-----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, RbumVow5z3X6oL5eNBVh+TucuGY4DUhiYahTr8WkoIJllutNX/BgKp5LB/6astg6 izcFCIVEAs23S81LPbOEyQ== 0000950117-99-000092.txt : 19990125 0000950117-99-000092.hdr.sgml : 19990125 ACCESSION NUMBER: 0000950117-99-000092 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980926 FILED AS OF DATE: 19990122 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/A SEC ACT: SEC FILE NUMBER: 000-03704 FILM NUMBER: 99509728 BUSINESS ADDRESS: STREET 1: 282 NEW YORK AVE STREET 2: SUITE 412 CITY: HUNTINGTON STATE: NY ZIP: 11743 BUSINESS PHONE: 3037765674 MAIL ADDRESS: STREET 1: 282 NEW YORK AVE STREET 2: 1000 WOODBURY ROAD STE 412 CITY: NEW YORK STATE: NY ZIP: 11743 FORMER COMPANY: FORMER CONFORMED NAME: NORTH ATLANTIC INDUSTRIES INC DATE OF NAME CHANGE: 19920703 10-Q/A 1 NAI TECHNOLOGIES, INC. 10-Q/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A AMENDMENT NO. 2 TO (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 26, 1998 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 January 18, 1999, 9,192,067 shares of NAI Technologies, Inc.'s $.10 par value Common Stock were outstanding. EXPLANATORY STATEMENT This Form 10-Q/A is being filed by NAI Technologies, Inc., a New York corporation ("NAI" or the "Company"), as Amendment No. 2 to its Quarterly Report on Form 10-Q for the quarterly period ended September 26, 1998 to (a) make certain amendments to Part I, Item 1--Notes to Consolidated Financial Statements thereof, (b) make certain amendments to Part I, Item 2--Management's Discussion and Analysis of Financial Condition and Results of Operations thereof, (c) delete the reference to "Exhibit 11--Statement re: Computation of Per Share Earnings" in Part II, Item 6--Exhibits thereof and (d) delete Exhibit 11 thereof. 2 PART I--FINANCIAL INFORMATION Item 1. Financial Statements * * * NOTES TO CONSOLIDATED FINANCIAL STATEMENTS * * * The foregoing Section is amended to include the following additional information: Statement re: Computation of Per Share Earnings - ----------------------------------------------- NAI TECHNOLOGIES, INC. AND SUBSIDIARIES (In thousands)
- ----------------------------------------------------------------------------------------------------- Three Months Ended Sep 26, Sep 27, 1998 1997 - ----------------------------------------------------------------------------------------------------- Net Income (loss) from continuing operations ($521) ($3,409) Average shares of common stock outstanding during the period 9,174 9,133 ------------- ------------- Basic Earnings per share ($0.06) ($0.37) ============= ============= Net Income (loss) (521) (3,409) Interest on Convertible Debt (Net of Taxes) 0 0 Amortization of OID (Net of Taxes) 0 0 Amortization of Deferred Debt Expense (Net of Taxes) 0 0 ------------- ------------- Adjusted Net Income (521) (3,409) ============= ============= Average shares of common stock outstanding during the period 9,174 9,133 Incremental shares from assumed exercise of stock options, stock warrants & employee stock purchase plan 0 0 Dilution from Convertible Debt 0 0 Total shares used to calculate diluted EPS 9,174 9,133 ------------- ------------- Diluted earnings per share ($0.06) ($0.37) ============= =============
3 NAI TECHNOLOGIES, INC. AND SUBSIDIARIES (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED SEP 26, SEP 27, 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Net Income (loss) from continuing operations $ 37 ($2,529) Average shares of common stock outstanding during the period 9,162 9,079 ----- ------- Basic Earnings per share $0.00 ($ 0.28) ----- ------- Net Income (loss) 37 (2,529) Interest on Convertible Debt (Net of Taxes) 0 0 Amortization of OID (Net of Taxes) 0 0 Amortization of Deferred Debt Expenses (Net of Taxes) 0 0 ----- ------- Adjusted Net Income 37 (2,529) ===== ======= Average shares of common stock outstanding during the period 9,162 9,079 Incremental shares from assumed exercise of stock options, stock warrants & employee stock purchase plan 2 0 Dilution from Convertible Debt 0 0 Total shares used to calculate diluted EPS 9,164 9,079 ----- ------- Diluted earnings per share $0.00 ($ 0.28) ===== =======
