UNITED STATES
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 November 30, 1997
[ ] 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 incorporation (IRS Employer Identification No.)
or organization)
420 North Fifth Street, Ford Centre, Suite 1040
Minneapolis, MN 55401
----------------------------------------
(Address of principal executive offices)
(612) 339-7958
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) 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, 1997 was 4,683,195.
Transitional Small Business Disclosure Format (Check one): YES [ ] NO [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NICOLLET PROCESS ENGINEERING, INC.
Balance Sheets
November 30, 1997 (Unaudited) and August 31, 1997
ASSETS November 30, 1997 August 31, 1997
----------------- ---------------
(unaudited) (Note)
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
Accounts receivable (net of allowance for
doubtful accounts of, November 30, 1997 --
$79,490; August 31, 1997 -- $73,490) . . . . . 482,198 815,942
Accounts receivable - related party. . . . . . . 19,313 19,313
Inventories. . . . . . . . . . . . . . . . . . . 193,145 190,813
Prepaid expenses . . . . . . . . . . . . . . . . 73,634 21,103
---------- ----------
Total current assets. . . . . . . . . . . . . 768,290 1,047,171
Property and equipment:
Computer equipment . . . . . . . . . . . . . . . 486,594 486,594
Furnishings and equipment. . . . . . . . . . . . 173,022 173,022
Leasehold improvements . . . . . . . . . . . . . 70,211 70,211
---------- ----------
729,827 729,827
Less: accumulated depreciation. . . . . . . . . (416,793) (387,423)
---------- ----------
313,034 342,404
Other assets:
License agreement (net of accumulated amortization
of, November 30, 1997 -- $98,231;
August 31, 1997 -- $86,897). . . . . . . . . . 37,781 49,115
Software development costs (net of accumulated
amortization of, November 30, 1997 -- $186,611;
August 31, 1997 -- $148,556) . . . . . . . . . 473,266 413,511
Other assets . . . . . . . . . . . . . . . . . . 13,648 14,360
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . $1,606,019 $1,866,561
---------- ----------
---------- ----------
2
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Checks written in excess of bank balance . . . . $ 116,072 $ 128,595
Notes payable -- current portion . . . . . . . . 49,655 49,655
Notes payable -- line of credit. . . . . . . . . 73,186 486,538
Accounts payable . . . . . . . . . . . . . . . . 443,248 536,360
Accrued payroll liabilities. . . . . . . . . . . 110,063 58,173
Current portion of capitalized lease obligation 6,226 7,496
Other current liabilities. . . . . . . . . . . . 14,495 70,972
---------- ----------
Total current liabilities . . . . . . . . . . 812,945 1,337,789
Notes payable. . . . . . . . . . . . . . . . . . . 25,501 23,401
Capitalized lease obligation . . . . . . . . . . . --
Deferred revenue . . . . . . . . . . . . . . . . . 70,820 26,000
Deferred rent. . . . . . . . . . . . . . . . . . . 5,064 6,610
Stockholders' equity (deficit):
Preferred Stock, no par value:
Authorized shares -- 3,000,000; issued and
outstanding -- 0. . . . . . . . . . . . . . . -- --
Common stock, no par value:
Authorized shares -- 12,000,000; issued and
outstanding shares 3,368,527 at August 31, 1997
and 3,635,195 at November 30, 1997. . . . . . 8,367,134 7,653,600
Accumulated deficit. . . . . . . . . . . . . . . (7,673,945) (7,179,339)
---------- ----------
693,189 474,261
Less stock subscriptions receivable. . . . . . . (1,500) (1,500)
---------- ----------
Total stockholders' equity (deficit) . . . . . . . 691,689 472,761
---------- ----------
Total liabilities and stockholders' equity . . . . $1,606,019 $1,866,561
---------- ----------
---------- ----------
Note: The balance sheet as of August 31, 1997 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.
3
NICOLLET PROCESS ENGINEERING, INC.
Statements of Operations
For the Three Months Ended November 30, 1997 and 1996
(Unaudited)
Three Months Ended
November 30,
------------------
1997 1996
---- ----
Net sales. . . . . . . . . . . . . . . . . . . . . $402,324 $593,718
Cost of sales. . . . . . . . . . . . . . . . . . . 297,833 336,675
------- -------
Gross margin . . . . . . . . . . . . . . . . . . . 104,491 257,043
Operating expenses:
Selling expenses. . . . . . . . . . . . . . . 293,349 317,405
Research and development expenses . . . . . . 101,821 117,534
General and administrative expenses . . . . . 186,251 214,416
------- -------
Total operating expenses . . . . . . . . . . 581,421 649,355
------- -------
Operating loss . . . . . . . . . . . . . . . . . . (476,930) (392,312)
Other income/expenses
Interest expense. . . . . . . . . . . . . . . (17,686) 1,963
Interest income . . . . . . . . . . . . . . . -- (24,199)
------- -------
Total other income/expenses. . . . . . . . . (17,686) (22,236)
------- -------
Net loss . . . . . . . . . . . . . . . . . . . . . $(494,616) $(370,076)
-------- --------
-------- --------
Net loss per share . . . . . . . . . . . . . . . . $(0.14) $(0.11)
----- -----
----- -----
Weighted average number of
shares outstanding. . . . . . . . . . . . . 3,627,371 3,316,795
--------- ---------
--------- ---------
See accompanying notes to financial statements.
