-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ApBPqNGZtA+D/6nndB44LZOJNnZWgscnKkU86JhlRXWSTV8HIguJyPoPWMJEYKvX rTOk1k+SI32byb3GaFo4wA== 0000950168-99-001160.txt : 19990413 0000950168-99-001160.hdr.sgml : 19990413 ACCESSION NUMBER: 0000950168-99-001160 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990412 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NDC AUTOMATION INC CENTRAL INDEX KEY: 0000859621 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 561460497 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-18253 FILM NUMBER: 99592005 BUSINESS ADDRESS: STREET 1: 3101 LATROBE DR CITY: CHARLOTTE STATE: NC ZIP: 28211 BUSINESS PHONE: 7043621115 10QSB 1 NDC AUTOMATION, INC U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 1999 - -------------------------------------------------------------------------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to - -------------------------------------------------------------------------------- Commission file number 0-18253 - -------------------------------------------------------------------------------- NDC Automation, Inc. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 56-1460497 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3101 Latrobe Drive, Charlotte, North Carolina 28211-4849 - -------------------------------------------------------------------------------- (Address of principal executive offices) (704) 362-1115 - -------------------------------------------------------------------------------- (Issuer's telephone number) N/A - -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes___ No___ APPLICABLE ONLY TO CORPORATE ISSUERS As of March 31, 1999, there were 3,453,451 shares of common stock outstanding. Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X] I N D E X Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets February 28, 1999 (Unaudited) and November 30, 1998 3-4 Condensed Statements of Operations Three months ended February 28, 1999 and February 28, 1998 (Unaudited) 5 Condensed Statements of Cash Flows Three months ended February 28, 1999 and February 28, 1998 (Unaudited) 6 Notes to Condensed Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial 10-15 Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6.Exhibits and Reports on Form 8-K 16 (a) Exhibits -- Press Releases and other Exhibits (b) Reports on Form 8-K SIGNATURES 17 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NDC AUTOMATION, INC. CONDENSED BALANCE SHEETS
FEBRUARY 28, November 30, 1999 1998 (UNAUDITED) - ------------------------------------------------------------------------------------------------ ASSETS (Note 4) CURRENT ASSETS Cash and cash equivalents $ 40,983 $ 62,923 Accounts receivable, net 816,811 805,891 Inventories 465,776 593,794 Costs and estimated earnings in excess of billings on uncompleted contracts 152,078 136,547 Prepaid expenses and other assets 23,349 47,583 - ------------------------------------------------------------------------------------------------ Total current assets $ 1,498,997 $ 1,646,738 - ------------------------------------------------------------------------------------------------ PROPERTY AND EQUIPMENT Land $ 300,000 $ 300,000 Building and improvements 1,126,623 1,126,623 Furniture, fixtures and office equipment, 147,140 138,746 Machinery and equipment 64,285 59,325 - ------------------------------------------------------------------------------------------------ $ 1,638,048 $ 1,624,694 - ------------------------------------------------------------------------------------------------ Less accumulated depreciation 585,312 564,782 - ------------------------------------------------------------------------------------------------ $ 1,052,736 $ 1,059,912 - ------------------------------------------------------------------------------------------------ $ 2,551,733 $ 2,706,650 ================================================================================================
Note: The Condensed Balance sheet at November 30, 1998 has been taken from the Audited Financial Statements at that date. See Notes to Condensed Financial Statements 3
FEBRUARY 28, November 30, 1999 1998 (UNAUDITED) - ------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Note payable, bank (Note 4) $ 417,870 $ 346,657 Current maturities of long- term debt (Note 4) 1,238,373 1,239,472 Accounts payable and accrued expenses; including amounts owed to affiliates of $254,761 at 1999 and $169,837 at 1998 530,637 508,002 Billings in excess of costs and estimated earnings on uncompleted contracts 74,865 116,332 - ------------------------------------------------------------------------------------------------ Total current liabilities $ 2,261,745 $ 2,210,463 - ------------------------------------------------------------------------------------------------ LONG-TERM DEBT (Note 4 ) $ 65,466 $ 114,889 - ------------------------------------------------------------------------------------------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, par value $.01 per share authorized 1,000,000 shares; no shares issued $ - $ - Common stock, par value $.01 per share; 11,000,000 shares authorized at 1999 and 1998; 3,453,451 shares were issued at 1999 and 1998, respectively 34,534 34,534 Additional paid-in capital 4,211,566 4,211,566 Accumulated deficit (4,021,578) (3,864,802) - ------------------------------------------------------------------------------------------------ $ 224,522 $ 381,298 - ------------------------------------------------------------------------------------------------ $ 2,551,733 $ 2,706,650 ================================================================================================
