SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- ----------------
Commission File Number 0-3704
NAI TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
New York 11-1798773
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1000 Woodbury Road, Woodbury, New York 11797-2530
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 364-4433
Indicate by check mark 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 preceding 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
--- ---
As of October 25, 1995, 7,459,437 shares of NAI Technologies, Inc.'s $.10 par
value Common Stock were outstanding.
Exhibit Index on Page 16
Page 2
NAI TECHNOLOGIES, INC.
----------------------
INDEX
-----
PAGE
Facing Sheet 1
Index 2
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - 3
September 30, 1995 and December 31, 1994
Consolidated Statements of Operations - 4
Three months ended September 30, 1995 and
October 1, 1994
Consolidated Statements of Operations - 5
Nine months ended September 30, 1995 and
October 1, 1994
Consolidated Statements of Cash Flows - 6
Nine months ended September 30, 1995 and
October 1, 1994
Other financial information 7
Item 2. Management's Discussion and Analysis of 8-13
Financial Condition and Results of Operations
PART II. Other Information 14
Signatures 15
Exhibits 16
Page 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
- --------------------------------------------------------------------------------------------
Sept. 30, Dec. 31,
1995 1994
(Unaudited)
- --------------------------------------------------------------------------------------------
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 1,436 $ 1,658
Accounts receivables, net 14,043 12,508
Income taxes receivable - 4,732
Inventories, net 10,983 14,052
Deferred tax asset 372 378
Other current assets 1,242 871
- --------------------------------------------------------------------------------------------
Total current assets 28,076 34,199
- --------------------------------------------------------------------------------------------
Property, plant and equipment, net 5,252 7,657
Excess of cost over fair value of assets acquired, net 10,497 10,865
Long-term notes receivable 1,190 -
Other assets 666 999
- --------------------------------------------------------------------------------------------
Total assets $45,681 $53,720
============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Notes payable $ - $ 127
Current installments of long-term debt 15,437 2,179
Accounts payable 9,489 7,484
Accrued payroll and commissions 369 535
Other accrued expenses 5,290 6,435
Income taxes payable 238 774
- --------------------------------------------------------------------------------------------
Total current liabilities 30,823 17,534
- --------------------------------------------------------------------------------------------
Notes payable - 6,000
Long-term debt 249 7,990
Other accrued expenses 2,588 1,522
Deferred income taxes 378 378
- --------------------------------------------------------------------------------------------
Total liabilities 34,038 33,424
- --------------------------------------------------------------------------------------------
Shareholders' Equity:
Capital Stock:
Preferred stock, no par value, 2,000,000
shares authorized and unissued - -
Common stock, $.10 par value, 10,000,000
shares authorized; shares issued: 7,459,437
in 1995 and 7,174,592 in 1994 746 717
Capital in excess of par value 15,249 14,718
Foreign currency translation adjustment 89 107
Retained earnings (4,441) 4,754
- --------------------------------------------------------------------------------------------
Total shareholders' equity 11,643 20,296
- --------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $45,681 $53,720
============================================================================================
Page 4
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands except per share amounts)
(Unaudited)
- --------------------------------------------------------------------------------
For the Three Months Ended
--------------------------
Sept. 30, Oct. 1,
1995 1994
- --------------------------------------------------------------------------------
Net sales $15,887 $12,093
- --------------------------------------------------------------------------------
Cost of sales 14,097 9,427
- --------------------------------------------------------------------------------
Gross margin 1,790 2,666
- --------------------------------------------------------------------------------
Selling expense 1,269 1,644
General and administrative expense 1,413 1,200
Research and development 425 657
Other 170 55
- --------------------------------------------------------------------------------
Total expenses 3,277 3,556
- --------------------------------------------------------------------------------
Operating loss (1,487) (890)
- --------------------------------------------------------------------------------
Non-operating income (expense)
Deferred debt expense (300) -
Interest income 48 39
Interest expense (446) (397)
- --------------------------------------------------------------------------------
(698) (358)
- --------------------------------------------------------------------------------
Loss before income taxes (2,185) (1,248)
Provision for (recovery of) income taxes 111 (417)
- --------------------------------------------------------------------------------
Net loss $(2,296) $ (831)
================================================================================
Loss per common share $( 0.31) $ (0.12)
================================================================================
Average shares outstanding 7,459 6,808
================================================================================
Page 5
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands except per share amounts)
(Unaudited)
- -------------------------------------------------------------------------------
For the Nine Months Ended
-------------------------
Sept. 30, Oct. 1,
1995 1994
