UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended November 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period From ____ to ____
Commission file number 0-27928
NICOLLET PROCESS ENGINEERING, INC.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1528120
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
420 North Fifth Street, Ford Centre, Suite 1040
Minneapolis, MN 55401
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(Address of principal executive offices)
(612) 339-7958
---------------------------
(Issuer's telephone number)
Indicate whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [ ]
The number of shares of common stock, no par value, outstanding as of December
31, 1996 was 3,346,305.
INDEX
PART I. - FINANCIAL INFORMATION
ITEM DESCRIPTION PAGE(S)
- ---- ----------- -------
1. FINANCIAL STATEMENTS.
Balance Sheets (unaudited) as of November 30, 1996 and
August 31, 1996................................................. 3
Statements of Operations (unaudited) for the three
months ended November 30, 1996 and 1995......................... 4
Statements of Cash Flows (unaudited) for the three
months ended November 30, 1996 and 1995......................... 5
Notes to Financial Statements (unaudited)......................... 6
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 7
PART II. - OTHER INFORMATION
1. LEGAL PROCEEDINGS................................................. 12
2. CHANGES IN SECURITIES............................................. 12
3. DEFAULTS UPON SENIOR SECURITIES................................... 12
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 12
5. OTHER INFORMATION................................................. 12
6. EXHIBITS AND REPORTS ON FORM 8-K.................................. 12
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NICOLLET PROCESS ENGINEERING, INC.
Balance Sheets
November 30, 1996 (Unaudited) and August 31, 1996
November 30, August 31
ASSETS 1996 1996
- ------ ------------ -----------
(unaudited) (Note)
Current Assets:
Cash .................................................... 30,519 1,198,399
Short term investments................................... 1,362,025 973,224
Net receivables ......................................... 590,805 284,197
Inventories ............................................. 231,581 332,074
Prepaid expenses and other assets ....................... 39,241 23,655
---------- ----------
Total current assets ............................... 2,254,171 2,811,549
Property and equipment:
Computer equipment ...................................... 458,601 412,274
Furnishings and equipment ............................... 121,752 121,752
Leasehold improvements .................................. 70,211 70,211
---------- ----------
650,564 604,237
Less: accumulated depreciation ......................... (311,343) (289,619)
---------- ----------
339,221 314,618
Other assets:
License agreement ....................................... 83,118 94,453
Software development costs .............................. 325,418 305,384
Other assets ............................................ 135,445 53,131
---------- ----------
Total assets ............................................... 3,137,373 3,579,135
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable -- current portion ........................ 49,655 49,655
Accounts payable ........................................ 241,605 268,332
Accrued payroll liabilities ............................. 32,832 29,292
Current portion of capitalized lease obligation ......... 3,892 5,343
Accrued liabilities ..................................... 160,357 136,778
---------- ----------
Total current liabilities ............................ 488,341 489,400
Long term notes ............................................ 60,139 73,056
Capitalized lease obligation ............................... 7,802 7,802
Deferred rent .............................................. 11,247 12,793
Stockholders' equity (deficit):
Common stock, no par value:
Authorized shares -- 5,000,000; issued and outstanding
shares 3,277,923 at August 31, 1996
and 3,346,305 at November 30, 1996 ................. 7,616,667 7,675,841
Accumulated deficit ..................................... (5,045,323) (4,675,257)
---------- ----------
2,571,344 3,000,584
Less stock subscription receivable (1,500) (4,500)
---------- ----------
Total stockholders' equity (deficit) ....................... 2,569,844 2,996,084
---------- ----------
Total liabilities and stockholders' equity ................. 3,137,373 3,579,135
========== ==========
Note: The balance sheet as of August 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles.
See accompanying notes to financial statements.
NICOLLET PROCESS ENGINEERING, INC.
