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 May 31, 1999
[ ] 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
(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 July 8,
1999 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
May 31, 1999 (Unaudited) and August 31, 1998
May 31, August 31,
ASSETS 1999 1998
--------- ----------
(Unaudited) (Note)
Current Assets:
Cash.......................................................... $ 42,884 $ 257,910
Net receivables............................................... 151,302 124,985
Inventories................................................... 73,503 245,257
Prepaid expenses and other assets............................. 193,083 14,670
----------- -----------
Total current assets.................................... 460,772 642,822
----------- -----------
Property and equipment:
Computer equipment............................................ 536,346 497,596
Furnishings and equipment..................................... 176,647 176,647
Leasehold improvements........................................ 70,211 70,211
----------- -----------
783,204 744,454
Less: accumulated depreciation............................... (601,593) (507,684)
----------- -----------
Total property and equipment............................ 181,611 236,770
----------- -----------
Other assets:
License agreement............................................. 0 3,778
Software development costs.................................... 60,445 184,492
Other assets 45,802 7,913
----------- -----------
Total other assets...................................... 106,247 196,183
----------- -----------
Total assets..................................................... $ 748,630 $ 1,075,775
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Customer deposits............................................. $ 12,615 $ 114,015
Notes payable -- current portion.............................. 6,820 23,564
Accounts payable.............................................. 422,413 393,562
Accrued payroll liabilities................................... 76,018 57,237
Accrued liabilities........................................... 236,598 74,078
----------- -----------
Total current liabilities................................. 754,464 662,456
Long term notes.................................................. 3,005,347 1,514,803
----------- -----------
Total liabilities................................................ 3,759,811 2,177,259
----------- -----------
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 6,245,861 at May 31, 1999 8,956,574 8,939,949
Accumulated deficit........................................... (11,966,255) (10,039,933)
----------- -----------
(3,009,681) (1,099,984)
Less stock subscriptions receivable........................... (1,500) (1,500)
----------- -----------
Total shareholders' equity (deficit)............................. (3,011,181) (1,101,484)
----------- -----------
Total liabilities and shareholders' equity (deficit)............. $ 748,630 $ 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 and Nine Months Ended May 31, 1999 and May 31, 1998
(Unaudited)
Three Months Ended May 31 Nine Months Ended May 31
------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales........................... $ 508,960 $ 160,378 $1,286,197 $865,152
Cost of sales....................... 331,016 197,657 991,203 766,656
---------- ---------- ----------- -----------
Gross margin........................ 177,944 (37,279) 294,994 98,496
Operating expenses:
Selling expenses................ 363,178 330,638 926,870 999,681
Research and development
expenses....................... 98,894 118,651 316,689 374,695
General and administrative
expenses....................... 240,150 151,469 804,338 583,244
---------- ---------- ----------- -----------
Total operating expenses... 702,222 600,758 2,047,897 1,957,620
---------- ---------- ----------- -----------
Operating loss...................... (524,278) (638,037) (1,752,903) (1,859,124)
Other income/expenses
Interest expense................ (73,548) (84,324) (179,163) (123,592)
Other income/expense............ (6)
Total other
income/expenses............. (73,554) (84,324) 5,744 (123,592)
---------- ---------- ----------- -----------
Net loss............................ $ (597,832) $(722,361) $(1,926,322) $(1,982,716)
---------- ---------- ----------- -----------
Net loss per share-basic and........ $ (0.10) $ (0.16) $ (0.31) $ (0.44)
diluted ---------- ---------- ----------- -----------
Weighted average number of
shares outstanding............. 6,245,861 4,456,816 6,237,384 4,456,816
---------- ---------- ----------- -----------
See accompanying notes to financial statements.
3
NICOLLET PROCESS ENGINEERING, INC.
Statements of Cash Flows
For the Nine Months Ended May 31, 1999 and May 31, 1998
(Unaudited)
Nine Months Ended
-----------------
May 31, 1999 May 31, 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................... (1,926,322) (1,982,716)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation/amortization........................ 226,467 247,522
Accounts receivable.............................. (26,317) 708,635
Inventories...................................... 171,754 42,348
Prepaid expenses................................. (178,413) (91,591)
Accounts payable................................. 28,781 217,282
Other current liabilities........................ (124,964) (257,784)
Accrued liabilities.............................. 203,894 8,506
--------- ---------
Net cash used in operating activities...................... (1,625,120) (1,107,793)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures....................................... (81,371) (14,626)
Other assets............................................... 0 (139,273)
--------- ---------
Net cash used in investing activities...................... (81,371) (153,900)
--------- ---------
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock............ 16,625 1,277,419
Proceeds from notes payable........................... 1,478,679 0
Payments on notes payable............................. (3,839) (12,006)
Capitalized lease obligation.......................... 0 (8,835)
--------- ---------
Net cash (used in)/from financing activities............... 1,491,465 1,256,578
Net decrease in cash....................................... $(215,026) $(5,114)
Cash at beginning of period................................ 257,910 (128,595)
Cash at end of period...................................... $42,884 $(133,709)
--------- ---------
--------- ---------
See accompanying notes to financial statements.