- -------------------------------------------------------------------------------
Net sales $42,658 $42,518
- -------------------------------------------------------------------------------
Cost of sales 40,177 34,039
- -------------------------------------------------------------------------------
Gross margin 2,481 8,479
- -------------------------------------------------------------------------------
Selling expense 3,775 5,966
General and administrative expense 4,172 4,293
Research and development 1,451 2,673
Restructuring Expense - 7,321
Other 396 336
- -------------------------------------------------------------------------------
Total expenses 9,794 20,589
- -------------------------------------------------------------------------------
Operating loss (7,313) (12,110)
- -------------------------------------------------------------------------------
Non-operating income (expense)
Deferred debt expense (600) -
Interest income 136 62
Interest expense (1,197) (1,072)
- -------------------------------------------------------------------------------
(1,661) (1,010)
- -------------------------------------------------------------------------------
Loss before income taxes (8,974) (13,120)
Provision for (recovery of) income taxes 221 (4,575)
- -------------------------------------------------------------------------------
Net loss $(9,195) $(8,545)
===============================================================================
Loss per common share $( 1.25) $( 1.26)
===============================================================================
Average shares outstanding 7,356 6,794
===============================================================================
Page 6
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
For the Nine Months Ended
-------------------------
Sept. 30, Oct. 1,
1995 1994
- -----------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss $(9,195) $(8,545)
Adjustments to reconcile net loss
to cash provided by operating activities:
Depreciation and amortization 2,190 1,865
(Gain) loss on disposal of property, plant & equipment (2) 2,298
Change in assets and liabilities, excluding effects from
acquisitions and foreign currency adjustments:
Accounts receivable (1,535) 2,465
Inventories 3,069 1,360
Accounts payable and other accrued expenses 1,859 3,128
Income taxes 4,202 (3,968)
Other, net 252 752
- -----------------------------------------------------------------------------------------------
Net cash flow provided by (used in) operating activities 840 (645)
- -----------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Contingent payment on purchase of KMS Advanced Products (103) (149)
Purchase of property, plant and equipment (439) (804)
Proceeds from sale of property, plant and equipment 440 28
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities (102) (925)
- -----------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Issuances of notes payable 6 8,422
Payments of notes payable (133) (5,117)
Payments of long-term debt (533) (3,067)
Receipts of notes receivable - 223
Payments for debt restructuring (340) -
Proceeds from exercise of stock options
and stock purchase plan 60 108
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (940) 569
- -----------------------------------------------------------------------------------------------
Effect of foreign currency exchange rates on cash (20) 157
- -----------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (222) (844)
Cash and cash equivalents at beginning of year 1,658 1,717
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,436 $ 873
===============================================================================================
Supplemental disclosure of cash flow information:
Cash paid (refunded) for:
Interest $ 1,049 $ 1,057
Income taxes $(4,725) $ (606)
Non-cash investing and financing activities
Notes receivable from sale of property $ 1,190 -
Common stock issued in debt restructuring $ 500 -
===============================================================================================
Page 7
OTHER FINANCIAL INFORMATION
---------------------------
UNAUDITED FINANCIAL STATEMENTS
- ------------------------------
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission ('SEC') and, in the opinion of management, include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of financial position, results of operations and cash flows for the
interim periods. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the SEC. The Company believes that the disclosures contained
herein are adequate to make the information presented not misleading. The
consolidated statements of operations for the nine months ended September 30,
1995 are not necessarily indicative of the results to be expected for the full
year. These unaudited financial statements should be read in conjunction with
the audited financial statements and accompanying notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
INVENTORIES
Inventories are summarized by major classification as follows:
- ---------------------------------------------------------------------------
Sept. 30, Dec. 31,
1995 1994
(Unaudited)
- ---------------------------------------------------------------------------
(In thousands of dollars)
Raw materials and components $ 6,554 $ 9,698
Work-in-process 4,599 3,849
Finished goods 469 662
Unliquidated progress payments (639) (157)
- ---------------------------------------------------------------------------
Inventories, net $10,983 $14,052
===========================================================================
Page 8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Third Quarter 1995 Compared with Third Quarter 1994
- ---------------------------------------------------
The nature of the Company's business is such that year to year changes in sales
levels are predominantly due to changes in shipping volume or product mix rather
than changing sales prices. Net sales for the third quarter of 1995 were $15.9
million, a 31% increase when compared with $12.1 million for the same period in
1994.
