<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended August 31, 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 July 31, 2000, there were 3,586,451 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes___; No X
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I N D E X
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
August 31, 2000 (Unaudited) and November 30, 1999 3- 4
Condensed Statements of Operations
Three and Nine months ended August 31, 2000 and August 31, 1999
(Unaudited) 5
Condensed Statements of Cash Flows
Nine months ended August 31, 2000 and August 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
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NDC AUTOMATION, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, November 30,
2000 1999
(Unaudited)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Note 4)
CURRENT ASSETS
Cash and cash equivalents $ 17,140 $ 45,240
Accounts receivables, net 673,280 1,882,293
Inventories 526,548 366,365
Costs and estimated earnings in excess of
billings on uncompleted contracts 174,436 35,024
Prepaid expenses and other assets 58,925 51,592
---------------------------------------------------------------------------------------------------------------------
Total current assets $ 1,450,329 $ 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, 148,143 168,505
Machinery and equipment 74,310 63,415
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$ 1,649,076 $ 1,658,543
Less accumulated depreciation 622,067 646,867
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$ 1,027,009 $ 1,011,676
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---------------------------------------------------------------------------------------------------------------------
$ 2,477,338 $ 3,392,190
=====================================================================================================================
</TABLE>
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>
August 31, November 30,
2000 1999
(Unaudited)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank (Note 4) $ 493,292 $ 168,153
Current maturities of long- term debt (Note 4) 373,023 1,087,740
Accounts payable and accrued expenses;
including affiliates $70,260 at 2000
and $416,581 at 1999 603,833 1,475,974
Billings in excess of costs and estimated
earnings on uncompleted contracts 167,453 209,272
---------------------------------------------------------------------------------------------------------------------
Total current liabilities $ 1,637,601 $ 2,941,139
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LONG-TERM DEBT (Note 4 ) $ 1,159,893 $ -
---------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, par value $.01 per share
authorized 1,000,000 shares; no shares issued $ - $ -
Common stock, par value $.01 per share;
11,000,000 shares authorized
at 2000 and 1999; 3,586,451 shares
issued at 2000 and 1999 35,864 35,864
Additional paid-in capital 4,260,236 4,260,236
Accumulated deficit (4,616,256) (3,845,049)
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$ (320,156) $ 451,051
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$ 2,477,338 $ 3,392,190
=====================================================================================================================
</TABLE>
4
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31, August 31, August 31,
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 1,040,700 $ 1,130,574 $ 3,598,462 $ 3,288,467
Cost of goods sold 867,375 720,617 2,646,568 1,952,155
----------------------------------------------------------------------------------------------------------------------------
Gross profit $ 173,325 $ 409,957 $ 951,894 $ 1,336,312
----------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling $ 182,077 $ 173,124 $ 545,168 $ 536,580
General and administrative 326,068 297,395 1,006,538 871,206
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$ 508,145 $ 470,519 $ 1,551,706 $ 1,407,786
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Operating loss $ (334,820) $ (60,562) $ (599,812) $ (71,474)
Net interest expense (68,130) (66,764) (171,394) (191,529)
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Loss before income taxes $ (402,950) $ (127,326) $ (771,206) $ (263,003)
Federal and state income taxes (Note 2) - - - -
----------------------------------------------------------------------------------------------------------------------------
Net Loss $ (402,950) $ (127,326) $ (771,206) $ (263,003)
============================================================================================================================
Weighted average number of common
shares outstanding 3,586,451 3,453,451 3,586,451 3,453,451
----------------------------------------------------------------------------------------------------------------------------
Loss per common share - basic (Note 3) $ (0.11) $ (0.04) $ (0.22) $ (0.08)
Loss per common share - diluted (Note 3) $ (0.11) $ (0.04) $ (0.22) $ (0.08)
============================================================================================================================
Dividends per common share $ - $ - $ - $ -
============================================================================================================================
</TABLE>
See Notes to the Condensed Financial Statements
5
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
August 31, August 31,
2000 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (704,107) $ 428,966
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment $ (88,456) $ (24,363)
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NET CASH USED IN
INVESTING ACTIVITIES $ (88,456) $ (24,363)
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CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving credit agreement $ 325,139 $ (226,811)
Principal payments on long-term borrowings (160,871) (164,126)
Proceeds from current and long-term borrowings 606,047 -
--------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES $ 770,315 $ (390,937)
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Effect of foreign currency exchange rates changes
on cash and cash equivalents $ (5,852) $ (10,286)
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Increase (decrease) in cash and cash equivalents $ (28,100) $ 3,380
Cash and cash equivalents:
Beginning 45,240 62,923
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Ending $ 17,140 $ 66,303
==========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 160,403 $ 174,531
Income taxes $ - $ -
==========================================================================================================================
</TABLE>
See Notes to the Condensed Financial Statements
6
<PAGE>
NDC AUTOMATION, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1.