Statements of Operations
For the Three Months Ended November 30, 1996 and 1995
(Unaudited)
Three Months Ended
November 30,
------------------------
1996 1995
---- ----
Net sales ................................ 593,718 967,949
Cost of sales ............................ 336,675 659,914
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Gross margin ............................. 257,043 308,035
Operating expenses:
Selling expenses ...................... 317,405 199,991
Research and development expenses ..... 117,534 77,261
General and administrative expenses ... 214,416 152,383
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Total operating expenses ........... 649,355 429,635
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Operating loss ........................... (392,312) (121,600)
Other income/expenses
Interest expense ...................... 1,963 20,572
Interest income ...................... (24,199) 0
----------- -----------
Total other income/expenses ........ (22,236) 20,572
----------- -----------
Net loss ................................. $ (370,076) $ (142,172)
=========== ===========
Net loss per share ....................... $ (.11) $ (.07)
=========== ===========
Weighted average number of
shares outstanding .................... 3,316,795 2,053,029
=========== ===========
See accompanying notes to financial statements.
NICOLLET PROCESS ENGINEERING, INC.
Statements of Cash Flows
For the Three Months Ended November 30, 1996 and 1995
(Unaudited)
Three Months Ended
November 30
---------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................... (370,075) (142,172)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation/amortization............................ 63,259 15,300
Accounts receivable................................ (306,608) (217,544)
Inventories........................................ 100,498 11,734
Prepaid expenses................................... (15,587) (17,465)
Accounts payable................................... (26,727) 53,302
Other current liabilities.......................... 7,784 (118,256)
Accrued liabilities................................ 19,338 (43,213)
--------- -------
Net cash used in operating activities...................... (528,118) (458,314)
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Total fixed assets......................................... (46,327) (7,944)
Other assets............................................... (48,322) (136,984)
Capital-in-process......................................... (84,226) (7,455)
--------- -------
Net cash used in investing activities...................... (178,875) (152,383)
--------- -------
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES
Proceeds from:
Common stock............................................ (56,174) 563,150
Notes payable........................................... (12,916) 0
Deferred lease obligation............................... (1,546) (1,599)
Capitalized lease obligation............................ (1,451) (1,111)
--------- -------
Net cash (used in)/from financing activities............... (72,087) 560,440
--------- -------
Net decrease in cash....................................... (779,080) (50,257)
Cash at beginning of period................................ 2,171,624 5,274
--------- -------
Cash at end of period...................................... 1,392,544 (44,979)
========= ========
See accompanying notes to financial statements.
NICOLLET PROCESS ENGINEERING, INC.
Form 10-QSB
November 30, 1996
Notes to Financial Statements
1. BASIS OF PRESENTATION
The unaudited interim financial statements have been prepared by the
Company in accordance with generally accepted accounting principles,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements have been omitted or
condensed pursuant to such rules and regulations. The information
furnished reflects, in the opinion of the management of the Company,
all adjustments (of only a normally recurring nature), necessary to
present a fair statement of the results for the interim periods
presented. Operating results for the three month period ended November
30, 1996 are not necessarily indicative of the results that may be
expected for the year ended August 31, 1997. The accompanying unaudited
interim financial statements should be read in conjunction with the
financial statements and related notes included in the Company's Annual
Report on Form 10-KSB dated August 31, 1996.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing the net income
(loss) for the period by the weighted average number of shares of
common stock outstanding during the period.
3. INITIAL PUBLIC OFFERING
On March 19, 1996, the Company completed an initial public offering of
1,000,000 shares of newly issued common stock which raised $3,639,000
net of expenses. On May 6, 1996, the overallotment was exercised for
171,215 additional shares which raised $688,000. The price per share
was $4.625.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THIS FORM 10-QSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. FOR THIS
PURPOSE, ANY STATEMENTS CONTAINED IN THIS FORM 10-QSB THAT ARE NOT STATEMENTS OF
HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING
THE FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE,"
"ESTIMATE" OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR
COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES,
AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF FACTORS,
INCLUDING THOSE DESCRIBED UNDER THE CAPTION "IMPORTANT FACTORS TO CONSIDER"
CONTAINED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDING AUGUST 31, 1996.