The following chart provides the sales breakdown by product line for the third
quarter:
In thousands of dollars 1995 1994 % Change
- ---------------------------------------------------------------------------
Electronic Systems Segment
Systems $ 8,824 $ 4,172 112%
Component 3,105 4,027 (23%)
Service 1,411 2,180 (35%)
----------------------------------
Total Electronic Systems Segment 13,340 10,379 29%
Telecommunications Segment
Line treatment 1,859 1,215 53%
Test equipment 672 499 35%
Data comm 16 - 100%
---------------------------------
Total Telecommunications Segment 2,547 1,714 49%
---------------------------------
TOTAL $15,887 $12,093 31%
=================================
Sales in the Electronic Systems segment (net of intercompany eliminations)
increased 29% to $13.3 million from $10.4 million for the same period in 1994.
The sales increase was primarily attributable to higher systems integration
revenue, partially offset by lower component revenue and service revenue. The
increase in systems integration revenue was principally attributable to higher
systems integration revenue from NAI's Systems and Lynwood Divisions. The
decrease in service and component revenue is primarily attributable to the lower
revenue from Codar Technology and the closing of the Military Products Division
which was consolidated into Codar in September 1994.
The 1994 third quarter had approximately $1.7 million of revenue produced at the
Hauppauge facility which was subsequently closed in September 1994 when the
Military Products Division was consolidated into one location at Codar. The
merging of the two businesses has placed significant strain on Codar which has
resulted in delayed shipments, significant cost overruns on long-term contracts,
large losses and significant cash constraints.
Sales in the Telecommunications segment increased 49% to $2.5 million as
compared to $1.7 million for the same period in 1994. The increase in sales was
attributable to higher line treatment revenue which increased 53% due to initial
deliveries of Wilcom's new Enhanced Line Powered Amplifier products. The test
equipment revenue increased as a result of increased orders from the regional
Bell operating companies.
The consolidated gross margin percentage for the third quarter of 1995 was 11.3%
as compared with 22.0% for the same period in 1994. The gross margin percentage
was adversely affected by a $1.4 million charge to operations and an unfavorable
mix of high and low margin product deliveries. The $1.4 million charge to
operations was attributable to cost growth on certain long-term contracts due to
engineering design changes, greater than anticipated
Page 9
labor and material costs and under absorbed overhead expense. Although margins
are expected to improve, low margins are expected to continue at least during
the fourth quarter of 1995 principally at Codar due to a disproportionate level
of low margin revenue as a result of past cost overruns on certain long-term
contracts for which the Company continues to provide products.
Selling expense for the third quarter of 1995 was $1.3 million as compared with
$1.6 million for the same period in 1994. This decrease is attributable to
savings associated with the consolidation of the Military Products Division in
the third quarter of 1994.
General and administrative expenses for the third quarter of 1995 were $1.4
million as compared with $1.2 million for the same period in 1994. This increase
is primarily attributable to higher general and administrative expenses at the
Codar subsidiary as a result of increased management resources, partially offset
by the savings associated with the previously mentioned consolidation in 1994.
The 1994 third quarter was favorably impacted by the reversal of certain
over-accruals.