The unaudited internal condensed financial statements and related notes have
been prepared by NDC Automation, Inc. (the "Company"), without audit pursuant to
the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at August 31, 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 nine months ended August 31, 2000 are not necessarily indicative of the
operating results for the full year ending November 30, 2000.
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 August 31, 2000
and August 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
<TABLE>
<S> <C>
The Company has the following note payable to a bank at August 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) $ 493,292
===========================================================================================================
Long-term debt consists of the following at August 31, 2000:
Mortgage note payable to a bank, based on a 9.5% fixed rate. Original principal
balance of $939,865 to be repaid in twenty four (24) consecutive monthly
principal and interest payments of $13,912, with one final payment of
approximately $761,503 due on June 16, 2002. The note is collaterized by the
Company's land and building with a carrying value of $906,636. The loan also
contains certain financial covenants. The Company is not in compliance with all
covenants. $ 926,870
Note payable to Netzler & Dahlgren Co AB dated June 30, 2000, based on a 16.0%
fixed rate. Original principal balance of $606,046 to be repaid in twenty-four
(24) consecutive monthly principal payments of 238,103 Swedish Krona, or
approximately US$25,252 per month depending on the exchange rate at time of
payment, plus interest. The note is collaterized by a second mortgage on the
Company's land and building. 606,046
-----------------------------------------------------------------------------------------------------------
1,532,916
Less current maturities: 373,023
-----------------------------------------------------------------------------------------------------------
$ 1,159,893
===========================================================================================================
</TABLE>
(1) The prime rate at August 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 August 31, 2000 are as follows:
<TABLE>
<CAPTION>
Year Ending
August 31,
-----------------------------------------------------------------------------------------------------------
<S> <C>
2001 373,023
2002 1,159,893
-------------------- --------------------------------------------------------------------------------------
$ 1,532,916
==================== ======================================================================================
</TABLE>
8
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 5. Continued operations
In recent years including the current year the Company has suffered operating
losses. This has left the Company with a deficit 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 the following actions in an attempt to increase revenues and
minimize losses, to date such actions have not been successful.
. Establish and develop strategic alliances with selected customers
. Pursue AGV system business in selected market niches
. Grow the distribution business by adding new supplementary products
. Expand the aftermarket sales business
The Company is also exploring a sale of the Company (or its assets) to a third
party.
There can be no assurance that the Company can successfully meet the objectives
of any such activities.
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: Management has made the following actions in an
attempt to increase revenues and minimize losses, to date such actions have not
been successful. These approaches include the following:
. Establish and develop strategic alliances with selected customers
. Pursue AGV system business in selected market niches
. Grow the distribution business by adding supplementary products
. Expand the aftermarket sales business
The Company is also exploring a sale of the Company (or its assets) to a third
party. There can be no assurances that the Company can successfully meet the
objectives of any such activities.
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.
