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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
[FEE REQUIRED]
For the fiscal year ended November 30, 1998 or
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-18253
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NDC AUTOMATION, INC.
(Name of small business issuer in its charter)
Delaware 56-1460497
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3101 Latrobe Drive, Charlotte, North Carolina 28211-4849
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (704) 362-1115
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
None None
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Securities registered pursuant to Section 12(g) of the Exchange Act:
.01 Par Value Common Stock
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(Title of Class)
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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
[ X ]
State issuer's revenues for its most recent fiscal year: $4,015,698
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was $821,816, based upon the closing sales price of Common
Stock on OTC Bulletin Board on January 29, 1999 of $0.40 per share.
As of January 29, 1999, 3,453,451 shares of Registrant's Common Stock, par
value $.01 per share, were outstanding.
Portions of the Registrant's Annual Report to the security holders filed
pursuant to Rule 14a-3(b) under the Securities Exchange Act of 1934 are
incorporated by reference in Part II, Items 6 and 7. In addition, portions of
the Registrant's definitive proxy statement for the 1999 Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 are incorporated by reference in Part III, Items 9, 10, 11
and 12.
Transitional Small Business Disclosure Format (check one): Yes No X
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<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
NDC Automation, Inc. conducts the business previously carried on by Netzler
and Dahlgren Company Technologies, Inc. ("NDCT"), NDC Systems, Inc. ("NDCS"),
and another company also called NDC Automation, Inc. ("NDCA") (all collectively
referred to hereunder as the "Company").
NDCT was founded in 1982 as the North American affiliate of NDC, Netzler &
Dahlgren Co. AB ("Netzler & Dahlgren"), a Swedish Company. NDCT's strategy was
to acquire or license European control technologies and products, and to
enhance, modify, and otherwise adapt them for use by customers in North America.
In 1984, NDCS was organized to market radio frequency identification
technology products.
Automation Technologies, Inc. ("ATI") was formed in 1985, but did not
engage in the active conduct of business.
In 1987, NDCA was formed to provide standard hardware and software packages
for original equipment manufacturers ("OEMs") to expand applications of
automatic guided vehicle systems ("AGVS") and RFID technologies into industries
that traditionally did not use such technologies.
Effective December 1, 1987, NDCT, NDCS, and NDCA were all merged into ATI.
The surviving corporation changed its name to NDC Automation, Inc. The effect of
the merger was to combine the business activities of three separate, but
market-related, companies into a single, integrated enterprise. The Company
became a Delaware corporation in December 1989 through a merger entered into for
the purpose of changing the Company's state of incorporation. At that time its
sole subsidiary was N/S Technology, Inc., an inactive North Carolina corporation
which was dissolved in 1994.
On March 28, 1990, the Company's successfully completed its initial public
offering netting $1,996,598 to improve its financial position for potential
growth opportunities.
On June 30, 1991, the Company acquired all of the common stock of
Southeastern Software Developers, Inc. ("SSDI"), a South Carolina corporation,
from its shareholders for stock in the Company and cash. SSDI developed and
owned proprietary control and monitoring software used primarily in the textile
industry. The Company has essentially absorbed the operations of SSDI and
dissolved SSDI's corporate charter in 1996.
Effective July 1, 1992, the Company acquired for cash and stock all of the
outstanding shares of NDC Technology Australia PTY Ltd. ("NDCTA"), a company
formed to acquire, develop, market, and sell hardware, software and engineering
services incorporated into and used to control AGVS in the international market.
NDCTA was sold on November 30, 1995 to its managing director.
On June 22, 1993, the Company purchased the assets of AutoNavigator AB
("ANAB"), of Lulea, Sweden. A subsidiary of the Company, NDC Laser AB ("NDC
Laser"), was formed to produce and distribute ANAB's laser device and related
software, enhancing the Company's know-how in the AGV area. NDC Laser was sold
November 30, 1995 to Netzler & Dahlgren.
During the fiscal year ending November 30, 1996, the Company discontinued
its marketing and distribution of the radio frequency identification products to
primarily focus on its AGVS business. The Company also refocused its marketing
and sales of AGVS equipment to OEM customers and system suppliers. In September
1997 the Company expanded it sales efforts to provide turn key AGV systems to
end users where OEM and system suppliers were not present in the market place.
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BUSINESS OF THE ISSUER
The Company's core business is to be a supplier of controls hardware,
software, engineering services and other components that are incorporated into
automated guided vehicles ("AGV's" or "vehicles") and into systems that
incorporate one or more such vehicles ("AGV systems"). AGV's are driverless,
computer-controlled vehicles that are programmed to transport materials through
designated pickup and delivery routines within a particular facility (usually a
manufacturing or distribution facility) and to transmit information concerning
system status, inventory tracking and system controls to a system controller. In
1998, sales of AGV related products and services accounted for almost all of the
Company's net revenues as it did in 1997.
The Company's AGV system products and services have been used in a variety
of industries, including textiles, automotive, newspaper publishing and
electronics. These control products are designed to be of such general
applicability as to be incorporated into many kinds of material handling
vehicles. Consequently, they are used not only in custom-designed AGV vehicles
and systems, but also to automate conventional material handling equipment such
as forklifts and pallet jacks.
The Company markets a laser guidance AGV control system, Lazerway(TM),
which is viewed by management as superior to the traditional "wire guidepath"
technology or other non-wire technologies for controlling the direction of an
AGV. The laser technology permits the end user to alter the guidepaths of AGV's
without changes in the user's facility. For further information regarding AGVS,
see "AUTOMATED GUIDED VEHICLE SYSTEMS" below.
The Company's philosophy is to sell its hardware, software and engineering
services to OEMs customers, i.e. manufacturers of AGVs, AGV systems and other
vehicles that can be equipped for automation to fit the end-users' needs. The
Company will sell such services through regular distribution or as a
sub-contractor to such OEM customers. However, the Company may supply, from time
to time, an end user in circumstances where an OEM customer or system supplier
is not available to implement or support such end user.
The Company was organized in North Carolina in 1987 and reincorporated in
Delaware in 1989, although its predecessors had been in existence since 1982.
Its principal office is located at 3101 Latrobe Drive, Charlotte, North
Carolina, 28211, and its telephone number is (704) 362-1115.
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STRATEGY
The Company's mission is to strengthen its core business through active
marketing, distribution and support of AGV system control technology,
engineering and related products through sales to AGV manufacturers, material
handling system integrators and other equipment manufacturers who typically
integrate the Company's products into system products for sale to the actual
users of AGV systems.
The Company is focusing its marketing efforts on its laser technology,
Lazerway(TM), towards OEM customers as well as to existing users of AGV systems
for up-grading and retrofitting purposes. The Company will pursue system
business direct with end-users in cases where a qualified partner is not
involved.
The Company has divested itself of all previous acquisitions to focus on its
core business in North America. The Company's strategy is to increase awareness
of its AGVS technology and system capabilities among end users while creating
new relationships with AGVS suppliers and system suppliers that would be
qualified to distribute the products or systems to end users. As part of the
strategy, the Company intends to pursue potential niche markets of end users
through distribution relationships. The Company believes that its focus on laser
technology rather than on wire technology can give it an advantage in the
existing and future market place. Further recent developments and attempts to
broaden the present market include:
o Use of LAZERWAY technology to control a stage set for a new Disney
musical.
o A purchase order for a prototype LAZERWAY AGV system intended for United
States postal service.
o AGV's used to solve security problems with x-ray imaging at airports and
international borders.
o A purchase order from Harcon for a LAZERWAY AGV system to be installed
at a Daimler Chrysler facility.
o Netzler & Dahlgren are developing a new product called LAZERWAY TEACH-IN
for the industrial truck market. LAZERWAY TEACH-IN simplifies the layout
and programming of driving routes and loading positions, and can be used
by customer personnel. No computer skills are needed in using the product.
This product could open new markets and applications for the Company's
technology.
The Company also has introduced other but related product lines such as private
labeled batteries and chargers, under the POWERWAY label, that can be
distributed to targeted customers to supplement its existing AGV business.
Revenues for such products were minimal in 1998 but the Company remains
optimistic that such products may produce growth opportunities.
The Company will continue to review its strategy as it monitors the market,
competition and growth opportunities for its products. Results of such reviews
may affect the above strategies. There can be no assurance, however, that any of
the above strategies or future strategies will meet management's objectives for
success or growth.
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AUTOMATED GUIDED VEHICLE SYSTEMS
GENERAL
AGV's are driverless, computer-controlled vehicles that are programmed to
transport materials through designated pickup and delivery routines within a
particular facility (usually a manufacturing or distribution facility) and to
transmit system status, inventory tracking and control and other information. In
many manufacturing and distribution processes, material handling needs are met
by roller tables, conveyors, manually operated vehicles and other conventional
methods. The vehicles can be rerouted within the constraints imposed by the
particular system. The Company's AGV system products and services have been used
in a variety of industries, e.g. warehousing, textiles, newspaper publishing and
electronics. Control systems and technology supplied by the Company are used for
guidance and control of AGV systems in numerous existing production facilities.
The vehicles can be made to move and stop, load and unload, and perform
other functions. The AGV's load handling equipment is adapted to the type and
weight of the material that it handles and may consist of a roller table,
forklift, mechanical arm or other device. The vehicle's wheel and drive
configurations vary, depending upon the degree of maneuverability required
within the manufacturing or distribution facility.
Automatic guided vehicles can be guided between pick-up and delivery points
by several methods. The traditional method is an inductive loop, called a wire
guidepath, which is embedded in the floor of the facility when the AGV system is
installed. The vehicles in an AGV system are equipped with a sensor and guidance
equipment that cause them to follow the guidepath. Because the installation of a
wire guidepath requires cutting a channel in the floor of the facility, the wire
guidepath method makes rerouting of AGV's less flexible. Moreover, this method
of installation of the system makes it inappropriate for clean room environments
and certain other applications.
An alternative vehicle guidance method uses laser technology, which
eliminates the need for extensive facility reconfiguration upon installation.
The laser guidance technology employs a rotating laser beam emitted from a
vehicle to sweep the room and calculate angles to detected reflectors. The data
gathered in this manner is used by the vehicle's computer to determine its
location and progress towards its destination. The vehicle can be rerouted
remotely by computer. Management believes that the Company's laser guidance is
superior to traditional technology because it permits the end user to alter the
designated routines of AGV's without extensive reconfiguration of the facility .
The end users of AGV systems typically are firms that need to move objects
by vehicle within a single manufacturing or distribution facility. For example:
A leading car manufacturer transport engines in their production
facility with AGV's.
A significant number of newspapers use AGV systems incorporating
the Company's products to move paper rolls and finished editions through their
printing plants.
The Company offers over 20 standard items of equipment and over 10 standard
software products with multiple options to its customers. In many instances
customers incorporate NDCA products into their own AGV systems for sale to end
users. These control products are designed to be of such general applicability
as to be useful in many kinds of material handling vehicles. Consequently, they
are used not only in custom-designed AGV vehicles and systems, but also to
upgrade conventional material handling equipment such as forklifts and pallet
jacks.
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AGV systems are custom-designed by system houses and OEMs, and occasionally
by end users, to satisfy the material handling needs of an end user's
facilities. The more complex AGV systems perform several functions and are
controlled by highly sophisticated computer software. These systems track and
maintain the flow of materials through an entire manufacturing or distribution
process. In doing so, they use numerous vehicles to move parts and assemblies
through the various operations necessary to produce the finished product. The
AGV system's own computers provide host production computers with the
information necessary for management to make real-time production decisions.
THE MASTER LICENSE AGREEMENT
The Company's AGV system products and services incorporate technology
licensed by, and products purchased from, Netzler and Dahlgren Co. AB, a Swedish
based company ("Netzler & Dahlgren"), as well as technology that it has acquired
or developed itself. In accordance with the Master License Agreement ("MLA")
dated December 1, 1987, as restated November 30, 1995, the Company receives
Netzler & Dahlgren's AGV technology, hardware, software, know-how and consulting
services. The Master License Agreement provides that the Company has the rights
to commercially and technically utilize, apply and sub-license Netzler &
Dahlgren's AGV system control technology and to sell its AGV system products in
North America to OEMs who manufacture vehicles in North America. The MLA,
however, does not prohibit such OEMs from purchasing complete AGVs equipped with
Netzler & Dahlgren controls from a licensee of Netzler & Dahlgren who
manufactures vehicles outside of North America. Netzler & Dahlgren products do
not include standard or custom vehicle frames for AGVs. Ongoing use by the
Company of AGVS technology unavailable from Netzler & Dahlgren, however, would
allow Netzler & Dahlgren to terminate the Company's rights under the MLA.
On November 30, 1995, the Company sold its laser technology to Netzler &
Dahlgren and extended the Master License Agreement. The restated agreement
continues to allow the Company to distribute the Netzler & Dahlgren laser
technology as described above in North America. The Master License Agreement
further provides that any enhancements or improvements of existing technology
sponsored or developed by one party shall be the property of the original
developer (subject to a royalty-free grant back to the other party for marketing
outside the owner's territory). The agreement was extended for ten (10) years
and will expire on December 1, 2005 and is subject to automatic two year
extensions unless and until one party, in compliance with certain procedures,
notifies the other of its intention to terminate the agreement. It provides for
payment of a 10% royalty on sub-license fees received by the Company with
respect to AGV system technology. It also provides for the sale of products at
prices determined annually. Royalties are due 30 days following receipt of
payment by the Company. During the fiscal year ended November 30, 1998, the
Company incurred no royalties to Netzler & Dahlgren with respect to technology
sub-licenses and purchased an aggregate of $490,656 of hardware, software and
engineering consulting services from Netzler & Dahlgren.
