U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 31, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 0-18253
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NDC Automation, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 56-1460497
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3101 Latrobe Drive, Charlotte, North Carolina 28211-4849
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(Address of principal executive offices)
(704) 362-1115
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(Issuer's telephone number)
N/A
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(Former name, former address, and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of June 30, 2000, there were 3,586,451 shares of common stock outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes [ ]; No [X]
<PAGE>
I N D E X
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
May 31, 2000 (Unaudited) and November 30, 1999 3-4
Condensed Statements of Operations
Three and Six months ended May 31, 2000 and May 31, 1999
(Unaudited) 5
Condensed Statements of Cash Flows Six months ended May 31, 2000
and May 31, 1999 (Unaudited) 6
Notes to Condensed Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and use of proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
(a) Exhibits -- Press Releases and other Exhibits 16
(b) Reports on Form 8-K 16
SIGNATURES 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NDC AUTOMATION, INC.
CONDENSED BALANCE SHEETS
May 31, November 30,
2000 1999
(Unaudited)
-------------------------------------------------------------------------------
ASSETS (Note 4)
CURRENT ASSETS
Cash and cash equivalents $ 23,368 $ 45,240
Accounts receivables, net 1,078,403 1,882,293
Inventories 633,222 366,365
Costs and estimated earnings in excess of
billings on uncompleted contracts 130,506 35,024
Prepaid expenses and other assets 44,743 51,592
-------------------------------------------------------------------------------
Total current assets $ 1,910,242 $ 2,380,514
-------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land $ 300,000 $ 300,000
Building and improvements 1,126,623 1,126,623
Furniture, fixtures and office equipment, 206,749 168,505
Machinery and equipment 68,150 63,415
-------------------------------------------------------------------------------
$ 1,701,522 $ 1,658,543
Less accumulated depreciation 689,250 646,867
-------------------------------------------------------------------------------
$ 1,012,272 $ 1,011,676
-------------------------------------------------------------------------------
$ 2,922,514 $ 3,392,190
===============================================================================
Note: The Condensed Balance sheet at November 30, 1999 has been taken from the
Audited Financial Statements at that date.
See Notes to Condensed Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
May 31, November 30,
2000 1999
(Unaudited)
-----------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank (Note 4) $ 294,939 $ 168,153
Current maturities of long- term debt (Note 4) 954,985 1,087,740
Accounts payable and accrued expenses;
including affiliates $604,666 at 2000
and $416,581 at 1999 1,415,605 1,475,974
Billings in excess of costs and estimated
earnings on uncompleted contracts 174,190 209,272
-----------------------------------------------------------------------------------------
Total current liabilities $ 2,839,719 $ 2,941,139
-----------------------------------------------------------------------------------------
LONG-TERM DEBT (Note 4) $ - $ -
-----------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share
authorized 1,000,000 shares; no shares issued $ - $ -
Common stock, par value $.01 per share;
11,000,000 shares authorized
at 2000 and 1999; 3,586,451 shares
were issued at 2000 and 1999 35,864 35,864
Additional paid-in capital 4,260,236 4,260,236
Accumulated deficit (4,213,305) (3,845,049)
-----------------------------------------------------------------------------------------
$ 82,795 $ 451,051
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$ 2,922,514 $ 3,392,190
=========================================================================================
</TABLE>
4
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31, May 31, May 31,
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 1,580,364 $ 1,225,864 $ 2,557,762 $ 2,157,893
Cost of goods sold 1,105,391 655,657 1,779,193 1,231,538
-------------------------------------------------------------------------------------------------------------------
Gross profit $ 474,973 $ 570,207 $ 778,569 $ 926,355
-------------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling $ 219,596 $ 171,697 $ 363,091 $ 363,456
General and administrative 308,669 315,332 680,470 573,811
-------------------------------------------------------------------------------------------------------------------
$ 528,265 $ 487,029 $ 1,043,561 $ 937,267
-------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ (53,292) $ 83,178 $ (264,992) $ (10,912)
Net interest expense (49,022) (62,079) (103,264) (124,765)
-------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ (102,314) $ 21,099 $ (368,256) $ (135,677)
Federal and state income taxes (Note 2) - - - -
-------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ (102,314) $ 21,099 $ (368,256) $ (135,677)
===================================================================================================================
Weighted average number of common
shares outstanding 3,586,451 3,453,451 3,586,451 3,453,451
-------------------------------------------------------------------------------------------------------------------
Income (loss) per common share - basic (Note 3) $ (0.03) $ 0.01 $ (0.10) $ (0.04)
Income (loss) per common share - diluted (Note 3) $ (0.03) $ 0.01 $ (0.10) $ (0.04)
===================================================================================================================
Dividends per common share $ - $ - $ - $ -
===================================================================================================================
</TABLE>
See Notes to the Condensed Financial Statements
5
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
May 31, May 31,
2000 1999
-------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (5,339) $ 73,328
-------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (42,978) (16,656)
-------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES $ (42,978) $ (16,656)
-------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings on revolving credit agreement $ 126,786 $ 24,572
Principal payments on long-term borrowings (132,755) (139,308)
-------------------------------------------------------------------------------
NET USED IN FINANCING ACTIVITIES $ (5,969) $(114,736)
-------------------------------------------------------------------------------
Effect of foreign currency exchage rates changes
on cash and cash equivalents $ 32,414 $ 23,785
-------------------------------------------------------------------------------
Decrease in cash and cash equivalents $ (21,872) $ (34,279)
Cash and cash equivalents:
Beginning 45,240 62,923
-------------------------------------------------------------------------------
Ending $ 23,368 $ 28,644
===============================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 84,414 $ 114,832
===============================================================================
See Notes to the Condensed Financial Statements
6
<PAGE>
NDC AUTOMATION, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1.