Company-sponsored research and development expenditures for the third quarter of
1995 were $0.4 million as compared with $0.7 million for the same period in
1994. This decrease is attributable to savings associated with the previously
mentioned consolidation and the change in mix between Company-sponsored research
and development and customer-funded research and development. A key component to
the Electronic Systems segment's strategy is to focus on its systems integration
business. Although systems integration work by its nature will require
significant engineering content, such costs must be classified as contract costs
and charged to cost of sales as opposed to Company-sponsored research and
development (IR&D).
For the third quarter of 1995 the Company had an operating loss of $1.5 million
as compared with a loss of $0.9 million for the same period in 1994. The
operating loss was primarily attributable to the $1.4 million charge previously
noted.
Interest expense, net of interest income, was $0.7 million in the third quarter
of 1995, as compared with $0.4 million in the comparable quarter of 1994. The
second quarter of 1995 also included a $0.3 million charge for debt
restructuring expense related to the April 7, 1995 agreement reached with the
Company's two lending institutions.
The Company was unable to recognize a tax benefit for its loss in the third
quarter of 1995 due to uncertainties as to whether or not a future benefit will
be realized. Any earnings in 1995 will not be taxed at the statutory rate. The
small tax provision is associated with Lynwood Scientific Developments Ltd., the
Company's U.K. subsidiary.
For the third quarter of 1995 the Company had a net loss of $2.3 million as
compared with a net loss of $0.8 million in the third quarter of 1994. Loss per
share was $(0.31) as compared with $(0.12) for the same period in 1994, based on
a weighted average of 7.5 million and 6.8 million shares outstanding,
respectively.
Page 10
First Nine Months 1995 Compared with First Nine Months 1994
- -----------------------------------------------------------
The nature of the Company's business is such that year to year changes in sales
levels are predominantly due to changes in shipping volume or product mix rather
than changing sales prices. Net sales for the first nine months of 1995 were
$42.7 million, basically unchanged when compared with $42.5 million for the same
period in 1994.
The following chart provides the sales breakdown by product line for the first
nine months:
In thousands of dollars 1995 1994 % Change
- --------------------------------------------------------------------------
Electronic Systems Segment
Systems $21,754 $14,035 55%
Component 9,714 13,658 (29%)
Service 5,123 8,807 (42%)
----------------------------------
Total Electronic Systems Segment 36,591 36,500 0%
Telecommunications Segment
Line treatment 4,081 3,947 3%
Test equipment 1,948 2,071 ( 6%)
Data comm 38 - 100%
---------------------------------
Total Telecommunications Segment 6,067 6,018 1%
---------------------------------
TOTAL $42,658 $42,518 0%
=================================
The sales increase was primarily attributable to higher systems integration
revenue, partially offset by lower component and service revenues. The increase
in systems revenue was principally attributable to higher systems integration
revenue from NAI's Systems Division. The decrease in service and component
revenue is primarily attributable to lower revenue from Codar Technology and the
closing of the Military Products Division which was consolidated into Codar in
September 1994.
The Company expects a significant amount of 1995 sales to be directly to the
military or through prime contractors to the military. The Company is not aware
of any programs in which it participates that are specifically targeted for
termination or curtailment. The Company's products are utilized on many
different U.S. Government programs which reduces the adverse impact of
cancelling a single specific program. However, changes in future U.S. defense
spending levels could impact the Company's future sales volume.
Sales in the Telecommunications segment increased 1% to $6.1 million as compared
to $6.0 million for the same period in 1994. The increase in sales was
attributable to higher line treatment revenue due to deliveries of Wilcom's new
Enhanced Line Powered Amplifier products. Test equipment revenue decreased due
to lower orders from the regional Bell operating companies and foreign
telecommunications companies primarily due to their cost cutting measures.
The consolidated gross margin percentage for the first nine months of 1995 was
5.8% as compared with 19.9% for the same period in 1994. The gross margin
percentage was adversely affected by a $6.1 million charge to operations and an
unfavorable mix of high and low margin product deliveries. The $6.1 million
charge to operations was attributable to cost growth on certain long-term
contracts due to engineering design changes, greater than anticipated labor and
material and overhead costs and increased provisions for slow moving, excess and
obsolete inventory. Low margins are expected to continue at least during the
fourth quarter of 1995 principally at Codar due to a disproportionate level of
low margin revenue as a result of past cost overruns on certain long-term
contracts for which the Company continues to provide products.
