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, 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 September 30, 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
August 31, 1999 (Unaudited) and November 30, 1998 3-4
Condensed Statements of Operations
Three and Nine months ended August 31, 1999 and August 31, 1998
(Unaudited) 5
Condensed Statements of Cash Flows
Nine months ended August 31, 1999 and August 31, 1998
(Unaudited) 6
Notes to Condensed Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and use of proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
(a) Exhibits -- Press Releases and other Exhibits 18
(b) Reports on Form 8-K 18
SIGNATURES 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NDC AUTOMATION, INC.
CONDENSED BALANCE SHEETS
AUGUST 31, November 30,
1999 1998
(UNAUDITED)
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ASSETS (Note 4)
CURRENT ASSETS
Cash and cash equivalents $ 66,303 $ 62,923
Accounts receivables, net 825,181 805,891
Inventories 498,743 593,794
Costs and estimated earnings in excess of
billings on uncompleted contracts 13,330 136,547
Prepaid expenses and other assets 33,211 47,583
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Total current assets $1,436,768 $1,646,738
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PROPERTY AND EQUIPMENT
Land $ 300,000 $ 300,000
Building and improvements 1,126,623 1,126,623
Furniture, fixtures and office equipment, 159,549 138,746
Machinery and equipment 62,886 59,325
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$1,649,058 $1,624,694
Less accumulated depreciation 625,776 564,782
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$1,023,282 $1,059,912
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================================================================================
$2,460,050 $2,706,650
================================================================================
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>
<S> <C> <C>
AUGUST 31, November 30,
1999 1998
(UNAUDITED)
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank (Note 4) $ 119,846 $ 346,657
Current maturities of long- term debt (Note 4) 1,190,235 1,239,472
Accounts payable and accrued expenses;
including affiliates $564,750 at 1999
and $169,837 at 1998 727,523 508,002
Billings in excess of costs and estimated
earnings on uncompleted contracts 304,151 116,332
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Total current liabilities $ 2,341,755 $ 2,210,463
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LONG-TERM DEBT (Note 4 ) $ -- $ 114,889
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share
authorized 1,000,000 shares; no shares issued $ -- $ --
Common stock, par value $.01 per share;
11,000,000 shares authorized
at 1999 and 1998; 3,453,451 shares
issued at 1999 and 1998 34,534 34,534
Additional paid-in capital 4,211,566 4,211,566
Accumulated deficit (4,127,805) (3,864,802)
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$ 118,295 $ 381,298
=======================================================================================
$ 2,460,050 $ 2,706,650
=======================================================================================
</TABLE>
4
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
AUGUST 31, August 31, AUGUST 31, August 31,
1999 1998 1999 1998
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Net revenues $ 1,130,574 $ 1,085,698 $ 3,288,467 $ 2,726,895
Cost of goods sold 720,617 603,289 1,952,155 1,575,874
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Gross profit $ 409,957 $ 482,409 # $ 1,336,312 $ 1,151,021
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Operating expenses:
Selling $ 173,124 $ 149,702 $ 536,580 $ 506,555
General and administrative 297,395 194,969 871,206 758,904
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$ 470,519 $ 344,671 $ 1,407,786 $ 1,265,459
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Operating income (loss) $ (60,562) $ 137,738 $ (71,474) $ (114,438)
Net interest expense (66,764) (38,617) (191,529) (183,321)
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Income (loss) before income taxes $ (127,326) $ 99,121 $ (263,003) $ (297,759)
Federal and state income taxes (Note 2) -- -- -- --
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Net Income (loss) $ (127,326) $ 99,121 $ (263,003) $ (297,759)
=======================================================================================================================
Weighted average number of common
shares outstanding 3,453,451 3,453,451 3,453,451 3,453,451
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Income (loss) per common share - basic (Note 3) $ (0.04) $ 0.03 $ (0.08) $ (0.09)
Income (loss) per common share - diluted (Note 3) $ (0.04) $ 0.03 $ (0.08) $ (0.09)
=======================================================================================================================
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>
<S> <C>
Nine Months Ended
AUGUST 31, August 31,
1999 1998
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 428,966 $(362,982)
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment $ -- $ 1,500
Purchase of property and equipment (24,363) (8,585)
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NET CASH USED IN
INVESTING ACTIVITIES $ (24,363) $ (7,085)
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CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving credit agreement $(226,811) $ 12,051
Principal payments on long-term borrowings (164,126) (81,156)
Proceeds from current and long-term borrowings -- 402,182
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NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES $(390,937) $ 333,077
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Effect of foreign currency exchage rates changes
on cash and cash equivalents $ (10,286) $ 4,185
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Increase (decrease) in cash and cash equivalents $ 3,380 $ (32,805)
Cash and cash equivalents:
Beginning 62,923 72,368
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Ending $ 66,303 $ 39,563
==================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for :
Interest $ 174,531 $ 183,219
Income taxes $ -- $ --
==================================================================================================
</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 cash flows at August 31, 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 nine months ended August 31, 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 utilization of operating loss carryforwards in the future are
not assured to be realized.