The unaudited internal condensed financial statements and related notes have
been prepared by NDC Automation, Inc. (the "Company"), without audit pursuant to
the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at May 31, 2000, and for all periods presented, have
been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these condensed financial statements be
read in conjunction with the Company's audited financial statements and notes
thereto for the fiscal year ended November 30, 1999. The results of operations
for the six months ended May 31, 2000 are not necessarily indicative of the
operating results for the full year.
Note 2. Income Taxes
The Company did not recognize any income tax benefits in 1999 and 2000 for its
current losses as all prior taxes were recognized in the previous financial
statements and utilization of operating loss carryforwards in the future are not
assured to be realized.
Note 3. Earnings (loss) per common share:
The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS
No.128) Earnings Per Share, which supersedes APB Opinion No. 15. SFAS No. 128
requires the presentation of earnings per share by all entities that have common
stock or potential common stock, such as options, warrants, and convertible
securities, outstanding that trade in a public market. Basic per share amounts
are computed, generally, by dividing net income or loss by the weighted-average
number of common shares outstanding. Diluted per share amounts assume the
conversion, exercise, or issuance of all potential common stock instruments
unless the effect is antidilutive, thereby reducing a loss or increasing the
income per common share. The Company had options outstanding at May 31, 2000 and
May 31, 1999 to purchase a total of 134,092 and 81,777 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 2000 and 1999.
7
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 4. Pledged Assets, Note Payable, Bank and Long-Term Debt
The Company has the following note payable to a Bank at May 31, 2000:
Note Payable Agreement that allows the Company to borrow up
to $1,250,000 and bears interest at the lender's prime rate
plus 2.75% per annum . The Company's loan outstanding shall
not exceed the lesser of (a) U.S. $1,250,000 or (b) 80% of
i) Qualified Accounts receivable (as defined in the Loan
Agreement) that are non-project Qualified Accounts and ii)
Qualified Accounts that are project Qualified Accounts (as
defined in the Loan Agreement) plus 50% of all eligible
inventory, but in no event shall (A) Inventory Value be in
excess of $300,000 and (B) Inventory Value and Qualified
Accounts that are project Qualified Accounts be in excess of
$450,000. The loan agreement is further secured by 1) an
Inventory Repurchase Agreement and 2) a $450,000 irrevocable
Letter of Credit issued by a Swedish Bank. Netzler &
Dahlgren Co. AB (NDCab) is obligated to repay the letter of
credit bank any funds it disburses under the Letter of
Credit. The Company is ultimately responsible to repay to
NDCab any amounts it pays in reimbursing the Letter of
Credit Bank . The Repurchase Agreement guarantees that NDCab
will repurchase on certain conditions up to $300,000 worth
of inventory, thereby providing funds to pay lender should
the Company be in default on its loan obligations. The Loan
Agreement terminates upon demand by the Bank or January 31,
2001. (1)(2) $ 294,939
================================================================================
Long-term debt consists of the following at May 31, 2000:
Mortgage note payable to a bank, based on a 9.5% fixed rate.
Original principal balance of $1,013,484 to be repaid in
twelve (12) consecutive monthly principal and interest
payments of $13,912, with one final payment of approximately
$939,666 due on June 16, 2000 . The note was extended to May
31, 2002 in June of 2000. The note is collaterized by the
Company's land and building with a carrying value of
$916,950. The loan also contains certain financial covenants
to which the Company must adhere. $ 939,865
Note payable to Netzler & Dahlgren Co AB, based on a 16.0%
fixed rate. Original principal balance of $402,182 to be
repaid in twenty-four (24) consecutive monthly principal
payments of 133,529 Swedish Krona, or approximately
US$16,757 per month depending on the exchange rate at time
of payment, plus interest. The note is collaterized by a
secondary position on the Company's land and building with a
carrying value of $916,950. 15,120
--------------------------------------------------------------------------------
954,985
Less current maturities: 954,985
--------------------------------------------------------------------------------
$ -
================================================================================
(1) The prime rate at May 31, 2000 was 9.5%
(2) The line of credit is secured by a first priority security interest in the
Company's accounts receivable and inventory.