CUSTOMERS
A substantial portion of the Company's business in any given year is derived
from a limited number of customers, although the identity of those customers
varies somewhat from year to year. For the fiscal year ended November 30, 1998,
orders from the three largest customers accounted for 12.2%, 12.0% and 11.4% of
the Company's net revenues. For fiscal 1997, orders from the three largest
customers accounted for 15.0%, 14.5% and 8.8% of the Company's net revenues. For
fiscal 1996, orders from the three largest customers accounted for 10.8%, 8.7%
and 7.7% of the Company's net revenues.
End users of the Company's products and services are reached generally by
the Company's sales to system suppliers and OEMs.
The Company sold products to 20 system supplier and OEM customers in 1998
that acquire the Company's products under various types of agreements. Depending
on the terms of such agreements, the system supplier can
5
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obtain hardware, software and access the Company's specific AGV system know-how.
AGV system products and services sold to system suppliers, OEMs and Netzler
& Dahlgren as a group accounted for approximately 57%, 76% and 75% of the
Company's net revenues in the fiscal years ended November 30, 1998, 1997 and
1996, respectively. For the fiscal year ended November 30, 1998, such customers
accounted for approximately $2.3 million in net revenues.
The Company also sold in 1998 its AGV system products and services directly
to end users to incorporate such components and equipment into AGV systems
suitable for their particular needs. These end users often are major
manufacturing concerns experienced in the application of sophisticated material
handling systems for in-house use. System sales to end users have historically
occurred in situations in which no suitable OEM supplier can be identified for
certain end users or when the Company desires to maintain its application
know-how by dealing directly with such end users. AGV system products and
services sold directly to end users accounted for approximately 43%, 24% and 22%
of the Company's net revenues in the fiscal years ended November 30, 1998, 1997
and 1996, respectively.
MARKETING
The Company's marketing strategy is to promote the advantages of its AGV
control technology to the whole market, particularly the Lazerway(TM) system.
The technology consists of a family of products, both hardware and software,
capable of being incorporated into a broad variety of systems while preserving
the identity and independence of the system supplier. The Company sales and
distribution efforts are directed toward its OEM customers and system suppliers.
To increase demand for the products and services of the AGV suppliers, the
Company's current marketing program targets North American end users. In its
approach to certain prospective customers, the Company will suggest a teamed
technology arrangement. In such an arrangement, the Company will work with its
OEM customer to integrate the Company's products and services with their
equipment. The goal is to fashion a material movement system that will satisfy
the end user's particular needs. Such technology once installed can be
maintained by factory floor technicians. This approach has been used in more
than 1000 AGV systems with over 7,000 vehicles (composed of as few as one
vehicle and as many as 50 vehicles).
The Company's marketing program is led by its President, and implemented by
its Marketing Manager and Sales Group, who are responsible for developing
relationships with system suppliers, OEMs, distributors and manufacturers'
representatives. The Company attends the major trade shows held by the materials
handling industry and advertises in various industry publications.
Although the Company actively markets all of its products and services, a
substantial part of its business is unsolicited. For example, a potential end
user of the Company's products might solicit requests for proposals from more
than one system supplier. A system supplier will incorporate the features of the
Company's products and services in the technical specifications of its bid, in
which case the pricing of its bid would reflect the cost of such products and
services. It is not unusual for several system suppliers or OEMs to incorporate
features of the Company's products and services into their bids, thus enhancing
the likelihood that such products and services will be included in the AGV
system finally selected by the end user. The bidding process takes, on the
average, three months to one year for completion. The design, manufacture and
installation of AGV systems utilizing the Company's products and services
require an additional six to twelve months.
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BACKLOG
Backlog consists of all amounts contracted to be paid by customers but not
yet recognized as net revenues by the Company. At November 30, 1998, the Company
had a backlog of approximately $780,000 compared to $415,000 total backlog one
year earlier. Substantial fluctuations in backlog are considered normal due to
the size of AGV system contracts. Substantial fluctuations in the industry
makeup of the Company's backlog also are considered normal.
PATENTS AND PROPRIETARY INFORMATION
The Company has obtained marketing and manufacturing rights to control
technology, components, equipment and know-how developed by Netzler & Dahlgren,
and the Company is not permitted to apply for any patent thereon. Product
developments sponsored and funded by the Company are the property of the Company
and may be patented by the Company. The Company owns and licenses various
patents and trademarks with varying expiration dates.
Management believes that the Company's strong ability to modify and adapt
its products to changing applications is just as significant to the maintenance
of its competitive position as is the protection afforded by its own patents and
trademarks.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are designed to complement
existing products and services and not to innovate radically different
technologies. Management relies upon Netzler & Dahlgren to innovate technology
to which the Company is entitled according to the terms of the Master License
Agreement.
The Company expensed $0 in fiscal 1998, $0 in fiscal 1997, and $3,942 in
fiscal 1996 for research and development, all relative to AGV systems.
INVENTORY
The Company purchases considerable amounts of hardware and software from
Netzler & Dahlgren. The lead time required for such purchases averages
approximately sixteen weeks. Other manufactured products inventoried by the
Company require similar lead times. Due to the long lead times required, a
general increase in the volume of business can cause increases in inventory
levels.
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COMPETITION
The material handling industry is highly competitive, and technologies are
being continuously developed or improved. The Company is a supplier in North
America of AGV system control technology, products and services designed to be
incorporated into vehicles manufactured by others. Management believes that the
flexibility and functionality of its controls and technology offer a competitive
advantage relative to the technology of system suppliers and OEMs that produce
controls and vehicles only for use in their own AGV systems. There can be no
assurance that this competitive advantage will continue.
While the Company endeavors continually to improve and upgrade its product
and service offerings, there can be no assurance that other firms having greater
financial resources for research, development and marketing will not develop
products with characteristics superior to the Company's products or that render
the Company's products obsolete.
In summary, competition is derived much less from non-OEM companies
supplying AGV control technology than from OEMs who offer turnkey AGV systems
based on their own proprietary AGVS technology. The Company has yet to convert
such major OEMs from their own AGVS technology to the Company's technology,
thereby limiting the Company's access to such markets served by such OEMs.
Under the terms of the MLA, nothing prohibits Netzler & Dahlgren's other
licensees who have no agreement with the Company from entering the North
American market to compete with the Company's sub-licensees or to supply
completed AGVs to the Company's sub-licensees. Should such foreign licensees be
successful in North America, the Company's potential revenues may significantly
decrease compared to supplying the North American market through its
sub-licensees. During 1998 the Company noted an increased presence of such
foreign licensees in the North American market compared to prior years.
Management presently believes this trend may continue and without a greater
number of North American sub-licensees such competition from Netzler & Dahlgren
foreign licensees could be a material threat to the Company's current and
potential revenues.
EMPLOYEES
The Company presently employs 22 persons full-time. None of the Company's
employees is a party to a collective bargaining agreement. The Company considers
its employee relations to be good.
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ITEM 2. PROPERTIES
The Company owns the premises that it occupies at 3101 Latrobe Drive in
Charlotte. A bank holds a mortgage on the property in an original amount of
$1,387,000, of which $1,042,520 was outstanding at November 30, 1998. The
productive capacity of the building is approximately 13,000 square feet, all of
which is currently utilized for executive offices, engineering, distribution and
administration space.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock previously traded on the National Association of
Securities Dealers, Inc. ("NASDAQ") National Market under the symbol "AGVS". The
Company's common stock began trading on the OTC Bulletin Board in November,
1995. As of November 30, 1998, 3,453,451 of the Company's 11,000,000 authorized
shares of Common Stock were issued and outstanding.
Trading in the Company's securities commenced on March 28, 1990. The table
below indicates quarterly high and low bid and asked information for the years
ended November 30, 1998 and 1997, respectively, as provided to the Company by
NASDAQ and OTC Bulletin Board. The quotations reflect inter-dealer prices,
without dealer mark-up, mark-down, or commission, and may not represent actual
transactions.
The approximate number of holders of record of common stock of the Company
as of February 17, 1999 was 175. The Company believes that there are
approximately 800 owners of beneficial interest of the Company's common stock.
<TABLE>
<CAPTION>
Market Price per Share
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1998 1997
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High Low High Low
Quarter Ended Bid Ask Bid Ask Bid Ask Bid Ask
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
February 28 9/32 13/32 5/32 3/16 11/16 13/16 9/32 11/32
May 31 11/32 7/16 9/32 11/32 13/32 17/32 9/32 3/8
August 31 .32 7/16 3/16 .24 31/32 1 1/32 5/16 3/8
November 30 .22 .28 .125 .14 13/16 15/16 1/4 3/8
================================================================================
</TABLE>
The Company has never paid any cash dividends and has no present intention
to declare or pay cash dividends. The Company intends to retain any earnings
which it may realize in the foreseeable future to finance the development
and expansion of its business.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Registrant's Annual Report
to the security holders furnished to the Commission under Rule 14a-3(b) of the
Securities Exchange Act of 1934 (a copy of which is included in the exhibits
hereto) is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements in the Registrant's Annual Report to the security
holders furnished to the Commission under Rule 14a-3(b) of the Securities
Exchange Act of 1934 (a copy of which is included in the exhibits hereto) are
incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information under the captions "Election of Directors", "Management" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Registrant's definitive Proxy Statement are incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information under the captions "Compensation of Directors" and
"Executive Compensation" in the Registrant's definitive Proxy Statement are
incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of
Management and Others" in the Registrant's definitive proxy statement is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Certain Transactions" in the
Registrant's definitive proxy statement is incorporated herein by reference.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(b) Reports on Form 8-K
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
No. Description
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(A) Exhibits:
Exhibit No. Description
3.1 (a)* Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to the Company's Form 10-K for
the fiscal year ended November 30, 1990 (the 1990 Form
10-K).
(b)* Certificate of Amendment dated May 27, 1993 (incorporated
by reference to Exhibit 3.1 to the Company from S-1 dated
August 27, 1993).
3.2 * Bylaws of the Company (incorporated by reference to Exhibit
3.2 to the Company's 1990 Form 10-K).
4.1 * Form of Common Stock certificate (incorporated by reference
to Exhibit 4.1 to the
Company's Registration Statement (No. 33-32925) on Form
S-18 (the Form S-18)).
10.1 (a)* Profit Sharing Plan and Trust Agreement dated April 1,
1983, as amended (incorporated by reference to Exhibit 10.1
to the Company's 1990 Form 10-K).
(b)* Nonstandardized Code 401(k) Profit Sharing Plan
(incorporated by reference to Exhibit 10.48 to the
Company's 1990 Form 10-K).
(c)* Adoption Agreement #004 Nonstandard Code 401(k) Profit
Sharing Plan dated October 26, 1992 (incorporated by
reference to Exhibit 10.1(b) to the Company's Form 10-K for
the fiscal year ended November 30, 1992 (the
1992 Form 10-K)).
10.2 (a)* Master License Agreement dated December 1, 1987 (the Master
License Agreement) between Netzler & Dahlgren and the
Company (incorporated by reference to Exhibit 10.2 to the
Form S-18).
(b)* Letter Amendment dated March 28, 1990 between the Company
and Netzler&Dahlgren, amending the Master License Agreement
(incorporated by reference to Exhibit 10.2(b) to the
Company's 1990 Form 10-K).
(c)* Amendment to Master License Agreement dated May 31, 1990
between the Company and Netzler & Dahlgren, amending the
Master License Agreement (incorporated by reference to
Exhibit 10.2(c) to the Company's 1990 Form 10-K).
(d)* Agreement dated October 18,1993 between the Company and
Apogeum AB regarding Conveyance of Laser Know-How and
Rights (incorporated by reference to exhibit 10.2(D) 1994
form 10KSB).
(e)* Restated Master License Agreement dated November 30, 1995
between the Company and Netzler and Dahlgren Co. AB
(incorporated by reference to exhibit 10.2(e) 1995 form
10KSB).
(f)* Letter dated September 10, 1997 from Netzler and Dahlgren
Co. AB to Company pertaining to direct sales to end users
as defined by the Master License Agreement (incorporated by
reference to Exhibit 1 of the August 31, 1997 Form 10QSB).
10.3 (a)* Agreement of Understanding dated January 21, 1990 between
the Company, Statec S.A., Angro et El srl., Valtronic
Holdings SA, Valtronic France SA, Mr. Dominique Saulnier,
personally and on behalf and for the account of Mrs. C.
Saulnier, his wife (incorporated by reference to Exhibit
10.3(a) to the Company's 1990 Form 10-K).
(b)* License Agreement dated April 6, 1987 between Dominique
Saulnier and NDC
Systems, Inc. (incorporated by reference to Exhibit 10.3(b)
to the Form S-18).
12
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
No. Description
- --- -----------
(A) Exhibits:
Exhibit No. Description
10.3 (c)* Sole Distributorship Agreement dated January 21, 1990
between Statec Technologies, S.A. and NDC Automation, Inc.
(incorporated by reference to Exhibit 10.3(c) to the
Company's 1990 Form 10-K).
(d)* Letter of understanding between the Company and Statec
Technologies SA dated February 21, 1996 to reassigning
exclusive distribution for North America back to Statec
(incorporated by reference to exhibit 10.3(d) 1995 form
10KSB).
(e)* Termination and Release Agreement between the Company and
Statec Technologies, S.A. effective March 1, 1996
(incorporated by reference to exhibit 2 of the Company's
February 29, 1996 10QSB).
(f)* Supplemental Agreement between Statec Technologies SA and
NDC Automation, Inc. dated march 17, 1997 ( incorporated
by reference to exhibit 1 of the Company's February 28,
1997 10QSB)
10.4 (a)* Agreement dated June 20, 1989 between the Company and
Schabmuller GmbH
(incorporated by reference to Exhibit 10.4 to the Form
S-18).
(b)* Exclusive Distribution Agreement dated February 9, 1995
between the Company and Schabmuller GmbH (incorporated by
reference to exhibit 10.4(b) to the Company's 1994 form
10-KSB).
