluted (Note 3) $ (0.05) $ (0.05)
=============================================================================================
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,
1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH USED IN
OPERATING ACTIVITIES $ (37,029) $ (5,350)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment $ (13,354) $ (594)
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NET CASH USED IN
INVESTING ACTIVITIES $ (13,354) $ (594)
- -------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings (payments) on credit agreement $ 71,213 $ (25,068)
Principal payments on long-term borrowings (50,522) (15,352)
- -------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES $ 20,691 $ (40,420)
- -------------------------------------------------------------------------------------------------
Effect of foreign currency exchage rate changes
on cash and cash equivalents $ 7,752 $ 10,476
- -------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents $ (21,940) $ (35,888)
Cash and cash equivalents:
Beginning 62,923 72,368
- -------------------------------------------------------------------------------------------------
Ending $ 40,983 $ 36,480
=================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for :
Interest $ 62,753 $ 52,653
=================================================================================================
</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, 1999, 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, 1998. The results of operations
for the three months ended February 28, 1999 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 1998 and 1999 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 Statement of Financial Accounting Standards No. 128 (SFAS
No.128) Earnings Per Share, which supersedes APB Opinion No. 15. SFAS No. 128
requires the presentation of earnings per share by all entities that have common
stock or potential common stock, such as options, warrants, and convertible
securities, outstanding that trade in a public market. Basic per share amounts
are computed, generally, by dividing net income or loss by the weighted-average
number of common shares outstanding. Diluted per share amounts assume the
conversion, exercise, or issuance of all potential common stock instruments
unless the effect is antidilutive, thereby reducing a loss or increasing the
income per common share. The Company initially applied Statement No. 128 for the
year ended November 30, 1998, and as required by the statement, has restated the
per share information for the two prior years to conform to the statement. The
Company had options outstanding to purchase a total of 81,777 and 146,833 shares
of common stock, respectively, at a weighted-average exercise price of varying
amounts. The inclusion of those potential common shares in the calculation of
diluted loss per share would have an antidilutive effect. Therefore, basic and
diluted loss per share amounts are the same in 1999 and 1998.
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, 1999:
<TABLE>
<CAPTION>
<S> <C>
Note Payable Agreement that 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 $300,000 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 any amounts it pays in reimbursing the
Letter of Credit Bank . The Repurchase Agreement guarantees that NDCab will
repurchase on certain conditions up to $300,000 worth of
inventory, thereby providing funds to pay lender should the
Company be in default on its loan obligations. The Loan Agreement
terminates upon demand by the Bank or April 30, 1999. (1)(2) $ 417,870
=================================================================================================
Long-term debt consists of the following at February 28, 1999:
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 $968,604. The loan also contains certain
financial covenants to which the Company must adhere. As of February 28, 1999
the Company obtained waivers for certain financial covenants as specified by
the Mortgage note agreement. $1,025,610
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 a
secondary position on the Company's land and building with a carrying value
of $968,604. 278,229
- -------------------------------------------------------------------------------------------------
Less current maturities: 1,238,373
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$ 65,466
=================================================================================================
(1) The prime rate at February 28, 1999 was 7.75%
(2) The line of credit is secured by a first priority security interest in the
Company's accounts receivable, inventory, software .
Maturities of long-term debt at February 28, 1999 are as follows:
Year Ending
February 28
- -------------------------------------------------------------------------------------------------
2000 $ 1,238,373
2001
65,466
- -------------------------------------------------------------------------------------------------
$ 1,303,839
=================================================================================================
</TABLE>
8
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 5. CONTINUED OPERATIONS
The Company has suffered a significant loss from operations in 1998 and 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 is exploring various ways to increase revenues and minimize losses.
These approaches include 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 Expand the aftermarket sales business
o Explore raising additional equity directly and/or possibly through a business
combination
There can be no assurance that these approaches will be successful.
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 sales to
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.
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.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
STRATEGY DIVERSIFICATION: The Company will have to convert several OEM
customers 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 systems direct to end-user or via system integrators to
end-users. There can be no assurances that such a strategy will be successful in
the short or long term.
HARCON AGREEMENT: On January 27, 1999 the Company signed an agreement with
Harcon Engineering, Inc. ("Harcon") of Roseville, Michigan with the objective of
jointly pursuing material handling systems projects, primarily in the automotive
industry. The Company received in January 1999 an order from Harcon for the
design phase of a major laser guided AGV system to be installed at a new
DaimlerChrysler facility in the Detroit area. The design phase order with
anticipated manufacturing orders related to the project could generate revenues
for the Company in excess of one million dollars.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
RISK ASSOCIATED WITH YEAR 2000: The Company, in its day to day operations
relies upon various computer software and hardware that may be adversely
affected by a change in the millennium, from 1999 to 2000. In general,
information systems experts have predicted that a wide variety of problems, from
system failures to data entry and transfer errors, will result from the turn of
the century. Repeated system failures, data entry and transfer errors and
similar computer problems would result in a material adverse effect on the
Company and its operations. However, the Company has examined most of its
computer hardware and software and, based on such examination, does not
reasonably anticipate any significant internal problems as a result of the
change in millennium. The Company may, however, be adversely affected by
external systems problems, problems over which the Company has minimal control.