NOTE 3. EARNINGS (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 had excercisable options outstanding under
two separate plans 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
earning (loss) per share would have an antidilutive effect. Therefore, basic and
diluted earnings (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 August 31, 1999:
Note Payable Agreement that allows the Company to borrow up to
$1,250,000 and bears interest at the lender's prime rate plus
2.75% per annum . The Company's loan outstanding shall not exceed
the lesser of (a) U.S. $1,250,000 or (b) 80% of i) Qualified
Accounts receivable (as defined in the Loan Agreement) that are
non-project Qualified Accounts and ii) Qualified Accounts that
are project Qualified Accounts (as defined in the Loan
Agreement) plus 50% of all eligible inventory, but in no event
shall (A) Inventory Value be in excess of $300,000 and (B)
Inventory Value and Qualified Accounts that are project Qualified
Accounts be 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 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 October 31, 1999. (1)(2) $ 127,846
================================================================================
Long-term debt consists of the following at August 31, 1999:
Mortgage note payable to a bank, based on a 9.5% fixed rate.
Original principal balance of $1,013,484 to be repaid in twelve
(12) consecutive monthly principal and interest payments of
$13,912, with one final payment of Approximately $939,666 due on
June 16, 2000 . The note is collaterized by the Company's land
and building with a carrying value of $947,949. The loan also
contains certain financial covenants to which the Company must
adhere. $ 995,878
Note payable to Netzler & Dahlgren Co AB, based on a 16.0% fixed
rate. Original principal balance of $402,182 to be repaid in
twenty-four (24) consecutive monthly principal payments of
133,529 Swedish Krona, or approximately US$16,757 per month
depending on the exchange rate at time of payment, plus interest.
As of August 31, 1999 the Company was delinquent on the last two
payments. The note is collaterized by a secondary position on the
Company's land and building with a carrying value of $947,949. 194,358
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1,190,236
Less current maturities: 1,190,236
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$ -
================================================================================
(1) The prime rate at August 31, 1999 was 8.25%
(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, 1999 are as follows:
Year Ending
August 31,
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1999 $ 1,190,236
2000
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$ 1,190,236
================================================================================
8
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 5. CONTINUED OPERATIONS
The Company has suffered significant losses from operations in 1998 and 1997.
This raised substantial doubt about the Company's ability to continue as a going
concern. However, during the second quarter of 1999 the Company received new
orders totaling in excess of $3,000,000 and the Company signed a Merger
Agreement as described in Note 6. The Company's ability to continue as a going
concern would be adversely affected if the proposed merger is not consummated
and the financial support from Netzler & Dahlgren is withdrawn. Should the
merger not occur the Company would still require equity and/or debt financing in
the near future, unless revenues that can be financed by the banking community
increase substantially to consistently provide earnings for the Company.
Management is continuing to explore 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.
NOTE 6. PROPOSED MERGER
On September 13, 1999 the Company entered into a definitive agreement to
merge with a subsidiary of Portec, Inc. Portec, Inc. is a subsidiary of J
Richard Industries (See Company's 8K filing dated September 17, 1999). The
transaction is structured as a merger in which the newly-formed subsidiary of
Portec will merge with and into the Company, with the Company surviving as a
wholly owned subsidiary of Portec. In the merger, stockholders of the Company
will receive $0.75 per share in cash for a total transaction value in excess of
$2.5 million. The transaction is subject to customary conditions including
approval by the Company's shareholders. The transaction is expected to close in
the fourth quarter of the Company's 1999 fiscal year.