4
NICOLLET PROCESS ENGINEERING, INC.
Statements of Cash Flows
For the Three Months Ended November 30, 1997 and 1996
(Unaudited)
Three Months Ended
November 30
------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . $(494,608) $(370,075)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation/amortization. . . . . . . . . . . 80,672 63,259
Accounts receivable . . . . . . . . . . . . . 333,744 (306,608)
Inventories . . . . . . . . . . . . . . . . . (2,332) 100,498
Prepaid expenses. . . . . . . . . . . . . . . (52,530) (15,587)
Accounts payable. . . . . . . . . . . . . . . (93,112) (26,727)
Other current liabilities . . . . . . . . . . (379,366) 7,784
Accrued liabilities . . . . . . . . . . . . . 6,248 19,338
----- ------
Net cash used in operating activities. . . . . . . (601,284) (528,118)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Total fixed assets . . . . . . . . . . . . . . . . -- (46,327)
Other assets . . . . . . . . . . . . . . . . . . . (1,200) (48,322)
Capital-in-process . . . . . . . . . . . . . . . . (97,811) (84,226)
------- -------
Net cash used in investing activities. . . . . . . (99,011) (178,875)
------- -------
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES
Proceeds from:
Common stock . . . . . . . . . . . . . . . . . . 713,534 (56,174)
Notes payable. . . . . . . . . . . . . . . . . . 2,100 (12,916)
Deferred lease obligation. . . . . . . . . . . . (1,546) (1,546)
Capitalized lease obligation . . . . . . . . . . (1,270) (1,451)
------ ------
Net cash (used in)/from financing activities . . . 712,818 (72,087)
------- -------
Net increase (decrease) in cash. . . . . . . . . . 12,523 (779,080)
Cash at beginning of period. . . . . . . . . . . . $(128,595) $2,171,624
-------- ---------
Cash at end of period. . . . . . . . . . . . . . . $(116,072) $1,392,544
-------- ---------
-------- ---------
See accompanying notes to financial statements.
5
NICOLLET PROCESS ENGINEERING, INC.
Form 10-QSB
November 30, 1997
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, 1997 are not
necessarily indicative of the results that may be expected for the year
ended August 31, 1998. 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, as
amended, dated August 31, 1997.
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.
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, AS AMENDED,
FOR THE FISCAL YEAR ENDING AUGUST 31, 1997.
OVERVIEW
Nicollet Process Engineering, Inc.'s ("NPE" or the "Company") mission is to
assist customers in turning factory floor information into revenues and profits
for its customers. NPE is focused on the information technology requirements of
manufacturers for better managing production processes and supporting management
decision support systems. NPE designs,
6
manufactures, markets and supports high speed data acquisition systems that
bring a range of solutions to solve process automation problems, including
process visualization, machine and process control and real-time database
management products. The Company currently focuses on the die casting and
plastics injection molding industries with industry specific process monitoring
and control systems, client/server software and machine diagnostic instruments.
The Company has developed a die casting industry-specific, "turn-key"
manufacturing information and process control system ("Process Vision") which,
on a real-time basis, monitors, collects and displays machine performance data,
monitors process performance continuously against pre-set values, provides
feedback to the machine's controller to bring out-of-tolerance performance back
into conformance, and aggregates data for real-time presentation of process
reports for use by the machine operator. As part of its product offering to the
die casting industry, the Company has also developed client/server software (the
"Client/Server Software" which together with Process Vision are referred to as
the "Die Casting Products"), 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.