Maturities of long-term debt at May 31, 2000 are as follows:
Year Ending
May 31,
--------------------------------------------------------------------------------
2000 954,985
--------------------------------------------------------------------------------
$954,985
================================================================================
8
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 5. Continued operations
In recent years the Company has suffered operating losses. This has left the
Company with limited equity and negative working capital. The Company is also
not in compliance with covenants of certain debt arrangements. 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 exploring raising additional equity to assist in reaching
its goals.
There can be no assurance that the Company can successfully meet the objectives
of such plans.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements (including the notes thereto) presented elsewhere
herein.
Overview
The Company derives virtually all of its revenues from the sale of
hardware, software and engineering services in connection with projects
incorporating its Automated Guided Vehicle (AGV) control technology. In prior
years the Company's net revenues from AGV systems, vehicles and technology were
derived primarily from sales to customers serving few industries - automotive,
food and paper, textiles and newspaper publishing. 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.
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 can be expected to continue to experience, substantial
fluctuations in its quarterly and annual results of operations.
The Company sells its products and services primarily in two ways.
Vehicles, technology and other products and services may be sold in a "project"
that becomes an integrated AGV system. Another way is to sell hardware, software
and services as standard items, with less involvement by the Company in overall
system design. The Company generally would recognize lower net revenue but would
realize a higher gross profit margin percentage in selling standard items, in
each case compared to the sale of a project, due to the inclusion in project
sales of other vendors' products and services with margins generally lower than
the Company's own products and services. Between any given accounting periods,
the levels of and mixture of standard item sales and project sales can cause
considerable variance in net revenues, gross profit, gross profit margin,
operating income and net income.
Revenues from standard item sales are recognized upon shipment, while
revenues from project sales are recognized under the "percentage of completion"
method. Under this method, with respect to any particular customer contract,
revenues are recognized as costs are incurred relative to each major component
of the project. Although the percentage of completion method will ordinarily
smooth out over time the net revenue and profitability effects of large
projects, such method nevertheless subjects the Company's results of operations
to substantial fluctuations dependent upon the progress of work on project
components. Such components can differ markedly from one another in amount and
in gross profit margin.
Project contracts are billed upon attainment of certain "milestones." The
Company grants payment terms of 30 to 90 days to its customers. It typically
receives a cash advance ranging from 10% to 30% of the total contract amount.
Bills are thereafter delivered as milestones are reached. Upon delivery of the
project, the customer typically reserves a "retainage" of 10% to 20% pending
system acceptance.
Notwithstanding the receipt by the Company of cash advances and periodic
payments upon reaching project milestones, the Company requires external
financing for its costs and estimated earnings in excess of billings on
uncompleted contracts, inventories, receivables and other assets.
The Company's backlog consists of all amounts contracted to be paid by
customers but not yet recognized as net revenues by the Company.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
Strategy diversification: The Company is continuing to pursue a strategy of
diversification to explore various ways to increase revenues and minimize
losses. These approaches include the following :
o Establish and develop strategic alliances with selected customers
o Pursue AGV system business in selected market niches
o Grow the distribution business by adding supplementary products
o Expand the aftermarket sales business
There can be no assurance that these approaches will continue to be
successful.
Raymond Corporation: In December, 1999, negotiations were finalized with
the Raymond Corporation, a leading manufacturer of industrial trucks commonly
known as "forklift trucks", with regard to a co-operation agreement whereby the
Company assumes the responsibility for spare part distribution to dealers for
existing AGV Systems customers in North America. The Agreement was implemented
during the first quarter of fiscal year 2000.
Forward-looking statements: This report (including information included or
incorporated by reference herein) contains certain forward-looking statements
with respect to the financial condition, results of operation, plans,
objectives, future performance and business of the Company.
These forward-looking statements involve certain risk and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities:
a) Revenues from end user systems sales, new OEMs and new niches may be lower
than expected or delayed.
b) New product lines of the Company (Thrige, Netzler & Dahlgren (Teach-in),
Powerway) may not be well received in the North American industrial truck
market or AGV market, thereby restricting growth opportunities for the
Company.
c) The Company might be unable to raise the additional working capital needed,
directly or through a business combination, to finance the current business
strategy, which would have a serious impact on the Company's ability to
sell its current and future products, as well as to satisfy existing
banking requirements.
d) General economic or business conditions, either nationally or in the
markets in which the Company is doing business, may be less favorable than
expected resulting in, among other things, a deterioration of market share
or reduced demand for its products.