4
NICOLLET PROCESS ENGINEERING, INC.
Form 10-QSB
May 31, 1999
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 and nine month periods ended May 31, 1999 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. For the periods presented, stock options and
warrants have not been taken into account as their effect would be anti-
dilutive.
3. STOCK OPTIONS
During the nine month period ended May 31, 1999, the Company issued an
additional 1,071,834 stock options with exercise prices between $.26 and
$.375 and expiration dates between the years 2003 and 2008.
4. SUBSEQUENT EVENTS
The Company has begun to implement a strategy to transform itself from an
industrial technology company to a diversified technology holding company.
This strategic transformation has lead to the Company's establishment of
"FullMetrics", a wholly owned subsidiary. Management intends to transfer
the assets and liabilities of the Company to this newly established
subsidiary.
5. YEAR 2000
The Year 2000 ("Y2K") problem basically is a programming glitch for systems
that were designed with 2-digits for month, day, and year. The problem
specifically lies in the 2-digit year, whereby "00" would be recognized as
year 1900 instead of year 2000. The result means significant
miscalculations or possibly complete system failure. As the year 2000
approaches the various problems that may result from the improper
processing of
5
dates and date sensitive calculations by computersand other machinery
can create breakdowns and erroneous results. Recognizing the impact on
all companies using computers, the Company is taking steps necessary to
insure that potential problems do not adversely affect its operations.
The Company also realizes the critical impact this may have in the
product provided to our customer.
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. ("NPE" or the "Company") has begun
implementing its strategy to transform itself from an industrial technology
company to a diversified technology holding company. The Company is working
with TECHinspirations, a strategic investment group, to develop its business
model and identify appropriate market niches. NPE has established a
subsidiary, FullMetrics, Inc., which will operate NPE's historical industrial
software business specializing in the plastics and die casting industries. In
addition, the Company has entered into a letter of intent to acquire Amyyon
Company from TECHinspirations. Amyyon Company is the U.S. sales and
distribution organization for the Amyyon Corporation's Project Centric
Customer Relationship Management ("CRM") software applications. Amyyon
Company will become a wholly owned subsidiary of the Company which will
provide Amyyon with additional resources and market knowledge for their North
American expansion. Amyyon Americas is the exclusive distribution channel for
the Amyyon CRM Solution, which was developed by Amyyon BV of the Netherlands.
The Amyyon CRM Solution is comprised of several software applications focused
on the business processes within sales, marketing and client support.
Several changes have been made to the management of the Company in order
to support the new direction. Mr. Evros Psiloyenis, will move from the
presidency of NPE to become the President of FullMetrics, Inc. The new
President of NPE will be Mr. Tom Chuckle. In addition, Steve Norris will be
joining FullMetrics as Vice President of Sales. Lastly, Benton Case, Jr.
resigned from the Board of Directors in June of 1999 and Robert Pitner
resigned as Chief Executive Officer and Director of the Company in May 1999.
RESULTS OF OPERATIONS
6
THREE MONTHS AND NINE MONTHS ENDED MAY 31, 1999 COMPARED TO THREE MONTHS ENDED
MAY 31, 1998
NET SALES. Net sales increased 218% to approximately $508,960 in the
three months ended May 31, 1999, compared to approximately $160,378 in the
three months ended May 31, 1998. The sales increase for the current quarter
can be primarily attributed to additional system sales. Net sales increased
49% to approximately $1,286,197 in the nine months ended May 31, 1999
compared to $865,152 for the nine months ended May 31, 1998. The Company's
enhanced marketing and sales campaigns contributed to the increase in net
sales for both the third fiscal quarter as well as the nine-month period
ended May 31, 1999.