Thrige Agreement: During the third quarter of 2000, the Company and Thrige
terminated their agreement as sales of motors to the industrial truck market
were not successful. The company will continue to sell motors under the
Schabmuller distribution agreement. Schabmuller is a wholly owned subsidiary of
Thrige Motors.
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 ( 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 nine-month periods ended August 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
Percentage of Net Revenues Increase(Decrease)
----------------------------------------------------------------------------------------------------------------------
Three Nine
Three Months Nine Months Months Months
Ended Ended Ended Ended
August 31, August 31,
August 31, August 31, August 31, August 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 (8.0) 9.4
Cost of Goods Sold 83.4 63.7 73.5 59.4 20.4 35.6
----------------------------------------------------------------------------------------------------------------------
Gross Profit 16.6 36.3 26.5 40.6 (57.7) (28.8)
----------------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling 17.5 15.3 15.1 16.3 5.2 1.6
General and administrative 31.3 26.3 28.0 26.5 9.6 15.5
----------------------------------------------------------------------------------------------------------------------
48.8 41.6 43.1 42.8 8.0 10.2
----------------------------------------------------------------------------------------------------------------------
Operating income (loss) (32.2) (5.3) (16.6) (2.2) 452.9 739.2
Net interest expense: (6.5) (5.9) (4.8) (5.8) 2.0 (10.5)
----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (38.7) (11.2) (21.4) (8.0) 216.5 193.2
Federal and state income taxes
(benefit) - - - - - -
----------------------------------------------------------------------------------------------------------------------
Net Income (loss) (38.7) (11.2) (21.4) (8.0) 216.5 193.2
======================================================================================================================
</TABLE>
* Because the data changes from negative to positive, or from positive to
negative, the percentage of change is not meaningful.
Quarter ended August 31, 2000 Compared to the Quarter Ended August 31, 1999
Net revenues decreased by $89,874 or (8.0%) from $1,130,574 in the earlier
period to $1,040,700 in the latter period. The decrease is primarily due to a
lower backlog and delays in completing current projects.
Cost of goods sold increased from $720,617 to $867,375 or 20.4% due primarily to
higher engineering cost associated with current projects. The Company generally
realizes lower margins on project revenues. As a percentage of net revenues,
cost of goods sold increased to 83.4% compared to 63.7% in 1999. Gross profit
decreased by $236,632 or 57.7% from $409,957 to $173,325, while gross profit as
a percentage of net revenues decreased to 16.6% from 36.3% due to the same
factor.
Selling expenses increased from $173,124 to $182,077 or 5.2% primarily due to
expenses related to increased advertising cost. General and administrative
expenses increased from $297,395 to $326,068, or 9.6% compared to the prior
year. As a percentage of net revenues, general and administrative expenses
increased from 26.3% to 31.3%.
Primarily as a result of the foregoing, operating income decreased by $274,258
from an operating loss of $60,562 in the earlier period to an operating loss of
$334,820 in the latter period.
12
<PAGE>
Net interest expense increased from $66,764 to $68,130, an increase of $1,366.
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 $402,950 in 2000
compared to a net loss of $127,326 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 August 31, 2000, the
Company had a backlog of approximately $775,000 compared to approximately
$2,350,000 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 was 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.
Nine Months Ended August 31, 2000 Compared to Nine Months Ended August 31, 1999
Net revenues increased by $309,995, or 9.4%, from $3,288,467 in the earlier
period to $3,598,462 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 $1,952,155 to $2,646,568, or 35.6%, 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 59.4% to 73.5%.
The Company generally realizes lower margins on project revenues. Gross profit
decreased by $384,418, or 28.8%, from $1,336,312 to $951,894, while gross profit
as a percentage of net revenues decreased from 40.6% to 26.5%.
Selling expenses remained relatively unchanged increasing from $536,580 to
$545,168 in 2000. General and administrative expenses increased from $871,206 to
$1,006,538, or 15.5% 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
$599,812 compared to an operating loss of $71,474 the prior year.