4 NDC AUTOMATION, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended FEBRUARY 28, February 28, 1999 1998 - --------------------------------------------------------------------------------------------- Net revenues $ 932,029 $ 745,895 Cost of goods sold 575,881 433,905 - --------------------------------------------------------------------------------------------- Gross profit $ 356,148 $ 311,990 - --------------------------------------------------------------------------------------------- Operating expenses: Selling $ 191,759 $ 165,749 General and administrative 258,479 260,416 - --------------------------------------------------------------------------------------------- $ 450,238 $ 426,165 - --------------------------------------------------------------------------------------------- Operating loss $ (94,090) $ (114,175) - --------------------------------------------------------------------------------------------- Net interest income (expense): Interest income $ - $ - Interest expense (62,686) (64,596) - --------------------------------------------------------------------------------------------- $ (62,686) $ (64,596) - --------------------------------------------------------------------------------------------- Loss before income taxes $ (156,776) $ (178,771) Federal and state income taxes (Note 2) - - - --------------------------------------------------------------------------------------------- Net loss $ (156,776) $ (178,771) ============================================================================================= Weighted average number of common shares outstanding 3,453,451 3,453,451 - --------------------------------------------------------------------------------------------- Loss per common share - basic (Note 3) $ (0.05) $ (0.05) Loss per common share - diluted (Note 3) $ (0.05) $ (0.05) ============================================================================================= Dividends per common share $ - $ - =============================================================================================
See Notes to Condensed Financial Statements 5 NDC AUTOMATION, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended FEBRUARY 28, February 28, 1999 1998 - ------------------------------------------------------------------------------------------------- NET CASH USED IN OPERATING ACTIVITIES $ (37,029) $ (5,350) - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment $ (13,354) $ (594) - ------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES $ (13,354) $ (594) - ------------------------------------------------------------------------------------------------- CASH FLOW FROM FINANCING ACTIVITIES Borrowings (payments) on credit agreement $ 71,213 $ (25,068) Principal payments on long-term borrowings (50,522) (15,352) - ------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ 20,691 $ (40,420) - ------------------------------------------------------------------------------------------------- Effect of foreign currency exchage rate changes on cash and cash equivalents $ 7,752 $ 10,476 - ------------------------------------------------------------------------------------------------- Decrease in cash and cash equivalents $ (21,940) $ (35,888) Cash and cash equivalents: Beginning 62,923 72,368 - ------------------------------------------------------------------------------------------------- Ending $ 40,983 $ 36,480 ================================================================================================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash payments for : Interest $ 62,753 $ 52,653 =================================================================================================
See Notes to the Condensed Financial Statements 6 NDC AUTOMATION, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. The unaudited internal condensed financial statements and related notes have been prepared by NDC Automation, Inc. (the "Company"), without audit pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows at February 28, 1999, and for all periods presented, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these condensed financial statements be read in conjunction with the Company's audited financial statements and notes thereto for the fiscal year ended November 30, 1998. The results of operations for the three months ended February 28, 1999 are not necessarily indicative of the operating results for the full year. NOTE 2. INCOME TAXES The Company did not recognize any income tax benefits in 1998 and 1999 for its current losses as all prior taxes were recognized in the previous financial statements and utilization of operating loss carryforwards in the future are not assured to be realized. NOTE 3. LOSS PER COMMON SHARE: The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS No.128) Earnings Per Share, which supersedes APB Opinion No. 15. SFAS No. 128 requires the presentation of earnings per share by all entities that have common stock or potential common stock, such as options, warrants, and convertible securities, outstanding that trade in a public market. Basic per share amounts are computed, generally, by dividing net income or loss by the weighted-average number of common shares outstanding. Diluted per share amounts assume the conversion, exercise, or issuance of all potential common stock instruments unless the effect is antidilutive, thereby reducing a loss or increasing the income per common share. The Company initially applied Statement No. 128 for the year ended November 30, 1998, and as required by the statement, has restated the per share information for the two prior years to conform to the statement. The Company had options outstanding to purchase a total of 81,777 and 146,833 shares of common stock, respectively, at a weighted-average exercise price of varying amounts. The inclusion of those potential common shares in the calculation of diluted loss per share would have an antidilutive effect. Therefore, basic and diluted loss per share amounts are the same in 1999 and 1998. 7 NOTES TO CONDENSED FINANCIAL STATEMENTS NOTE 4. PLEDGED ASSETS, NOTE PAYABLE, BANK AND LONG-TERM DEBT The Company has the following note payable to a Bank at February 28, 1999:
Note Payable Agreement that allows the Company to borrow up to $1,250,000 and bears interest at the lender's prime rate plus 1.50% per annum for the first $450,000 outstanding and prime plus 2.75% per annum for amounts in excess of $450,000. The Company's loan outstanding shall not exceed the lesser of (a) U.S. $1,250,000 or (b) 80% of qualified accounts receivable plus 50% of all Eligible Inventory (as defined in the loan agreement) with a $300,000 cap on loans based on Eligible Inventory. The loan agreement is further secured by 1) an Inventory Repurchase Agreement and 2) a $450,000 irrevocable Letter of Credit issued by a Swedish Bank. Netzler & Dahlgren Co. AB (NDCab) is obligated to repay the letter of credit bank any funds it disburses under the Letter of Credit. The Company is ultimately responsible to repay to NDCab any amounts it pays in reimbursing the Letter of Credit Bank . The Repurchase Agreement guarantees that NDCab will repurchase on certain conditions up to $300,000 worth of inventory, thereby providing funds to pay lender should the Company be in default on its loan obligations. The Loan Agreement terminates upon demand by the Bank or April 30, 1999. (1)(2) $ 417,870 ================================================================================================= Long-term debt consists of the following at February 28, 1999: Mortgage note payable to a bank, based on a 9.5% fixed rate. Original principal balance to be repaid in twenty-three (23) consecutive monthly principal and interest payments of $13,912, with one final payment of approximately $1,007,403 due on May 16, 1999. The note is collaterized by the Company's land and building with a carrying value of $968,604. The loan also contains certain financial covenants to which the Company must adhere. As of February 28, 1999 the Company obtained waivers for certain financial covenants as specified by the Mortgage note agreement. $1,025,610 Note payable to Netzler & Dahlgren Co AB, based on a 16.0% fixed rate. Original principal balance to be repaid in twenty-four (24) consecutive monthly principal payments of 133,529 Swedih Krona, or approximately US$16,757 depending on the exchange rate at time of payment, plus interest. The note is collaterized by a secondary position on the Company's land and building with a carrying value of $968,604. 278,229 - ------------------------------------------------------------------------------------------------- Less current maturities: 1,238,373 - ------------------------------------------------------------------------------------------------- $ 65,466 ================================================================================================= (1) The prime rate at February 28, 1999 was 7.75% (2) The line of credit is secured by a first priority security interest in the Company's accounts receivable, inventory, software . Maturities of long-term debt at February 28, 1999 are as follows: Year Ending February 28 - ------------------------------------------------------------------------------------------------- 2000 $ 1,238,373 2001 65,466 - ------------------------------------------------------------------------------------------------- $ 1,303,839 =================================================================================================
8 NOTES TO CONDENSED FINANCIAL STATEMENTS NOTE 5. CONTINUED OPERATIONS The Company has suffered a significant loss from operations in 1998 and 1997. Should such losses continue its total liabilities will exceed its total assets. This raises substantial doubt about the Company's ability to continue as a going concern. Management is exploring various ways to increase revenues and minimize losses. These approaches include the following : o Establish and develop strategic alliances with selected customers o Pursue AGV system business in selected market niches o Grow the distribution business by adding new supplementary products o Expand the aftermarket sales business o Explore raising additional equity directly and/or possibly through a business combination There can be no assurance that these approaches will be successful. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the financial statements (including the notes thereto) presented elsewhere herein. OVERVIEW The Company derives virtually all of its revenues from the sale of hardware, software and engineering services in connection with projects incorporating its Automated Guided Vehicle (AGV) control technology. In prior years the Company's net revenues from AGV systems, vehicles and technology were derived primarily from sales to customers serving two industries -- textiles and newspaper publishing. Net revenues since 1995 however have been derived from other industries, e.g. automotive, CD manufacturing, food, paper. The Company's results of operations can be expected to continue to depend substantially upon the capital expenditure levels in those industries and in other industries that it may enter. During 1996 and for the first three quarters of 1997, the Company refocused its sales efforts to existing original equipment manufacturers (OEMs) and system integrators in the AGV systems industry. Such OEMs and system integrators have historically sold products to end users to whom the Company occasionally had direct sales. The Company reduced its sales effort to such end users to avoid competing with its intended OEM customers. In September of 1997, however, the Company began to again pursue AGV system sales directly to end users in selected market niches to supplement revenues obtained from sales to OEMs and system integrators. Due to the long sales cycle involved, uncertainties in timing of projects, and the large dollar amount a typical project usually bears to the Company's historical and current quarterly and annual net revenues, the Company has experienced, and may be expected to continue to experience, substantial fluctuations in its quarterly and annual results of operations. The Company sells its products and services primarily in two ways. Vehicles, technology and other products and services may be sold in a "project" that becomes an integrated AGV system. The primary business is to sell hardware, software and services as standard items, with less involvement by the Company in overall system design. The Company generally would recognize lower net revenue but would realize