-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GSCR82h/wXB2ip5Ys3gPRYKGdvSouY0YzzVTCwJKkNSgxgm8UqjTyJDXOdczlMvR yD5mcoAa0dObjs1xWjz16w== 0000950117-97-001819.txt : 19971107 0000950117-97-001819.hdr.sgml : 19971107 ACCESSION NUMBER: 0000950117-97-001819 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970927 FILED AS OF DATE: 19971106 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAI TECHNOLOGIES INC CENTRAL INDEX KEY: 0000072575 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 111798773 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-03704 FILM NUMBER: 97708787 BUSINESS ADDRESS: STREET 1: 282 NEW YORK AVE CITY: HUNTINGTON STATE: NY ZIP: 11743 BUSINESS PHONE: 3037765674 MAIL ADDRESS: STREET 1: 282 NEW YORK AVE CITY: NEW YORK STATE: NY ZIP: 11743 FORMER COMPANY: FORMER CONFORMED NAME: NORTH ATLANTIC INDUSTRIES INC DATE OF NAME CHANGE: 19920703 10-Q 1 NAI TECHNOLOGIES, INC. 10-Q [Conformed Copy] 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 27, 1997 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) 282 New York Avenue, Huntington, New York 11743 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (516) 271-5685 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 November 1, 1997, 9,155,427 shares of NAI Technologies, Inc.'s $.10 par value Common Stock were outstanding. Page 1 of 15 Pages 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 27, 1997 and December 31, 1996 Consolidated Statements of Operations - 4 Three months ended September 27, 1997 and September 28, 1996 Consolidated Statements of Operations - 5 Nine months ended September 27, 1997 and September 28, 1996 Consolidated Statements of Cash Flows - 6 Nine months ended September 27, 1997 and September 28, 1996 Other Financial Information 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-13 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 Exhibits 16
-2- Page 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NAI TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPT. 27, DEC. 31, 1997 1996 - ---------------------------------------------------------------------------------------------- (AUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 963 $ 2,727 Accounts receivable, net 10,017 12,693 Inventories, net 7,269 10,270 Deferred tax asset 165 173 Other current assets 608 597 - ---------------------------------------------------------------------------------------------- Total current assets 19,022 26,460 - ---------------------------------------------------------------------------------------------- Property, plant and equipment, net 2,968 3,523 Excess of cost over fair value of assets acquired, net 9,233 9,707 Other assets 1,412 1,681 - --------------------------------------------------------------------------------------- Total assets $32,635 $41,371 ======================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current installments of long-term debt $ 82 $ 158 Notes payable 68 - Accounts payable 4,505 6,907 Accrued payroll and commissions 148 680 Other accrued expenses 2,406 3,894 Income taxes payable 1,111 580 - ---------------------------------------------------------------------------------------------- Total current liabilities 8,320 12,219 - ---------------------------------------------------------------------------------------------- Long-term debt 9,990 12,224 Other accrued expenses 796 912 Deferred income taxes 36 36 - ---------------------------------------------------------------------------------------------- Total liabilities $19,142 $25,391 - ---------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY: Capital Stock: Preferred stock, no par value, 2,000,000 shares authorized and unissued -- -- Common stock, $.10 par value, 25,000,000 shares authorized; shares issued: 9,155,427 in 1997 and 8,841,937 in 1996 916 902 Capital in excess of par value 19,456 19,217 Foreign currency translation adjustment 102 313 Retained earnings (deficit) (6,981) (4,452) - ----------------------------------------------------------------------------------------------- Total shareholders' equity 13,493 15,980 - ---------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $32,635 $41,371 ==============================================================================================
-3- Page 4 NAI TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
FOR THE THREE MONTHS ENDED -------------------------- SEPT. 27, SEPT. 28, 1997 1996 - --------------------------------------------------------------------------------------- Net sales $12,553 $17,271 - --------------------------------------------------------------------------------------- Cost of sales 12,562 13,470 - --------------------------------------------------------------------------------------- Gross margin (9) 3,801 - --------------------------------------------------------------------------------------- Selling expense 907 894 General and administrative expenses 1,401 1,423 Research and development 334 343 Other 189 (609) - --------------------------------------------------------------------------------------- Total expenses 2,831 2,051 - --------------------------------------------------------------------------------------- Operating earnings (loss) (2,840) 1,750 - --------------------------------------------------------------------------------------- Non-operating income (expense) Deferred debt expense (80) (120) Interest income 15 13 Interest expense (371) (548) - ---------------------------------------------------------------------------------------- (436) (655) - ---------------------------------------------------------------------------------------- Earnings (loss) before income taxes (3,276) 1,095 Provision for income taxes 133 131 - ---------------------------------------------------------------------------------------- Net income (loss) $(3,409) $ 964 ======================================================================================== Earnings (loss) per common share $ (0.37) $ 0.11 ======================================================================================== Average shares outstanding 9,133 9,000 ========================================================================================