(c)* Distributorship Agreement dated February 19, 1998 between
the Company and Schabmulerr Gmbh (incorporated by
reference to exhibit 10.4(c) 1998 form 10KSB.
10.5 (a)* Know-How, Firmware and Documentation License Agreement
dated November 30,1990 between the Company and Production
Machinery Corporation (incorporated by reference to
Exhibit 10.8(a) to the Company's Form 10-K for the fiscal
year ended November 30, 1991 (the 1991 Form 10-K)).
(b)* Technology License Agreement dated January 30, 1998
between the Company and Mentor AGVS (incorporated by
reference to exhibit 10.5(b) to the Company's 1998 form
10-KSB).
10.6 (a)* Know-How License Agreement dated May 30, 1984 between
Netzler and Dahlgren Company Technologies, Inc. and FMC
Corporation, MHS Division (incorporated by reference to
Exhibit 10.17(a) to the Form S-18).
(b)* Requirements Supply Agreement dated May 30, 1984 between
Netzler and Dahlgren Company Technologies, Inc. and FMC
Corporation, MHS Division (incorporated by reference to
Exhibit 10.17(b) to the Form S-18).
13
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
No. Description
- --- -----------
(A) Exhibits:
Exhibit No. Description
10.6 (c)* Software License Agreement dated May 30, 1984 between
Netzler and Dahlgren Company Technologies, Inc. and FMC
Corporation, MHS Division (incorporated by reference to
Exhibit 10.17(c) to the Form S-18).
10.7* Employment Contract between Ralph G. Dollander and the
Company. (incorporated by reference to exhibit 10.14, 1995
form 10KSB).
10.8 (a)* NDC Automation, Inc. 1990 Stock Option Plan, as adopted
October 10, 1990
(incorporated by reference to Exhibit 10.47(a) to the
Company's 1990 Form 10-K).
(b)* Form of Stock Option Agreement (incorporated by reference
to Exhibit 10.47(b) to
the Company's 1990 Form 10-K).
10.9 (a)* Form of Stock Purchase Agreement dated July 1, 1992
between the Company and
NDC Technologies International, Ltd. (incorporated by
reference to Exhibit 10.50
to the Company's 1992 Form 10-K).
(b)* Agreement to purchase corporate stock of NDC Technologies
Australia Pty, Ltd. dated November 30, 1995 between the
Company and Tommy Hessler. (incorporated by reference to
Exhibit 10.18(b) to the Company's 1995 Form 10-KSB).
(c)* Guaranty and Pledge Agreement between Tommy Hessler and the
Company dated November 30, 1995. (incorporated by reference
to Exhibit 10.18 (c ) to the Company's 1995 Form 10-KSB).
(d)* Promissory Note dated November 30, 1995 between the Company
and NDC Technology Australia Pty. Ltd. (incorporated by
reference to Exhibit 10.18(d) to the Company's 1995 Form
10-KSB).
10.10 (a)* Promissory Note from the Company to First Citizens Bank &
Trust Company
(incorporated by reference to Exhibit 10.56 to the
Company's 1992 Form 10-K).
(b)* North Carolina Note Modification Agreement dated May 16,
1997 between the Company and First Citizens Bank & Trust
Company ( incorporated by reference to exhibit 1 to the
Company's May 31, 1997 Form 10QSB).
10.11 (a)* Commitment letter dated December 18, 1996 for a revolving
line of credit of $1,250,000 to be provided by National
Canada Business Corp's to the Company.
(b)* Inventory and accounts receivable loan and security
agreement dated February 28, 1997 between the Company and
National Bank of Canada and National Canada Business Corp.
(incorporated by reference to report on form 8K dated March
11, 1997)
(c)* Confirmation letter for extending Line of Credit from
National Canada Business Corp. to NDC Automation, Inc.
dated April 1, 1998. ( incorporated by reference to exhibit
1 to the Company's May 31, 1998 Form 10QSB).
(d) First amendment to Inventory and accounts receivable loan
and security agreement dated October 27, 1998 between the
Company and National Bank of Canada and National Canada
Business Corp.
(e) First amendment to inventory repurchase agreement dated
October 27, 1998 between the Company and National Bank of
Canada and National Canada Business Corp. and Netzler &
Dahlgren Co AB
14
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
No. Description
- --- -----------
(A) Exhibits:
Exhibit No. Description
10.12 (a)* Reimbursement Agreement between NDC Automation, Inc. and
Netzler & Dahlgren Co AB dated June 29, 1998 (incorporated
by reference to exhibit 2 to the Company's May 31, 1998
Form 10QSB).
(b)* Deed of Trust between NDC Automation, Inc. and Netzler &
dahlgren Co AB dated June 29, 1998 (incorporated by
reference to exhibit 3 to the Company's May 31, 1998 Form
10QSB).
(c)* Promissory Note between NDC Automation, Inc. and Netzler
& Dahlgren Co AB dated June 30, 1998 (incorporated by
reference to exhibit 4 to the Company's May 31, 1998 Form
10QSB).
10.13 (a)* Asset Purchase Agreement dated June 22, 1993 between the
Company and
AutoNavigator AB (ANAB) (incorporated by reference to
Exhibit 10.32 (a) to the
Company's August 27, 1993 Form S-1).
(b)* Agreement relating to Patent Licenses and Other
Intellectual Property dated June 22, 1993 between the
Company and Kalevi Hyyppa, Slipvagen 13 A, 951 56 Lulea,
Sweden (incorporated by reference to Exhibit 10.32 (b) to
the Company's August 27, 1993 Form S-1).
(c)* Purchase agreement dated November 30, 1995 between the
Company and Netzler and Dahlgren Co. AB for NDC Laser AB
and all tangible and intangible rights to the techology.
(incorporated by reference to exhibit 10.30(c ), 1995 Form
10KSB).
(d)* Consent of Kalevi Hyypa (the "inventor") for the sale of
NDC laser and related assets between the Company and
Netzler & Dahlgren Co. AB dated November 24, 1995.
(incorporated by reference to exhibit 10.30(d), 1995 Form
10KSB).
10.14* Agreement dated November 30, 1995 between the Company and
Netzler and Dahlgren Co. AB for future marketing and
support activites (incorporated by reference to exhibit
10.37, 1995 Form 10KSB).
10.15* Agreement for sales representation dated January 30, 1998
between the Company and Thrige Electric (incorporated by
reference to exhibit 10.18 to the Company's 1998 form
10-KSB).
10.16 Representation Agreement dated January 27, 1999 between
the Company and Harcon Engineering Inc.
11.1 Computation of Earnings Per Share for November 30, 1998.
13. Company's 1998 Annual Report.
23.3 Consent of McGladrey & Pullen, LLP to the incorporation by
reference in this Form 10-KSB.
27. Financial Data Schedule.
99.1* United States Letters Patent for Optical Navigation System
for an Automatic Guided Vehicle, and Method (Patent No.
4,626,132; Date of Patent 08/15/89) (incorporated by
reference to Exhibit 28.1 to the Form S-18).
15
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
No. Description
- ------- -----------
(A) Exhibits:
Exhibit No. Description
99.2* United States Patent for Method and Apparatus for
Providing Destination and Vehicle Function Information to
an Automatic Guided Vehicle (Patent No. 4,780,817; Date of
Patent 10/25/88) (incorporated by reference to Exhibit
28.2 to the Form S-18).
99.3* United States Patent and Trademark Office Notice of
Recordation of Assignment
Document for Automatic Guided Vehicle Traffic Control
System and Method
(Document Date 02/19/88) (incorporated by reference to
Exhibit 28.3 to the Form
S-18).
99.4* Canadian Letters Patent for Apparatus and Method for
Optical Guidance System
for Automatic Guided Vehicle (Patent No. 1,236,132; Date of
Patent 05/17/88)
(incorporated by reference to Exhibit 28.4 to the Form
S-18).
99.5* United States Letters Patent for Automatically Guided
Vehicle Having Steering
Mechanism for Enabling Vehicle to Follow Guidance Wire
(Patent No. 4,729,449;
Date of Patent 03/08/88) (incorporated by reference to
Exhibit 28.5 to the Form S-18).
99.6* United States Letters Patent for Apparatus and Method for
Optical Guidance System for Automatic Guided Vehicle
(Patent No. 4,626,995; Date of Patent 12/02/86)
(incorporated by reference to Exhibit 28.6 to the
Form S-18).
99.7 * United States Certificate of Registration of Trademark NDC
(No. 1,360,353; Date of Registration 09/17/85) (incorporated
by reference to Exhibit 28.7 to the Form S-18).
99.8 * United States Certificate of Registration of Trademark
SENS-O-GUIDE (No. 1,360,354; Date of Registration 09/17/85)
(incorporated by reference to Exhibit 28.8
to the Form S-18).
99.9 * Canadian Certificate of Registration Trademark MAGIC POINT
(No. 331696; Date
of Registration 09/04/87) (incorporated by reference to
Exhibit 28.9 to the Form S-18).
99.10* United States Certificate of Registration of Trademark MAGIC
POINT (No.
1,417,335; Date of Registration 11/18/86) (incorporated by
reference to Exhibit 28.10 to the Form S-18).
99.11* United States Certificate of Registration of Trademark
ESCORT (No. 1,468,835;
Date of Registration 12/15/87) (incorporated by reference to
Exhibit 28.11 to the Form S-18).
o Certain of the exhibits to this Report, indicated by an asterisk, are hereby
incorporated by reference to other documents on file with the Commission,
with which they are filed in fact, to be a part hereof as of their respective
dates.
(B) Reports on Form 8-K
16
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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
Ralph G. Dollander
President
Chief Executive Officer, Director
By : /s/Claude Imbleau
--------------------------------
Claude Imbleau
Claude Imbleau
Vice President Finance
Chief Financial Officer
Date: February 25,1999 Chief Accounting Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and date
indicated.
By: /s/Goran P.R. Netzler
--------------------------------
Goran P. R. Netzler
Chairman of the Board of
Directors
By: /s/Ralph G Dollander
--------------------------------
Ralph G. Dollander
President
Chief Executive Officer, Director
By: /s/Jan H.L. Jutander
--------------------------------
Jan H. L. Jutander
Director
By: /s/Richard D. Schofield
--------------------------------
Richard D. Schofield
Director
By: /s/Raymond O. Gibson
--------------------------------
Raymond O. Gibson
Director
Date: February 25, 1999
17
EXHIBIT 10.11(d)
FIRST AMENDMENT TO INVENTORY AND
ACCOUNTS RECEIVABLE LOAN AND
SECURITY AGREEMENT
THIS FIRST AMENDMENT, dated as of the 27th day of October, 1998, is to
that certain Inventory and Accounts Receivable Loan and Security Agreement dated
as of February 28, 1997 (as amended hereby, the "Loan Agreement') by and among
NDC AUTOMATION, INC., a corporation organized and existing under the laws
of the State of Delaware (the "Borrower");
NATIONAL BANK OF CANADA, a Canadian chartered bank ("NBC"); and
NATIONAL CANADA BUSINESS CORP., a Delaware corporation ("NCBC" hereinafter
NBC and NCBC may be referred to collectively as the "Lenders").
RECITALS:
A. The Borrower has requested that the Lenders make a change in the
inventory cap set forth in the Loan Agreement.
B. The Lenders have agreed to make a change in the inventory cap set forth
in the Loan Agreement as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
A. The Loan Agreement is amended in the following respect:
1. The second sentence of Section 3 of the Loan Agreement is deleted
in its entirety and replaced with the following.
"The aggregate unpaid principal of all such loans outstanding at any
one time shall not exceed the lesser of (a) One Million Two Hundred
Fifty Thousand Dollars (U.S. $1,250,000.00) or (b) eighty percent (80%)
of the unpaid face amount of Qualified Accounts, as defined below, (or
such other percentages thereof as may from time to time be fixed by the
Lender upon notice to Borrower), plus fifty percent (50%) of the cost
or market value, whichever is lower, of all Eligible Inventory, as
defined below, (hereinafter called the "Inventory Value"), but in no
events shall Inventory Value be in excess of Three Hundred Thousand
Dollars (U.S. $300,000.00)."
2. A new Section 8(q) is added to the Loan Agreement to read as
follows:
"(q) By November 30, 1999, Borrower's computer applications
(including those of its suppliers, vendors and customers) that are
material to its business and operations will be able to perform
properly date-sensitive functions for all dates before and after
January 1, 2000 (that is, be "Year 2000 compliant"), except to the
extent that failure to do so
<PAGE>
could not reasonable be expected to have a material adverse effect
on the Borrower."
B. The Lenders hereby notify the Borrower that the Termination Date
referenced in the Loan Agreement and in the documents executed in
connection with the Loan Agreement has been extended to April 30, 1999.
C. All references to the "Loan Agreement" set forth in the documents
executed in connection with the Loan Agreement shall be deemed to be
references to the Loan Agreement as amended by this First Amendment.
D. The Borrower represents and warrants that, as of the date hereof, it is
not in default of the terms of the Loan Agreement, as amended hereby,
or any of the other documents executed among the Borrower and the
Lenders in connection therewith.
E. This First Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an
original.
F. This First Amendment and the Loan Agreement, as amended hereby, shall
be deemed to be contracts made under and for all purposes shall be
construed in accordance with the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lenders have caused the
First Amendment to be executed under seal by their duly authorized
corporate officers all as of the day and year first above written.
NDC AUTOMATION, INC.
By /s/Claude Imbleau
-----------------------------
Title CFO
--------------------------
NATIONAL BANK OF CANADA
By /s/ SIGNATURE ON FILE
-----------------------------
Title
--------------------------
By /s/ SIGNATURE ON FILE
-----------------------------
Title
--------------------------
NATIONAL CANADA BUSDINESS CORP.