The Company retained Willamette Management Associates as its financial
advisor. Willamette has rendered its opinion to the Board of Directors that the
consideration to be paid in the merger is fair to the stockholders from a
financial point of view.
J Richard Industries, L.P. is a Toledo, Ohio-based manufacturer and
distributor of components used in the materials handling, sports, fitness and
automotive markets. Portec is a leading manufacturer of highly engineered
materials handling subsystems in the industrial automation market. Its products
include specialty conveyor systems such as power turns, spirals and chutes,
electronic wire guidance controllers for lift trucks, and conveyor systems used
in the material handling and sorting of recycled materials.
The merger is expected to primarily provide the financial support required
by NDCA to pursue its strategic business plan and, by combining complimentary
products of the Pathfinder division of Portec with that of the Company, the
combined entity should be in a position to better serve its existing and
potential customers.
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 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. Another way 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 30% 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
================================================================================
PROPOSED ACQUISITION OF NDCA BY PORTEC: On September 13, 1999 the Company
entered into a definitive agreement to merge with a subsidiary of Portec, Inc.
Portec, Inc. is a subsidiary of J Richard Industries (See Company's 8K filing
dated September 17, 1999). The transaction is structured as a merger in which
the newly-formed subsidiary of Portec will merge with and into the Company, with
the Company surviving as a wholly owned subsidiary of Portec. In the merger,
stockholders of the Company will receive $0.75 per share in cash for a total
stock transaction value in excess of $2.5 million. In addition, as part of the
merger closing, the Company's bank debt (line of credit and mortgage) will be
paid in full as well as the Netzler & Dahlgren note payable. It is presently
estimated that such debt will be in excess of $1.3 million at closing. The
transaction is subject to customary conditions including approval by the
Company's shareholders. The transaction is expected to close in the fourth
quarter of the Company's 1999 fiscal year.
The Company retained Willamette Management Associates as its financial
advisor. Willamette has rendered its opinion to the Board of Directors that the
consideration to be paid in the merger is fair to the stockholders from a
financial point of view.
J Richard Industries, L.P. is a Toledo, Ohio-based manufacturer and
distributor of components used in the materials handling, sports, fitness and
automotive markets. Portec is a leading manufacturer of highly engineered
materials handling subsystems in the industrial automation market. Its products
include specialty conveyor systems such as power turns, spirals and chutes,
electronic wire guidance controllers for lift trucks, and conveyor systems used
in the material handling and sorting of recycled materials.
The merger is expected to primarily provide the financial support required
by NDCA to pursue it strategic business plan and by combining complimentary
products of the Pathfinder division of Portec, the newly formed entity should be
in a position to better serve its existing and potential customers.
STRATEGY DIVERSIFICATION: The Company has decided to pursue a strategy
diversification that is explained in note 5 of the financial statement. Positive
results from this diversification in terms of new business and increased
bookings and backlog have been noted, and the Company intends to continue this
strategy actively. However, there can be no assurance that these approaches will
continue to be successful.
HARCON AGREEMENT AND NEW ORDERS: 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
together with manufacturing orders received in May of 1999 related to the
project increased the Company's backlog at May 31, 1999 to a the highest level
since November 1995. The recent orders confirm management's efforts to increase
revenues.
ENTERTAINMENT INDUSTRY AND POWERWAY PRODUCTS: The Company received during
the second quarter an order of approximately $130,000 for its Powerway products
from a major entertainment customer. The order is extremely important to the
Company because it was the first significant order for the Powerway product
line. The Powerway line was introduced as part of the Company's strategy to
expand its distribution revenues and profitability. This same major
entertainment customer ordered a pilot project involving the Company's AGV
technology outside North America . The Company does not generate revenues from
projects outside its territory (such sales per the Master License Agreement are
handled by Netzler & Dahlgren or their licenses) but these projects may provide
significant opportunities for the Company should similar projects be pursued in
North America. In September, 1999, the Company received an order in excess of
$500,000 for Schabmuler drives and Powerway products from the above pilot
project.