-4- Page 5 NAI TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
FOR THE NINE MONTHS ENDED -------------------------- SEPT. 27, SEPT. 28, 1997 1996 - ---------------------------------------------------------------------------------------- Net sales $39,727 $51,128 - ---------------------------------------------------------------------------------------- Cost of sales 32,332 40,512 - ---------------------------------------------------------------------------------------- Gross margin 7,395 10,616 - ---------------------------------------------------------------------------------------- Selling expense 2,905 3,010 General and administrative expenses 3,560 3,933 Research and development 1,126 1,215 Other 467 (1,081) - ---------------------------------------------------------------------------------------- Total expenses 8,058 7,077 - ---------------------------------------------------------------------------------------- Operating earnings (loss) (663) 3,539 - ---------------------------------------------------------------------------------------- Non-operating income (expense) Other - 15 Deferred debt expense (260) (345) Interest income 47 114 Interest expense (1,149) (1,722) - ---------------------------------------------------------------------------------------- (1,362) (1,938) - ---------------------------------------------------------------------------------------- Earnings (loss) before income taxes (2,025) 1,601 Provision for income taxes 504 272 - ----------------------------------------------------------------------------------------------------- Net earnings (loss) $(2,529) $ 1,329 ============================================================================================== Earnings (loss) per common share $(0.28) $ 0.16 ============================================================================================== Average shares outstanding 9,079 8,326 ==============================================================================================
-5- Page 6 NAI TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPT. 27, SEPT. 28, 1997 1996 - --------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $(2,529) $ 1,329 Adjustments to reconcile net loss to cash provided by (used in) operating activities: Depreciation and amortization 1,681 1,918 Net (gain) on sale of property, plant and equipment and other (6) (1,543) Provision for inventory obsolescence 2,585 127 Loss on sale of notes receivable -- 89 Change in assets and liabilities, excluding effects from acquisitions and foreign currency adjustments: Accounts receivable 2,676 1,454 Inventories (net of reserve provisions) 416 662 Accounts payable and other accrued expenses (4,538) (7,576) Income taxes 539 270 Other, net (25) (1,020) - ---------------------------------------------------------------------------------------- Net cash flow provided by (used in) operating activities 799 (4,290) - ---------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (315) (477) Proceeds from sale of property, plant and equipment and other 22 2,266 - --------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities (293) 1,789 - --------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuances of notes payable 1,189 590 Issuance of 12% convertible bonds -- 5,842 Payments of notes payable (1,121) (590) Payments of long-term debt (2,323) (3,683) Receipts on notes receivable -- 1,101 Proceeds from exercise of stock options and stock purchase plan, net 180 -- - --------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (2,075) 3,080 - --------------------------------------------------------------------------------------- Effect of foreign currency exchange rates on cash (195) 33 - --------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (1,764) 612 Cash and cash equivalents at beginning of year 2,727 2,605 - --------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 963 $ 3,217 ======================================================================================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest $1,101 $ 1,696 Income taxes $14 $ 6 Non-cash investing and financing activities Net conversions of 12% notes into common stock $73 $ 1,897 ===================================================================================
-6- 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 (the "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 27, 1997 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, 1996. INVENTORIES Inventories are summarized by major classification as follows:
- ---------------------------------------------------------------------------------------- Sept. 27, Dec. 31, 1997 1996 (Audited) - ---------------------------------------------------------------------------------------- (In thousands of dollars) Raw materials and components $8,082 $8,567 Work-in-process 2,669 3,010 Finished goods 1,446 1,204 Allowance for obsolescence (4,798) (2,403) Unliquidated progress payments (130) (108) - ---------------------------------------------------------------------------------------- Inventories, net $7,269 $10,270 =======================================================================================
-7- Page 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Third Quarter 1997 Compared with Third Quarter 1996 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 1997 were $12.6 million, a 27% decrease when compared with $17.3 million for the same period in 1996. The following chart provides the sales breakdown by segment and subsidiary for the third quarter:
In thousands of dollars 1997 1996 % Change - ------------------------------------------------------------------------------------------- ELECTRONIC SYSTEMS SEGMENT Codar Technology, Inc. $2,743 $8,420 (67%) NAI Systems Division 4,595 3,735 23% Lynwood Scientific Dev. Ltd. 4,525 3,620 25% Inter-company (32) (26) -- -------------------------------- Total Electronic Systems Segment 11,831 15,749 (25%) TELECOMMUNICATIONS SEGMENT Wilcom, Inc. 722 1,522 (53%) ---------------------------------- Total Telecommunications Segment 722 1,522 (53%) ---------------------------------- TOTAL $12,553 $17,271 (27%) ==================================
Sales in the Electronic Systems segment (net of inter-company eliminations) decreased 25% to $11.8 million from $15.7 million for the same period in 1996. Sales increases of 25% at Lynwood Scientific Development Ltd. and 23% at NAI Systems Division were more than offset by a 67% sales decline at Codar. The sales decline at Codar is attributable to several factors, most notably a decline in Codar's rate of booking new orders for the CHS II product line and rugged work station products. Codar believes the bookings decline to be temporary, however, it must be noted that until the booking rate increases, Codar will continue to report less than optimum operating results. During the third quarter the U.S. Army approved Codar's Rugged 16 Inch and 20 Inch Flat Panel display products and the rugged portable integrated Sun Workstation on the CHS II Contract. The Company has reduced its ongoing operating expenses at Codar to mitigate the potential adverse impact of continuing lower sales. Codar is in the process of rebuilding its internal sales and marketing resources. The sales increases at Systems Division and Lynwood from the same period in 1996 are representative of the increased levels of business at both companies. In recent years the Company has reduced its dependency on the United States defense budget by expanding its non-military business operations. However, the Company still expects approximately 30% of 1997 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 canceling a single specific program. However, changes in future U.S. defense spending levels could impact the Company's future sales volume. -8- Page 9 Sales in the Telecommunications segment decreased 53% to $0.7 million as compared to $1.5 million for the same period in 1996. The decrease in sales is attributable to the rapid decline in sales of their MFT analog line treatment products as well as the slower than expected ramp up in the sales of the new Turbo Amp products. The Company is exploring all available methods to increase revenues and has recently added additional sales personnel in the Telecommunications segment. The gross margin percentage for the third quarter of 1997 was 0% as compared with 22% in the comparable period in 1996. The following chart provides the gross margin percentage by subsidiary.
1997 1996 - ------------------------------------------------------------------------------------- Codar Technology, Inc. (75.9%) 13.5% NAI Systems Division 18.4% 19.7% Lynwood Scientific Dev. Ltd. 29.8% 33.9% Wilcom, Inc. (16.9%) 46.2%
Codar's margin was adversely impacted by a $3.0 million charge substantially related to an inventory write-down which resulted from lower than expected sales along with the final withdrawal from electronic printer products and the addition of certain more advance Codar products on the CHS II program. Wilcom's margins were adversely impacted by lower shipping volume. The lower gross margin at Lynwood is attributable to an unfavorable mix of high and low margin sales during the quarter. Selling expense for the third quarter of 1997 and 1996 were relatively unchanged at $0.9 million for both periods. General and administrative expenses for the third quarter of 1997 were $1.4 million essentially unchanged from the comparable 1996 figure. Company-sponsored research and development expenditures for the third quarter of 1997 and 1996 were relatively unchanged at $0.3 million for both periods. The Company expects that internal research and development expenditures will remain relatively constant for the remainder of 1997. For the third quarter of 1997, the Company had an operating loss of $2.8 million as compared with operating income of $1.8 million for the same period in 1996. The operating loss was attributable to lower sales and a $3.0 million charge substantially related to an inventory write-down at the Company's Codar subsidiary. The 1996 operating income included a gain of $0.75 million from the sale of the Systems Integration Division. Interest expense and amortization of deferred debt costs, net of interest income, was $0.4 million for the third quarter of 1997 as compared with $0.7 million for the same period in 1996. The Company recorded income tax expense of $0.1 million in the third quarter of 1997, which equates to an effective tax rate of 31%. The entire tax expense pertains to the Company's Lynwood subsidiary located in the U.K. Lynwood's earnings are taxed in the U.K. and, while the Company has a U.S. net operating loss carry-forward, it is required to pay taxes in the U.K. The Company is unable to recognize the entire future tax benefit associated with its U.S. operating loss carry-forwards due to uncertainties as to whether or not a future benefit will be realized. -9- Page 10 For the third quarter of 1997 the Company recorded a net loss of $3.4 million as compared with a net profit of $1.0 million in the third quarter of 1996. Earnings (loss) per share were ($0.37) as compared with $0.11 per share for the same period in 1996, based on a weighted average of 9.1 million and 9.0 million shares outstanding, respectively. First Nine Months of 1997 Compared with First Nine Months of 1996 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 1997 were $39.7 million, a 22% decrease when compared with $51.1 million for the same period in 1996. The following chart provides the sales breakdown by segment and subsidiary for the first nine months:
In thousands of dollars 1997 1996 % Change - ---------------------------------------------------------------------------------------- ELECTRONIC SYSTEMS SEGMENT Codar Technology, Inc. $10,977 $25,098 (56%) NAI Systems Division 12,967 10,265 26% Lynwood Scientific Dev. Ltd. 13,278 10,278 29% Inter-company (564) (286) -- ----------------------------------- Total Electronic Systems Segment 36,658 45,355 (19%) TELECOMMUNICATIONS SEGMENT Wilcom, Inc. 3,069 5,773 (47%) ----------------------------------- Total Telecommunications Segment 3,069 5,773 (47%) ----------------------------------- TOTAL $39,727 $51,128 (22%) ===================================
Sales in the Electronic Systems segment (net of inter-company eliminations) decreased 19% to $36.7 million from $45.4 million for the same period in 1996. Sales increases of 29% at Lynwood Scientific Development Ltd. and 26% at NAI Systems Division were more than offset by a 56% sales decline at Codar. The sales decline at Codar is attributable to several factors, most notably a decline in Codar's rate of booking new orders for the CHS II product line and rugged work station products. Codar believes the bookings decline to be temporary, however, it must be noted that until the bookings rate increases, Codar will continue to report less than optimum operating results. The Company recently reduced its ongoing operating expenses at Codar to mitigate the potential adverse impact of continuing lower sales. Codar is in the process of rebuilding its internal sales and marketing resources. Codar's 1996 sales levels were favorably impacted by delays in shipments from prior years. The sales increases at Systems Division and Lynwood from the same period in 1996 are representative of the increased levels of business at both companies. In recent years the Company has reduced its dependency on the United States defense budget by expanding its non-military business operations. However, the Company still expects approximately 30% of 1997 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 -10- Page 11 for termination or curtailment. The Company's products are utilized on many different U.S. Government programs, which reduces the adverse impact of canceling 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 decreased 47% to $3.1 million as compared to $5.8 million for the same period in 1996. The decrease in sales is attributable to the rapid decline in sales of their MFT analog line treatment products as well as the slower than expected ramp up in the sales of the new Turbo Amp products. The Company is exploring all available methods to increase its revenues and has recently added additional sales personnel in the Telecommunications segment. The gross margin percentage for the first nine months of 1997 was 18.6% as compared with 20.8% for the same period in 1996. The following chart provides the gross margin percentage by subsidiary.
1997 1996 - ------------------------------------------------------------------------------------- Codar Technology, Inc. (8.6%) 11.6% NAI Systems Division 24.8% 19.7% Lynwood Scientific Dev. Ltd. 33.3% 33.3% Wilcom, Inc. 23.0% 36.8%
Codar's margin was adversely impacted by a $3.0 million charge substantially related to an inventory write-down which was necessitated by lower than expected sales at Codar and the final withdrawal from electronic printer products and the replacement of some of Codar's products on the CHS II program with new more advanced Codar products. Lower shipping volume adversely impacted Wilcom's gross margin. The higher gross margin percentage at NAI Systems Division is attributable to increased shipping volumes and a more favorable mix of development, production and mature product sales. Selling expense for the first nine months of 1997 was $2.9 million as compared with $3.0 million for the same period in 1996. General and administrative expenses for the first nine months of 1996 were $3.6 million as compared with $3.9 million for the same period in 1996. The decline is attributable to the Company's continuing goal of reducing its operating expenses. Company-sponsored research and development expenditures for the first nine months of 1997 were $1.1 million as compared with $1.2 million for the same period in 1996. The Company expects that the rate of IR&D expenditures for the first nine months of 1997 will remain relatively constant for the remainder of the year. For the first nine months of 1997, the Company had an operating loss of $0.7 million as compared with operating earnings of $3.5 million for the same period in 1996. The operating loss was attributable to lower sales and a $3.0 million charge substantially related to an inventory write-down at the Company's Codar subsidiary. The 1996 operating income included a gain of $1.5 million from the sale of the Systems Integration Division. -11- Page 12 Interest expense and amortization of deferred debt costs, net of interest income, was $1.4 million for the first nine months of 1997 as compared with $1.9 million for the same period in 1996. The Company recorded income tax expense of $0.5 million for the first nine months of 1997, which equates to an effective tax rate of 31%. The entire tax expense pertains to the Company's Lynwood subsidiary located in the U.K. Lynwood's earnings are taxed in the U.K. and, while the Company has a U.S. net operating loss carry-forward, it is required to pay taxes in the U.K. The Company is unable to recognize the entire future tax benefit associated with its U.S. operating loss carry-forwards due to uncertainties as to whether or not a future benefit will be realized. For the first nine months of 1997 the Company