11
<PAGE>
RESULTS OF OPERATIONS
The table below shows (a) the relationship of income and expense items
relative to net revenues, and (b) the change between the comparable prior period
and current period, for the three-month and six-month periods ended May 31, 2000
and 1999, respectively. This table should be read in the context of the
Company's condensed statements of income presented elsewhere herein:
<TABLE>
<CAPTION>
Percentage of Change
Period to Period
Increase(Decrease)
Percentage of Net Revenues ---------------------------
---------------------------------- ------------------------------------------------------ Three
Months Six Months
Three Months Six Months Ended May Ended
Ended Ended 31, May 31,
May 31, May 31, May 31, May 31, 1999 to 1999 to
2000 1999 2000 1999 2000 2000
% % % % % %
---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues 100.0 100.0 100.0 100.0 28.9 18.5
Cost of Goods Sold 70.0 53.5 69.6 57.1 68.6 44.5
---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Gross Profit 30.0 46.5 30.4 42.9 (16.7) (16.0)
---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Operating expenses:
Selling 13.9 14.0 14.2 16.8 27.9 (0.1)
General and administrative 19.5 25.7 26.6 26.6 (2.1) 18.6
---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
33.4 39.7 40.8 43.4 8.5 11.3
---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Operating income (loss) (3.4) 6.8 (10.4) (0.5) * 2,328.5
Net interest expense: (3.1) (5.1) (4.0) (5.8) (21.0) (17.2)
---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes (6.5) 1.7 (14.4) (6.3) * 171.4
Federal and state income taxes
(benefit) - - - - - -
---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Net Income (loss) (6.5) 1.7 (14.4) (6.3) * 171.4
================================== ============= ============= ============= ============= ============= =============
</TABLE>
* Because the data changes from negative to positive, or from positive to
negative, the percentage of change is not meaningful.
Quarter ended May 31, 2000 Compared to the Quarter Ended May 31, 1999
Net revenues increased by $354,500 or 28.9% from $1,225,864 in the earlier
period to $1,580,364 in the latter period. The increase is primarily due to the
increased project AGV system sales compared to the prior year.
Cost of goods sold increased from $655,657 to $1,105,391 or 68.6% due primarily
to higher sales and a greater percentage of revenues were project related in
2000. The Company generally realizes lower margins on project revenues. As a
percentage of net revenues, cost of goods sold increased to 70.0% compared to
53.5% in 1999. Gross profit decreased by $95,234 or 16.7% from $570,207 to
$474,973, while gross profit as a percentage of net revenues decreased to 30.0%
from 46.5% due to the same factor.
Selling expenses increased from $171,697 to $219,596 or 27.9 % primarily due to
expenses related to a major show being realized in the second quarter of 2000
where such similar show were incurred in the first quarter of 1999. General and
administrative expenses decreased from $315,332 to $308,669, or 2.1% compared to
the prior year. As a percentage of net revenues, general and administrative
expenses decreased from 25.7% to 19.5%.
Primarily as a result of the foregoing, operating income decreased by $136,470
from an operating income of $83,178 in the earlier period to an operating loss
of $53,292 in the latter period.
12
<PAGE>
Net interest expense decreased from $62,079 to $49,022, a decrease of $13,057,
lower borrowings compared to the prior year were the primary reason for the
decline. Such reductions are not expected to continue due to increase cash
requirements for past due payables accruing interest.
The Company did not recognize any tax benefits in 2000 domestically for its
current loss and utilization of operating loss carryforwards in the future is
not assured.
Primarily due to lower gross profit on revenues and increased selling expenses
in 2000 as described above the Company incurred a net loss of $102,314 in 2000
compared to a net income of $21,099 in 1999.
Backlog. Backlog consists of all amounts contracted to be paid by customers but
not yet recognized as net revenues by the Company. At May 31, 2000, the Company
had a backlog of approximately $975,000 compared to approximately $2,770,000 one
year earlier. The primary reason for the significant decrease is in May of 1999
the Company had just received a major order from Harcon for an AGV installation
at a DaimlerChrysler facility in Detroit, while no similar order were received
in the second quarter of 2000. Quoting activity for the Company remains good,
but there can be no assurances that such activity will result in firm business
for the Company.
Six Months Ended May 31, 2000 Compared to Six Months Ended May 31, 1999
Net revenues increased by $399,869, or 18.5%, from $2,157,893 in the earlier
period to $2,557,762 in the latter period. The increase is primarily due to the
increased project AGV system sales compared to the prior year.
Cost of goods sold increased from $1,231,538 to $1,779,193, or 44.5%, due
primarily to the higher level of project net revenues recognized in 2000. As a
percentage of net revenues, cost of goods sold increased from 57.1% to 69.6%.
The Company generally realizes lower margins on project revenues. Gross profit
decreased by $147,786, or 16.0%, from $926,355 to $778,569, while gross profit
as a percentage of net revenues increased from 42.9% to 30.4%.