By /s/W.Greg Simpson
-----------------------------
Title Vice President
--------------------------
By /s/SIGNATURE ON FILE
-----------------------------
Title
--------------------------
EXHIBIT 10.11(e)
FIRST AMENDMENT TO INVENTORY REPURCHASE AGREEMENT
THIS FIRST AMENDEMENT, dated as of the 27th day of October, 1998, is to
that certain Inventory Repurchase Agreement dated as of February 28, 1997 (as
amended hereby, the "Agreement") by and among
NETZLER & DAHLGREN CO. AB, a Swedish corporation (the "Seller");
NDC AUTOMATION, INC., a corporation organized and existing under the laws
of the State of Delaware (the "Borrower");
NATIONAL BANK OF CANADA, a Canadian chartered bank ("NBC"); and
NATIONAL CANADA BUSINESS CORP., a Delaware corporation ("NCBC" hereinafter
NBC and NCBC may be refereed to collectively as the "Lenders").
RECITALS:
A. The Seller and the Borrower have requested that the Lenders make a
change in the amount of the Seller's repurchase obligations set forth
in the Agreement.
B. The Lenders have agreed to make a change in the amount of the Seller's
repurchase obligations set forth in the Agreement as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
A. Section 2 of the Agreement is amended by replacing the amount
"$400,000.00" with the amount of "$300,000.00".
B. This First Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an
original.
C. This First Amendment and the Agreement, as amended hereby, shall be
deemed to be contracts make under and for all purposes shall be
construed in accordance with the laws of the State of North Carolina.
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lenders have caused the
First Amendment to be executed under seal by their duly authorized
corporate officers all as of the day and year first above written.
NETZLER & DAHLGREN CO. AB
By /s/Anders Dahlgren /s/ Jan Jutander
------------------------------------
Title Vice Presidents
---------------------------------
NDC AUTOMATION, INC.
By /s/ Claude Imbleau
------------------------------------
Title CFO
---------------------------------
NATIONAL BANK OF CANADA
By /s/ SIGNATURE ON FILE
------------------------------------
Title
---------------------------------
By /s/ SIGNATURE ON FILE
------------------------------------
Title
---------------------------------
NATIONAL CANADA BUSDINESS CORP.
By /s/ SIGNATURE ON FILE
------------------------------------
Title
---------------------------------
By /s/ SIGNATURE ON FILE
------------------------------------
Title
---------------------------------
EXHIBIT 10.16
REPRESENTATION AGREEMENT BETWEEN NDC AUTOMATION, INC. AND
HARCON ENGINEERING, INC.
This agreement (the "Agreement"), entered into as of January 27, 1999, is
between NDC Automation, Inc. ("NDCA") doing business at 3101 Latrobe Drive,
Charlotte, NC 28211, and Harcon Engineering Inc. ("Harcon") doing business at
15990 Sturgeon, Roseville, Michigan 48066.
Whereas: NDCA supplies certain automated guided vehicle systems
("AGVS") controls hardware, software and engineering services,
excluding any products or services of NDCA discontinued after
the date hereof, (the "Products") and other proprietary
designs.
Harcon produces line stocking devices and automated equipment
under proprietary designs.
Under this Agreement, NDCA will provide engineering, design,
supply, implementation and support of AGV Systems, unless
otherwise agreed.
Under this Agreement, Harcon will provide marketing and sales,
project management, system integration, installation and
servicing of AGV Systems, unless otherwise agreed.
A. Agreement: NDCA appoints Harcon as its authorized representative for the
Products for sales to Chrysler Corporation ("Chrysler").
Harcon accepts such appointment and agrees to act as NDCA's
representative throughout the term of this Agreement. As to
Harcon's sale of Products to any automotive customers of the
Products other than Chrysler, including, without limitation,
"Tier 1 suppliers" thereof, the parties hereto will agree on
the handling of such sales on a job by job basis. Chrysler and
other automotive customers will be collectively referred to as
"Customers" in this Agreement. In the case of business
opportunities in other industries than automotive, the
handling of such opportunities will be handled on a case to
case basis.
Both parties hereto will use their best efforts to promote
sales of Products to Chrysler at competitive prices and to
inform each other of business opportunities for mutual benefit
under this Agreement.
B. Covenants of NDCA:
Pursuant to Harcon's written orders for Products, subject to
the terms and conditions as mutually agreed between the
Parties from case to case (which Terms and Conditions shall
supplement but not amend the terms set forth in this
agreement), NDCA will supply products and any other
1
<PAGE>
equipment that is accepted and confirmed by both parties for
the sale through Harcon according to the timeline agreed to by
Harcon and NDCA.
Pursuant to Harcon's written orders for Products, subject to
the terms and conditions as mutually agreed between the
parties from case to case, NDCA will provide engineering
services for the implementation and support of Products.
NDCA will set all prices to Harcon for the Products that
Harcon elects to purchase from NDCA.
NDCA agrees to hold Harcon, its officers, employees, and
agents harmless from and against and indemnify Harcon for all
liability, loss, costs, expenses or damages caused by reason
of any defects in design and manufacture of the Products
(except as to those Products designed and manufactured by
Harcon). NDCA is to place Harcon on its liability and product
liability insurance policy as an additional insured. NDCA will
also provide Harcon with a copy of the certificate of
workmen's compensation insurance.
Upon acceptance and confirmation by NDCA, NDCA warrants to
Harcon that NDCA's products will comply with all
specifications established by Harcon's customer. Such warranty
shall last for the duration of Harcon's warranty to its
customer pertaining to NDCA's equipment.
C. Covenants of Harcon:
Harcon shall market and sell the Products as supplied by NDCA.
All other mechanical equipment that NDCA supplies will be
marketed on an application per application basis. Harcon will
use their best efforts to generate sales for NDCA.
Harcon will provide installation services as agreed with NDCA
and will have sole authority to quote and set the equipment
sales price and the installation price as to the Products to
the Customers. No representation, warranty, or other
commitment by Harcon in connection with such re-sales in
excess of the terms and conditions agreed between the Parties
from case to case will be binding on NDCA without its prior
written approval. Harcon will provide launch support for the
Products to the Customers.
Harcon agrees to fully perform all of its obligations to its
customers under contracts for the sales of Products.
2
<PAGE>
Harcon will work as a team with NDCA for all launch support.
Launch support is presence of a qualified technician during a
time period, to be specified by the customer, at the initial
production use of the device.
Harcon will provide after sales support, including warranty
service, to the Customers, and bill the Customers direct for
non-warranty services. Warranty service shall be handled in
accordance with the warranty terms and procedures agreed upon
between the Parties.
Harcon agrees to hold NDCA, its officers, employees, and
agents harmless from and against and indemnify NDCA, its
officers, employees, and agents for all liability, loss,
costs, expenses or damages caused by reason of any neglect in
installation or service of the Products covered by this
Agreement, or the making by Harcon of any representation or
warranty in excess of those permitted or authorized by NDCA
under this Agreement or under the terms and conditions agreed
between the Parties from case to case. Harcon is to place NDCA
on its liability and product liability insurance policy as an
additional insured. Harcon will also provide NDCA with a copy
of the certificate of workmen's compensation insurance.
Upon termination of this Agreement, any proprietary
information (including trade secrets) developed, owned or
licensed by Harcon prior to and/or during this Agreement shall
remain the exclusive property of Harcon. Any proprietary
information (including trade secrets) developed by NDCA prior
to and/or during thiS Agreement shall remain the exclusive
property of NDCA. NDCA retains the exclusive right and title
worldwide to any improvement, invention, copyright, patent,
trade secret or other intellectual property developed or
arising from the Products in connection with the parties
performance under this Agreement (a "Development").
Intellectual property in Harcon's equipment that interfaces
with NDCA's products shall belong exclusively to Harcon.
Intellectual property in NDCA's products that interfaces with
Harcon's equipment shall belong exclusively to NDCA. No
license is granted by NDCA to Harcon regarding any
Development, and Harcon waives and releases, and hereby
assigns to NDCA, any and all copyright, patent or other
proprietary right that Harcon may now or hereafter have,
directly or indirectly, to any such Development. Harcon will
market the Products under such product names, trademarks and
logos as may be directed by NDCA and will identify all
Products as those of NDCA. NDCA will not use Harcon's, and
Harcon will not use NDCA's, trade or service marks without
prior written consent of the other party.
In the case of technology, equipment or solutions being
jointly developed by the two parties and/or in case one party
wishes to manufacture on behalf of the other, the terms and
conditions for such events shall be agreed upon in a separate
agreement.
It is the express intention and agreement of the parties
hereto that all covenants, warranties and agreements of the
parties hereto in this
3
<PAGE>
Agreement shall survive the execution of this Agreement and
shall continue in full force and effect until the later of the
date of the termination of this Agreement or the completion of
the parties' obligations hereunder. Notwithstanding anything
to the contrary in this paragraph, the following paragraphs
shall survive expiration or termination of this Agreement:
Fourth paragraph of Section B, Sixth and Seventh paragraph of
Section C, Section F, Section K, Section L, Section N and
Section O. In addition, all obligations of each party that
have accrued prior to termination or that are of a continuing
nature will survive such termination.
Harcon shall notify NDCA promptly in writing of any adverse or
unexpected results or any actual or potential damage, claim or
lawsuit relevant to a Product and, if and to the extent
requested by NDCA in writing, Harcon shall suspend
distribution of any Product. Harcon will also promptly notify
NDCA of any infringement of any trademarks, copyrights,
patents or other proprietary rights relating to the Products.
Harcon's failure to give notice to NDCA will not affect NDCA's
obligations under this Agreement, unless NDCA can demonstrate
actual prejudice rising from the failure to give notice.
D. Term of this Contract:.
This Agreement is for two (2) years commencing on the date
first above written and will automatically be renewed year to
year unless either party gives at least 90 days prior written
notice of termination. (See Section E).
E. Termination:
Either party may terminate this Agreement after the two years'
initial term for any reason, with at least 90 days prior
written notice at any time after such initial term. In
addition, this Agreement may be terminated by either party for
cause immediately by written notice upon the occurrence of any
of the following events: (i) if the other party ceases to do
business, or otherwise terminates its business operations;
(ii) if the other party breaches any material provision of
this Agreement and fails to fully cure such breach within 30
days of its receipt of written notice describing the breach;
(iii) if the other party becomes insolvent or seeks protection
under any bankruptcy, receivership, trust deed, creditors
arrangement, composition or comparable proceeding, or if any
such proceeding is instituted against the other; (iv) in case
of NDCA's termination, misuse of any trademark or logo of
NDCA; (v) in case of change of control or ownership of the
other party, except in the event Phil Rizzo and/or John Rizzo
remain in control of Harcon; or (vi) in case a competitor of
one party acquires an equity position exceeding ten (10)
percent of the other party. Termination is not the sole remedy
under this Agreement and,
4
<PAGE>
whether or not termination is effected, all other legal,
equitable and contractual remedies will remain available.
F. Dispute:
Any dispute or controversy which may arise between the parties
hereto out of or in relation to or in connection with this
Agreement will be submitted to arbitration in the defending
party's state, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, before a
maximum of three (3) arbitrators appointed pursuant to such
rules, and that determination of such arbitrators shall be
final, binding and conclusive on the parties. Judgement upon
the award of the arbitration may be entered by any court of
competent jurisdiction.
G. Notice:
Notice under this Agreement shall be sent in writing by U.S.
Mail certified or registered, with return receipt requested,
to:
NDC Automation, Inc.
3101 Latrobe Drive
Charlotte, NC 28211
Or to: Harcon Engineering, Inc.
15990 Sturgeon
Roseville, MI 48066
H. Force Majeure:
NDCA will not be held responsible or liable for delays in
delivery of Products where forces outside their control affect
the situation, such as fire, war, and other acts of god. In
the event of a Product shortage, NDCA shall have the right to
allocate its available Products among its distributors and
other customers (including itself) in such manner as NDCA
considers advisable, as long as NDCA meets its agreed upon
timeline.
I. Entire Agreement:
This Agreement, together with the Exhibits hereto, constitutes
the entire agreement between the parties hereto with respect
to the subject matter hereof and supersedes all prior oral or
written agreements with respect to matters provided for
herein. This Agreement shall not be amended, altered or
modified except by an instrument in writing duly executed by
the parties hereto.
J. Non Assignable:
This Agreement, or any part hereof, shall not be assignable,
whether by operation of law otherwise, by either party hereto
without the prior written
5
<PAGE>
consent of the other party. Any such assignment without
consent will be null, void and of no force or effect.
K. Exclusive Business Entities:
Nothing in this Agreement is intended to be construed so as to
constitute Harcon and NDCA as partners or joint venturers, or
either party hereto as the employee, agent, franchisee or
legal representative of the other party. The parties hereto
expressly understand and agree that Harcon is an independent
contractor in the performance of each and every part of this
Agreement, is solely responsible for all of its employees and
agents and its labor costs and expenses arising in connection
therewith. NDCA is in no manner associated with or otherwise
connected with the actual performance of this Agreement on the
part of Harcon, nor with Harcon's employment of other persons
or incurring of other expenses.
L. Representation or Warranties:
Harcon agrees not to make any representations or warranties
relating to NDCA's products other that those expressly set
forth in this Agreement without NDCA's prior written approval.
NDCA warrants only to Harcon that the Products shipped to
Harcon by NDCA will conform to the warranties and
representations set forth in the terms and conditions agreed
between the Parties from case to case. NDCA MAKES NO OTHER
WARRANTIES WITH RESPECT TO THE PRODUCTS AND DISCLAIMS ALL
OTHER WARRANTIES EXPRESS OR IMPLIED INCLUDING, WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
M. Conflicting Terms:
Harcon's purchase orders or mutually agreed change orders
shall be subject to all provisions of this Agreement, whether
or not the purchase order or change order so states. Except as
otherwise agreed by the parties in writing after the date of
this Agreement, all purchases of Products from NDCA by Harcon
are subject only to the terms and conditions agreed between
the Parties from case to case, notwithstanding any conflicting
term herein or in any purchase order of Harcon.