recorded a net loss of $2.5 million as compared with a net profit of $1.3 million in the comparable period of 1996. Earnings (loss) per share were ($0.28) as compared with earnings of $0.16 for the same period in 1996, based on a weighted average of 9.1 million and 8.3 million shares outstanding, respectively. Liquidity and Capital Resources Cash and cash equivalents totaled $1.0 million at September 27, as compared to $2.7 million at December 31, 1996. Cash provided by operating activities amounted to $0.8 million for the first nine months of 1997, as compared to cash used by operating activities of $4.3 million in the comparable period of 1996. The 1996 period saw a large outflow of funds to the Company's vendors which had been delayed pending completion of the Company's sale of its 12% Convertible Notes. During the first nine months of 1997, the Company reduced outstanding bank debt by $2.2 million bringing the total amount outstanding to $5.3 million at quarter end. The Company has made payments totaling $4.2 million in excess of requirements and has the right to borrow such amount back if needed. During the first nine months of 1997, $104,500 of the 12% Convertible Notes were converted into 52,250 shares. At September 27, 1997 $5,122,500 of the 12% Convertible Notes were outstanding. The Company believes that it has adequate cash, cash flow and borrowing capabilities in place to fund its working capital needs for the foreseeable future. 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. This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current plans and expectations of NAI Technologies and involve risks and uncertainties that could cause actual future activities and results of operations to be materially different from those set forth in the forward- -12- Page 13 looking statements. Important factors that could cause actual results to differ include, among others, changes in government purchasing policies and budget constraints, competition, the continuity of booking trends, the absence of supply interruptions, new products' market acceptance and warranty performance. Other Information The Company entered into a sixth and seventh amendment to its Credit Agreement with the primary lenders providing for certain amendments to the interest rate payable and adjustments to the interest coverage ratio under the credit agreement. -13- Page 14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits 10(i) - Sixth Amendment, dated as of July 31, 1997, to Amended and Restated Credit Agreement, dated as of April 12, 1995, as previously amended, among the Registrant, Chemical Bank, a New York banking corporation ("Chemical"), the Bank of New York, a New York banking corporation ("BNY"), and each of the other financial institutions which from time to time becomes a party thereto (together with Chemical and BNY, the "Banks"), BNY as administrative agent (the "Administrative Agent"), and Chemical as collateral agent (the "Collateral Agent"). 10(ii) - Seventh Amendment and Waiver, dated as of November 5, 1997, to Amended and Restated Credit Agreement, dated as of April 12, 1995, as previously amended, among the Registrant, the Banks, the Administrative Agent and the Collateral Agent. 11 - Statement re: Computation of Per Share Earnings 27 - Financial Data Schedule (Edgar Filing only) b) Reports on Form 8-K Registrant filed a current report on Form 8-K dated September 25, 1997 with respect to Registrant's press release announcing that the Registrant expected to report a loss for the third quarter, 1997, due to a one-time write-down of approximately $3.0 million that is substantially related to inventory write-downs at its Codar Technology Inc. Subsidiary, lower than anticipated sales at Codar and a faster than anticipated decline in the sales of the Wilcom subsidiary's standard MFT analog line treatment products. -14- 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, 1997 By:\s\Richard A. Schneider ------------------------- -------------------------- Richard A. Schneider Executive Vice President (On behalf of the registrant and as Principal Financial Officer) -15- EX-10 2 EXHIBIT 10(I) Exhibit 10(i) SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT SIXTH AMENDMENT, dated as of July 31, 1997 (the "Amendment"), to the Amended and Restated Credit Agreement, dated as of April 12, 1995, among NAI Technologies, Inc., a New York corporation (the "Borrower"), The Chase Manhattan Bank, a New York banking corporation, formerly known as Chemical Bank ("Chase"), The Bank of New York, a New York banking corporation ("BNY"), and each of the other financial institutions which from time to time becomes party thereto (together with Chase and BNY, the "Banks"), BNY, as administrative agent (in such capacity, the "Administrative Agent"), and Chase, as collateral agent (in such capacity, the "Collateral Agent"). W I T N E S S E T H : WHEREAS, the Borrower, the Banks, the Administrative Agent and the Collateral Agent are parties to that certain Amended and Restated Credit Agreement, dated as of April 12, 1995, (as amended by certain amendments, dated as of August 14, 1995, October 13, 1995, November 6, 1995, January 5, 1996, and February 13, 1996, and as hereafter amended, modified and supplemented from time to time, the "Credit Agreement"); WHEREAS, unless otherwise defined herein, terms defined in the Credit Agreement and used herein are used herein as therein defined; WHEREAS, the Borrower has requested and the Banks have agreed to enter into this Amendment to provide for, among other things, amendments to the interest rate payable with respect to the Loans. Accordingly, the parties hereto hereby agree as follows: Section 1. Certain Terminology. All references in the Credit Agreement to "Chemical Bank" and "Chemical" shall be amended to read "The Chase Manhattan Bank" and "Chase", respectively. Section 2. Amendment to Article I. Article I of the Credit Agreement is hereby amended by amending and restating the definitions of "Guarantors, "Security Agreements" and "Termination Date" in their entirety as follows: "Guarantors" shall mean NAI-SDC, Wilcom, Codar and, from and after the execution and delivery of the Guarantees required pursuant to Section 5.09 hereof, any new Subsidiaries of the Borrower. "Security Agreements" shall mean those certain Amended and Restated Security Agreements, dated the date hereof, executed by NAI and each of the Guarantors in favor of the Collateral Agent for the benefit of the Banks in substantially the form of Exhibits B-1 and B2, respectively, as the same may be amended, modified or supplemented from time to time. "Termination Date" shall mean the earliest to occur of (i) the Maturity Date and (ii) the acceleration of the Loans and the termination of the Total Commitment in accordance with the terms hereof. Section 3. Amendment to Article II. Section 2.5 of the Credit Agreement is hereby amended by replacing the language "1-3/4%." at the end of subsection (a) with "1%." Section 4. Amendment to Article IV. Article IV of the Credit Agreement is hereby amended by amending Section 4.01(d) by replacing the language "B-1, B-2 and B-3." At the end of subsection (d) with "B-1 and B-2." and amending and restating Section 4.03 in its entirety to read as follows: Section 4.03. [RESERVED] Section 5. Amendment to Article V. Article V of the Credit Agreement is hereby amended by (a) amending and restating Sections 5.01(d) and (e) in their entirety to read as follows: (d) [RESERVED] (e) [RESERVED] and (b) amending and restating Section 5.16 in its entirety to read as follows: Section 5.16 [RESERVED] Section 6. Waiver. The Banks hereby waive any Default or Event of Default arising from the failure of the Borrower to comply with the requirements of: (i) any of Sections 5.01(d), 5.01(e) or 5.16 of the Credit Agreement and (ii) Section 6.02, with respect to the dissolution of Arathon by Borrower, effective September 23, 1996. Section 7. Termination. The Banks hereby agree to terminate each of the (i) Security Agreement, dated as of April 12, 1995, between Arathon and the Collateral Agent for the -2- benefit of the Banks and (ii) Amended and Restated Guaranty of Performance and Payment, dated as of April 12, 1995 made by Arathon in favor of the Collateral Agent for the benefit of the Banks, and all the covenants and obligations existing thereunder. Section 8. Confirmation of Liens. The Borrower hereby confirms that, pursuant to the terms of the Credit Agreement and the Security Documents, the Borrower and the Guarantors have granted Liens on all of their assets to the Collateral Agent for the benefit of the Banks. The Borrower hereby further confirms that it will not and will not permit its Subsidiaries to incur, create, assume or suffer to exist any Lien on any property or Subsidiaries other than those permitted by Section 6.01 of the Credit Agreement, and any such granting of any such Lien in favor of any third person, including the holders of the Subordinated Indebtedness shall constitute an Event of Default under the Credit Agreement. Nothing contained herein shall constitute a release or modification of any Lien in favor of the Collateral Agent and the Banks in any Collateral which constitutes security for any of the Obligations. Section 9. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall constitute an original and all of which when taken together shall constitute one and the same instrument. Section 10. Conditions to Effectiveness. This Amendment shall become effective as of the date hereof (the "Effective Date") when all of the following shall have occurred: (a) The Banks shall have each received counterparts of this Amendment, duly executed by the Borrower and consented to by each of the Guarantors; (b) The Borrower shall be in compliance with all of the terms and provisions set forth in the Credit Agreement to be observed and performed; and (c) The Banks shall have received a certificate of the Secretary or Executive Vice President of the Borrower dated the Effective Date and certifying that (i) after giving effect to this Amendment, no Event of Default or event which upon notice or lapse of time or both would constitute an Event of Default shall have occurred and be continuing and (ii) all representations and warranties contained in Section 3 of the Credit Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the Effective Date, except to the extent that such representations and warranties expressly relate to an earlier date. Section 11. Ratification. Except to the extent hereby amended, the Credit Agreement remains in full force and effect and is hereby ratified and affirmed. References in the Loan -3- Documents to the Credit Agreement shall mean such document as amended by this Amendment, as the same may be further amended, supplemented or otherwise modified from time to time. Section 12. Costs and Expenses. All out-of-pocket expenses incurred by the Banks, including the reasonable fees and disbursements of Zalkin, Rodin & Goodman LLP, special counsel for the Agents and the Banks, incurred in connection with the negotiation and preparation of this Amendment shall be paid by the Borrower as provided in Section 9.05 of the Credit Agreement. The Borrower hereby confirms that the Borrower shall be obligated to reimburse the Banks' reasonable expenses incurred in the retention of a financial advisor to the Banks in connection with the administration of the Loans or the protection or enforcement of the Banks' rights in connection therewith. Section 13. References. This Amendment shall be limited precisely as written and shall not be deemed (a) to be a consent granted pursuant to, or a waiver or modification of, any other term or