4 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Management's Discussion and Analysis of Financial Condition and Results of Operations is deleted in its entirety and replaced with the following: "On July 7, 1998, the NAI board passed a resolution to discontinue the operations comprising NAI's Telecommunications segment, which consists of one wholly-owned subsidiary, Wilcom, Inc. It is anticipated that all of the issued and outstanding shares of Wilcom, Inc. will be sold to Wilcom Acquisition Corp. pursuant to the Wilcom stock purchase agreement. The operating results for Wilcom, Inc. are accounted for as discontinued operations. Accordingly, its operations are segregated in the accompanying financial statements. The financial statements for all prior reporting periods and all figures in the NAI's management's discussion and analysis of financial conditions and results of operations have been reclassified for amounts associated with Wilcom, Inc. The second quarter 1998 results include a provision of $2,692,000 which is the estimated loss on disposal including an estimate of future losses to be incurred prior to the actual disposal of Wilcom, Inc. of $192,000. The disposition of Wilcom, Inc. will proceed whether or not the merger with DRS is consummated. Wilcom Acquisition Corp. is a Delaware corporation in which Charles S. Holmes and Dennis McCarthy, two current directors of NAI, own all the outstanding capital stock; Mr. Holmes is the majority stockholder of Wilcom Acquisition Corp. Wilcom Acquisition Corp. will purchase Wilcom, Inc. for a purchase price of (1) $150,000 and (2) Mr. Holmes' surrender of (a) 300,000 warrants to purchase shares of NAI common stock at an exercise price of $3.00 per share and (b) 1,700,000 NAI warrants with an exercise price of $2.50 per share held by Mr. Holmes. Third Quarter 1998 Compared with Third Quarter 1997 - ----------------------------------------------------- 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 1998 were $10.0 million, a 15% decrease when compared with $11.8 million for the same period in 1997. 5 The following chart provides the sales breakdown by subsidiary:
In thousands of dollars 1998 1997 % Change - --------------------------------------------------------------------------------- Rugged Systems Segment Codar Technology, Inc. $3,832 $ 2,743 40% Lynwood Rugged Systems Ltd. 5,069 4,525 12% Inter-company (91) (32) -------------------------- Total Rugged Systems Segment 8,810 7,236 22% Systems Integration Segment NAI Systems Division 1,217 4,595 (74%) Inter-company (6) - -------------------------- Total Systems Integration Segment 1,211 4,595 (74%) TOTAL $10,021 $11,831 (15%) ===========================
Sales in the Rugged Systems Segment (net of intercompany eliminations) increased 22% to $8.8 million from $7.2 million for the same period in 1997. The increased sales were attributable to a 12% sales increase at Lynwood and a 40% sales increase at Codar. The sales increase at Lynwood was attributable to strong bookings and increased export sales from the United Kingdom. Codar's sales increase was attributable to higher sales on the CHS II contract in the third quarter of 1998 as compared to the third quarter of 1997. The CHS II contract is an IDIQ (indefinite delivery indefinite quantity) and revenue will vary in each quarter. Sales in the Systems Integration Segment (net of intercompany eliminations) decreased 74% to $1.2 million from 4.6 million for the same period in 1997. The decrease in sales at the Systems division is attributable to a delay in anticipated orders from the National Security Agency. The delay in orders is believed to be due to changes in the Agency's fiscal 1998 budget as a result of priority modifications by the Agency. Although delayed, the Company believes the anticipated orders will be forthcoming now that the U.S. Government fiscal 1999 Budget is approved. However, there can be no assurance that such orders will be received. In recent years the Company has reduced its dependency on the United States defense budget by expanding its non-military and export business operations. However, the Company still expects approximately 35% of 1998 sales to be directly to the U.S. military or through prime contractors to the U.S. 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 the cancellation of a single specific program. However, changes in future U.S. defense spending levels could impact the Company's future sales volume. The gross margin percentage for the third quarter 1998 was 24.3%, as compared with 1.0% in the comparable quarter of 1997. The following chart provides the gross margin percentage by subsidiary.