6
<PAGE>
N. Limited Liability; Waiver:
Neither party will be liable for and each party hereby waives
and releases any claims against the other party for any
indirect, special, incidental, punitive, contingent, or
consequential damages, including lost sales, revenues or
profit, loss or return of or damage to product, loss of
facilities, inventory, work-in-process, or time and materials,
or loss of prospective economic advantage, arising from any
performance or failure to perform under this Agreement.
Notwithstanding the above, neither party waives the right to
claim reimbursement by the other party for damage claims of
the customer, if customer's claims arise out of the failure to
perform by the other party.
O. Covenant not to compete
During the term of this Agreement, Harcon agrees not to
manufacture, market, distribute or sell any other products
identical or similar to the Products.
P. General:
This Agreement will not create any right in or obligation to
any third party. This Agreement will be governed by and
construed in accordance with the internal laws of the State of
North Carolina, without regard to the principles of conflicts
of laws thereof. If any provision of this Agreement is held by
a court of competent jurisdiction to be illegal, invalid or
unenforceable, that provision shall be limited or eliminated
to the maximum extent possible and this Agreement shall
otherwise remain in full force and effect and enforceable.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed on its behalf by a duly authorized officer as of the day and year first
above written.
NDCA: Harcon:
NDC AUTOMATION, INC. HARCON ENGINEERING, INC.
By: /s/Ralph Dollander By: /s/Philip Rizzo,Jr.
--------------------- ------------------------
Ralph Dollander Philip Rizzo, Jr.
President President
EARNINGS (LOSSES) PER COMMON SHARE:
The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS
No. 128) Earnings Per Share, which supercedes APS 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
securites, 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. As
described in Note 11, at November 30, 1998, 1997, and 1996 the Company had
options outstanding to purchase a total of 86,777, 146,833 and 107,333 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 1998, 1997 and 1996.
ANNUAL REPORT 1998
COVER PAGE
<PAGE>
INSIDE COVER
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL SUMMARY
==============================================================================================================
<S> <C> <C> <C> <C> <C>
97 TO 98 96 TO 97
At or For Year Ended November 30 1998 1997 1996 % CHANGE % CHANGE
- --------------------------------------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------------------------------------
Net revenues $ 4,015,698 $ 4,076,897 $ 6,142,954 (1.5) (33.6)
Operating income (loss) $ (31,418) $ (864,398) $ 195,496 (96.4) *
Income (loss) before income taxes (benefit) $ (276,283) $(1,060,360) $ 16,602 (73.9) *
Net income (loss) $ (276,283) $(1,060,360) $ 45,431 (73.9) *
Weighted average common shares outstanding 3,453,451 3,453,451 3,453,451 -- --
- --------------------------------------------------------------------------------------------------------------
PER SHARE DATA^
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ (.08) $ (.31) $ .01 (74.2) *
Cash dividends $ -- $ -- $ -- NA NA
Stockholders' equity $ .11 $ .19 $ .50 (42.1) 4.2
- --------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
- --------------------------------------------------------------------------------------------------------------
Assets $ 2,706,650 $ 2,757,331 $ 4,556,794 (1.8) (39.5)
Working capital (deficit) $ (563,725) $ 570,259 $ 1,416,912 * (59.8)
Property and equipment $ 1,059,912 $ 1,129,377 $ 1,239,799 (6.2) (8.9)
Long-term debt, less current maturities $ 114,889 $ 1,042,055 $ 1,102,264 (89.0) (5.5)
Stockholders' equity $ 381,298 $ 657,581 $ 1,717,941 (42.0) (61.7)
- --------------------------------------------------------------------------------------------------------------
Number of employees 22 25 28
Number of stockholders approx. 800 approx. 1200 approx. 1200
- --------------------------------------------------------------------------------------------------------------
* Because the data changes from negative to positive, the percentage of change
is not meaningful.
^ Earnings (loss) per share, assuming full dilution, are
equivalent to earnings (loss) per common share.
==============================================================================================================
</TABLE>
INDEX
Financial Summary 1
Letter to Shareholders 2
Selected Financial Data 3
Management's Discussion and Analysis 4
Independent Auditor's Report 11
Balance Sheets 12
Statements of Operations 14
Statements of Stockholders' Equity 15
Statements of Cash Flows 16
Notes to the Financial Statements 18
Shareholder Information 32
Directors and Officers 32
1
<PAGE>
DEAR FELLOW SHAREHOLDER:
================================================================================
On October 7, 1998, "Elaborate Lives - The Legend of Aida" had its world
premiere at the Alliance Theatre in Atlanta. This new musical is the first stage
production by Disney that is not based on a Disney movie production. All of the
19 new songs were composed by Elton John with lyrics by Tim Rice ("Evita", "The
Lion King "). The musical is scheduled to open in Chicago in the summer of 1999
and later on Broadway.
What does this have to do with NDC Automation and AGV systems?
This year we provided the guidance system for the very sophisticated
mechanical pyramid, which played a vital role and formed an integral part of the
stage set in this musical. The elaborate moving pattern of the pyramid was
possible only due to the flexibility and free-ranging capability of our LazerWay
navigation technology. This application, together with other theme park projects
we are involved in, are good examples of our new direction and strategy, namely
to identify and pursue new markets and new customers for our technology.
Another example of this is the recently announced cooperation agreement with
Harcon Engineering in Michigan, a long time supplier of material handling
equipment to DaimlerChrysler and other automobile manufacturers. The cooperation
with Harcon has already resulted in an order for the design phase of a large AGV
system at a new DaimlerChrysler facility in Detroit. The automotive industry has
historically been a major market for AGV systems, and through the cooperation
with Harcon we have positioned the Company to become a significant supplier in
this market.
Our strategy of providing turnkey AGV systems solutions to system integrators
and end-users is slowly but surely starting to turn the company around in a
positive direction. Although we did not manage to return to profitability in
1998, the profitable third and fourth quarters helped us to improve the
financial results substantially over 1997.
All of us at NDC Automation are looking forward to the last year of this
millennium with optimism and confidence and I hope you will share that feeling
and join our journey towards a brighter future.
Sincerely,
Ralph Dollander
President and CEO
2
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
===========================================================================================================
At or For Year Ended November 30
-----------------------------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
Statements of Operations Data:
<S> <C> <C> <C> <C> <C>
Net revenues $ 4,015,698 $ 4,076,897 $ 6,142,954 $ 7,851,147 $ 9,472,585
Cost of goods sold 2,387,342 2,695,289 3,864,393 5,597,305 6,214,318
- -----------------------------------------------------------------------------------------------------------
Gross profit $ 1,628,356 $ 1,381,608 $ 2,278,561 $ 2,253,842 $ 3,258,267
- -----------------------------------------------------------------------------------------------------------
Net gain from restructuring of operations $ -- $ -- $ -- $ 366,764 $ --
- -----------------------------------------------------------------------------------------------------------
Operating expenses:
Selling $ 662,780 $ 693,106 $ 656,537 $ 776,907 $ 517,884
General and administrative 996,994 1,552,900 1,422,586 3,288,619 4,014,174
Research and development - - 3,942 141,220 113,356
- -----------------------------------------------------------------------------------------------------------
$ 1,659,774 $ 2,246,006 $ 2,083,065 $ 4,206,746 $ 4,645,414
- -----------------------------------------------------------------------------------------------------------
Operating income (loss) $ (31,418) $ (864,398) $ 195,496 $(1,586,140) $(1,387,147)
- -----------------------------------------------------------------------------------------------------------
Net interest income (expense):
Interest income $ -- $ -- $ 7,771 $ 9,025 $ 32,417
Interest expense (244,865) (195,962) (186,665) (669,157) (868,435)
- -----------------------------------------------------------------------------------------------------------
$ (244,865) $ (195,962) $ (178,894) $ (660,132) $ (836,018)
- -----------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefit)$ (276,283) $(1,060,360) $ 16,602 $(2,246,272) $(2,223,165)
Federal and state income taxes (benefit) -- -- (28,829) 97,891 (598,971)
- -----------------------------------------------------------------------------------------------------------
Net income (loss) $ (276,283) $(1,060,360) $ 45,431 $(2,344,163) $(1,624,194)
===========================================================================================================
Weighted average number of
common shares outstanding
(primary and fully diluted) 3,453,451 3,453,451 3,453,451 2,904,322 2,829,691
===========================================================================================================
Basic and diluted earnings (loss) per share $ (.08) $ (.31) $ .01 $ (.81) $ (.57)
===========================================================================================================
Cash dividend declared per common share $ -- $ -- $ -- $ -- $ --
===========================================================================================================
Balance Sheets Data:
Working capital (deficit) $ (563,725) $ 570,259 $ 1,416,912 $1,227,144 $ 1,935,720
Total assets $ 2,706,650 $ 2,757,331 $ 4,556,794 $5,084,450 $13,188,231
Long-term debt, less current maturities $ 114,889 $ 1,042,055 $ 1,102,264 $1,170,311 $ 1,258,855
Total liabilities $ 2,325,352 $ 2,099,750 $ 2,838,853 $3,411,940 $ 9,711,853
Stockholders' equity $ 381,298 $ 657,581 $ 1,717,941 $1,672,510 $ 3,476,378
</TABLE>
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
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.
4
<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 systems selling direct to end-users or via system integrators
to end-users. The Company's OEM strategy contributed greatly to the losses
incurred by the Company during 1997. The Company changed its sales approach and
began soliciting its products directly to end-users during the fourth quarter of
1997 to ensure that its technology is available to such end-users. The Company
will not be selling directly to end users in situations in which a qualified OEM
or OEMs are specifying NDC controls in their system solution to the potential
end-users. There can be no assurances that such a strategy will be successful in
the short or long term.
DISTRIBUTION OF PRODUCTS AND TECHNOLOGY: The Company also intends to
pursue other related product lines that can be distributed to its targeted
customers to supplement its existing AGV business. This should allow the Company
to grow, while making the Company less dependent on its present product line.
There can be no assurance, however that this strategy will meet management's
objectives for growth. During 1997 and 1998 the Company realized minimal
revenues from such activities.
MUNCK AGREEMENT: On October 6, 1997, the Company executed a Strategic
Alliance Agreement with Munck Automation Technology. Inc. ("Munck") of Newport
News, Virginia. Munck is a major supplier of automated material handling systems
including AGVS vehicles and systems and automatic storage and retrieval systems
("AS/RS") to end users. The initial term of the agreement was three years,
subject to Munck reaching certain sale targets on an annual basis. The Agreement
was to extend, thereafter, in one year increments subject to the approval of
both companies.
Pursuant to the Agreement, Munck agreed to promote solely NDC AGVS
technology in its sales efforts of new AGV systems to end users. Munck also
committed to use its best efforts to meet a target which would provide purchase
orders to NDCA for a minimum of $9,400,000 for hardware, software and
engineering services over the initial three year term of the Agreement. During
1998 revenues from the agreement were well below the targets and there can be no
assurances that Munck will meet such targets. Under the Agreement, NDCA agreed
to promote Munck products to end users.
Munck was acquired by Swisslog Management Ltd ("Swisslog"), headquarters
in Aurau, Switzerland in August of 1998. Swisslog is a major international
supplier of material handling automation including various types of conveying
technology, Warehouse Management Systems, AS/RS, AGVS, and robotic handling
systems. The ramifications of the Swisslog acquisition of Munck are not yet
known. The strategic alliance agreement was terminated by the Company
December 16, 1998 in order to facilitate negotiations of a new agreement more
consistent with the future direction of both companies. There can be no
assurance that a new agreement will be reached between the companies.
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 Daimler
Chrysler 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.
5
<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 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 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.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
RESULTS OF OPERATIONS
The table below shows the relationship of income and expense items relative
to net revenues for the fiscal years ended November 30, 1998, 1997 and 1996,
respectively.
<TABLE>
<CAPTION>
Percentage of Change
Period to Period
Percentage of net Revenues Increase (Decrease)
- -------------------------------------------------------------------------------------
Year Ended Year Ended
For year Ended November 30, November 30,
1998 1997 1996 1997 to 1998 1996 to 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Revenues 100.0 % 100.0 % 100.0 % (1.5) % (33.6) %
Cost of goods sold 59.5 66.1 62.9 (11.4) (30.3)
- --------------------------------------------------------------------------------------
Gross profit 40.5 33.9 37.1 17.9 (39.4)
Operating expenses:
Selling 16.5 17.0 10.7 (4.4) 5.6
General and administrative 24.8 38.1 23.1 (35.8) 9.2
Research and development -- -- 0.1 -- (100.0)
- --------------------------------------------------------------------------------------
41.3 55.1 (26.1) 7.8 33.9
- --------------------------------------------------------------------------------------
Operating income (loss) (0.8) (21.2) 3.2 (96.4) *
Net interest expense 6.1 4.8 2.9 25.0 9.5
- --------------------------------------------------------------------------------------
Income (loss) before income
taxes (benefit) (6.9) (26.0) 0.3 (73.9) *
Income Tax (benefit) -- -- (0.4) -- (100.0)
- --------------------------------------------------------------------------------------
Net income (loss) (6.9)% (26.0) % 0.7 % (73.9) % * %
======================================================================================
</TABLE>
* Because the data changes from negative to positive, or from positive to
negative, the percentage of change is not meaningful.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
FISCAL YEAR ENDED NOVEMBER 30, 1998 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1997.