OVERVIEW
Nicollet Process Engineering, Inc. (the "Company") designs,
manufacturers, markets and supports process monitoring and control systems,
client/server software at the host level and machine diagnostic tools for the
die casting and plastic injection molding industries. The Company has developed
industry-specific, "turn-key" manufacturing information and process control
systems (the "NPE Monitoring and Control System") which, on a real-time basis,
monitor, collect and display machine performance data, monitor process
performance continuously against pre-set values, provide feedback to the
machine's controller to bring out-of-tolerance performance back into
conformance, and aggregate data for real-time presentation of process reports
for use by the machine operator. The Company has also developed client/server
software at the host level (the "NPE Host Level Software") which provides access
to factory floor data stored in file servers and distributes that data, on a
real-time basis, to all levels of an organization in either preprogrammed report
formats or on a user defined basis. These products (together the "NPE System")
allow manufacturers of discrete parts to (i) analyze and control their
production processes to ensure repeatable production of high quality parts; (ii)
reduce scrap and machine downtime; (iii) increase product quality; (iv) reduce
production costs; and (v) provide management on-line, real-time access to
productions and process data for decision making. The Company's third product
line, the Machine Capability Analyzer (the "MCA"), is a portable,
troubleshooting instrument that tests the functioning of a manufacturing machine
for inconsistencies in operation.
Since inception, NPE's strategy has been to develop industry-specific
monitoring and control systems to better control the production process and to
provide information access to all levels of management throughout an enterprise.
In 1985, the Company began developing its first product, a process monitoring
and control system for the die casting industry, and ultimately generated its
first sale in 1987. In 1988, the Company introduced an early version of its
networking and host level software product. This product, made for the die
casting industry, connected various machines on the factory floor and provided
information from those machines to the host level. After introduction of the
Company's hardware and software products into the die casting industry, the
Company began exploring expansion into other industries and began development
work for products in the plastic injection molding industry. In 1994, the
Company introduced Windows(TM) based versions of its products for the plastic
injection molding industry. These products have both on-machine process and
control capabilities and plant-wide data acquisition and dissemination
capabilities. During 1995, the Company introduced Windows(TM) based versions of
its products into the die casting industry. In 1995, the Company also developed
its client/server software product for the plastic injection molding industry.
The first sale of the host-level product occurred in late 1995. The emphasis of
existing sales efforts of the Company's products are the Windows(TM) based
versions, although the Company continues to offer DOS based products.
Revenues are generated from the sale of the Company's NPE System and
the sale of the MCA. Revenues for these products generally are recognized upon
shipment to the customer. The Company also separately charges for installation,
training, service and support. Revenues related to installation and training are
recognized as the services are performed. The Company also offers a one year
warranty on certain components of its products. The warranty on any purchased
hardware is provided by the original hardware vendor.
The Company expenses all software development costs as incurred until
technological feasibility has been established for the product, at which time
the costs are capitalized until the product is available for general release to
customers. The cost of purchased software is capitalized if the software meets
the technological feasibility requirements. During fiscal 1994, 1995 and 1996
and the first quarter of fiscal 1997, the Company has expensed substantially all
software development costs. In August 1995, the Company acquired the core
technology for its Windows(TM) based software for the die casting industry. The
Company capitalized the cost of this purchased software as of August 31, 1995
because the software met the technological feasibility requirements at the time
of purchase.
RESULTS OF OPERATIONS
THREE MONTHS ENDING NOVEMBER 30, 1996 COMPARED TO THREE MONTHS ENDING
NOVEMBER 30, 1995
NET SALES. Net sales decreased 39% to approximately $594,000 in the
three months ended November 30, 1996 compared to approximately $968,000 in the
three months ended November 30, 1995. The decrease was due to the lower sales of
plastics NPE Monitoring and Control Systems and MCAs. The Company shipped
several large systems to a single customer during the three months ended
November 1995. Sales of the Company's die casting product for the three months
ending November 30, 1996 increased approximately 10% compared to the prior year
period. The increase was due to an added customer base.