a higher gross profit margin percentage in selling standard items, in each case compared to the sale of a project, due to the inclusion in project sales of other vendors' products and services with margins generally lower than the Company's own products and services. Between any given accounting periods, the levels of and mixture of standard item sales and project sales can cause considerable variance in net revenues, gross profit, gross profit margin, operating income and net income. Revenues from standard item sales are recognized upon shipment, while revenues from project sales are recognized under the "percentage of completion" method. Under this method, with respect to any particular customer contract, revenues are recognized as costs are incurred relative to each major component of the project. Although the percentage of completion method will ordinarily smooth out over time the net revenue and profitability effects of large projects, such method nevertheless subjects the Company's results of operations to substantial fluctuations dependent upon the progress of work on project components. Such components can differ markedly from one another in amount and in gross profit margin. Project contracts are billed upon attainment of certain "milestones." The Company grants payment terms of 30 to 90 days to its customers. It typically receives a cash advance ranging from 10% to 20% of the total contract amount. Bills are thereafter delivered as milestones are reached. Upon delivery of the project, the customer typically reserves a "retainage" of 10% to 20% pending system acceptance. Notwithstanding the receipt by the Company of cash advances and periodic payments upon reaching project milestones, the Company requires external financing for its costs and estimated earnings in excess of billings on uncompleted contracts, inventories, receivable and other assets. The Company's backlog consists of all amounts contracted to be paid by customers but not yet recognized as net revenues by the Company. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS ================================================================================ STRATEGY DIVERSIFICATION: The Company will have to convert several OEM customers away from their own in-house AGV technology to the Company's technology to increase its present market share. Such technology conversions, if they take place at all, can take one to several years to complete. Such customers must also replace in volume and margin what the Company could otherwise obtain selling systems direct to end-user or via system integrators to end-users. There can be no assurances that such a strategy will be successful in the short or long term. HARCON AGREEMENT: On January 27, 1999 the Company signed an agreement with Harcon Engineering, Inc. ("Harcon") of Roseville, Michigan with the objective of jointly pursuing material handling systems projects, primarily in the automotive industry. The Company received in January 1999 an order from Harcon for the design phase of a major laser guided AGV system to be installed at a new DaimlerChrysler facility in the Detroit area. The design phase order with anticipated manufacturing orders related to the project could generate revenues for the Company in excess of one million dollars. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS ================================================================================ RISK ASSOCIATED WITH YEAR 2000: The Company, in its day to day operations relies upon various computer software and hardware that may be adversely affected by a change in the millennium, from 1999 to 2000. In general, information systems experts have predicted that a wide variety of problems, from system failures to data entry and transfer errors, will result from the turn of the century. Repeated system failures, data entry and transfer errors and similar computer problems would result in a material adverse effect on the Company and its operations. However, the Company has examined most of its computer hardware and software and, based on such examination, does not reasonably anticipate any significant internal problems as a result of the change in millennium. The Company may, however, be adversely affected by external systems problems, problems over which the Company has minimal control. FORWARD-LOOKING STATEMENTS: This report (including information included or incorporated by reference herein) contains certain forward-looking statements with respect to the financial condition, results of operation, plans, objectives, future performance and business of the Company. These forward-looking statements involve certain risk and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: a) Revenues from end user systems sales and new OEMs may be lower than expected. b) New product lines from Thrige and Netzler & Dahlgren (Teach-in) may not be well received in the North American industrial truck market, thereby restricting growth opportunities for the Company. c) Manufacturing orders related to the Harcon project may not be received. d) The Company's existing bank relationships may not be extended which would cause the Company to default on its current obligations. e) The Company might be unable to raise the additional working capital needed, directly or through a business combination, to finance the current business strategy which may have a serious impact on the Company's ability to sell its current and future products, as well as satisfy existing banking relationships. f) General economic or business conditions, either nationally or in the markets in which the Company is doing business, may be less favorable than expected resulting in, among other things, a deterioration of market share or reduced demand for its products. 12 RESULTS OF OPERATIONS The table below shows (a) the relationship of income and expenses relative to net revenues, and (b) the change between the comparable prior period and current period. This table should be read in the context of the Company's condensed statements of operations presented elsewhere herein.