Selling expenses remained relatively unchanged decreasing from $363,456 to
$363,091 in 2000. General and administrative expenses increased from $573,811 to
$680,470, or 18.6% compared to the prior year. The increase is primarily due to
the following: 1) approximately $35,000 of costs relating to the severance
payments upon the expiration of the former president's contract 2) approximately
$30,000 increase in administrative personnel related costs 3) approximately
$20,000 in computer maintenance relating to Y2K issues 4) an approximate $10,000
increase in rent relating to a new test facility, and 5) other increases in
general & administrative expenses compared to the prior year.
Primarily as a result of the foregoing, the operating loss for the period was
$264,992 compared to an operating loss of $10,912 the prior year.
Net interest expense decreased from $124,765 to $103,264, a decrease of 17.2 %.
Lower borrowings compared to the prior year were the primary reason for the
decline. Such reductions are not expected to continue due to increase cash
requirements for past due payables accruing interest.
The Company did not recognize any tax benefits in 2000 domestically for its
current loss and utilization of operating loss carryforwards in the future is
not assured.
Primarily due to lower gross profit and higher general and administrative
expenses as described above, the Company's net loss increased by $232,579 from
$135,677 in 1999 to $368,256 in 2000.
13
<PAGE>
Liquidity and Capital Resources
The Company experiences needs for external sources of financing to support its
working capital, capital expenditures and acquisition requirements when such
requirements exceed its cash generated from operations in any particular fiscal
period. The amount and timing of external financing requirements depend
significantly upon the nature, size, number and timing of projects and
contractual billing arrangements with customers relating to project milestones.
The Company has relied upon bank financing under a revolving working capital
facility, as well as long-term debt and capital leases and proceeds of its
public offerings, and private offerings, to satisfy its external financing
needs.
During the six months ended May 31, 2000 net cash used in operating activities
was $5,339. As of May 31, 2000 the Company continued to delay payments of
approximately $550,000 in trade payables to Netzler & Dahlgren due to cash not
being available under the current line of credit. There can be no assurances
that Netzler & Dahlgren will continue to accept such delayed payments from the
Company, which would severely affect the Company's ability to meet it financial
obligations.
The Company entered into an Inventory and Accounts Receivable Loan and Security
Agreement ("Loan Agreement") on February 28, 1997 with the National Bank of
Canada and National Canada Business Corp. (herein collectively called the
"Lender"). The Loan Agreement was amended and restated on April 30, 1999 and
allows the Company to borrow up to a maximum of $1,250,000. Loans made under the
new Loan Agreement are evidenced by a demand promissory Note. The Loan Agreement
allows the Company to borrow pursuant to a borrowing formula which is secured by
the Company's personal property as collateral. The Company's outstanding loan
amount at any one time shall not exceed the lesser of (a) U.S $1,250,000 or (b)
80% of i) Qualified Accounts receivable (as defined in the Loan Agreement) that
are non-project Qualified Accounts and ii) Qualified Accounts that are project
Qualified Accounts plus 50% of all eligible inventory (as defined in the Loan
Agreement) , but in no event shall (A) Inventory Value be in excess of $300,000
and (B) Inventory Value and Qualified Accounts that are project Qualified
Accounts be in excess of $450,000. The borrowed funds will bear interest at the
Lender's prime rate plus 2.75% per annum. The Loan Agreement is further secured
by 1) an Inventory Repurchase Agreement and 2) a $450,000 irrevocable Letter of
Credit issued by a Swedish bank. Netzler & Dahlgren Co. AB (NDCab) is obligated
to repay the letter of credit bank any funds it disburses under the Letter of
Credit. The Company is ultimately responsible to repay to NDCab for any amounts
it pays in reimbursing the letter of credit bank. The Repurchase Agreement
guarantees that NDCab will repurchase from the Company on certain conditions up
to $300,000 worth of inventory, thereby providing funds to pay the Lender should
the Company default on its loan obligations.
The lender, at its discretion, may demand payment upon written notice to the
Company. The maturity date has been extended to January 31, 2001, or upon demand
by the Bank. The extension was approved when Netzler & Dahlgren extended its
$450,000 irrevocable Letter of Credit to the Bank through February 28, 2001. 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 mortgage interest in the Company's land and building;
such collateral is a junior lien to the primary mortgage lender's security
interest.
The Company's strategy depends heavily on securing project business to grow.
Such business is traditionally not financed by the banking community due to
perceived risk associated with such jobs. In addition, in 1999 the Company was
informed by the lender that unless the Company's assets or equity were
significantly higher and the Company could show consistent earnings that such
project receivable financing would not be readily available. Under the present
banking relationship the Company can realistically only borrow approximately
$250,000 for such project receivables when the availability needed for inventory
is taken into account. At the end of May 2000 the Company had approximately
$525,000 of such project receivables which could not be fully utilized by the
present borrowing formulae. By not being able to fully utilize its project
assets for the line of credit, the Company experiences negative cash flows until
such cash is received from the customer. Due to the above factors the Company
delayed payments of approximately $550,000 to its affiliate Netzler & Dahlgren
and other vendors so not to exceed current borrowing maximums related to the
demand promissory note. Such past due payable to Netzler & Dahlgren is accruing
interest at 16% per annum. The Company was current at May 31, 2000 on the Note
payable to Netzler & Dahlgren.