Net revenues in 1998 did not change significantly compared to the prior
year. Revenues decreased by $61,199 or 1.5%, from $4,076,897 for the fiscal year
ended November 30, 1997 to $4,015,698 for the fiscal year ended November 30,
1998. The Company's strategy to increase revenues by selectively selling turnkey
systems to end users and system integrators in September of 1997 did not
generate significant revenues in 1998, but resulted in an expansion of its
customer base and markets. Orders were received in 1998 from such industries as
entertainment, automotive, postal service and airport security. Some of these
industries are new to the Company and may offer good future opportunities. The
Company's strategy to align itself with Munck Automation, Inc. ("Munck") did not
generate the projected business volume from Munck. Munck was recently acquired
by Swisslog Management Ltd., headquartered in Aurau, Switzerland, a world leader
in material handling equipment and solutions. In December 1998 the Company
terminated its strategic alliance agreement with Munck in order to facilitate
negotiations of a new agreement more consistent with the future direction of
both companies. The Company also aggressively pursued distribution of new
products and technology in 1998 to the AGVS market to increase revenues. The
primary products were motors for industrial truck manufacturers, batteries and
chargers for the AGV market. Such new products did produce interest in the
marketplace but did not result in significant revenues for the Company in 1998.
The Company will continue to focus on increasing revenues in 1999 by providing
more turnkey systems when appropriate and expand its existing product line.
Cost of goods sold decreased from $2,695,289 to $2,387,342, or 11.4%, due
primarily to the lower engineering cost. As a percentage of net revenues, cost
of goods sold decreased to 59.5% compared to 66.1% the prior year. The primary
reason for the decrease is the Company experienced higher margins on revenues
related to its aftermarket and engineering revenues. Gross profit increased by
$246,748, or 17.9%, from $1,381,608 to $1,628,356 due to the same factors.
Selling expenses decreased from $693,106 to $662,780, or 4.4% due primarily
to lower advertising and marketing expenses. General and administrative expenses
decreased from $1,552,900 to $996,994, or 35.8% primarily due to lower cost
related to depreciation, amortization of intangibles in 1998 compared to 1997.
The Company also did not write down any intangibles in 1998 compared to a write
down of $52,394 in 1997. Lower equipment leases cost, and general cost reduction
relating to a cutback in personnel in May of 1998 contributed to lower general
and administrative expenses compared to the prior year.
Primarily as a result of the foregoing, the operating loss decreased by
$832,980 or 96.4%, from $864,398 to an operating loss of $31,418 for the current
year.
Net interest expense increased from $195,962 to $244,865, an increase of
25.0%. The increase is primarily due to increased borrowings relating to a new
two year term loan from Netzler and Dahlgren.
Primarily as a result of the foregoing, the net loss decreased by $784,077 or
73.9%, from $1,060,360 to a net loss of $276,283.
BACKLOG
Backlog consists of all amounts contracted to be paid by customers but not
yet recognized as net revenues by the Company. At November 30, 1998, the Company
had a backlog of approximately $780,000 compared to approximately $415,000 one
year earlier.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
FISCAL YEAR ENDED NOVEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1996.
Net revenues decreased by $2,066,057 or 33.6%, from $6,142,954 for the
fiscal year ended November 30, 1996 to $4,076,897 for the fiscal year ended
November 30, 1997. The primary reason for the decrease in 1997 compared to 1996
was a decline in project or turnkey system sales to end users and system
integrators. The Company chose to market and sell exclusively to major OEMs and
potential OEMs in an effort to increase sales revenues with the existing OEM
suppliers to the AGVS market. The Company believed that in 1997 it was
undesirable to compete with such potential customers if the Company was to
increase sales with these existing OEM customers. The strategy attracted a major
OEM supplier, Munck Automation Technologies( "Munck"), which signed a strategic
alliance with the Company in October 1997. Pursuant to the Agreement Munck
agreed to promote exclusively NDC AGVS technology in its sales efforts of new
AGV systems to end users. It is expected that other major OEMs will take longer
to convert to the Company's technology. Therefore, since the Company's
anticipated increased revenues from OEMs did not occur in 1997, the Company
began again selectively selling turnkey systems to end users in September of
1997. The Company is also aggressively pursuing distribution of new products and
technology to its market place to increase revenues.
Cost of goods sold decreased from $3,864,393 to $2,695,289, or 30.3%, due
primarily to the decreased level of net revenues. As a percentage of net
revenues, cost of goods sold increased to 66.1% compared to 62.9% the prior
year. The primary reason for the increase is the Company wrote-down
approximately $245,000 worth of inventory in 1997 compared to approximately
$110,000 in 1996. Gross profit decreased by $896,953, or 39.4%, from $2,278,561
to $1,381,608 due to the same factors.
Selling expenses increased from $656,537 to $693,106, or 5.6% due primarily
to higher advertising and marketing expenses. General and administrative
expenses increased from $1,422,586 to $1,552,900, or 9.2% primarily due to a
write down of approximately $63,000 of intangibles and software, increases in
lease and maintenance expenses relating to new computer equipment and an
increase in the provision for bad debt expense of $36,000 relating to a
receivable from the former subsidiary NDC Technologies Australia PTY LTD.
Primarily as a result of the foregoing, the operating income decreased by
$1,059,894 from an income of $195,496 to an operating loss of $864,398.
Net interest expense increased from $178,894 to $195,962, an increase of
9.5%. The increase is primarily due to increased bank fees in 1997 compared to
1996.
Income before income taxes decreased by $1,076,962, from an income of
$16,602, to a loss of $1,060,360 due primarily to the foregoing factors.
Primarily as a result of the foregoing, net loss increased by $1,105,791,
from a net income of $45,431 to a net loss of $1,060,360.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
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 year ended November 30, 1998 net cash used in operating activities
was $171,744. The current loss of $276,283 was the primary reason for the use of
cash from operating activities. To offset such uses the Company obtained a two
year loan from Netzler & Dahlgren for approximately $400,000 as described below.
The Company entered into an Inventory and Accounts Receivable Loan and Security
Agreement ("Loan Agreement") February 28, 1997 with the National Bank of Canada
and National Canada Business Corp. (herein collectively called the "Lender").
The Loan Agreement allows the Company to borrow up to a maximum of $1,250,000.
Loans made under the new Loan Agreement are evidenced by a demand promissory
Note. The Loan Agreement allows the Company to borrow pursuant to a borrowing
formula which is secured by Company's personal property as collateral. The
Company's outstanding loan amount at any one time shall not exceed the lesser of
(a) U.S $1,250,000 or (b) 80% of qualified accounts receivable ( as defined in
the Loan Agreement) plus 50% of all eligible inventory ( as defined in the Loan
Agreement) with a $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 of the Agreement was April 1, 1998 and 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, 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 revenues did not increase to consistently provide
earnings for the Company.
10
<PAGE>
Independent Auditor's Report
To the Board of Directors
NDC Automation, Inc.
Charlotte, North Carolina
We have audited the accompanying balance sheets of NDC Automation, Inc. as of
November 30, 1998 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended November 30, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NDC Automation, Inc. as of
November 30, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended November 30, 1998 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the
financial statements, the Company has suffered a significant losses from
operations in 1998 and 1997. This raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 15. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
McGLADREY & PULLEN, LLP
Charlotte, North Carolina
January 15, 1999, except for the last
sentence of the second paragraph of
Note 5, as to which the date is
February 24, 1999
11
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
================================================================================================
November 30,
1998 1997
- ------------------------------------------------------------------------------------------------
ASSETS (Note 5)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents (Note 13) $ 62,923 $ 72,368
Accounts receivable, net (Notes 2 and 6) 805,891 670,489
Inventories (Note 9) 593,794 813,865
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note 3) 136,547 23,406
Prepaid expenses and other assets 47,583 47,826
- ------------------------------------------------------------------------------------------------
Total current assets $ 1,646,738 $ 1,627,954
- ------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land $ 300,000 $ 300,000
Building and improvements 1,126,623 1,126,623
Furniture, fixtures, and office equipment 138,746 152,016
Machinery and equipment 59,325 76,814
- ------------------------------------------------------------------------------------------------
$ 1,624,694 $ 1,655,453
Less accumulated depreciation 564,782 526,076
- ------------------------------------------------------------------------------------------------
$ 1,059,912 $ 1,129,377
- ------------------------------------------------------------------------------------------------
$ 2,706,650 $ 2,757,331
================================================================================================
</TABLE>
See Notes to Financial Statements
12
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
================================================================================================
November 30,
1998 1997
- ------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Note payable, bank (Note 5) $ 346,657 $ 427,634
Current maturities of long- term debt (Note 5) 1,239,472 65,022
Accounts payable and accrued expenses;
including affiliates $169,837 at 1998
and $307,815 at 1997 (Note 9) 508,002 535,201
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note 3) 116,332 29,838
- ------------------------------------------------------------------------------------------------
Total current liabilities $ 2,210,463 $ 1,057,695
- ------------------------------------------------------------------------------------------------
LONG-TERM DEBT (Note 5) $ 114,889 $ 1,042,055
- ------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 10 )
STOCKHOLDERS' EQUITY (Note 11)
Preferred stock, par value $.01 per share
authorized 1,000,000 shares; no shares issued $ -- $ --
Common stock, par value $.01 per share;
11,000,000 shares authorized at 1998 and 1997;
3,453,451 shares were issued at 1998
and 1997 34,534 34,534
Additional paid-in capital 4,211,566 4,211,566
Accumulated deficit (3,864,802) (3,588,519)
- ------------------------------------------------------------------------------------------------
$ 381,298 $ 657,581
================================================================================================
$ 2,706,650 $ 2,757,331
================================================================================================
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
=================================================================================================
Years ended November 30,
1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues (Notes 6 and 9) $ 4,015,698 $ 4,076,897 $ 6,142,954
Cost of goods sold (Note 9) 2,387,342 2,695,289 3,864,393
- -------------------------------------------------------------------------------------------------
Gross profit $ 1,628,356 $ 1,381,608 $ 2,278,561
- -------------------------------------------------------------------------------------------------
Operating expenses:
Selling $ 662,780 $ 693,106 $ 656,537
General and administrative (Notes 4, 10) 996,994 1,552,900 1,422,586
Research and development -- -- 3,942
- -------------------------------------------------------------------------------------------------
$ 1,659,774 $ 2,246,006 $ 2,083,065
- -------------------------------------------------------------------------------------------------
Operating income (loss) $ (31,418) $ (864,398) $ 195,496
- -------------------------------------------------------------------------------------------------
Net interest income (expense):
Interest income $ -- $ -- $ 7,771
Interest expense (Note 9) (244,865) (195,962) (186,665)
- -------------------------------------------------------------------------------------------------
$ (244,865) $ (195,962) $ (178,894)
- -------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ (276,283) $(1,060,360) $ 16,602
Federal and state income taxes (benefit) (Note 7) -- -- (28,829)
- -------------------------------------------------------------------------------------------------
Net income (loss) $ (276,283) $(1,060,360) $ 45,431
=================================================================================================
Basic and diluted earnings (loss) per share $ (.08) $ (.31) $ .01
=================================================================================================
Weighted average common shares outstanding 3,453,451 3,453,451 3,453,451
=================================================================================================
Dividends per common share $ -- $ -- $ --
=================================================================================================
</TABLE>
See Notes to Financial Statements
14
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
==================================================================================================================================
Years Ended November 30,
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
Amount Shares Amount Shares Amount Shares
------ ------ ------ ------ ------ ------
COMMON STOCK:
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning $ 34,534 3,453,451 $ 34,534 3,453,451 $ 34,534 3,453,451
Stock options exercised (Note 11) -- -- -- -- -- --
==================================================================================================================================
Balance, ending $ 34,534 3,453,451 $ 34,534 3,453,451 $ 34,534 3,453,451
==================================================================================================================================
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning $ 4,211,566 $ 4,211,566 $ 4,211,566
Stock options exercised (Note 11) -- -- --
==================================================================================================================================
Balance, ending $ 4,211,566 $ 4,211,566 $ 4,211,566
==================================================================================================================================
ACCUMULATED DEFICIT:
Beginning deficit $(3,588,519) $ (2,528,159) $(2,573,590)
Net income (loss) (276,283) (1,060,360) 45,431
==================================================================================================================================
Ending deficit $(3,864,802) $ (3,588,519) $(2,528,159)
==================================================================================================================================
==================================================================================================================================
Stockholders' Equity at November 30 $ 381,298 3,453,451 $ 657,581 3,453,451 $ 1,717,941 3,453,451
==================================================================================================================================
</TABLE>
See Notes to Financial Statements
15
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
=====================================================================================================
Years ended November 30,
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ (276,283)$ (1,060,360) $ 45,431
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 82,825 114,564 149,107
Amortization -- 89,818 103,364
Increase (decrease) in provision for doubtful accounts (5,000) 26,281 (42,500)
(Gain) loss on sale of property and equipment (1,637) 26,027 20,630
Write-off of intangibles -- 52,394 --
Loss (gain) on foreign currency exchange rate (7,715) 3,652 (3,103)
Deferred income taxes -- -- (28,829)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (130,402) 829,620 (280,753)
Decrease in inventories 220,071 312,533 803,251
(Increase) decrease in costs and estimated earnings in
excess of billings on uncompleted contracts (113,141) 25,871 73,983
(Increase) decrease in prepaid expenses
and other assets 243 4,109 (20,602)
(Increase) decrease in other assets -- 21,281 (5,000)
Decrease in accounts payable
and accrued expenses (27,199) (167,104) (300,269)
Increase (decrease) in billings in excess of costs and
estimated earnings on uncompleted contracts 86,494 (88,819) (158,870)
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (171,744)$ 189,867 $ 355,840
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment $ 2,142 $ 6,535 $ 1,941
Purchase of property and equipment (13,865) (36,703) (41,045)
- -----------------------------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES $ (11,723)$ (30,168) $ (39,104)
- -----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
16
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
=====================================================================================================
Years ended November 30,
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
<S> <C> <C> <C>
Net borrowings (payments) on revolving credit agreement $ (80,977) $ (419,583) $ 202,842
Proceeds from current and long-term borrowings 402,183 -- --
Principle payments on long-term borrowings (154,899) (63,597) (287,961)
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES $ 166,307 $ (483,180) $ (85,119)
- -----------------------------------------------------------------------------------------------------
Effect of foreign currencies exchange rate changes
on cash and cash equivalents $ 7,715 $ (3,652) $ 3,103
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents $ (9,445) $ (327,133) $ 234,720
Cash and cash equivalents:
Beginning 72,368 399,501 164,781
- -----------------------------------------------------------------------------------------------------
Ending $ 62,923 $ 72,368 $ 399,501
=====================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for :
Interest $ 244,828 $ 204,684 $ 187,614
</TABLE>
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The Company was formed to acquire, develop, market, and sell hardware, software
and engineering services that are incorporated into and used to control
automatic guided vehicle systems ("AGVS"). The Company markets its products and
services to designers of integrated automation systems, original equipment
manufacturers, and end users primarily within the North American continent.