GROSS MARGINS. Overall gross margins for three and nine-month periods
ended May 31, 1999 increased 251% and 102%, respectively, over the same prior
year periods. The increases were primarily due to the combination of
increased sales and cost streamlining programs. Gross margin for the quarter
ended May 31, 1999 increased $215,223 over a ($37,279) gross margin deficit
in the same quarter for 1998. This change is attributed primarily to the
$348,582 third quarter sales increase over 1998 in which sales were not
sufficient to cover its fixed costs of sales.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 10%
to approximately $363,200 in the three months ended May 31, 1999 compared to
approximately $330,600 in the prior year period. During the three month
period ended May 31, 199, the Company began to launch its new marketing and
sales campaign which was primarily responsible for the increase $32,600
overall increase. However, for the nine-month period ended May 31, 1999,
these expenses decreased 7% to approximately $926,900 as compared to
approximately $990,700 in the prior year period. These expenses as a per
cent of revenues were 71% and 72% respectively for the three and nine months
ended May 31, 1999 compared to 206% and 116% for the three and nine months
ended May 31, 1998. These decreases were due to staff reductions and
restructuring occurring through out the current fiscal year.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased 17% to approximately $98,900 in the three months ended May 31,
1999, compared to approximately $118,700 in the prior year period. These
expenses decreased 8% to approximately $918,400 in the nine months ended May
31, 1999 compared to approximately $991,700 in the prior year period. These
decreases for the three and nine months were primarily due to staff
reductions and reductions of outside contract services.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 59% to approximately $240,200 in the three months ended
May 31, 1999 compared to approximately $151,500 in the prior year. These
expenses increased approximately 38% to $804,300 in the nine months ended May
31, 1999 compared to approximately $583,200 in the prior year period. These
increases were primarily due to significant increases in expenses associated
with the Company's new strategy as a diversified technology holding Company.
These additional expenses are concentrated in increased payroll costs, an
increase in employee expense reimbursements, insurance, professional
services, financing arrangements and SEC/NASDAQ filings.
INTEREST EXPENSES. Interest expenses decreased to approximately
$73,500 in the three months ended May 31, 1999, compared to approximately
$84,300 in the prior year period. Interest expenses increased to
approximately $179,200 in the nine months ended May
7
31, 1999 compared to approximately $123,600 in the prior year period. The
increase in the nine months was due to an increase in the balance of the line
of credit.
NET LOSS. The net loss for the three months ended May 31, 1999 was
approximately $597,800 or ($0.10) per share, compared to a net loss of
approximately $722,400 or ($0.16) per share for the three months ended May
31, 1998. The net loss for the nine months ended May 31, 1999 was
approximately $1,926,322 or ($0.31) per share, compared to a net loss of
approximately $1,982,716 or ($0.32) per share for the nine months ended May
31, 1998. The The precentage decrease in Net Loss on a per share basis for
the three months ended May 31, 1999 was greater than the percentage decrease
in Net Loss because of the additional number of shares currently outstanding.
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.
Effective November 30, 1998, the Company entered into a letter of Intent
with TECH (the "LOI"), which provides the basis on which TECH would provide
$3,000,000 in debt/equity financing (the "Financing") to the Company. The
terms of the Financing would ultimately allow TECH to acquire 10,000,000 shares
of Common Stock for an aggregate of $1,500,000, the proceeds of which would
be used to repay $1,500,000 of the advances. In addition, the Company would
issue TECH a warrant that would ultimately allow TECH to acquire an
additional 10,000,000 shares of Common Stock for $1,500,000. The warrant
would expire three years after the closing of the Financing or repayment of
the loan facilities, whichever occurred later.
In conjunction with the Financing and pursuant to the LOI, TECH would
continue to make available to the Company a $1,500,000 revolving operating
line of credit. The line of credit would continue to be secured by a
security interest in the Company's assets, bear interest at the rate of 1% in
excess of the prime rate and have a term of three years. The Company also
agreed to pay TECH a fee of $200,000 payable in monthly installments of
$25,000 each beginning December 1, 1998 through June 30, 1999. The Company
had previously paid TECH an aggregate of $100,000 for the period from July
31, 1998 through November 30, 1998. The Company also agreed, under the LOI,
to issue TECH warrants to purchase up to 4,750,000 shares of Common Stock at
a price of $.15 per share. The warrants would be immediately exercisable with
respect to 1,500,000 shares, become exercisable with respect to an additional
1,000,000 shares, 1,000,000 shares and 1,250,000 shares after the Company's
Common Stock had closed at a price of at least $1.00, $2.00 and $3.00 per
share, respectively, for a period of ten days.
