UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1998
[ ] 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)
Check 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, 1998 was 6,245,861.
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, 1998 (Unaudited) and August 31, 1998
November 30, August 31,
ASSETS 1998 1998
----------- ----------
(Unaudited) (Note)
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50,588 $257,910
Short term investments . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Net receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . 254,469 124,985
Accounts receivable -- related parties . . . . . . . . . . . . . . . . 0 0
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,230 245,257
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . 25,935 14,670
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 491,222 642,822
Property and equipment:
Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 497,596 497,596
Furnishings and equipment. . . . . . . . . . . . . . . . . . . . . . . 176,647 176,647
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . 70,211 70,211
-------- --------
744,454 744,454
Less: accumulated depreciation. . . . . . . . . . . . . . . . . . . . (537,552) (507,684)
-------- --------
206,901 236,770
Other assets:
License agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 0 3,778
Software development costs . . . . . . . . . . . . . . . . . . . . . . 143,143 184,492
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,555 7,913
------ -----
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $861,821 $1,075,775
-------- ---------
-------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Checks written in excess of bank balance . . . . . . . . . . . . . . . 0 0
Customer deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . $31,886 $114,015
Notes payable -- current portion . . . . . . . . . . . . . . . . . . . 13,137 23,564
Notes payable -- line of credit. . . . . . . . . . . . . . . . . . . . , 0
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 362,609 393,562
Accrued payroll liabilities. . . . . . . . . . . . . . . . . . . . . . 82,954 57,237
Current portion of capitalized lease obligation. . . . . . . . . . . . 0 0
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 122,838 74,078
------- ------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . 613,424 662,456
Long term notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,963,811 1,514,803
Capitalized lease obligation . . . . . . . . . . . . . . . . . . . . . . 0 0
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Shareholders' equity (deficit):
Common stock, no par value:
Authorized shares -- 12,000,000; issued and outstanding shares
6,211,861 at August 31, 1998 and 6,211,861 at November 30, 1998. 8,941,199 8,939,949
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (10,655,113) (10,039,933)
------------ -----------
(1,713,914) (1,099,984)
Less stock subscriptions receivable. . . . . . . . . . . . . . . . . . (1,500) (1,500)
------- ------
Total shareholders' equity (deficit) . . . . . . . . . . . . . . . . . . (1,715,414) (1,101,484)
----------- ----------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $861,821 $1,075,775
--------- ----------
--------- ----------
Note: The balance sheet as of August 31, 1998 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.
2
NICOLLET PROCESS ENGINEERING, INC.
Statements of Operations
For the Three Months Ended November 30, 1998 and November 30, 1997
(Unaudited)
Three Months Ended November 30
------------------------------
1998 1997
-------- --------
Net sales .............................. $514,804 $402,324
Cost of sales ........................... 398,072 297,833
------- -------
Gross margin ............................ 116,732 104,491
Operating expenses:
Selling expenses .................... 263,735 293,349
Research and development
expenses ........................... 119,871 101,821
General and administrative
expenses ........................... 303,235 186,251
------- -------
Total operating expenses ......... 686,841 581,421
------- -------
Operating loss........................... (570,109) (476,930)
Other income/expenses
Interest expense .................... (44,749) (17,686)
Interest income ..................... 0
-
Total other income/expenses ...... (44,749) (17,686)
-------- --------
Net loss ................................ $(614,855) $(494,616)
---------- ----------
Net loss per share ...................... $(0.10) $(0.14)
------ ------
Weighted average number of
shares outstanding .................. 6,211,861 3,627,371
--------- ---------
--------- ---------
See accompanying notes to financial statements.
3
NICOLLET PROCESS ENGINEERING, INC.