A summary of the Company's significant accounting policies follows:
REVENUE RECOGNITION:
The Company recognizes revenue from the sales of commercial products as
shipments are made.
The Company recognizes revenues under long-term contracts on the percentage of
completion method, measured by the percentage of each component cost incurred to
date to estimated total component contract costs for each component in the
contract. Component costs include material, direct labor, subcontracts,
engineering overhead, and miscellaneous costs. Provisions for estimated losses
are made in the period in which they first become determinable.
"Costs and estimated earnings in excess of billings on uncompleted contracts"
represent revenue recognized in excess of amounts billed. "Billings in excess of
costs and estimated earnings on uncompleted contracts" represent billings in
excess of revenues recognized.
ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS:
For purposes of reporting the statements of cash flows, the Company considers
all cash accounts (see Note 13), and all highly liquid debt instruments
purchased with a maturity of three months or less, to be cash equivalents. The
Company maintains demand deposits with a financial institution which are in
excess of the federally insured amount.
INVENTORIES:
The inventories are priced at the lower of cost or market, with cost being
determined by the weighted average method. Inventories consist primarily of
parts for computerized material handling systems purchased from the affiliate
Netzler & Dahlgren and motor-in-wheel drive units purchased from Schabmuller
GMBH.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Depreciation and amortization are
primarily computed using the straight-line method over the following useful
lives:
Years
-----
Building and improvements 21-28
Furniture, fixtures and office equipment 4-7
Machinery and equipment 3-5
Vehicles 3-5
When certain property and equipment are fully depreciated, amortized or idle, it
is the Company's practice to write off the cost against accumulated
depreciation, or amortization, so that only costs not fully depreciated or idle,
are carried on the balance sheet. For the years ended November 30, 1998 and
1997, the Company has written off $0 and $102,650 of software, $21,886 and
$105,143 of machinery and equipment, and $22,739 and $82,862 of furniture and
office equipment, respectively.
FOREIGN CURRENCY TRANSLATION:
Payables to foreign companies that are denominated in foreign currencies are
translated at rates that approximate the year-end foreign exchange rates.
Resultant gains or losses are reflected in cost of goods sold. The costs of
items of foreign origin which are included in inventory have been translated at
historical exchange rates prevailing at the date of acquisition.
Forward exchange contracts are purchased to hedge general exposed foreign
currency net asset or liability positions. Gains and losses from forward
exchange contracts that are intended to hedge identifiable foreign currency
commitments are included in the measurement of the related foreign currency
transaction. Management may from time to time enter into speculative hedging
transactions depending on market conditions. Gains and losses from such hedges
are recognized in the determination of net income (loss) as exchange rates
fluctuate.
INCOME TAXES:
Provisions for income taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences, operating
losses, and tax credit carryforwards, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS:
The marketing and manufacturing rights are recorded at cost and are being
amortized by the straight-line method over ten years. NDC Laser rights and
product rights, patents and the Statec Technologies, S.A. ("Statec")
distribution agreement were also recorded at cost and were amortized by the
straight-line method over five, ten and ten years, respectively. The goodwill
recognized in the business acquisition of NDCTA represented the excess of the
cost of acquiring the company over the fair value of the net assets received at
the date of acquisition. Goodwill was amortized over a 20 year period using the
straight-line method.
The Company annually assesses the remaining unamortized amounts of such
intangible assets to determine if impairment has occurred. The intangibles
related to Statec were fully amortized during 1995 except for the patent,
marketing and manufacturing rights; however, such rights, were written-off
during 1996 as the Company and Statec entered into an agreement which reassigned
all the rights back to the manufacturer in March of 1996 ( see Note 12 ).
RESEARCH AND DEVELOPMENT COSTS:
Research and development costs are charged to expense when incurred and are
included in the statements of operations. However, certain qualifying expenses
after the research and development phase was completed were capitalized in
accordance with Financial Accounting Standard No. 86, "Computer Software to be
Sold, Leased or Otherwise Marketed".
EARNINGS (LOSSES) PER COMMON SHARE:
The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS
No. 128) Earnings Per Share, which supercedes APS 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
securites, 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. As
described in Note 11, at November 30, 1998, 1997, and 1996 the Company had
options outstanding to purchase a total of 86,777, 146,833 and 107,333 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 1998, 1997 and 1996.
ADVERTISING:
The Company follows the policy of charging production cost of advertising to
expense as incurred. Advertising expenses for the years ending November 30,
1998, 1997 and 1996 were $15,649, $91,340, and $4,562 respectively.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at November 30, 1998 and 1997,
respectively:
1998 1997
- --------------------------------------------------------------------------------
Trade and contract $ 850,336 $ 721,506
Less: Allowance for doubtful accounts (50,000) (55,000)
- --------------------------------------------------------------------------------
$ 800,336 $ 666,506
Other 1,847 --
Officers and employees 3,708 3,983
- --------------------------------------------------------------------------------
$ 805,891 $ 670,489
================================================================================
NOTE 3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts consist of the following
at November 30, 1998 and 1997, respectively:
1998 1997
- --------------------------------------------------------------------------------
Costs incurred on uncompleted contracts $ 591,370 $ 613,760
Estimated earnings 232,273 145,166
- --------------------------------------------------------------------------------
$ 823,643 $ 758,926
Less billings to date (803,428) (765,358)
================================================================================
$ 20,215 $ (6,432)
================================================================================
Included in the accompanying balance sheets under the following captions:
1998 1997
- --------------------------------------------------------------------------------
Costs and estimated earnings in excess of billings
on uncompleted contracts $ 136,547 $ 23,406
Billings in excess of costs and estimated earnings
on uncompleted contracts (116,332) (29,838)
- --------------------------------------------------------------------------------
$ 20,215 $ (6,432)
================================================================================
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 4. INTANGIBLE ASSETS
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. SFAS No. 121 is effective for fiscal years beginning
after December 15, 1995. The Company is required to review, certain identifiable
intangibles, and goodwill for possible impairment. Under the guidelines of the
standard, the Company is required to review long-lived assets and certain
identifiable intangibles to be held for impairment whenever events or changes in
circumstances, as outlined in Statement No. 121, indicate that the carrying
amount of an asset may not be recoverable. If these events or changes in
circumstances indicate that the carrying amount of an asset that an entity
expects to hold and use may not be recoverable, the Company shall estimate the
future cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows is less than the
carrying amount of the asset, the Company shall recognize an impairment loss in
accordance with the Statement.
Product rights were purchased from Netzler & Dahlgren Co AB in 1993 to
compliment the technology acquired by the Company from Autonavigator AB. During
1997, the Company determined that the prospective cash flows from these rights
became uncertain and wrote-off the remaining unamortized balance of $52,394.
Intangible assets at November 30, 1998 and 1997, respectively, consisted of the
following:
1998 1997
- --------------------------------------------------------------------------------
Netzler & Dahlgren navigator card $ -- $ 449,092
products rights
- --------------------------------------------------------------------------------
Less write-off -- 52,394
Less accumulated amortization -- 396,698
- --------------------------------------------------------------------------------
$ -- $ --
================================================================================
NOTE 5. PLEDGED ASSETS, NOTE PAYABLE, BANK AND LONG-TERM DEBT
1998 1997
- --------------------------------------------------------------------------------
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 $ 346,657 $ 427,634 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) $346,657 $427,634
================================================================================
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 5. PLEDGED ASSETS, NOTE PAYABLE, BANK AND LONG-TERM DEBT (CONTINUED)
Long-term debt consists of the following : 1998 1997
- --------------------------------------------------------------------------------
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 $978,932
The loan also contains certain financial
covenants to which the Company must adhere.
As of November 30, 1998, the Company obtained
waivers for certain financial covenants as
specified by the Mortgage note agreement.
$1,042,520 $1,107,077
Note payable to Netzler & Dahlgren Co AB,
based on a 16.0% fixed rate. Original
principal balance to be repaid in
twenty-four (24) consecutive monthly
principal payments of 133,529 Swedih
Krona, or approximately US$16,757 depending
on the exchange rate at time of payment,
plus interest. The note is collaterized
by the Company's land and building with a
carrying value of $978,932. $ 311,841 --
- --------------------------------------------------------------------------------
Less current maturities: 1,239,472 65,022
- --------------------------------------------------------------------------------
$ 114,889 $1,042,055
================================================================================
(1) The prime rate at November 30, 1998 was 7.75% and 8.50% at November 30,
1997.
(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 November 30, 1998 are as follows:
Year Ending
November 30
- --------------------------------------------------------------------------------
1999 $1,239,472
2000 114,889
================================================================================
$1,354,361
================================================================================
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 6. MAJOR CUSTOMERS
Net revenues and accounts receivable as of and for the years ended November 30,
1998, 1997, and 1996, respectively, include sales to the following major
customers (each of which accounted for 10% or more of the total net revenues of
the Company for those years):
Amount of Net Revenues
Year Ended November 30,
CUSTOMER 1998 1997 1996
- --------------------------------------------------------------------------------
A $ 488,603 $ * $ *
B 482,826 * *
C 457,365 * *
D * * 666,457
E * 612,226 *
F * 590,588 *
Accounts Receivable
November 30,
1998 1997 1996
- --------------------------------------------------------------------------------
A $ 51,711 $ * $ *
B 63,108 * *
C 162,899 * *
D * * 76,448
E * 61,075 *
F * 295,363 *
*Not a major customer.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 7. INCOME TAXES
Income taxes (benefit) consist of the following components for the years ended
November 30, 1998, 1997, and 1996, respectively:
1998 1997 1996
- --------------------------------------------------------------------------------
Current $ -- $ -- $ --
Deferred
-- -- (28,829)
- --------------------------------------------------------------------------------
$ -- $ -- $ (28,829)
================================================================================
Net deferred tax assets consist of the following components as of November 30,
1998 and 1997, respectively:
Deferred tax assets:
Allowance for doubtful accounts $ 19,558 $ 21,513
Inventory valuation reserves 15,646 46,938
Capitalized cost in ending inventory 8,757 10,428
Net operating loss carryforward 1,479,799 1,349,438
General business credit carryforwards 45,367 45,367
Depreciation 13,847 10,600
Other reserves 17,236 20,254
Unrealized losses or foreign currency exchange -- 403
- --------------------------------------------------------------------------------
$ 1,600,210 $1,504,941
Less valuation allowance 1,600,210 1,504,941
- --------------------------------------------------------------------------------
Net deferred taxes $ -- $ --
================================================================================
The changes in the valuation allowance for the years ended November 30, 1998,
1997 and 1996 were $95,299, $406,909 and $(49,886), respectively. The valuation
reserve is the result of management's determination that the Company may not be
able to generate sufficient future taxable income to realize the recorded
deferred tax assets.
A reconciliation of the statutory income tax to the income tax expense (benefit)
included in the Statements of Operations is as follows:
Years Ended November 30,
1998 1997 1996
- --------------------------------------------------------------------------------
% OF % of % of
DOLLAR PRE-TAX Dollar Pre-tax Dollar Pre-tax
AMOUNT INCOME Amount Income Amount Income
- --------------------------------------------------------------------------------
Statutory federal income
tax (benefit) $(93,936) (34.0) $(360,522) (34.0) $ 5,645 34.0
Increase (decrease) in
taxes resulting from:
State income taxes (13,814) (5.0) (53,018) (5.0) 1,873 11.3
Changes in valuation 95,299 34.0 406,909 38.0 (49,886) (300.5)
allowance
Other 12,451 5.0 6,631 1.0 13,539 81.6
================================================================================
$ -- -- $ -- -- $(28,829) (173.6)
================================================================================
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 8. 401(K) PROFIT SHARING PLAN
The Company has a profit sharing plan, the contributions to which are
discretionary.
The Company established a 401(k) profit sharing plan to which both the Company
and eligible employees may contribute. The Company may, at its discretion, match
the participant's contribution quarterly, up to a maximum of $700 per plan year.
The Company's contribution for the years ended November 30, 1998, 1997 and 1996
amounted to $13,587, $17,340, and $18550, respectively.
NOTE 9. RELATED PARTY TRANSACTIONS
The Company is related to NDC, Netzler & Dahlgren Co. AB (Netzler & Dahlgren)
through common ownership .
Netzler & Dahlgren is the Company's largest supplier of AGVS control technology.
Accordingly, the Company's success is dependent upon its ability to obtain such
products on a timely basis. Although the Company has entered into a written
agreement with Netzler & Dahlgren for the supply of such products, there can be
no assurance that this company will continue to fulfill its obligations under
the agreement.
On November 30, 1995, the Company signed a ten (10) year master license
agreement with Netzler & Dahlgren to purchase certain products at prices
stipulated. The master license agreement provides for certain royalty payments
based on 10% of revenues on license fee contracts entered into after November
30, 1995.