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
anticipate any significant internal problems as a result of the change in
millennium.
The Company has assessed its accounting, network, communication and
other material systems for Y2K compliance. The investigation has revealed that
these systems are not Y2K compliant, but such software or hardware can be
purchased or upgraded to comply. The accounting software system was upgraded and
testing was completed in mid September 1999. Hardware systems are to be upgraded
or purchased and tested also by the end of October 1999. Costs associated with
the Company's Y2K compliance are estimated to be approximately $20,000 for
software upgrades and approximately $70,000 for hardware. The Company expects to
lease such upgrades and purchases for approximately $3,000 a month, which is in
line with management's operating and maintenance budgets.
The Company may, however, be adversely affected by external systems
problems, problems over which the Company has minimal control. In order to
minimize its risks, the Company is assessing critical third parties that supply
material or services to the Company. Such investigations include direct contacts
with such vendors and reviewing information supplied by such vendors through
Internet sites or direct mailings. To date the critical vendors are addressing
their Y2K issues and are at different phases in their plans. To date none have
communicated that they will have significant problems due to the change in the
millennium. The Company expects such work related to Y2K to continue with its
critical vendors until such vendors issue statements of full Y2K compliance.
The Company has also sent by registered mail to most of its critical
customers information on the Company's products, describing Y2K issues and
testing procedures. The Company has requested replies to a questionnaire
included in the mailing, which targets the Customer's Y2K AGVsystem readiness
and overall Y2K readiness. Responses to the mailing will help the Company assess
risk, plan for Y2K issues and provide the customer service required should any
Y2K issues arise. Results of the mailing are not yet complete, but the Company
expects to continue this Y2K related work until the end of the year.
It is difficult to provide a description of a worst case Y2K scenario.
There are many things that are beyond the Company's control such as local and
foreign government operations, as well transportation and delivery services. The
Company has to assume that there will not be an extended total break down of
common business operations in the USA and Europe; if this would occur, the
Company would not be in a position to operate as a going concern. In analyzing
the Company's current operations, the worst case scenario would most likely be
that the equipment and software it plans to purchase fails to solve its Y2K
issues. In such a situation the Company would be forced to a manual system of
operation which could be implemented in a relatively short period due to the
present size of the Company.
The Company's present contingency plan should a worst case scenario
event occur includes but is not limited to:
(a) Employee awareness and training for modified operations;
(b) Hard copy print outs and software backups of all information;
(c) Continued relations with a qualified Y2K specialist;
(d) Increased inventory of certain critical components to meet potential
demands from our customer service department; and
(e) Active information to and support of the Company's existing customer base
with regard to Y2K issues.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
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, new OEMs and new niches may be lower
than expected or delayed.
b) New product lines from Thrige, Netzler & Dahlgren (Teach-in), Powerway may
not be well received in the North American industrial truck market or AGV
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,
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.
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.
f) Y2K related problems could be greater than anticipated.
g) Proposed merger with Portec may not materialize due to Portec's withdrawal
or various other reason(s), e.g. a non-vote by the Company's stockholders
or a superior bid .