Page 11
Selling expense for the first nine months of 1995 was $3.8 million as compared
with $6.0 million for the same period in 1994. This decrease is attributable to
savings associated with the consolidation of the military products division in
the third quarter of 1994.
General and administrative expenses for the first nine months of 1995 were $4.2
million as compared with $4.3 million for the same period in 1994. This decrease
is primarily attributable to savings associated with the previously mentioned
consolidation in 1994, partially offset by higher general and administrative
expenses at the Codar subsidiary as a result of increased management resources.
Company-sponsored research and development expenditures for the first nine
months of 1995 were $1.5 million as compared with $2.7 million for the same
period in 1994. This decrease is attributable to savings associated with the
previously mentioned consolidation and the change in mix between Company-
sponsored research and development and customer-funded research and development.
A key component to the Electronic Systems segment's strategy is to focus on its
systems integration business. Although systems integration work by its nature
will require significant engineering content, such costs must be classified as
contract costs and charged to cost of sales as opposed to Company-sponsored
research and development (IR&D).
For the first nine months of 1995 the Company had an operating loss of $7.3
million as compared with a loss of $12.1 million for the same period in 1994.
The operating loss in 1995 was primarily due to the $6.1 million charge
previously noted and lower sales volume. The 1994 operating loss included a $7.3
million restructuring expense.
Interest expense, net of interest income, was $1.7 million in the first nine
months of 1995, as compared to $1.0 million for the same period in 1994. The
first nine months of 1995 also included a $0.6 million charge for debt
restructuring expense related to the April 7, 1995 agreement reached with the
Company's two lending institutions.
The effective income tax expense rate is below the combined statutory federal
and state rates for the first nine months of 1995. The Company was unable to
recognize a tax benefit for its loss in the first nine months of 1995 due to
uncertainties as to whether or not a future benefit will be realized. Any
earnings in 1995 will not be taxed at the statutory rate.
For the first nine months of 1995 the Company had a net loss of $9.2 million as
compared with a net loss of $8.5 million in the first nine months of 1994. Loss
per share was $(1.25) as compared with $(1.26) for the same period in 1994,
based on a weighted average of 7.4 million and 6.8 million shares outstanding,
respectively. The 1994 loss per share includes a pre-tax restructuring charge of
$7.3 million.
Liquidity and Capital Resources
- -------------------------------
Although the Company reported a net loss of $9.2 million in the first nine
months of 1995, it still generated a positive cash flow of $0.8 million from
operations due to the receipt in January of a Federal tax refund of $4.0 million
attributable to the 1994 tax loss carryback. Company operations have
historically provided a positive cash flow. However, the Company is currently
experiencing financial difficulties due to lower shipping volumes and cost
overruns on certain long-term contracts.
Although the third quarter revenue level was up approximately 13% over the
second quarter revenue level, the lower than normal gross margins resulted in
continuing losses and the Company must continue to increase its shipment rate to
improve its operating margin. However, its ability to do so is constrained by a
shortage of working capital.
The restructuring actions taken in 1994 have significantly reduced the expense
Page 12
structure of the Company. However, it is not certain that the Company will be
able to achieve the revenue level necessary to return to profitability. The
Company is taking action to minimize its cash outlays by deferring or
eliminating discretionary expenses and capital asset purchases. The Company must
increase its shipment rate to an acceptable level within the near future, or
obtain additional financing, in order to meet its cash flow requirements during
1995.
On April 7, 1995 the Company entered into an amended and restated credit
agreement with its two primary lending institutions. Under the terms of the new
agreement, the existing term debt and lines of credit were converted into a
revolving credit line in exchange for a cash payment of $100,000 and the
issuance of 250,000 shares of the Company's Common Stock. The new agreement
required quarterly principal payments, commencing in September 1995, of $875,000
with a balloon payment of $13,425,000 due on January 15, 1996. At July 1, 1995
the Company was in violation of certain debt covenants of this new agreement.