The Company has developed a line of products in the plastics injection
molding industry that provides process and production monitoring to all levels
of an organization. The Company's plastics monitoring product is also a
"turn-key" manufacturing information system (the "Plastics Monitoring System")
which, on a real-time basis, monitors, collects and displays machine performance
data, monitors process performance continuously against pre-set values and
provides the information collected and analyzed to all levels of an
organization. In February 1997, the Company introduced a second product to the
plastics industry--the PMRS. The Company's production monitoring and reporting
system (the "PMRS") collects production information, such as cycle time and
number of parts manufactured, from machines at the factory floor level and
provides specific production reports to the machine operator or, at the
customer's option, to all levels of the organization. During the first quarter
of fiscal 1997, in conjunction with and at the request of several original
equipment manufacturers ("OEMs"), the Company developed a modified version of
the Plastics Monitoring System that offers a direct connection to the plastic
injection molding machine for process monitoring (the "Direct Connect" which
together with the Plastics Monitoring System and PMRS are referred to as the
"Plastics Products"), thereby eliminating the need for specialized computer
hardware to run process monitoring.
The Company's third product line, the Machine Capability Analyzer (the
"MCA"), is a portable, diagnostic instrument that troubleshoots machine
performance for inconsistencies in operation and repeatability. During the
fourth quarter of fiscal 1997 and first quarter of fiscal 1998, the Company,
under an agreement with GE Plastics, an operating division of General Electric
Corporation, began development of a new software module for the MCA to test the
moldability of GE resins. This new module is being custom designed for GE
Plastics and the company believes it will have broad application throughout GE
Plastics and customers molding with GE resins. NPE has redesigned the MCA
product to meet new specifications provided by Dow Chemical. Dow Chemical has
purchased two prototypes for testing. The Company believes the newly designed
product will also have applications across NPE's customer base.
7
During the last fiscal year, the Company has focused substantially all of
the Company's research and development efforts in modularizing the Company's
Plastics Monitoring System. The Company's Plastics Products are now engineered
to allow customers to mix and match modules according to a customer's specific
needs, thereby permitting easy migration from simpler starter systems, such as
PMRS, to more sophisticated process monitoring and client/server level
information gathering systems.
RESULTS OF OPERATIONS
THREE MONTHS ENDING NOVEMBER 30, 1997 COMPARED TO THREE MONTHS ENDING
NOVEMBER 30, 1996
NET SALES. Net sales decreased 32% to approximately $402,000 in the three
months ended November 30, 1997 compared to approximately $594,000 in the three
months ended November 30, 1996. The decrease was due to lower sales of the Die
Casting Products of $187,000 for the three months ended November 30, 1997
compared to $363,000 for the prior year period. This was off set by increased
sales of the PMRS to $49,000 for the three months ended November 30, 1997
compared to zero for the prior year period. Sales of the Machine Capability
Analyzers decreased to $49,000 for the three months ended November 30, 1997
compared to $126,000 for the prior year period.
GROSS MARGINS. The gross margin decreased to 26% of revenues in the three
months ended November 30, 1997 compared to 39% of revenues for the prior year
period. The decrease was due to increased amortization cost and warranty cost
and reduced sales volume.
SALES AND MARKETING EXPENSES. Sales and marketing expenses decreased 8% to
approximately $293,000 for the three months ended November 30, 1997 compared to
approximately $317,000 in the prior year period. This decrease was due to
reduced commission expenses, a result of low sales volume, and reduced
advertising and trade show expenses.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased 14% to approximately $102,000 in the three months ended November 30,
1997 compared to approximately $118,000 for the prior year period. This
decrease was primarily due to reduction of the technical staff during the last
fiscal quarter.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 13% to approximately $186,000 compared to approximately $214,000 for
the prior year period. This decrease is due to reduced expenditures in
professional fees and corporate public relation expenses.
INTEREST INCOME. Interest income decreased to zero for the three months
ended November 30, 1997 compared to approximately $24,000 from the prior year
period. The decrease is attributable to no investments made.
8
INTEREST EXPENSES. Interest expenses increased to $18,000 for the three
months ended November 30, 1997 compared to approximately $2,000 for the prior
year period. The increase was due to increased usage of the line of credit.
NET LOSS. The net loss for the three months ended November 30, 1997 was
approximately $495,000 or $0.14 per share, compared to a net loss of
approximately $370,000 or $0.11 per share for the three months ended November
30, 1996.
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 initial public offering was
approximately $4.3 million. The Company's Common Stock is quoted on the Nasdaq
SmallCap Market under the symbol "NPET."
In May 1997, the Company entered into two lines of credit with Norwest
Business Credit, Inc. and Norwest Bank Minnesota, National Association
(collectively, "Norwest") for an aggregate of up to $800,000 in borrowings (the
"Credit Facilities"). The Credit Facilities are discretionary and have a term
of one year. Credit availability under these facilities are based on accounts
receivable of the Company's United States operations and accounts receivable and
inventories of the Company's international operations. The Credit Facilities
are used primarily to finance working capital. As of August 31, 1997, the
Company borrowed approximately $487,000 under the Credit Facilities. In
November 1997, the Company and Norwest amended the Credit Facilities to reset
certain financial covenants.