Percentage of Change Period To Period Increase Percentage of Net Revenues (Decrease) - --------------------------------------------------------------------------------------------------------- Three Months Ended For the Three Months Ended February 28, 1998 February 28, 1999 February 28,1998 to February28,1999 % % % - --------------------------------------------------------------------------------------------------------- Net revenues 100.0 100.0 25.0 Cost of goods sold 61.8 58.2 32.7 - --------------------------------------------------------------------------------------------------------- Gross profit 38.2 41.8 14.2 - --------------------------------------------------------------------------------------------------------- Operating expenses: Selling 20.6 22.2 15.7 General and administrative 27.7 34.9 (0.7) - --------------------------------------------------------------------------------------------------------- 48.3 57.1 5.6 - --------------------------------------------------------------------------------------------------------- Operating loss (10.1) (15.3) (17.6) Net interest expense 6.7 8.7 (3.0) - --------------------------------------------------------------------------------------------------------- Loss before income taxes (16.8) (24.0) (12.3) Income taxes - - - - --------------------------------------------------------------------------------------------------------- Net loss (16.8) (24.0) (12.3) =========================================================================================================
13 QUARTER ENDED FEBRUARY 28, 1999 COMPARED TO THE QUARTER ENDED FEBRUARY 28, 1998 Net revenues increased by $186,134, or 25.0% from $745,895 in the earlier period to $932,029 in the latter period. Even with the significant percentage increase in revenues, management realizes that its present bookings and backlog of new business is not enough to generate the necessary cash flows and earnings to operate profitably. Management believes that the expected order from DaimlerChrysler will help achieve its operating goals. Cost of goods sold increased from $433,905 to $575,881, or 32.7% primarily due to increased volume of business , while as a percentage of net revenues cost of goods sold increased from 58.2% to 61.8% . Gross profit increased by $44,158, or 14.2% from $311,990 to $356,148 due to greater revenues in 1999 compared to the prior year. Gross profit as a percentage of revenues decreased from 41.8% to 38.2%. Selling expenses increased from $165,749 to $191,759, or 15.7% primarily due to a major trade show being attended during the first quarter of 1999 compared to the prior year when a similar show was attended in the second quarter of that year. General and administrative expenses decreased from $260,416 to $258,479, or 0.7% compared to the prior year. Primarily as a result of the foregoing, operating loss decreased by $20,085 from $114,175 in 1998 to an operating loss of $94,090 in 1998. The net interest expense decreased from $64,596 to $62,686. The Company did not recognize any tax benefits in 1998 and 1999 for its current loss as all prior taxes were recognized in the previous financial statements and utilization of operating loss carryforwards in the future are not assured to be realized. Primarily due to greater revenues in 1999 as described above the Company incurred a net loss of $178,771 in 1998 compared to net loss of $156,776 in 1999. BACKLOG. Backlog consists of all amounts contracted to be paid by customers but not yet recognized as net revenues by the Company. At February 28, 1999, the Company had a backlog of approximately $930,000 compared to approximately $1,100,000 one year earlier. 14 LIQUIDITY AND CAPITAL RESOURCES The Company experiences needs for external sources of financing to support its working capital, capital expenditures and acquisition requirements when such requirements exceed its cash generated from operations in any particular fiscal period. The amount and timing of external financing requirements depend significantly upon the nature, size, number and timing of projects and contractual billing arrangements with customers relating to project milestones. The Company has relied upon bank financing under a revolving working capital facility, as well as long-term debt and capital leases and proceeds of its public offerings, and private offerings, to satisfy its external financing needs. During the three months ended February 28, 1999 net cash used in operating activities was $37,029. The Company entered into an Inventory and Accounts Receivable Loan and Security Agreement ("Loan Agreement") on February 28, 1997 with the National Bank of Canada and National Canada