The defaults have been waived and the agreement has been amended to establish
new covenants. In addition, payment of a fee of $50,000 and the quarterly
principal payments which were scheduled to begin in September 1995 were deferred
and added to the balloon payment due on January 15, 1996. On October 13, 1995,
the Company received a limited waiver for certain financial covenant defaults.
The payment of the $15,175,000 principal obligation in January 1996 will be
dependent upon the Company's ability either to obtain alternate financing or to
restructure the remaining balance due. The Company is considering several
alternatives to achieve this, including the sale of common or preferred stock,
the issuance of convertible debt, a business combination, the sale of all or a
portion of the Company and the establishment of a borrowing relationship with
new lending institutions.
On October 16, 1995 the Company announced that a private investor had made a
subordinated loan to the Company of $1,000,000 due January 15, 1996. The loan is
exchangeable for the Company's 12% Convertible Subordinated Promissory Notes due
in 2000, convertible into 500,000 shares of Common Stock at a conversion rate of
$2.00 per share, and warrants representing the right to acquire 850,000 shares
of Common Stock at an exercise price of $2.50, subject to adjustment. Charles S.
Holmes, a representative of the Long Island based investor, became a director of
NAI. The Company is also discussing with other private investors the investment
of up to an additional $7 million in the 12% Convertible Subordinated Notes and
Warrants to purchase shares of Common Stock at $2.50 per share. Such discussions
are preliminary. If all transactions are consummated, following the exercise of
the warrants and the conversion of the notes, an aggregate of 8,000,000 shares
of Common Stock, or approximately 49.6% of the then outstanding fully diluted
Common Stock of the Company, will have been issued for an aggregate
consideration of $18,000,000. Approval of the Company's shareholders will be
required for the consummation of the transaction.
The restructuring of the timing of repayment of the outstanding principal under
the Company's bank credit facilities is a condition to the consummation of the
proposed new investment. The Company anticipates that, if it is successful in
raising the additional funds, it will be able to restructure its credit
facilities to permit repayment over a longer period.
At September 30, 1995 the Company's long-term secured debt totaled $15.7 million
of which current installments were $15.4 million. This compares to $16.2 million
at December 31, 1994 of which current installments were $2.2 million. The
Company's long-term borrowings, secured by plant and equipment, bear interest at
rates ranging from 70% of prime (8.75% at September 30, 1995) to 12.43%.
Cash and cash equivalents totaled $1.4 million at September 30, 1995 as compared
to $1.7 million at December 31, 1994. Cash provided by operating activities
amounted to $0.8 million in the first nine months of 1995 as
Page 13
compared to cash used in operating activities of $0.6 million in the first nine
months of 1994. In January 1995, the Company received a Federal tax refund of
$4.0 million.
For the first nine months of 1995 the Company used cash of $0.4 million for the
purchase of property, plant and equipment. In May 1995, the Company sold its
vacated manufacturing facility located in Hauppauge, NY, and received cash of
$0.4 million with a note for the balance payable in two years in the amount of
$1.2 million.
For the first nine months of 1995, the Company made debt principal payments of
$0.5 million and payments against notes payable of $0.1 million.
Inflation
- ---------
The Company's financial statements are prepared in accordance with historical
accounting systems, and therefore do not reflect the effect of inflation. The
impact of changing prices on the financial statements is not considered to be
significant.
Backlog
- -------
The backlog of unfilled orders at September 30, 1995 stood at $49.2 million
compared to $39.3 million at October 1, 1994. Approximately 80% of the backlog
is scheduled for delivery over the next twelve months.
Page 14
PART II. OTHER INFORMATION
Item 5. Other Information
- ------- -----------------
On October 16, 1995 the Company announced that a private
investor had made a subordinated loan to the Company of
$1,000,000 due January 15, 1996. The loan is exchangeable for
the Company's 12% Convertible Subordinated Promissory Notes
due in 2000, convertible into 500,000 shares of Common Stock
at a conversion rate of $2.00 per share, and warrants
representing the right to acquire 850,000 shares of Common
Stock at an exercise price of $2.50, subject to adjustment.