13
<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,
1999 and 1998, 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>
Percentage of Change
Period to Period
Percentage of Net Revenues Increase(Decrease)
- ---------------------------------- ------------------------------------------------------ ----------------------------
Three Nine Months
Months Ended
Three Months Nine Months Ended August 31,
Ended Ended August 31,
August 31, August 31, August 31, August 31, 1998 to 1999 1998 to 1999
1999 1998 1999 1998 % %
% % % %
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Net Revenues 100.0 100.0 100.0 100.0 4.1 20.6
Cost of Goods Sold 63.7 55.6 59.4 57.8 19.5 23.9
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Gross Profit 36.3 44.4 40.6 42.2 (15.0) 16.1
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Operating expenses:
Selling 15.3 13.8 16.3 18.6 15.7 5.9
General and administrative 26.3 18.0 26.5 27.8 52.5 14.8
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
41.6 31.8 42.8 46.4 36.5 11.3
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Operating income (loss) (5.3) 12.6 (2.2) (4.2) * (37.5)
Net interest expense: (5.9) (3.6) (5.8) (6.7) 72.9 4.5
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes
(11.2) 9.0 (8.0) (10.9) * (11.7)
Federal and state income taxes
(benefit) - - - - - -
================================== ============= ============= ============= ============= ============= =============
Net Income (loss) (11.2) 9.0 (8.0) (10.9) * (11.7)
================================== ============= ============= ============= ============= ============= =============
</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, 1999 COMPARED TO THE QUARTER ENDED AUGUST 31, 1998
Net revenues increased by $44,878 or 4.1% from $1,085,698 in the earlier period
to $1,130,574 in the latter period. Revenues for the current quarter were
approximately even between project and distribution revenue. The Company present
backlog includes a large project order for an automotive plant. The Company
expects that revenues on this project will be recognized over the next six
months.
Cost of goods sold increased from $603,289 to $720,617 or 19.5% due higher
engineering cost and distribution purchased components compared to the prior
year. As a percentage of net revenues, cost of goods sold increased compared to
1998 due to the Company realizing a lower margin on its engineering revenues
compared to the prior year. Gross profit decreased by $72,452 or 15.0% from
$482,409 to $409,957 while gross profit as a percentage of net revenues
decreased to 36.3% from 44.4% due to the same factor. Such variations in %
margin are considered normal due to the revenue mix between project and
distribution.
Selling expenses increased from $149,702 to $173,124 or 15.7 % primarily due to
increased travel and personnel expenses compared to the prior year. General and
administrative expenses increased from $194,969 to $297,395, or 52.5% due
primarily to expenses to date totaling approximately $44,000 associated to the
proposed Portec merger. Other increases in costs include 1) a $12,000 software
maintenance charge for Y2K upgrades, 2)increases in rental cost and 3) other
expenses relating to personnel compared to the prior year. As a percentage of
net revenues, general and administrative expenses increased from 18.0% to 26.3%.
14
<PAGE>
Primarily as a result of the foregoing, operating income decreased by $193,148
from an operating income of $137,738 in the earlier period to an operating loss
of $60,562 in the latter period.
Net interest expense increased from $38,617 to $65,163, an increase of $25,546,
the increase was primarily due from accruing interest on delayed payments to
Netzler & Dahlgren's trade payables compared to the prior year .
Primarily due to lower margins and increase expenses in 1999 compared to 1998 as
mentioned above the Company incurred a net loss of $127,326 in 1999 compared to
a net income of $99,121 in 1998.
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, 1999, the
Company had a backlog of approximately $2,350,000 compared to approximately
$900,000 one year earlier. The primary reason for the significant increase is
the receipt of a major order from Harcon in May 1999 for a major installation at
a DaimlerChrysler facility in Detroit. The backlog as of August 31, 1999 is very
good compared to prior years and positions the Company to improve its results
for the fiscal year ending 1999 compared to 1998 should the Company have
adequate financing.
NINE MONTHS ENDED AUGUST 31, 1999 COMPARED TO NINE MONTHS ENDED AUGUST 31, 1998
Net revenues increased by $561,572, or 20.6%, from $2,726,895 in the earlier
period to $3,288,467 in the latter period. The increase is primarily due to the
increased distribution product sales which include approximately $130,000 of
Powerway products and the Company's refocus on providing system solutions
(project revenues) to its customers thereby increasing such revenues compared to
the prior year.
Cost of goods sold increased from $1,575,874 to $1,952,155, or 23.9%, due
primarily to the higher level of net revenues recognized in 1999. As a
percentage of net revenues, cost of goods sold increased from 57.8% to 59.4%.
Gross profit increased by $185,291, or 16.1%, from $1,151,021 to $1,336,312,
while gross profit as a percentage of net revenues decreased from 42.2% to
40.6%.
Selling expenses increased from $506,555 to $536,580, or 5.9% primarily due to
increases in personnel and show expenses. General and administrative expenses
increased from $758,904 to $871,206, or 14.8%, compared to the prior year. The
increase was primarily due to increased expenses associated to the proposed
Portec merger, Y2K, rent expense for a new test facility, recruiting and other
personnel cost compared to the prior year.