GROSS MARGINS. The gross margin increased to 43% of revenues in the
three months ended November 30, 1996 compared to 32% of revenues for the prior
year period. The increase was due to cost reduction programs implemented by the
Company during the first quarter of 1996 for the die casting product. A new
pricing structure was also initiated in the customer service and support center
during the three months ended November 30, 1996. The Company now separately
charges for service and support.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased
59% to approximately $317,000 for the three months ended November 30, 1996
compared to approximately $200,000 in the prior year period. This increase was
due to additions to the sales force during the last fiscal year and
restructuring of the sales and customer service divisions as the Company
continued the expansion of its sales force. Commission expenses were lower due
to the low sales volume, but offset by trade show expenses, advertising and
travel.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 52% to approximately $118,000 in the three months ended November 30,
1996 compared to approximately $77,000 for the prior year period. This increase
was primarily due to additions to the technical staff during the last fiscal
quarter. Capitalization of software development costs totaled approximately
$102,000 and relates to the NPE Host Level Software for the die cast systems
network, and segments of the new release 3.0 for the NPE Monitoring and Control
System for the plastics system.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 41% to approximately $214,000 compared to approximately
$152,000 for the prior year period. This increase is due to increased costs
associated with SEC filing preparations, press releases and investor relations.
INTEREST INCOME. Interest income increased to approximately $24,000 for
the three months ended November 30, 1996 compared to zero from the prior year
period. The increase is attributable to the earnings on the investments from the
funds received in connection with the initial public offering ("IPO") completed
March 19, 1996.
INTEREST EXPENSES. Interest expenses decreased to $1,963 for the three
months ended November 30, 1996 compared to approximately $20,000 for the prior
year period. The decrease was due to the pay off of all loans and obligations
from the proceeds of the IPO.
NET LOSS. The net loss for the three months ended November 30, 1996 was
approximately $370,000 or $.11 per share, compared to a net loss of
approximately $142,000 or $.07 per share for the three months ended November 30,
1995.
LIQUIDITY AND CAPITAL RESOURCES
In March 1996, the Company completed an initial public offering of
1,000,000 shares of common stock. In May, 1996, the underwriter exercised its
overallotment option to purchase an additional 171,215 shares of common stock.
The net proceeds to the Company from the public offering was approximately $4.3
million. The Company's common stock is quoted on the Nasdaq SmallCap Market
under the symbol "NPET."
Cash, cash equivalents and investments at November 30, 1996 were
approximately $1.4 million. Management believes this cash and investments will
fund operations through August 31, 1997.
Net cash used in operating activities was approximately $528,000 and
$458,000 in the three months ended November 30, 1996 and 1995, respectively. The
cash used was primarily related to operations.
Net cash used in investing activities was approximately $179,000 and
$152,000 in the three months ended November 30, 1996 and 1995, respectively.
Net cash provided by financing activities was approximately $(72,000)
and $560,000 in the three months ended November 30, 1996 and 1995, respectively.
The net cash used by financing activities in the three months ended November 30,
1996 was primarily the result of the exercise of a put option for $60,000 by an
optionholder of the Company.
The Company anticipates capital expenditures of approximately $105,000
through fiscal 1997. The Company anticipates that out of the $105,000, (i)
approximately $35,000 will be used for engineering test facility equipment; (ii)
approximately $30,000 will be used for trade show and booth equipment; (iii)
approximately $25,000 will be used for production equipment; and (iv)
approximately $15,000 will be used for a training and demo presentation
facility.
The Company believes that sufficient liquidity is available to satisfy
its working capital needs at least through August 31, 1997.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal, governmental, administrative or
other proceedings to which the Company is a party or of which any of its
property is the subject.
ITEM 2. CHANGES IN SECURITIES.
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
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) Exhibit 27.1 Financial Data Schedule.
(b) No reports were filed on Form 8-K during the quarter for which
this report was filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NICOLLET PROCESS ENGINEERING, INC.
Dated: January 13, 1997 By: /s/ Robert A. Pitner
-----------------------------------------
Robert A. Pitner
President and Chief Executive Officer
By: /s/ Lanny I. Kurysh
-----------------------------------------
Lanny I. Kurysh
Chief Financial and Operating Officer
(principal financial officer)
Exhibit Index
Exhibit No. Description Location
----------- ----------- --------
27.1 Financial Data Schedule.................. filed electronically