Charles S. Holmes, a representative of the Long Island based
investor, has become a director of NAI. The Company is also
discussing with other private investors the investment of up
to an additional $7 million in 12% Convertible Subordinated
Notes and Warrants to purchase shares of Common Stock at $2.50
per share. Such discussions are preliminary. If all
transactions are consummated, following the exercise of the
warrants and the conversion of the notes, an aggregate of
8,000,000 shares of Common Stock, or approximately 49.6% of
the then outstanding fully diluted Common Stock of the
Company, will have been issued for an aggregate consideration
of approximately $18,000,000. Approval of the Company's
shareholders and consent from the Company's banks will be
required for the consummation of the transaction.
The Company also announced the relocation of the executive and
administrative offices of the Company from Woodbury, New York
to Longmont, Colorado in December 1995.
The Company stated that the new loan will provide needed
working capital. The Company is currently required to repay
the outstanding principal amount of $15,225,000 under its bank
credit facilities on January 15, 1996. The restructuring of
the timing of repayment is a condition to the consummation of
the proposed new investment. The Company anticipates that, if
it is successful in raising the additional funds, it will be
able to restructure its credit facilities to permit repayment
over a longer period.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
a) Exhibits
10.1 - Securities Purchase Agreement, dated as of October 13,
1995, by and between NAI Technologies, Inc. and
Charles S. Holmes.
10.2 - 12% Subordinated Promissory Note due 1996 of NAI
Technologies, Inc.
10.3 - Employment Agreement, dated as of October 16, 1995,
between NAI Technologies, Inc. and Robert A. Carlson.
10.4 - Employment Agreement, dated as of October 16, 1995,
between NAI Technologies, Inc. and Richard A.
Schneider.
10.5 - First Amendment, dated as of August 14, 1995, to
the Amended and Restated Credit Agreement, dated
as of April 12, 1995, among NAI Technologies,
Inc., Chemical Bank and The Bank of New York.
10.6 - Second Amendment, dated as of October 13, 1995, to
the Amended and Restated Credit Agreement, dated as
of April 12, 1995, among NAI Technologies,
Inc., Chemical Bank and The Bank of New York.
10.7 - Third Amendment, dated as of November 6, 1995, to
the Amended and Restated Credit Agreement, dated as
of April 12, 1995, among NAI Technologies,
Inc., Chemical Bank and The Bank of New York.
27 - Financial Data Schedule (Edgar Filing Only).
b) Reports on Form 8-K
None.
Page 15
S I G N A T U R E S
-------------------
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.
NAI TECHNOLOGIES, INC.
(Registrant)
DATE November 6, 1995 By:\s\Richard A. Schneider
--------------------------- -----------------------------------
Richard A. Schneider
Executive Vice President
(On behalf of the registrant and as
Principal Financial Officer)
Page 16
NAI TECHNOLOGIES, INC.
EXHIBIT INDEX
Exhibit
-------
10.1 - Securities Purchase Agreement, dated as of October 13,
1995, by and between NAI Technologies, Inc. and Charles S.
Holmes.
10.2 - 12% Subordinated Promissory Note due 1996 of NAI
Technologies, Inc.
10.3 - Employment Agreement, dated as of October 16, 1995, between
NAI Technologies, Inc. and Robert A. Carlson.
10.4 - Employment Agreement, dated as of October 16, 1995, between
NAI Technologies, Inc. and Richard A. Schneider.
10.5 - First Amendment, dated as of August 14, 1995, to
the Amended and Restated Credit Agreement, dated
as of April 12, 1995, among NAI Technologies,
Inc., Chemical Bank and The Bank of New York.
10.6 - Second Amendment, dated as of October 13, 1995, to
the Amended and Restated Credit Agreement, dated as
of April 12, 1995, among NAI Technologies,
Inc., Chemical Bank and The Bank of New York.
10.7 - Third Amendment, dated as of November 6, 1995, to
the Amended and Restated Credit Agreement, dated as
of April 12, 1995, among NAI Technologies,
Inc., Chemical Bank and The Bank of New York.
27 - Financial Data Schedule (Edgar filing only).