Net interest expense decreased from $191,529 to $171,394, a decrease of 10.5 %.
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 $508,203 from
$263,003 in 1999 to $771,206 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 nine months ended August 31, 2000 net cash used in operating
activities was $763,766. During the third quarter of 2000 the Company continued
to delay payments in trade payables to Netzler & Dahlgren due to cash not being
available under the current line of credit. Netzler & Dahlgren during the third
quarter converted trade payables into a two year note equalling $606,046 to
partially offset the net cash used for the 3rd quarter (see Note 4 of the
financial statements). Due to the Company's poor results in the third quarter,
the Company continued to delay trade payables to Netzler & Dahlgren and other
vendors. There can be no assurances that Netzler & Dahlgren and the other
vendors will continue to accept such delayed payments from the Company, which
would severely affect the Company's ability to meet its 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 August 2000 the Company had approximately
$380,000 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
continued to delay payments 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 not current at August 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
14
<PAGE>
$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.
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 explore the sale of the Company or its assets 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 selling the Company or 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 and use of proceeds
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
Effective October 12, 2000 Mr. Jan Jutander resigned from the Board of
Directors to avoid potential conflicts of interest due to his current assignment
from the Apogeum Board to participate in negotiations about any type of
agreement with a potential buyer of the Company on behalf of NDC AB/APOGEUM.
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: October 13, 2000
17
<PAGE>
EXHIBIT INDEX
The following documents are included in this Form 10-QSB as an Exhibit:
<TABLE>
<CAPTION>
Designation
Number Under
Exhibit Item 601 of Page
Number Regulation S-K Exhibit Description Number
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(A) Exhibits:
----------------
1. 10 Note payable to Netzler and Dahlgren AB dated June 30, 2000. 19-20
2. 27 Financial schedule 21
</TABLE>
18
<PAGE>
PROMISSORY NOTE
5,714,473.00 SWEDISH KRONA June 30, 2000
FOR VALUE RECEIVED, NDC AUTOMATION, INC., a Delaware corporation ( the
"Borrower") hereby promises to pay to the order of
NETZLER & DAHLGREN CO AB., a Swedish corporation ( the "Lender") at its
offices in Saro, Sweden ( or such other place or places as the lender may
designate) the principal sum of up to
Five million seven hundred fourteen thousand four hundred and seventy
three SWEDISH KRONA( 5,714,473.00 SEK)
which debt constitutes transactions between the parties before and up to June
30, 2000. The term of the note shall be two years and payable per attached
schedule. The note shall accrue interest at the rate of 16.00% annually.
Payment may be accelerated by the borrower and netting of future
invoices between the companies shall be permitted. There will be no prepayment
penalties.
In the event that the note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all cost of collection, including reasonable attorneys' fees. All
attorneys' fees of the Lender payable by the borrower shall be (i) reasonable in
amount, (ii) determined without reference to any statutory presumption and (iii)
based upon actual time spent based upon customary hourly rates.
IN WITNESS WHEREOF, the Borrower has executed this Note under seals as
of the day and year first above written.