Primarily as a result of the foregoing, the operating loss for the period was
$71,474 compared to an operating loss of $114,438 the prior year.
Net interest expense increased from $183,321 to $191,529 an increase of 4.5 %.
The Company did not recognize any tax benefits in 1999 domestically for its
current loss as utilization of operating loss carryforwards in the future are
not assured.
Primarily due to higher revenues in 1999 as described above, the Company reduced
its net loss by $34,756 or by 11.7% from $297,759 in 1998 to $263,003 in 1999.
15
<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, 1999 net cash provided from operating
activities was $428,966. As of August 31, 1999 the Company had been delaying
payments of approximately $300,000 in trade payables to Netzler & Dahlgren due
to cash not being available under the current line of credit. Had the funds been
available and Netzler and Dahlgren been paid when due, the net cash provided
from operating activities would have been approximately $128,966 for the nine
month period.
During the third quarter the Company's working capital decreased by $1,070,046
to a deficit of $904,987 on August 31, 1999 compared to a working capital of
$165,059 on May 31,1999. The large decline in the Company's working capital was
the result of the Company's mortgage becoming a current liability in June of
1999 (see Note 4 of the Company's Financial Statements).
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 was amended and restated on April 30, 1999 and
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
i) Qualified Accounts receivable (as defined in the Loan Agreement) that are
non-project Qualified Accounts and ii) Qualified Accounts that are project
Qualified Accounts plus 50% of all eligible inventory ( as defined in the Loan
Agreement) , but in no event shall (A) Inventory Value be in excess of $300,000
and (B) Inventory Value and Qualified Accounts that are project Qualified
Accounts be in excess of $450,000. The borrowed funds will bear interest at the
Lender's prime rate plus 2.75% per annum. 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 October 31, 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 November 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.
The Company's strategy depends heavily on securing project business to grow.
Such business is traditionally not financed by the banking community due to
perceived risk associated with such jobs. In addition, the Company was informed
that unless the Company's assets or equity were significantly higher and the
Company could show consistent earnings that such project receivable financing
would not be readily available. Under the present banking relationship the
Company can realistically only borrow approximately $250,000 for such project
receivables when the availability needed for inventory is taken into account. At
the end of August 1999 the Company had approximately $670,000 of such project
receivables which could not be fully utilized by the present borrowing formulae.
By not being able to fully utilize its project assets for the line of credit,
the Company experiences negative cash flows until such cash is received from the
customer. Due to the above factors the Company delayed payments of approximately
$300,000 to its affiliate Netzler & Dahlgren so not to exceed current borrowing
maximums from the demand promissory note. Such past due payable are accruing
interest at 16% per annum.
16
<PAGE>
The Company also continues to have difficulty obtaining an adequate line of
credit to meet its operating needs due to the poor results of the last two years
and the Company's low equity position. Bank relations have improved especially
since the new bookings received during the second quarter, but the banks are
still very cautious. This is evidenced by short extensions of credits, increased
interest rates and the continued requirement to have guarantees from Netzler &
Dahlgren. NETZLER & DAHLGREN, HOWEVER, CAN NO LONGER ACCEPT DELAYED PAYMENTS
FROM THE COMPANY AND DO NOT HAVE THE FINANCIAL RESOURCES TO PROPERLY FINANCE THE
GROWTH OF THE COMPANY UNDER THE CURRENT STRATEGY. NETZLER & DAHLGREN HAS ALSO
INDICATED THAT IT WILL NOT GUARANTEE THE COMPANY'S LOANS PAST FEBRUARY 2000,
WHICH AT THAT TIME COULD TERMINATE THE EXISTING LINE OF CREDIT.