On November 7, 1997, the Company completed a private placement of an
aggregate of 1,266,667 shares of Common Stock. The gross proceeds to the
Company from the private placement were approximately $760,000.
Net cash used in operating activities was approximately $601,000 and
$528,000 in the three months ended November 30, 1997 and 1996, respectively.
The cash used was primarily related to operations. Net cash used in investing
activities was approximately $99,000 and $179,000 in the three months ended
November 30, 1997 and 1996, respectively. Net cash provided by (used in)
financing activities was approximately $713,000 and $72,000 in the three months
ended November 30, 1997 and 1996, respectively.
The Company anticipates capital expenditures of approximately $75,000
through fiscal 1998 related to additional testing equipment for research &
development facilities.
With the proceeds of the private placement in November 1997, the Company
believes that sufficient liquidity is available to satisfy its working capital
needs at least through August 1998.
9
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 AND USE OF PROCEEDS.
On November 7, 1997, pursuant to certain Subscription Agreements
(collectively the "Subscription Agreements") dated as of November 7, 1997 by and
between the Company and each of Oscar Capital Management, LLC ("Oscar Capital"),
Anthony Scaramucci ("Scaramucci"), David R. Chamberlin ("Chamberlin") and Andrew
K. Boszhardt, Jr. ("Boszhardt") (Oscar Capital, Scaramucci, Chamberlin and
Boszhardt are collectively referred to herein as the "Investors"), the Investors
purchased an aggregate of 1,166,667 shares (the "Investor Shares") of common
stock, no par value (the "Common Stock") of the Company at a price of $0.60 per
share, for an aggregate purchase price of $700,000 (the "Transaction"). As a
condition to the closing of the Transaction, the directors of the Company were
required to purchase an aggregate of 100,000 shares of Common Stock of the
Company at a price of $0.60 per share (the "Directors Shares"). The 1,166,667
shares issued to the Investors in connection with the Transaction represented
approximately 25.2% of the outstanding shares of Common Stock of the Company
after the closing, approximately 34.6% of such outstanding Common Stock of the
Company prior to the closing and approximately 19.5% of such outstanding Common
Stock of the Company on a fully-diluted basis (assuming the exercise of all
stock options and warrants outstanding as of November 7, 1997). All of the
Investors Shares and the Director Shares are "restricted stock," as defined in
the rules promulgated under the Securities Act of 1933, as amended (the "1933
Act"). The Investors Shares also have certain demand and "piggyback"
registration rights. Pursuant to the terms of the Subscription Agreements, the
Company agreed to elect Boszhardt to the Company's Board of Directors. Mr.
Pierce A. McNally and Mr. Robert A. Pitner, the Chairman of the Board and
President and Chief Executive Officer of the Company, respectively, have agreed
to vote their respective shares of Common Stock of the Company in favor of
electing Mr. Boszhardt to the Board of Directors of the Company.
All of the above sales were made in reliance on Section 4(2) and Regulation
D under the 1933 Act for transactions not involving a public offering. With
regard to the reliance by the Company upon the exemption from registration
provided under Section 4(2) and Regulation D under the 1933 Act for the sales of
the securities disclosed above, certain inquiries were made by the Company and
certain representations and warranties were obtained from the Investors to
establish that such sales qualified for such exemption from the registration
requirements. In particular, the Company confirmed that with respect to the
exemption claimed under Section 4(2) and Regulation D under the 1933 Act (i) all
offers of sales and sales were made by personal contact from officers or
directors of the Company or other persons closely associated with the Company,
(ii) each Investor made representations that he, she or it was sophisticated in
relation to the investment (and the Company has no reason to believe such
representations were
10
incorrect), (iii) each purchaser gave assurance of investment intent and the
certificates for the shares bear a legend accordingly, and (iv) offers and sales
were made to a limited number of persons.
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) On November 17, 1997, the Company filed a Form 8-K with the Securities
and Exchange Commission covering the Transaction described in Item 2 above. See
Item 2 for a description of the Transaction. No financial statements were filed
with the Form 8-K filing on November 17, 1997.
11
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.
NICOLLET PROCESS ENGINEERING, INC.
Dated: January 14, 1998 By: /s/ Robert A. Pitner
---------------------------------------
Robert A. Pitner
President, Chief Executive Officer and
Chief Financial Officer
(principal financial officer)
By: /s/ John Sandberg
---------------------------------------
John Sandberg
Controller
(principal accounting officer)
12
Exhibit Index
Exhibit No. Description Location
- ----------- ----------- --------
27.1 Financial Data Schedule. . . . . . . . filed electronically
13