1998 1997 - - ------------------------------------------------------------------------ Codar Technology, Inc. 23.6% (75.9)% NAI Systems Division 10.8% 18.4% Lynwood Rugged Systems Ltd. 27.6% 29.8%
6 The improved margins at Codar are attributable to continued cost reduction efforts at the Company, an ongoing emphasis to compete for higher margin work and better cost absorption of fixed costs as a result of the increased sales. Codar's 1997 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 advanced Codar products on the CHS II program. The lower gross margin percentage at NAI Systems Division is primarily attributable to decreased shipping volumes and consequent under absorption of fixed overhead expenses. Lynwood's margins were lower due to a less favorable product mix and higher engineering expenditures in cost of sales due to the change in mix between developmental and mature product contract awards. Selling expense for the third quarter of 1998 was $0.9 million as compared to 0.7 million in the same period in 1997. This increase is attributable to higher selling expense at Lynwood, due to higher sales volumes. General and administrative expense for the third quarter of 1998 was 1.2 million as compared to 1.3 million in 1997. Included in the 1998 general and administrative expense is approximately $0.3 million related to merger expenses associated with the proposed DRS transaction described earlier in this document. Company-sponsored research and development expenditures for the third quarter of 1997 and 1998 were relatively unchanged at $0.2 million for both periods. The company expects that internal research and development expenditures will remain relatively constant for the remainder of 1998. For the third quarter of 1998, the Company reported operating income of $0.04 million as compared with an operating loss of $2.2 million for the same period in 1997. Interest expense and amortization of deferred debt costs, net of interest income, was $0.4 million for the third quarters of 1998 and 1997. For the third quarter 1998, the Company accrued an income tax expense of $0.14 million as compared with an income tax expense of $0.13 million in 1997. The entire tax expense for both periods 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 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 third quarter of 1998 the Company recorded a loss from continuing operations of $0.5 million as compared with a loss from continuing operations of $2.8 million in the third quarter of 1997. The loss from discontinued operations were $0.0 million and $0.6 million in the third quarter 1998 and 1997 respectfully. Net loss for the third quarter was $0.5 million as compared to a net loss of $3.4 million in the third quarter of 1997. The basic loss per share from continuing operations was $(0.06) per share as compared with a loss of $(0.31) per share for the same period in 1997, based on a weighted average of 9.2 million and 9.1 million shares outstanding, respectively. The basic loss per share from discontinued operations was $0.00 per share as compared with $(0.07) per share for the same period in 1997, based on a weighted average of 9.2 million and 9.1 million shares outstanding, respectively. The basic loss per share was $(0.06) per share as compared with $(0.37) per share for the same period in 1997, based on a weighted average of 9.2 million and 9.1 million shares outstanding, respectively. The diluted loss per share from continuing operations was $(0.06) per share as compared with a loss of $(0.31) per share for the same period in 1997, based on a weighted average of 9.2 million and 9.1 million shares outstanding, respectively. The diluted loss per share from discontinued operations was $0.00 per share as compared with $(0.07) per share for the same period in 1997, based on a weighted average of 9.2 million and 9.1 million shares outstanding, respectively. The diluted loss per share was $(0.06) per share as compared with $(0.37) per share for the same period in 1997, based on a weighted average of 9.2 million and 9.1 million shares outstanding, respectively. Nine Months 1998 Compared with Nine Months 1997 The nature of NAI'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 nine months of 1998 were $34.7 million, a 5% decrease when compared with $36.7 million for the same period in 1997. 7 The following chart provides the sales breakdown by subsidiary:
In Thousands of Dollars 1998 1997 % Change ----------------------- ---------- --------- -------- RUGGED SYSTEMS SEGMENT Codar Technology, Inc. $ 11,875 $ 10,977 8% Lynwood Rugged Systems Limited 16,261 13,278 22% Inter-company (272) (456) -- -------- -------- Total Rugged Systems Segment 27,864 23,799 17% SYSTEMS INTEGRATION SEGMENT NAI Systems Division 7,531 12,967 (42)% Inter-company (651) (108) -- -------- -------- Total Systems Integration Segment 6,880 12,859 (46)% -------- -------- Total $ 34,744 $ 36,658 (5)% -------- -------- -------- --------