Business Corp. (herein collectively called the "Lender"). The Loan Agreement allows the Company to borrow up to a maximum of $1,250,000. Loans made under the new Loan Agreement are evidenced by a demand promissory Note. The Loan Agreement allows the Company to borrow pursuant to a borrowing formula which is secured by Company's personal property as collateral. The Company's outstanding loan amount at any one time shall not exceed the lesser of (a) U.S $1,250,000 or (b) 80% of qualified accounts receivable ( as defined in the Loan Agreement) plus 50% of all eligible inventory ( as defined in the Loan Agreement) with a $300,000 cap on loans based on eligible inventory. The borrowed funds will bear interest at the Lender's prime rate plus 1.5% per annum for the first $450,000 outstanding and prime plus 2.75% per annum for amounts outstanding in excess of $450,000. The Loan Agreement is further secured by 1) an Inventory Repurchase Agreement and 2) a $450,000 irrevocable Letter of Credit issued by a Swedish bank. Netzler & Dahlgren Co. AB (NDCab) is obligated to repay the letter of credit bank any funds it disburses under the Letter of Credit. The Company is ultimately responsible to repay to NDCab for any amounts it pays in reimbursing the letter of credit bank. The Repurchase Agreement guarantees that NDCab will repurchase from the Company on certain conditions up to $300,000 worth of inventory, thereby providing funds to pay the Lender should the Company default on its loan obligations. The lender, at its discretion, may demand payment upon written notice to the Company. The maturity date has been extended to April 30, 1999, or upon demand by the Bank. The extension was conditional upon Netzler & Dahlgren extending its $450,000 irrevocable Letter of Credit to the Bank through May 1, 1999. To further secure Netzler & Dahlgren for providing the Letter of Credit the Company entered into a Reimbursement Agreement under which the Company granted to Netzler and Dahlgren a security interest in the Company's land and building; such collateral is a junior lien to the primary mortgage lender's security interest. During May 1997, the mortgage loan maturity date was extended from February 10, 1998 to May 16, 1999. The interest rate on the note was increased to 9.5% from 7.75% . The combined principle and interest monthly payment was changed to $13,912 compared to $13,057 per the prior agreement. During the second quarter of 1998 the Company had been delaying payments of approximately $400,000 to its affiliate Netzler and Dahlgren so not to exceed current borrowing maximums from the demand promissory note. On June 30, 1998 the Company signed a promissory note to repay such debt over the next two years. The note is to be repaid in 24 equal principal payments plus accrued interest at the rate of 16% annually beginning July 31, 1998. There are no assurances that the deficiency in the cash flow will not worsen if the Company does not generate enough new business. The Company is exploring the possibility of raising additional equity capital or subordinated debt in order to improve its financial position. There can be no assurance that the Company will be successful in raising the additional capital or subordinated debt to improve its financial position. The Company's ability to continue as a going concern would be adversely affected if such equity and/or debt financing is not obtained in the near future or if revenues do not increase to consistently provide earnings for the Company. 15 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None Press Releases: None (b) Reports on Form 8-K None 16 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NDC AUTOMATION, INC. (Registrant) BY: /s/ Ralph Dollander --------------------------- Ralph Dollander President (Chief Executive Officer) BY: /s/ Claude Imbleau --------------------------- Claude Imbleau VP - Finance & Administration (Chief Financial Officer) Date: April 12, 1999 ---------------- 17 EXHIBIT INDEX The following documents are included in this Form 10-QSB as an Exhibit: Designation Number Under Exhibit Number Item 601 of Page Regulation S-K Exhibit Description Number - -------------------------------------------------------------------------------- (A) Exhibits: - ------------- 1. 27 Financial schedule 19 18 EX-27 2 EXHIBIT 27
5 0000859621 NDC AUTOMATION, INC. 3-MOS DEC-01-1998 NOV-30-1999 FEB-28-1999 40,983 0 886,811 70,000 465,776 1,498,997 1,638,048 585,312 2,551,733 2,261,745 0 34,534 0 0 189,988 2,551,733 932,029 932,029 575,881 575,881 450,238 0 62,686 (156,776) 0 (156,776) 0 0 0 (156,776) (0.05) (0.05)
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