NDC AUTOMATION, INC. NETZLER & DAHLGREN CO AB
/s/ Claude Imbleau /s/ Jan Jutander
By ______________________ By _____________________
COO VP
_____________________ _____________________
19
<PAGE>
<TABLE>
<CAPTION>
Total debt in beginning 5,714,473 SEK
Amount of payments (instalments) 24 Total SEK
Principal amount to be
Period From To Days Interest% Amount Interest amount Installment paid monthly
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1.00 07/01/2000 07/31/2000 30.00 16.00 5,714,473 76,193 238,103 314,296
2.00 08/01/2000 08/31/2000 30.00 16.00 5,476,370 73,018 238,103 311,121
3.00 08/31/2000 09/30/2000 30.00 16.00 5,238,267 69,844 238,103 307,947
4.00 09/30/2000 10/31/2000 31.00 16.00 5,000,164 68,891 238,103 306,994
5.00 10/31/2000 11/30/2000 31.00 16.00 4,762,061 65,611 238,103 303,714
6.00 11/30/2000 12/31/2000 30.00 16.00 4,523,958 60,319 238,103 298,422
7.00 12/31/2000 01/31/2001 30.00 16.00 4,285,855 57,145 238,103 295,248
8.00 01/31/2001 02/28/2001 29.00 16.00 4,047,752 52,171 238,103 290,274
9.00 02/28/2001 03/31/2001 31.00 16.00 3,809,649 52,488 238,103 290,592
10.00 03/31/2001 04/30/2001 30.00 16.00 3,571,546 47,621 238,103 285,724
11.00 04/30/2001 05/31/2001 30.00 16.00 3,333,443 44,446 238,103 282,549
12.00 05/31/2001 06/30/2001 31.00 16.00 3,095,340 42,647 238,103 280,750
13.00 06/30/2001 07/31/2001 31.00 16.00 2,857,237 39,366 238,103 277,469
14.00 07/31/2001 08/31/2001 30.00 16.00 2,619,133 34,922 238,103 273,025
15.00 08/31/2001 09/30/2001 30.00 16.00 2,381,030 31,747 238,103 269,850
16.00 09/30/2001 10/31/2001 30.00 16.00 2,142,927 28,572 238,103 266,675
17.00 10/31/2001 11/30/2001 30.00 16.00 1,904,824 25,398 238,103 263,501
18.00 11/30/2001 12/31/2001 30.00 16.00 1,666,721 22,223 238,103 260,326
19.00 12/31/2001 01/31/2002 30.00 16.00 1,428,618 19,048 238,103 257,151
20.00 01/31/2002 02/28/2002 28.00 16.00 1,190,515 14,815 238,103 252,918
21.00 02/28/2002 03/31/2002 30.00 16.00 952,412 12,699 238,103 250,802
22.00 03/31/2002 04/30/2002 30.00 16.00 714,309 9,524 238,103 247,627
23.00 04/30/2002 05/31/2002 30.00 16.00 476,206 6,349 238,103 244,452
24.00 05/31/2002 06/30/2002 30.00 16.00 238,103 3,175 238,103 241,278
Totals 722 958,232 5,714,473 6,672,705
<CAPTION>
Equivalent
in USD
Period From To 9.45
<S> <C> <C> <C> <C> <C>
1.00 07/01/2000 07/31/2000 33,259
2.00 08/01/2000 08/31/2000 32,923
3.00 08/31/2000 09/30/2000 933,364 32,587 98,769
4.00 09/30/2000 10/31/2000 32,486
5.00 10/31/2000 11/30/2000 32,139
6.00 11/30/2000 12/31/2000 909,130 31,579 96,204
7.00 12/31/2000 01/31/2001 31,243
8.00 01/31/2001 02/28/2001 30,717
9.00 02/28/2001 03/31/2001 876,113 30,750 92,710
10.00 03/31/2001 04/30/2001 30,235
11.00 04/30/2001 05/31/2001 29,899
12.00 05/31/2001 06/30/2001 849,023 29,709 89,844
13.00 06/30/2001 07/31/2001 29,362
14.00 07/31/2001 08/31/2001 28,892
15.00 08/31/2001 09/30/2001 820,344 28,556 86,809
16.00 09/30/2001 10/31/2001 28,220
17.00 10/31/2001 11/30/2001 27,884
18.00 11/30/2001 12/31/2001 790,502 27,548 83,651
19.00 12/31/2001 01/31/2002 27,212
20.00 01/31/2002 02/28/2002 26,764
21.00 02/28/2002 03/31/2002 760,871 26,540 80,516
22.00 03/31/2002 04/30/2002 26,204
23.00 04/30/2002 05/31/2002 25,868
24.00 05/31/2002 06/30/2002 733,357 25,532 77,604
Totals 6,672,705 706,106
</TABLE>
20