During May 1999, the mortgage loan maturity date was extended for thirteen
months from May 16, 1999 to June 16, 2000. The interest rate on the note
remained at 9.5%, and the combined principal and interest monthly payment of
$13,912 was also unchanged. The Company has made all payments on a timely basis
on the mortgage. In June of 2000 the Mortgage loan was extended to May 31, 2002
with similar terms.
14
<PAGE>
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 had been
exploring the possibility of raising additional equity capital, or subordinated
debt, either directly or possibly through a business combination, in order to
improve its financial position, its independence and have the working capital to
address potential growth opportunities. Management currently believes that its
present working capital needs are close to or greater than $1.5 million. The
Company will continue to pursue equity and/or debt financing, unless revenues
that can be financed by the banking community increase substantially to
consistently provide earnings for the Company. There can be no assurance that
the Company will be successful in raising the additional capital or subordinated
debt to improve its financial position. The Company's ability to continue as a
going concern would be adversely affected if such equity and/or debt financing
is not obtained in the near future or if revenues do not increase to
consistently provide earnings for the Company.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders of the Company was held on
May 5, 2000.
(b) The following individuals were elected directors of the Company:
Goran P. R. Netzler
Jan H. L. Jutander
Richard Schofield
Raymond O. Gibson
(c) Other matters voted upon and voting were as follows:
(i) Ratification of the selection of McGladrey & Pullen, LLP by the Board
of Directors as the Company's independent auditors.
For Abstain Against
--- ------- -------
3,252,043 10,707 41,983
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Press Releases:
None
(b) Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NDC AUTOMATION, INC.
(Registrant)
BY: /s/ Claude Imbleau
----------------------
Claude Imbleau
Chief Operating Officer
Date: July 10, 2000
17
<PAGE>
EXHIBIT INDEX
The following documents are included in this Form 10-QSB as an Exhibit:
<TABLE>
<CAPTION>
Designation Number
Exhibit Under Item 601 of
Number Regulation S-K Exhibit Description Page Number
-------------- --------------------- ------------------------------------------- ------------
(A) Exhibits:
<S> <C> <C> <C>
1. 10 Mortgage renewal letter to NDCA 19
2. 10 Mortgage First Citizens dated June , 2000 26
3. 27 Financial schedule 32
</TABLE>
18
<PAGE>
Exhibit 1.
June 14, 2000
Mr. Claude Imbleau
Chief Operating Officer
NDC Automation, Inc.
3101 Latrobe Drive
Charlotte, North Carolina 28211
RE: Loan Commitment and Loan Agreement
Dear Claude:
First Citizens Bank is pleased to offer you this loan commitment. For the
purposes of this letter, the terms "Bank," "we," "our" and "us" refer to
First-Citizens Bank & Trust Company. "Borrower," "you" and "your" refer to the
Borrower identified below. This letter agreement will serve as our loan
commitment to you and our loan agreement with you. The terms and conditions of
the loan are as follows:
BORROWER: NDC Automation, Inc.
LOAN AMOUNT: $939,865.24. Your approved loan amount is based upon the appraised
value of the collateral and your financial condition as represented in the loan
application. We reserve the right to adjust the actual amount of the loan if
there is a material change in the value of the collateral, if your financial
condition as represented in the loan application cannot be cannot be confirmed
or proves to be inaccurate, or if there is a material change in your financial
condition prior to closing.
TYPE OF LOAN: Term Loan
INTEREST RATE: Interest will accrue on the outstanding
principal balance of the loan at the rate of 9.5% per annum.
Interest will be computed on the basis of a 360 day calendar year.
LOAN TERM: Your loan will mature on May 31, 2002.
We will review your loan at or prior to maturity to determine whether we will
extend, modify, or renew it.
TERMS OF REPAYMENT: The loan will be payable in twenty-two (22) consecutive
monthly payments of $13,911.64 each, with any remaining unpaid principal and
accrued interest due at maturity. Payments will be applied first to interest on
the outstanding principal balance, then to principal.
19
<PAGE>
Mr. Claude Imbleau
June 14, 2000
Page Two
COMMITMENT FEE: You agree to pay to the Bank $3,360.00 as a
non-refundable commitment fee (whether or
not the loan is closed) at the time you
accept this commitment letter.
LATE CHARGES: We will assess a late payment charge of 4%
of the unpaid balance of any payment which
is at least 15 days past due.