condition of the Credit Agreement or any of the instruments or agreements referred to therein or (b) to prejudice any right or rights which the Administrative Agent, the Collateral Agent or the Banks may now have or have in the future under or in connection with the Credit Agreement or the Loan Documents or any of the instruments or agreements referred to therein. Section 14. Applicable Law. THIS AMENDMENT SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE. Section 15. Headings. Section headings in this Amendment are included herein for convenience or reference only and are not to affect the construction of, or to be taken into consideration in interpreting, this Amendment. Section 16. Integration. This Amendment represents the entire agreement of the parties hereto with respect to the amendment of the Credit Agreement and the terms of any letters and other documentation entered into among the Borrower and any Bank or the Administrative Agent or the Collateral Agent prior to the execution of this Amendment which relate to the amendment of the Credit Agreement shall be replaced by the terms of this Amendment. -4- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. NAI TECHNOLOGIES, INC. By Richard A. Schneider _________________________________ Title: Executive Vice President THE BANK OF NEW YORK as Administrative Agent and as a Bank By Brenda M. Sorg _________________________________ Vice President THE CHASE MANHATTAN BANK as Collateral Agent and as a Bank By Diane E. Vaccarelli _________________________________ Vice President Consented to as of this 31st day of July, 1997 NAI TECHNOLOGIES - SYSTEMS DIVISION CORPORATION By: Richard A. Schneider _____________________________ Title: Treasurer WILCOM, INC. By: Richard A. Schneider _____________________________ Title: Treasurer CODAR TECHNOLOGY, INC. By: Richard A. Schneider _____________________________ Title: Treasurer -5- EX-10 3 EXHIBIT 10(II) Exhibit 10(ii) SEVENTH AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT SEVENTH AMENDMENT AND WAIVER, dated as of November 5, 1997 (the "Amendment"), to the Amended and Restated Credit Agreement, dated as of April 12, 1995, among NAI Technologies, Inc., a New York corporation (the "Borrower"), The Chase Manhattan Bank, a New York banking corporation, formerly known as Chemical Bank ("Chase"), The Bank of New York, a New York banking corporation ("BNY"), and each of the other financial institutions which from time to time becomes party thereto (together with Chase and BNY, the "Banks"), BNY, as administrative agent (in such capacity, the "Administrative Agent"), and Chase, as collateral agent (in such capacity, the "Collateral Agent"). W I T N E S S E T H : WHEREAS, the Borrower, the Banks, the Administrative Agent and the Collateral Agent are parties to that certain Amended and Restated Credit Agreement, dated as of April 12, 1995, (as amended by certain amendments, dated as of August 14, 1995, October 13, 1995, November 6, 1995, January 5, 1996, February 13, 1996, and July 31, 1997, and as hereafter amended, modified and supplemented from time to time, the "Credit Agreement"); WHEREAS, unless otherwise defined herein, terms defined in the Credit Agreement and used herein are used herein as therein defined; WHEREAS, the Borrower has requested and the Banks have agreed to enter into this Amendment to provide for, among other things, amendments to certain financial covenants set forth in the Credit Agreement. Accordingly, the parties hereto hereby agree as follows: Section 1. Waiver. The Banks hereby waive any Default or Event of Default arising from the failure of the Borrower to comply with the requirements of Section 6.17 of the Credit Agreement for the four fiscal quarter period ending on September 30, 1997. Section 2. Amendment to Section 6.17. Section 6.17 of the Credit Agreement is hereby amended in its entirety to read as follows: Section 6.17. Maintenance of Interest Coverage Ratio. Permit the Interest Coverage Ratio for the periods set forth below to fall below the ratios set forth opposite such periods: Period Ratio One Fiscal Quarter ending December 1.5 to 1 31, 1997 Two Fiscal Quarters ending March 31, 1.5 to 1 1998 Three Fiscal Quarters ending June 30, 1.5 to 1 1998 Four Fiscal Quarters ending September 1.5 to 1 30, 1998 and thereafter Section 3. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall constitute an original and all of which when taken together shall constitute one and the same instrument. Section 4. Conditions to Effectiveness. This Amendment shall become effective as of the date hereof (the "Effective Date") when all of the following shall have occurred: (a) The Banks shall have each received counterparts of this Amendment, duly executed by the Borrower and consented to by each of the Guarantors; (b) The Borrower shall be in compliance with all of the terms and provisions set forth in the Credit Agreement to be observed and performed; and (c) The Banks shall have received a certificate of the Secretary or Executive Vice President of the Borrower dated the Effective Date and certifying that (i) after giving effect to this Amendment, no Event of Default or event which upon notice or lapse of time or both would constitute an Event of Default shall have occurred and be continuing and (ii) all representations and warranties contained in Section 3 of the Credit Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the Effective Date, except to the extent that such representations and warranties expressly relate to an earlier date. -2- Section 5. Ratification. Except to the extent hereby amended, the Credit Agreement remains in full force and effect and is hereby ratified and affirmed. References in the Loan Documents to the Credit Agreement shall mean such document as amended by this Amendment, as the same may be further amended, supplemented or