Statements of Cash Flows
For the Three Months Ended November 30, 1998 and November 30, 1997
(Unaudited)
Three Months Ended November 30
------------------------------
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . (614,855) (494,608)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation/amortization . . . . . . . . . . . . . . . 76,572 80,672
Accounts receivable . . . . . . . . . . . . . . . . . (129,485) 333,744
Inventories . . . . . . . . . . . . . . . . . . . . . 85,029 (2,332)
Prepaid expenses. . . . . . . . . . . . . . . . . . . (11,265) (52,530)
Accounts payable. . . . . . . . . . . . . . . . . . . (31,022) (93,112)
Other current liabilities . . . . . . . . . . . . . . 397,708 (379,366)
Accrued liabilities . . . . . . . . . . . . . . . . . 34,707 (6,248)
------ ------
Net cash used in operating activities . . . . . . . . . . . (192,610) (601,284)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Total fixed assets. . . . . . . . . . . . . . . . . . . . . 0 0
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 0 (1,200)
Capital-in-process. . . . . . . . . . . . . . . . . . . . . (14,219) (97,811)
-------- --------
Net cash used in investing activities . . . . . . . . . . . (14,219) (99,011)
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES
Proceeds from:
Common stock. . . . . . . . . . . . . . . . . . . . . . . 1,250 713,534
Stock subscription received . . . . . . . . . . . . . . . 0
Notes payable . . . . . . . . . . . . . . . . . . . . . . (1,316) 2,100
Deferred lease obligation . . . . . . . . . . . . . . . . (426) (1,546)
Capitalized lease obligation. . . . . . . . . . . . . . . 0 (1,270)
- -------
Net cash (used in)/from financing activities. . . . . . . . (492) (712,818)
----- ---------
Net decrease in cash. . . . . . . . . . . . . . . . . . . . $(207,321) $12,523
Cash at beginning of period . . . . . . . . . . . . . . . . 257,909 (128,595)
Cash at end of period . . . . . . . . . . . . . . . . . . . $50,588 $(116,072)
------ ---------
------ ---------
See accompanying notes to financial statements.
4
NICOLLET PROCESS ENGINEERING, INC.
Form 10-QSB
November 30, 1998
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, 1998 are not necessarily
indicative of the results that may be expected for the year ended August
31, 1999. 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,
1998.
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.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
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 ENDED AUGUST 31, 1998.
OVERVIEW
Nicollet Process Engineering, Inc.'s ("NPE" or the "Company") mission is
to assist customers in turning factory floor information into revenues and
profits. NPE is focused on the information technology requirements of
manufacturers for better managing production processes and supporting
management decisions. NPE designs, manufacturers, 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 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 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 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
6
repeatability. Under an agreement with GE Plastics, an operating division of
General Electric Corporation, the Company developed a new software module for
the MCA. The new module was custom designed for GE Plastics to test specific
parameters of GE Plastics' proprietary resins. The Company believes that GE
Plastics will apply this GE-specific product throughout its polymer
manufacturing plants.
During the 1998 fiscal year, the Company has focused substantially all
of the Company's research and development efforts in converting to a
Structural Query Language ("SQL") data base and in modularizing the Company's
Plastics Monitoring System. The Company's Plastics Products are powered by
the windows SQL data base and 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 ENDED NOVEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED NOVEMBER 30,
1997
NET SALES. Net sales increased 28% to approximately $515,000 in the three
months ended November 30, 1998, compared to approximately $402,000 in the three
months ended November 30, 1997. The increase in net sales for the first fiscal
quarter was due to stronger systems sales of the die cast and plastics
products.
Sales of the Company's die casting NPE System in the three months ended
November 30, 1998 increased approximately 52% to approximately $285,000,
compared to approximately $187,000 in the three months ended November 30, 1997.
The increase was due to orders completed and shipped from two major customers,
and increased booking activity in the prior quarter that were shipped the first
quarter.
Sales of the Plastics Products increased 24% to approximately $154,000
in the three months ended November 30, 1998, compared to approximately
$124,000 in the prior year period. The increase for the three months ended
November 30, 1998 was due primarily to an order for one major foreign
customer completed and shipped in the quarter. With the data base platform
conversion completed the Company believes that the product is now stable, and
has positioned itself for noticeable growth.