The Company has been exploring the possibility of raising additional equity
capital, or subordinated debt, either directly or possibly through a business
combination, in order to improve its financial position, its independence and
have the working capital to address potential growth opportunities. Management
currently believes that its present working capital needs are close to or
greater than $1.5 million dollars. On September 13, 1999 the Company signed a
merger agreement with Portec, as described previously in this report. The merger
is expected to close by the end of November 1999 subject to shareholder
approval. Under the merger agreement all long-term debt and lines of credit
would be paid in full at closing. There can be no assurance that the Company
will be successful in closing with Portec, as the merger agreement allows the
buyer to withdraw should the financial condition of the Company materially
change. The merger is also subject to Shareholder approval (see the Company's
Form 8K filing of September 17, 1999). The Company's ability to continue as a
going concern would be adversely affected if the proposed merger is not
consummated and the financial support from Netzler & Dahlgren is withdrawn.
Should the merger not occur the Company would still require equity and/or debt
financing in the near future, unless revenues that can be financed by the
banking community increase substantially to consistently provide earnings for
the Company.
During May 1999, the mortgage loan maturity date was extended for thirteen
months from May 16, 1999 to June 16, 2000. The interest rate on the note
remained at 9.5%, and the combined principal and interest monthly payment of
$13,912 was also unchanged. The Company has made all payments on a timely basis
on the mortgage.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
.
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 -
Press Releases:
1) Merger Agreement between NDC Automation, Inc. and Portec, Inc.
dated September 13, 1999
2) Receipt of Purchase order received for Powerway products dated
September 28, 1999.
(b) Reports on Form 8-K
Definitive Merger Agreement between NDC Automation, Inc. and
Portec ,Inc. filed September 17,1999 on Form 8K.
18
<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
BY: /s/ Claude Imbleau
--------------------------
Claude Imbleau
VP - Finance & Administration
(Chief Financial Officer)
Date: September 30,1999
19
<PAGE>
EXHIBIT INDEX
The following documents are included in this Form 10-QSB as an Exhibit:
<TABLE>
<CAPTION>
<S> <C>
Designation Number
Under Item 601 of
Exhibit Number Regulation S-K Page Number
Exhibit Description
- ------------------- --------------------- ------------------------------------------------------------ ------------
(A) Exhibits:
1. 10 Press release of agreement and Plan of merger agreement by 21-22
and among NDC Automation, Inc., Hornett Acquistion Corp.
and Portec, Inc. dated September 13, 1999. (incorporated by
reference to Exhibit 1 to the Company's September 17, 1999
Form 8K)
2. 10 Agreement and Plan of Merger dated September 13, 1999 by -
and among NDC Automation, inc., Hornett Acquisition Corp.
and Portec, Inc. (incorporated by reference to Exhibit 2 to
the Company's September 17, 1999 Form 8K)
3. 10 Second Restated Master License Agreement between NDC -
Automation, Inc. and Netzler et Dahlgren CO.AB dated
September 13, 1999. (incorporated by reference to Exhibit 3
to the Company's September 17, 1999 Form 8K)
4. 10 Press release announcing major order for Powerway products 23
dated September 28, 1999.
5. 27 Financial schedule 24
</TABLE>
20
EXHIBIT 1.
FOR IMMEDIATE RELEASE
September 13, 1999
NDC AUTOMATION, INC.
ANNOUNCES MERGER AGREEMENT WITH PORTEC
CHARLOTTE, NC, SEPTEMBER 13, 1999, NDC AUTOMATION, INC. (OTC BULLETIN BOARD
SYMBOL "AGVS"), (the "Company") announced today that it has signed a definitive
agreement to merge with a subsidiary of Portec, Inc. Portec, Inc. is a
subsidiary of J Richard Industries. The transaction is structured as a merger in
which the newly-formed subsidiary of Portec will merge with and into the
Company, with the Company surviving as a wholly owned subsidiary of Portec. In
the merger, stockholders of the Company will receive $0.75 per share in cash for
a total transaction value in excess of $2.5 million.
The transaction is subject to customary conditions including approval
by the Company's shareholders. The transaction is expected to close in the
fourth quarter of the Company's 1999 fiscal year.
The Company retained Willamette Management Associates as its financial
advisor, who has rendered its opinion to the Board of Directors that the
consideration to be paid in the merger is fair to the stockholders from a
financial point of view. The Board of Directors unanimously recommends that the
stockholders approve the merger.
Ralph Dollander, President of the Company, said: "This merger forms a
perfect strategic combination between the two companies. We are enthusiastic
about joining forces with Portec and the advantages the merger offers our
customers."