As of May 31, 1999, the Company had borrowed a principal amount of
approximately $2,992,100 from TECH. Pursuant to the transactions
contemplated by the Letter of Intent, TECH intends to convert this debt to
approximately 20 million shares of Common Stock and exercise its warrants for
an additional 4,750,000 of Common Stock upon satisfaction of the
8
conditions set forth therein.
Net cash used in operating activities was approximately $1,625,120 and
$1,107,800 in the nine months ended May 31, 1999 and May 31, 1998,
respectively.
The Company anticipates additional capital expenditures of approximately
$50,000 through the end of fiscal 1999 for use in purchasing software and
hardware to upgrade and improve internal operations.
TECH has been advancing the Company funds that are sufficient to cover
the Company's working capital needs. The Company will continue to require
cash from an outside source to satisfy its working capital requirements and
is currently talking with TECH regarding the opportunity to have TECH
continue to provide the funds necessary for the Company to meet its working
capital needs.
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.
None.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
An annual meeting of the shareholders of the Company was held on
April 7, 1999. The meeting involved the election of directors, and Robert A.
Pitner, Andrew K. Boszhardt, Jr., Benton J. Case, Jr., John Van Leeuwen,
Manuel Schiappa Pietra and Thomas W. Bugbee were elected to serve as
directors until the next Annual Meeting of Shareholders, or until their
respective successors are elected and qualified. The votes cast For each
nominee and the number of shares Withheld, were as follows:
Number of Votes
Director For Withheld
-------- ------- --------
Robert A. Pitner 5,451,156 236,760
Andrew K. Boszhardt, Jr. 5,457,657 230,259
Benton J. Case, Jr. 5,456,656 231,260
John Van Leeuwen 5,463,657 224,259
Manuel Schiappa Pietra 5,462,657 225,259
Thomas W. Bugbee 3,280,162 2,407,754
The shareholders also considered and acted upon a proposal to amend the
Company's articles of incorporation, as amended, to increase the authorized
number of shares of capital stock from 15,000,000 to 55,000,000 shares,
consisting of 50,000,000 shares of Common Stock, no par value, and 5,000,000
shares designated as Preferred Stock, no par value. This proposal was
approved by the affirmative vote of 3,775,383 shares of Common Stock of the
Company (or approximately 66.4% of the Shares of Common Stock represented at
the meeting). The proposal was approved with 341,077 shares of Common Stock
voting against the proposal and 7,100 shares of Common Stock abstaining.
Broker non-votes were 1,564,356.
The shareholders also considered and acted upon a proposal to amend the
Company's 1995 amended and restated stock incentive plan to (a) increase the
number of shares available for issuance thereunder to 3,000,000, (b) increase
the number of shares that may be subject to
10
an award granted to a participant in any fiscal year of the Company with a
value based solely on an increase in the value of the Common Stock after the
date of grant to 500,000 shares in the aggregate and (c) increase the number
of shares which may be subject to an award granted to a participant who is
first appointed or elected as an officer, hired as an employee, retained as a
consultant to the Company or who receives a promotion that results in an
increase in responsibilities or duties may be granted, during the fiscal year
of such appointment, election, hiring, retention or promotion to 700,00
shares. This proposal was approved by the affirmative vote of 3,843,201
shares of Common Stock of the Company (or approximately 67.6% of the Shares
of Common Stock represented at the meeting). The proposal was approved with
273,759 shares of Common Stock voting against the proposal and 6,600 shares
of Common Stock abstaining. Broker non-votes were 1,564,356.
The shareholders also considered and acted upon a proposal to ratify the
appointment of Ernst & Young, LLP, certified public accountants, as
independent auditors for the Company for the year ending August 31, 1999.
This proposal was approved by 5,475,877 shares of Common Stock of the Company
(or approximately 96.3% of the shares of Common Stock represented at the
meeting). The proposal was approved with 208,439 shares of Common Stock
voting against and 3,600 shares of Common Stock abstaining. Broker non-votes
were zero.
ITEM 5. OTHER INFORMATION.
None.
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 May 31, 1999.
11
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: July 14, 1999 By: /s/ Evros Psiloyenis
-------------------------------
Evros Psiloyenis
President
(principal executive officer)
By: /s/ Frank Van Luttikhuizen
-------------------------------
Frank Van Luttikhuizen
Interim Chief Financial Officer
(principal financial and accounting officer)
12
NICOLLET PROCESS ENGINEERING, INC.
QUARTERLY REPORT ON FORM 10-QSB
FISCAL QUARTER ENDED MAY 31, 1999
EXHIBIT INDEX
Exhibit No. Description Location
----------- ----------- --------
27.1 Financial Data Schedule.................... Filed herewith
electronically
13