Sales of the MCAs sustained about the same level at $64,000 in the three
months ended November 30, 1998, compared to approximately $66,000 in the prior
year period. The design of a new analyzer was completed in March 1998 and
contains feature upgrades that include integrated signal conditioning. As a
result bookings have increased during the first quarter, and the backlog is
$52,000 as of December 31, 1998.
GROSS MARGINS. The gross margin decreased to 23% of revenues in the three
months ended November 30, 1998, compared to 26% of revenues in the prior year
period. The decrease was due primarily due to increased expenditures associated
with the overseas shipments including certification expenses.
SALES AND MARKETING EXPENSES. Sales and marketing expenses decreased 10% to
approximately $264,000 in the three months ended November 30, 1998, compared to
approximately $293,000 in the
7
prior year period. These expenses as a per cent of revenue was 38% for the three
months ended November 30, 1998, compared to 50% in the prior year period. This
decrease was due to staff reductions and restructuring during the last two
quarters of fiscal 1998.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased approximately 17% to $120,000 in the three months ended November 30,
1998, compared to approximately $102,000 in the prior year period. This
increase was due to expenses associated with outside contract services.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 63% to approximately $303,000 in the three months ended November 30,
1998, compared to approximately $186,000 in the prior year. The increase was
primarily due to financing fees associated with the TECHinspirations, Inc.
financing arrangements, and certification fees associated with overseas
shipments.
INTEREST EXPENSES. Interest expense increased to approximately $45,000
in the three months ended November 30, 1998, compared to approximately $18,000
in the prior year period. This increase was due to an increased debt with
TECHispirations on the line of credit.
NET LOSS. The net loss for the three months ended November 30, 1998 was
approximately $615,000 or $0.10 per share, compared to a net loss of
approximately $495,000 or $0.15 per share for the three months ended November
30, 1997. The increase in the net loss was due primarily to increased expenses
associated with financing operations.
LIQUIDITY AND CAPITAL RESOURCES
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"). In June 1998, Norwest assigned all of its rights and
obligations under the Credit Facilities to TECHinspirations, Inc. (TECH). The
Credit Facilities are discretionary. Credit availability under these facilities
is 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
November 30 1998, the Company borrowed approximately $1,955,000 under the Credit
Facilities.
Net cash used in operating activities was approximately
8
$193,000, and $601,000 in the three months ended November 30, 1998 and November
30, 1997, respectively. The cash used was primarily related to operations.
The Company anticipates capital expenditures of approximately $150,000
through fiscal 1999 for use in purchasing software and hardware to upgrade and
improve internal operations.
The report of the Company's auditors contains an explanatory paragraph
to the effect that the Company's recurring losses and negative cash flows
from operations raise substantial doubts about its ability to continue as
a going concern. If the Company's operations do not provide sufficient cash
or the Company is unable to raise additional debt or equity financing, any
either case sufficient for the Company to continue operations, the Company
may be forced to cease operations.
9
PART II -- OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company is currently in default of the minimum book net worth covenant
under the Credit Facilities and has borrowed funds in excess of the borrowing
base limitations imposed by the Credit Facilities. The Company is continuously
working with TECH to resolve these defaults.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27.1 Financial Data Schedule.
(b) No Current Reports on Form 8-K were filed during the fiscal quarter
ended November 30 1998.
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SIGNATURES
In accordance with 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, 1999 By: /s/ Robert A. Pitner
------------------------
Robert A. Pitner
Chief Executive Officer
(principal executive and financial officer)
By: /s/ John Sandberg
--------------------
John Sandberg
Controller
(principal accounting officer)
11
NICOLLET PROCESS ENGINEERING, INC.
QUARTERLY REPORT ON FORM 10-QSB
FISCAL QUARTER ENDED November 30, 1998
EXHIBIT INDEX
Exhibit No. Description Location
- ----------- ----------- --------
27.1 Financial Data Schedule .................... Filed herewith
12