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.
b) New product lines from Thrige and Netzler & Dahlgren (Teach-in) may not be
well received in the North American industrial truck market, thereby
restricting growth opportunities for the Company.
c) Manufacturing orders related to the Harcon project may not be received.
d) The Company's existing bank relationships may not be extended which would
cause the Company to default on its current obligations.
e) The Company might be unable to raise the additional working capital needed,
directly or through a business combination, 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.
f) 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 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, 1998
February 28, 1999 February 28,1998 to February28,1999
% % %
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Net revenues 100.0 100.0 25.0
Cost of goods sold 61.8 58.2 32.7
- ---------------------------------------------------------------------------------------------------------
Gross profit 38.2 41.8 14.2
- ---------------------------------------------------------------------------------------------------------
Operating expenses:
Selling 20.6 22.2 15.7
General and administrative 27.7 34.9 (0.7)
- ---------------------------------------------------------------------------------------------------------
48.3 57.1 5.6
- ---------------------------------------------------------------------------------------------------------
Operating loss (10.1) (15.3) (17.6)
Net interest expense 6.7 8.7 (3.0)
- ---------------------------------------------------------------------------------------------------------
Loss before income taxes (16.8) (24.0) (12.3)
Income taxes - - -
- ---------------------------------------------------------------------------------------------------------
Net loss (16.8) (24.0) (12.3)
=========================================================================================================
</TABLE>
13
<PAGE>
QUARTER ENDED FEBRUARY 28, 1999 COMPARED TO THE QUARTER ENDED FEBRUARY 28, 1998
Net revenues increased by $186,134, or 25.0% from $745,895 in the earlier period
to $932,029 in the latter period. Even with the significant percentage increase
in revenues, management realizes that its present bookings and backlog of new
business is not enough to generate the necessary cash flows and earnings to
operate profitably. Management believes that the expected order from
DaimlerChrysler will help achieve its operating goals.
Cost of goods sold increased from $433,905 to $575,881, or 32.7% primarily due
to increased volume of business , while as a percentage of net revenues cost of
goods sold increased from 58.2% to 61.8% . Gross profit increased by $44,158, or
14.2% from $311,990 to $356,148 due to greater revenues in 1999 compared to the
prior year. Gross profit as a percentage of revenues decreased from 41.8% to
38.2%.
Selling expenses increased from $165,749 to $191,759, or 15.7% primarily due to
a major trade show being attended during the first quarter of 1999 compared to
the prior year when a similar show was attended in the second quarter of that
year. General and administrative expenses decreased from $260,416 to $258,479,
or 0.7% compared to the prior year.
Primarily as a result of the foregoing, operating loss decreased by $20,085 from
$114,175 in 1998 to an operating loss of $94,090 in 1998.
The net interest expense decreased from $64,596 to $62,686.
The Company did not recognize any tax benefits in 1998 and 1999 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 greater revenues in 1999 as described above the Company
incurred a net loss of $178,771 in 1998 compared to net loss of $156,776 in
1999.
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, 1999, the
Company had a backlog of approximately $930,000 compared to approximately
$1,100,000 one year earlier.
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 three months ended February 28, 1999 net cash used in operating
activities was $37,029.
The Company entered into an Inventory and Accounts Receivable Loan and Security
Agreement ("Loan Agreement") on 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 $300,000 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 $300,000 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 has been extended to April 30, 1999, 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's 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 demand promissory note. 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 is not
obtained in the near future or if revenues do 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
(Chief Executive Officer)
BY: /s/ Claude Imbleau
---------------------------
Claude Imbleau
VP - Finance & Administration
(Chief Financial Officer)
Date: April 12, 1999
----------------
17
<PAGE>
EXHIBIT INDEX
The following documents are included in this Form 10-QSB as an Exhibit:
Designation
Number Under
Exhibit Number Item 601 of Page
Regulation S-K Exhibit Description Number
- --------------------------------------------------------------------------------
(A) Exhibits:
- -------------
1. 27 Financial schedule 19
18
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000859621
<NAME> NDC AUTOMATION, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<PERIOD-START> DEC-01-1998
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> FEB-28-1999
<CASH> 40,983
<SECURITIES> 0
<RECEIVABLES> 886,811
<ALLOWANCES> 70,000
<INVENTORY> 465,776
<CURRENT-ASSETS> 1,498,997
<PP&E> 1,638,048
<DEPRECIATION> 585,312
<TOTAL-ASSETS> 2,551,733
<CURRENT-LIABILITIES> 2,261,745
<BONDS> 0
<COMMON> 34,534
0
0
<OTHER-SE> 189,988
<TOTAL-LIABILITY-AND-EQUITY> 2,551,733
<SALES> 932,029
<TOTAL-REVENUES> 932,029
<CGS> 575,881
<TOTAL-COSTS> 575,881
<OTHER-EXPENSES> 450,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,686
<INCOME-PRETAX> (156,776)
<INCOME-TAX> 0
<INCOME-CONTINUING> (156,776)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (156,776)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