Lawrence Weber, President of J Richard Industries, L.P. said: "The
combination with NDC represents an exciting step in broadening our range of
services to our customer base. We are impressed with NDC's management and
engineering team as well as NDC's laser navigation technology, which is the most
advanced system in the field. By combining NDC's team with our Pathfinder
division, the combined operations will be better able to serve our valued
customers."
J Richard Industries, L.P. is a Toledo, Ohio-based manufacturer and
distributor of components used in the materials handling, sports, fitness and
automotive markets. Portec is a leading manufacturer of highly engineered
materials handling subsystems in the industrial automation market. Its products
include specialty conveyor systems such as power turns, spirals and chutes,
electronic wire guidance controllers for lift trucks, and conveyor systems used
in the material handling and sorting of recycled materials.
21
<PAGE>
NDC Automation, Inc. provides an integrated package of hardware and
software control technology and related products to be incorporated into and
used to control Automatic Guided Vehicle Systems (AGVS). Such generic controls
are designed for their flexibility and are well suited for a broad range of
vehicle types. The Company's sales are targeted to OEMs and system integrators,
which buy products and engineering services from the Company and incorporate
them into their material handling systems for industries in which they
specialize, as well as to end-users who buy complete AGVS solutions for their
material handling needs.
NDC's control technology is operating in over 7,000 vehicles worldwide
of which well over 1,000 are laser guided.
THIS PRESS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES AND
EXCHANGE ACT OF 1934. ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS.
================================================================================
For further information contact:
Ralph Dollander or Claude Imbleau
President Chief Financial Officer
704/362-1115
22
EXHIBIT 4.
FOR IMMEDIATE RELEASE
SEPTEMBER 28, 1999
NDC Automation, Inc. Announces Receipt of Purchase Order for PowerWay(TM) and
Other Products
CHARLOTTE, NC, SEPTEMBER 28, 1999, NDC AUTOMATION, INC. (OTC BULLETIN BOARD
"AGVS", www.ndca.com) announced receipt of a purchase order for various AGV
system components including PowerWay(TM) batteries and chargers as well as drive
motors. The purchase order exceeds $500,000.
"We are extremely pleased by the acceptance of our PowerWay(TM) line of AGV
batteries and smart chargers, which we added to the NDCA product line last year.
For many years now, we have also acted as the exclusive North American
distributor for Schabmuller, a company with a long-standing reputation for
quality drives and motors. We strive to provide not only the best in AGV system
technology, but high quality products that compliment our technology as well",
says Ralph Dollander , President of NDC Automation, Inc.
NDCA provides an integrated package of controls technology and related products
to be incorporated into and used to control Automatic Guided Vehicle Systems
(AGVS). The Company also provides turnkey AGVS systems to end-users and to
system integrators. NDCA's controls hardware and software are designed for
optimal flexibility and accuracy and are well suited for a broad range of
vehicle types.
##
FOR FURTHER INFORMATION CONTACT:
RALPH DOLLANDER CLAUDE IMBLEAU
PRESIDENT V.P. FINANCE & ADMINISTRATION
23
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000859621
<NAME> NDC AUTOMATION, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 66,303
<SECURITIES> 0
<RECEIVABLES> 875,181
<ALLOWANCES> 50,000
<INVENTORY> 498,743
<CURRENT-ASSETS> 1,436,768
<PP&E> 1,649,058
<DEPRECIATION> 625,776
<TOTAL-ASSETS> 2,460,050
<CURRENT-LIABILITIES> 2,341,755
<BONDS> 0
0
0
<COMMON> 34,534
<OTHER-SE> 83,761
<TOTAL-LIABILITY-AND-EQUITY> 2,460,050
<SALES> 3,288,467
<TOTAL-REVENUES> 3,288,467
<CGS> 1,952,155
<TOTAL-COSTS> 1,952,155
<OTHER-EXPENSES> 1,407,786
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (191,529)
<INCOME-PRETAX> (263,003)
<INCOME-TAX> 0
<INCOME-CONTINUING> (263,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (263,003)
<EPS-BASIC> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