otherwise modified from time to time. Section 6. Costs and Expenses. All out-of-pocket expenses incurred by the Banks, including the reasonable fees and disbursements of Zalkin, Rodin & Goodman LLP, special counsel for the Agents and the Banks, incurred in connection with the negotiation and preparation of this Amendment shall be paid by the Borrower as provided in Section 9.05 of the Credit Agreement. The Borrower hereby confirms that the Borrower shall be obligated to reimburse the Banks' reasonable expenses incurred in the retention of a financial advisor to the Banks in connection with the administration of the Loans or the protection or enforcement of the Banks' rights in connection therewith. Section 7. References. This Amendment shall be limited precisely as written and shall not be deemed (a) to be a consent granted pursuant to, or a waiver or modification of, any other term or condition of the Credit Agreement or any of the instruments or agreements referred to therein or (b) to prejudice any right or rights which the Administrative Agent, the Collateral Agent or the Banks may now have or have in the future under or in connection with the Credit Agreement or the Loan Documents or any of the instruments or agreements referred to therein. Section 8. Applicable Law. THIS AMENDMENT SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE. Section 9. Headings. Section headings in this Amendment are included herein for convenience or reference only and are not to affect the construction of, or to be taken into consideration in interpreting, this Amendment. Section 10. Integration. This Amendment represents the entire agreement of the parties hereto with respect to the amendment of the Credit Agreement and the terms of any letters and other documentation entered into among the Borrower and any Bank or the Administrative Agent or the Collateral Agent prior to the execution of this Amendment which relate to the amendment of the Credit Agreement shall be replaced by the terms of this Amendment. -3- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. NAI TECHNOLOGIES, INC. By Richard A. Schneider _________________________________ Title: Executive Vice President THE BANK OF NEW YORK as Administrative Agent and as a Bank By Brenda M. Sorg _________________________________ Vice President THE CHASE MANHATTAN BANK as Collateral Agent and as a Bank By Diane E. Vaccarelli ____________________________ Vice President Consented to as of this 5th day of November, 1997 NAI TECHNOLOGIES - SYSTEMS DIVISION CORPORATION By: Richard A. Schneider _____________________________ Title: Treasurer WILCOM, INC. By: Richard A. Schneider _____________________________ Title: Treasurer CODAR TECHNOLOGY, INC. By: Richard A. Schneider _____________________________ Title: Treasurer -4- EX-11 4 EXHIBIT 11 Exhibit 11 NAI TECHNOLOGIES, INC. AND SUBSIDIARIES (In thousands)
- ---------------------------------------------------------------------------------------------------------- Three Months Ended Sept. 27, Sept. 28, 1997 1996 - ---------------------------------------------------------------------------------------------------------- Net Income (loss) ($3,409) $964 Average shares of common stock outstanding during the period 9,133 8,571 Incremental shares from assumed exercise of stock options, stock warrants & employee stock purchase plan (primary) 1,026 429 Total shares used to calculate PEPS * 9,133 9,000 ---------- --------- Primary earnings per share ($0.37) $0.11 ========== ========= Net Income (loss) ($3,409) 964 Interest on Convertible Debt (Net of Taxes) 153 184 Amortization of OID (Net of Taxes) 33 19 Amortization of Deferred Debt Expense (Net of Taxes) 80 120 ---------- --------- Adjusted Net Income (3,143) 1,287 ========== ========= Average shares of common stock outstanding during the period 9,133 8,571 Incremental shares from assumed exercise of stock options, stock warrants & employee stock purchase plan (fully diluted) 1,026 561 Dilution from Convertible Debt 2,561 2,789 Total shares used to calculate FDEPS * 9,133 11,921 ---------- --------- Fully Diluted earnings per share ($0.34) $0.11 ========== ========= * Per APB 15, when a net loss is reported, exercise or conversion is not to be assumed. Exhibit 11 NAI TECHNOLOGIES, INC. AND SUBSIDIARIES (In thousands)
- ------------------------------------------------------------------------------------------------------------- Nine Months Ended Sept. 27, Sept. 28, 1997 1996 - ------------------------------------------------------------------------------------------------------------- Net Income (loss) ($2,529) $1,329 Average shares of common stock outstanding during the period 9,079 8,022 Incremental shares from assumed exercise of stock options, stock warrants & employee stock purchase plan (primary) 1,233 304 Total shares used to calculate PEPS * 9,079 8,326 ---------- --------- Primary earnings per share ($0.28) $0.16 ========== ========= Net Income (loss) (2,529) 1,329 Interest on Convertible Debt (Net of Taxes) 461 548 Amortization of OID (Net of Taxes) 109 79 Amortization of Deferred Debt Expense (Net of Taxes) 260 345 ---------- --------- Adjusted Net Income (1,699) 2,301 ========== ========= Average shares of common stock outstanding during the period 9,079 8,022 Incremental shares from assumed exercise of stock options, stock warrants & employee stock purchase plan (primary) 1,233 478 Dilution from Convertible Debt 2,561 2,789 Total shares used to calculate FDEPS * 9,079 11,289 ---------- --------- Fully Diluted earnings per share ($0.19) $0.20 ========== =========
-2- EX-27 5 EXHIBIT 27
5 1,000 9-MOS DEC-31-1997 SEP-27-1997 963 0 10,017 0 7,269 19,022 10,926 (7,958) 32,635 8,320 5,123 916 0 0 12,577 32,635 39,727 39,727 32,332 40,390 0 0 1,149 (2,025) 504 (2,529) 0 0 0 (2,529) (0.28) 0
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