COLLATERAL: This loan will be secured by a first lien
deed of trust on 3101 Latrobe Street,
Charlotte, NC.
Our loan approval is based in part on our review of the appraisal of the
collateral. If we determine that the property is not as represented in the
appraisal, we reserve the right to revoke or modify this loan commitment.
YEAR 2000 ISSUE: Borrower warrants and represents that:
1. Borrower's business operations are Year 2000 compliant - that is, all
software, embedded microchips and other processing capabilities
utilized by, and material to, Borrower's business operations and
financial condition are able to recognize correctly and perform
properly all date-sensitive functions involving dates before, in and
after the Year 2000.
2. Borrower will promptly notify the Bank of any new or changed business
or financial risks Borrower faces posed by the Year 2000 issue.
INSURANCE: At the time the loan closes and all times thereafter until the loan
is paid in full, you must maintain hazard insurance on the collateral against
such risks and in such form and amount as the Bank may require. If the
collateral is located in a flood hazard area, flood insurance is also required.
The Bank must be named as a loss payee on the policy and you must provide us
with an insurance certificate. The insurance must be issued by a company
approved by the Bank and licensed to transact business in the state in which the
collateral is located.
REPRESENTATIONS AND WARRANTIES OF BORROWER: By signing this letter, you
represent and warrant to the Bank as follows:
1. Your loan application, financial statements, copies of tax returns and
other information you previously submitted to us are true and complete
and accurately reflect your financial condition and income. You do not
have any undisclosed direct or contingent liabilities.
20
<PAGE>
Mr. Claude Imbleau
June 14, 2000
Page Three
2. There are no judgments, liens, encumbrances, penalty assessments, or
other security interests outstanding against you or any of your
property other than those in favor of the Bank, except as disclosed to
us on the financial statements you previously submitted. There are no
pending or threatened enforcement proceedings or litigation against you
or any of your property.
3. There has been no material change in your financial condition since the
date of the financial statements you submitted to us.
4. You have been validly organized, are in good standing in the state of
your organization and are duly authorized to transact business in the
State of North Carolina and in all other states in which you are doing
business.
5. You have full power and authority to enter into this agreement and
borrow money from us as contemplated by this agreement. When executed
and delivered to us, the loan documents will be valid, legal and
binding obligations of the Borrower.
FINANCIAL COVENANTS: Until the loan is repaid in full, you will be obligated to
maintain the following financial condition (on a consolidated basis):
1. A tangible net worth of at least $500,000.00 for fiscal year end 2000
which shall increase to $600,000.00 by fiscal year end 2001. The
tangible net worth of Borrower shall not decrease below $600,000.00 for
the remaining term of the loan.
2. No additional debt without prior Bank approval.
FINANCIAL INFORMATION OF BORROWER: Until the loan is repaid in full, you will be
obligated on a continuing basis to provide the Bank with such information
concerning your financial affairs as we may request from time to time.
1. Within ninety (90) days following your fiscal year end, you will
deliver to us your financial statements (to include a balance sheet,
income statement and supporting schedules) prepared according to
generally accepted accounting principles and audited by an accounting
firm acceptable to us.
2. Within sixty (60) days after the end of each quarter, you will deliver
to us your internally generated financial statements, certified by you
to be true and accurate.
3. You will immediately inform us of any material changes in your
financial condition and of any actual or threatened litigation which
might substantially affect your financial condition.
21
<PAGE>
Mr. Claude Imbleau
June 14, 2000
Page Four
RESERVATION OF RIGHTS: We reserve the right to revoke or amend this loan
commitment based upon our review of the matters described above if we believe in
good faith that the condition or value of the collateral is adversely affected
by any circumstance, fact or condition, if we determine the documents presented
fail to satisfy our underwriting standards, or if any representation or
statement made or furnished to us by you or any guarantor is untrue or
misleading in any material respect. In all of the relevant insurance policies,
the Bank should be identified as mortgagee and loss payee using the following
language:
"First-Citizens Bank & Trust Company, its successors and assigns, as their
interests may appear."
CONDITIONS PRECEDENT: Our obligation to fund the loan is subject to the
following conditions precedent:
You must fully comply with all conditions and requirements set forth in this
letter.
LOAN DOCUMENTS: The closing of the loan is contingent upon the proper execution
and delivery of all of the loan documents the Bank believes are reasonably
appropriate or required for this loan transaction (the "Loan Documents"). The
Bank, in its sole discretion, will determine the form, terms and conditions of
the Loan Documents. The Loan Documents routinely used in connection with loan
closings include the note, security instruments (to include deeds of trust,
security agreements, pledges, assignments, financing statements, etc.) guaranty
agreements, and various verifications and certifications. At the present time,
the Bank has not identified all of the Loan Documents which it may require in
connection with this loan transaction.