On November 30, 1995 the Company sold certain intangibles related to its laser
technology and its stock in NDC Laser to Netzler & Dahlgren for $1,000,000. As
part of the sales price the Company receives contingent laser fees from Netzler
& Dahlgren for the years ending 1996, 1997 and 1998. For the year ending
November 30, 1998, 1997 and 1996 the Company earned and netted against trade
payables $59,250, $109,750 and $174,750 respectively, in laser fees from Netzler
& Dahlgren.
The Company had the following transactions with Netzler & Dahlgren for the years
ended November 30, 1998, 1997, and 1996, respectively:
1998 1997 1996
- --------------------------------------------------------------------------------
Revenues $ 252,621 $ 153,176 $ 261,199
================================================================================
Purchases of hardware, software & $ 490,656 $ 689,059 $ 1,049,324
engineering services
================================================================================
Interest expense $ 76,499 $ 17,968 $ --
================================================================================
There was no royalty expense for the three years ended November 30, 1998.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 10. COMMITMENTS
At November 30, 1998, the Company had no outstanding forward exchange contracts.
These contracts are purchased as needed from time to time to hedge identifiable
foreign currency commitments.
The Company leases property and equipment under long-term operating leases
expiring on various dates through August, 2001. In addition, the Company has
rental expenses for facilities rented on a short term basis and on a
month-to-month basis, such expenses were $15,187, $16,103, and $38,514 for the
years ended November 30, 1998, 1997, and 1996, respectively.
Minimum rental commitments under long-term operating leases at November 30, 1998
were as follows:
1999 $ 50,948
2000 17,013
2001 6,613
============
$ 74,574
============
The Company has an employment contract with the President which provides for a
minimum annual base salary of $120,000 plus $12,000 being contributed to a
retirement plan. The base salary is subject to annual reviews. The contract
expires on March 1, 1999.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 11. STOCK OPTION PLANS
The Company has adopted Statement of Financial Accounting Standards (`SFAS') No.
123, Accounting for Stock-Based Compensation. FASB Statement No.123, requires
that the Company account for its stock based compensation plans using a fair
value based method which measures compensation cost at the grant date based upon
the value of the awards, which is then recognized over the vesting period. The
accounting requirements of the statement apply to awards to employees entered
into fiscal years that begin after December 15, 1995 and to transactions with
non-employees entered into after December 15, 1995. The Statement allows and the
Company has elected to continue to use APB Opinion No. 25 Accounting for Stock
Issued to Employees to measure compensation cost, but is required to disclose
the pro forma effect on net income and earnings per share to reflect the
difference between the compensation cost from applying APB Opinion No. 25 and
the related cost measured by the fair value method defined in the statement for
all awards granted in years beginning after December 15, 1994. The Statement did
not change the reporting required for the Plans discussed below. The FASB has
issued for public comment certain interpretations of APB 25, which could have a
significant effect on the Company's future financial statements.
1990 AND 1993 STOCK OPTION PLANS:
On October 10, 1990, the Compensation Committee of the Board of Directors
adopted the NDC Automation, Inc. 1990 Stock Option Plan ("the 90 Plan"), the
adoption of which was ratified by the shareholders at the annual meeting held on
April 10, 1991. In September 1992, the Company registered up to 178,613 shares
of common stock for issuance. On October 23, 1993, the Compensation Committee of
the Board of Directors adopted the NDC Automation, Inc. 1993 Stock Option Plan
("the 93 Plan"), the adoption of which was ratified by the shareholders at the
annual meeting held on May 5, 1994.
Options to purchase 174,375 shares of common stock were granted pursuant to the
90 Plan and are available for exercise upon achievement by the Company of
certain financial performance targets set by the Board of Directors on an annual
basis. The options will be exercisable for a term of ten years, commencing on
the date of the grant at an exercise price of $.7917 to $1.56 for new employees.
The 93 Plan authorized 100,000 options to purchase common stock, of which
100,000 were granted and are available for exercise upon achievement by the
Company of certain financial performance targets set by the Board of Directors
on an annual basis. On October 24, 1994, the 93 Plan options were repriced with
approval by the Compensation Committee at an exercise price of $1.56.
Of the 274,375 total shares of common stock granted, the Compensation Committee
granted to the Company's current and former executive officers options to
purchase 120,375 shares of common stock at an exercise price of $.7917 for the
90 Plan, and 18,000 shares of common stock for the 93 Plan at an exercise price
of $1.56. The exercise price of the options granted is based on the average fair
market value of the common stock for the five business days preceding the date
of the grant.
1997 STOCK OPTION PLAN:
On December 7, 1996 , the Compensation Committee of the Board of Directors
adopted The NDC Automation, Inc. 1997 Stock Option Plan ("the 97 Plan"), the
adoption of which was ratified by the shareholders at the annual meeting held
April 25, 1997. The 97 Plan authorized 225,000 options to all officers and
employees in the form of incentive stock options, of which 210,000 were granted
in January 1997 at an exercise price of $0.50 per share upon achievement by the
Company of certain financial performance targets set by the Board of Directors
on an annual basis. No pro forma compensation expense has been disclosed due to
financial performance targets not being obtained in 1998 or 1997 and due to
uncertainty of financial performance targets being obtained prospectively.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 11. STOCK OPTION PLANS ( CONTINUED)
Transactions involving these plans for the years ended November 30, 1998, 1997
and 1996 respectively, are summarized as follows:
<TABLE>
STOCK OPTIONS 1998* 1997* 1996*
- ---------------------------------------------------------------------------------------------------------------------------------
90 PLAN 93 PLAN 97 PLAN TOTAL 90 PLAN 93 PLAN 97 PLAN Total 90 PLAN 93 PLAN Total
----------------------------------- ------------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, 63,233 83,600 199,520 346,333 63,233 84,100 147,333 67,929 93,000 160,929
December 1
Granted -- -- -- -- -- -- 210,000 210,000 -- -- --
Canceled (33,556) (31,500) (32,250) (97,306) -- (500) (10,500) (11,000) (4,696) (8,900) (13,596)
Exercised -- -- -- -- -- -- -- -- -- -- --
- ----------------------------------------------------- ------------------------------------- ----------------------------------
Outstanding, 29,677 52,100 167,250 249,027 63,233 83,600 199,500 346,333 63,233 84,100 147,333
November 30
===================================================== ===================================== ==================================
Exercisable, 29,677 52,100 -- 81,777 63,233 83,600 -- 146,833 63,233 84,100 147,333
November 30
===================================================== ===================================== ==================================
* The weighted average exercise price per share of options outstanding, granted,
canceled, exercised, or exercisable for the 90 Plan is $0.7917, for the 93 Plan
is $1.56 and for the 97 Plan is $0.50.
</TABLE>
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 12. REASSIGN BACK STATEC EXCLUSIVE DISTRIBUTION AGREEMENT
On February 21, 1996 the Company and Statec entered into a letter of
understanding under which the Company reassigned to Statec the exclusive
distribution and manufacturing rights for North America effective March 1, 1996.
The assignment was contingent upon Statec making the following payments for a
total of $183,000, excluding inventory. The payments required were as follows:
o A down payment of $15,000 was due March 1, 1996
o Twenty-eight (28) monthly installments of $6,000 each, commenced March
1, 1996 for a total of $168,000.
o Statec was to repurchase all NDCA inventory related to Statec products
at the Company's net book value plus $15,000. All the inventory was
to be repurchased on or before November 30, 1996.
The transfer permitted the Company to reduce associated fixed overhead expenses
with the sale of such products and allowed the Company to focus solely on its
AGVS product line.
Statec was in default under the agreement by not paying or repurchasing the
inventory with a cost of $71,272 and had not paid the agreed installments of
$6,000 monthly since December 1996. There remained a total number of 19 unpaid
installment equaling $114,000. In February of 1997, the Company was notified
that Statec became subject to a court ordered liquidation proceeding under
French law. On March 27, 1997 the Company received $47,884 for the repurchase of
all NDCA inventory related to Statec products and $20,000 per the Supplemental
Agreement between the Company and Statec. The amounts paid were approved by the
French court and terminate all obligations from Statec to the Company per the
Supplemental Agreement.
NOTE 13. RESTRICTED CASH AND CREDIT RISK
Under the Company's line of credit agreement, the Company's cash disbursements
are controlled and approved by the bank. Cash received by the Company is
deposited into bank-monitored cash collateral accounts where cash funds are used
to pay down the bank line of credit. Daily cash operating requirements of the
Company are then funded through advances under the borrowing base formula of the
line of credit (see Note 5).
NOTE 14. FASB STATEMENTS AND PROPOSED REGULATIONS
The FASB has issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which the
Company has not been required to adopt as of November 30, 1998. The Statement,
which is effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. This statement requires that all items
that are recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 14. FASB STATEMENTS AND PROPOSED REGULATIONS (CONTINUED)
The FASB has issued SFAS No.131, Disclosures About Segments of an Enterprise and
Related Information, which the Company has not been required to adopt as of
November 30, 1998. This statement which is effective for Fiscal years beginning
after December 15, 1997 establishes standards for the manner in which a publicly
held enterprise reports certain information about operating segments of their
business. The information required to be disclosed for an entity's operating
segments not only consist of financial information, but also certain related
disclosures of the segment's products and services, geographic areas, and major
customers. The impact on disclosures is not anticipated to be significant.
NOTE 15. 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 has made plans in regards to these matters to develop an operating
plan that will increase revenues and minimize losses. This plan includes a
reorganization of present resources to support the following :
o Establish and develop strategic alliances with selected customers
o Pursue AGV system business in selected market niches
o Grow the distribution business by adding new supplementary products
o Expand the aftermarket sales business
The Company is also pursuing raising additional equity to assist in reaching its
goals.
Although the Company believes that its strategic plans will permit it to meet
its 1999 working capital needs, there can be no assurance that the Company can
successfully meet the objectives of such plans.
31
<PAGE>
<TABLE>
SHAREHOLDER INFORMATION
====================================================================================================================================
<S> <C>
ANNUAL MEETING DIRECTORS
The annual meeting will be held at 10:00 am, Friday,
May 7, 1999, at NDC Automation's Corporate offices Goran P.R. Netzler
in Charlotte, North Carolina. Chairman of the Board of Directors, NDC
Automation, Inc.
President
Netzler and Dahlgren Co. AB
SHAREHOLDER RELATIONS
A COPY OF NDC'S ANNUAL REPORT Ralph Dollander
AND FORM 10-KSB, WHICH IS FILED WITH THE SECURITIES AND EXCHANGE President
COMMISSION, WILL BE SENT TO ANY SHAREHOLDER UPON WRITTEN REQUEST NDC Automation, Inc.
TO MANAGER-INVESTOR RELATIONS
NDC AUTOMATION, INC.,
3101 LATROBE DRIVE Jan H.L. Jutander
CHARLOTTE, NORTH CAROLINA 28211-4849 Vice President, Operation
Netzler and Dahlgren Co. AB
CORPORATE OFFICES
NDC Automation, Inc. Richard D. Schofield
3101 Latrobe Drive Director
Charlotte, North Carolina 28211-4849
Raymond O. Gibson
(704) 362-1115 Telephone VP Operations
(704) 364-4039 Facsimile Terion, Inc.
STOCK EXCHANGE LISTINGS OFFICERS
Over the Counter: OTC Bulletin Board
OTC Symbol: "AGVS" Ralph Dollander
President
TRANSFER AGENT Chief Executive Officer
First Citizens bank
Raleigh, North Carolina Claude Imbleau
Vice President, Finance and Administration
LEGAL COUNSEL Chief Financial Officer
Parker, Poe, Adams and Bernstein, LLP
Charlotte, North Carolina E. Thomas Watson
Secretary, NDC Automation, Inc.
Shumaker, Loop and Kendrick, LLP Partner
Charlotte, North Carolina Parker, Poe, Adams and Bernstein LLP
AUDITORS
McGladrey & Pullen, LLP
Charlotte, North Carolina
==========================================================================================================================
COMMON STOCK DATA
Market Price Per Share
----------------------------------------------------------------------------------
1998 - 1997
------------------------------------- ------------------------------------
Quarter Ended High Low High Low
Bid Ask Bid Ask Bid Ask Bid Ask
- -------------------------------------------------------------------------------------------------------------------------
February 28 9/32 13/32 5/32 3/16 11/16 13/16 9/32 11/32
May 31 11/32 7/16 9/32 11/32 13/32 17/32 9/32 3/8
August 31 .32 7/16 3/16 .24 31/32 1 1/32 5/16 3/8
November 30 .22 .28 .125 .14 13/16 15/16 1/4 3/8
=========================================================================================================================
</TABLE>
32
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITOR
We hereby consent to the incorporation by reference in this Form 10-KSB of our
report dated January 15, 1999 which appears on page 11 of the 1998 Annual Report
of NDC Automation, Inc.
/s/ McGladrey & Pullen, LLP
Charlotte, North Carolina
February 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000859621
<NAME> NDC AUTOMATION, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<CASH> 62,923
<SECURITIES> 0
<RECEIVABLES> 855,891
<ALLOWANCES> 50,000
<INVENTORY> 593,794
<CURRENT-ASSETS> 1,646,738
<PP&E> 1,624,694
<DEPRECIATION> 564,782
<TOTAL-ASSETS> 2,706,650
<CURRENT-LIABILITIES> 2,210,463
<BONDS> 0
0
0
<COMMON> 34,534
<OTHER-SE> 346,764
<TOTAL-LIABILITY-AND-EQUITY> 2,706,650
<SALES> 4,015,698
<TOTAL-REVENUES> 4,015,698
<CGS> 2,387,342
<TOTAL-COSTS> 2,387,342
<OTHER-EXPENSES> 1,659,774
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (244,865)
<INCOME-PRETAX> (276,283)
<INCOME-TAX> 0
<INCOME-CONTINUING> (276,283)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (276,283)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