OTHER CONDITIONS: While we intend to conform to our customary requirements for
this type of loan, this loan commitment letter is not intended to include all of
the requirements for the loan. We reserve the right to require additional
information, documentation, and the satisfaction of conditions we consider
appropriate or required to consummate the loan transaction.
EVENTS OF DEFAULT: The Bank may declare the unpaid principal balance of the loan
and accrued interest immediately due and payable, without presentation, demand
or notice of any kind, if any of the following Events of Default occur before
the loan is fully repaid:
1. Any repayment of principal or interest on the loan is not made when
due.
2. Any provision of any of the Loan Documents is breached in any material
respect.
3. Any warranty, representation or statement made or furnished by the
Borrower to the Bank in connection with this loan transaction, or to
induce the Bank to make this loan, is untrue or misleading in any
material respect.
22
<PAGE>
Mr. Claude Imbleau
June 14, 2000
Page Five
4. Any event occurs which constitutes an Event of Default under the terms
of any of the Loan Documents.
5. The Borrower fails to perform any of the obligations required of the
Borrower according to this letter agreement.
6. The Borrower dissolves, liquidates, or its corporate or legal existence
is terminated or suspended, or the Borrower sells substantially all of
its assets.
7. Any voluntary or involuntary bankruptcy, reorganization, insolvency
proceeding, receivership, or other similar proceeding is commenced by
or against the Borrower under any federal or state law, or the Borrower
becomes insolvent or makes any assignment for the benefit of creditors.
8. The Borrower defaults in the payment of any principal or interest in
any other obligation the Borrower may have to the Bank.
9. The filing of any levy, attachment, tax lien or forfeiture proceeding
instituted against or involving any property which serves as collateral
for the loan.
10. Acting in good faith and in a commercially reasonable manner, the Bank
believes the prospect of timely repayment of the indebtedness or other
performance under the Loan Documents is impaired or the Bank otherwise
deems itself or the collateral insecure.
LOAN CLOSING COSTS: You will be responsible for the payment of all costs and
expenses incurred in connection with the closing of this loan, regardless of
whether the loan actually closes. These expenses will include, without
limitation, our counsel's fees.
CONFIDENTIALITY: The terms of this loan commitment are confidential. You agree
not to disclose the contents of this loan commitment to any other lender.
LOAN CLOSING: The loan closing must occur on or before June 30, 2000. If the
loan is not closed on or before that date, our obligation to fund the loan will
terminate. If, prior to closing, there is a material adverse change in your
business or affairs or the business or affairs of any Guarantor, or if we
discover adverse circumstances of which we are currently unaware, we may rescind
this commitment, in which case we will have no further obligation to fund the
loan.
COMMITMENT PROVISIONS SURVIVE CLOSING: The provisions of this letter agreement
will survive the closing of the loan and will not be merged into any of the
other Loan Documents. If any terms in this letter agreement are inconsistent
with those of the other Loan Documents, the terms of the other Loan Documents
will control.
23
<PAGE>
Mr. Claude Imbleau
June 14, 2000
Page Six
RESERVATION OF RIGHTS: We reserve the right to revoke or amend this loan
commitment if we believe in good faith that any representation or statement made
or furnished to us by you or any guarantor is untrue or misleading in any
material respect.
MODIFICATION: No modification or amendment of any provision of this agreement or
in any other Loan Document executed pursuant to this agreement will be effective
unless in writing and signed by an authorized officer of the Bank.
COMMITMENT EXPIRATION: This commitment will expire unless it has been accepted
by you in writing and the acceptance received by the undersigned on or before
June 30, 2000.
LOAN AGREEMENT: This commitment letter will constitute the loan agreement
between the parties.
This loan commitment is communicated only to the Borrower and may not be
transferred by the Borrower to anyone else. If the terms and conditions outlined
in this letter are acceptable, please evidence your acceptance by signing and
returning the original copy of this letter to me. Unless I receive your written
acceptance with the time specified in this letter, your application and our loan
approval will be considered withdrawn.
We appreciate the opportunity to serve your lending needs. We hope you will
permit us to assist you in satisfying your other financial goals. We look
forward to working with you in connection with this loan transaction.
Yours very truly,
FIRST CITIZENS BANK
By /s/ J. Lynne Walker
---------------------
J. Lynne Walker
Senior Vice President
JLW/gs
24
<PAGE>
Mr. Claude Imbleau
June 14, 2000
Page Seven
ACCEPTANCE OF LOAN COMMITMENT AND LOAN AGREEMENT
Each of the undersigned hereby accepts the Loan Commitment and Loan Agreement
set forth above, subject to the terms and conditions set forth therein, this
____14_____ day of ____June________________, 2000.
CORPORATE BORROWER:
NDC Automation, Inc.
By: /s/ Claude Imbleau
-----------------------
Chief Operating Officer
(Corporate Seal)
Attest:
/s/ Tom Watson
-----------------------------
Secretary/Assistant Secretary
25