Sales in the Rugged Systems segment (net of intercompany eliminations) increased 17% to $27.9 million from $23.8 million for the same period in 1997. The increased sales were attributable to a 22% sales increase at Lynwood and a 8% sales increase at Codar. The sales increase at Lynwood was attributable to strong bookings and increased export sales from the United Kingdom. New orders for the first nine months of 1998 were more than double the comparable figure in 1997. Lynwood attributes its strong booking performance to: establishment of a high profile in the major European markets of France, Germany, Italy, Spain, Norway and Sweden and the high degree of collaboration now taking place between the major defense companies in these countries and the UK defense base; an increased focus within the United Kingdom to take advantage of Lynwood's rugged COTS capabilities by targeting a number of vertical product areas such as "embedded avionics computers," "combat system consoles" and "battle management systems"; and increased emphasis on opportunities in the Far East to take advantage of Lynwood's ability to satisfy contractual off-set requirements now that it has established a manufacturing presence in Australia. Codar's sales increase was attributable to higher sales on the CHS II contract in the first nine months of 1998 as compared to the first nine months of 1997. The CHS II contract is an IDIQ (indefinite delivery indefinite quantity) and revenue will vary in each quarter. Sales in the Systems Integration segment (net of intercompany eliminations) decreased 46% to $6.9 million from $12.9 million for the same period in 1997. The decrease in sales at the Systems division is attributable to a delay in anticipated orders from the National Security Agency. The delay in orders is believed to be due to changes in the Agency's fiscal 1998 budget as a result of priority modifications by the Agency. The National Security Agency is the major customer (in excess of 90% of segment sales) of the Systems Integration segment. If it were to stop awarding business to this segment, the impact on profitability would be significant both to the segment and NAI and most likely would result in a significant reduction in size in the NAI Systems Division. Because the Agency's work is custom work, no inventory is procured in advance of receipt of contract awards. Therefore, a significant decline in future agency orders would not necessitate any inventory adjustments. As of December 9, 1998, only $1,146,000 of the $11,000,000 in orders that were expected to be placed in the near term have been booked. It is believed that some additional delays in placing the orders have resulted from the fact that several agencies are waiting for authorization to 8 make 1999 expenditures. Although delayed, NAI believes the anticipated orders will be forthcoming now that the U.S. government fiscal 1999 budget is approved. However, there can be no assurance that such orders will be received. In recent years NAI has reduced its dependency on the United States defense budget by expanding its non-military and export business operations. However, NAI still expects approximately 35% of 1998 sales to be directly to the U.S. military or through prime contractors to the U.S. military. NAI is not aware of any programs in which it participates that are specifically targeted for a termination or curtailment. NAI's products are utilized in many different U.S. government programs, which reduces the adverse impact of the cancellation of a single specific program. However, changes in future U.S. defense spending levels could impact NAI's future sales volume. The gross margin percentage for the nine months of 1998 was 24.4%, as compared with 18.2% in the comparable period of 1997. The following chart provides the gross margin percentage by subsidiary.
1998 1997 ----- ------ Codar Technology, Inc. 19.9% (8.6)% NAI Systems Division 23.0% 24.8% Lynwood Rugged Systems Limited 26.9% 33.3%
The improved margins at Codar are attributable to better cost absorption associated with higher sales, continued cost reduction efforts, as well as an emphasis on competing for higher margin work. Codar's 1997 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 advanced Codar products on the CHS II program. The lower gross margin percentage at NAI Systems Division is primarily attributable to decreased shipping volumes and the consequent under absorption of fixed overhead expenses. Lynwood's margins were lower due to an unfavorable product mix and higher engineering expenditures associated with recent new contract awards. Margins at Lynwood should improve as these contracts evolve into mature production work. Selling expense for the nine months of 1998 was $2.4 million as compared to $2.3 million for the same period in 1997. General and administrative expenses for the nine months of 1998 were $3.4 million as compared to $3.2 million in the same period in 1997. This increase is primarily attributable to merger related expenses of $0.47 million. NAI-sponsored research and development expenditures for the nine months of 1998 were $0.4 million as compared with $0.7 million for the same period in 1997, which represents a decrease of 44%. The decrease is attributable to a change in the mix between NAI-sponsored research and development and customer funded engineering. For the nine months of 1998, NAI reported operating income of $1.9 million as compared with operating income of $0.02 million for the same period in 1997. Interest expense and amortization of deferred debt costs, net of interest income, was $1.3 million and $1.4 million for the nine months of 1998 and the nine months of 1997, respectively. 9 For the nine months of 1998 and 1997, NAI recorded income tax expense of $0.5 million. The entire tax expense in both periods pertains to NAI's Lynwood subsidiary located in the U.K. The apparent high effective tax rate is due to the profitability of the NAI foreign operations in the U.K which are accruing tax expense while the U.S. domestic operations are incurring losses for which no tax benefit is being recognized in accordance with applicable accounting rules. For this reason, NAI is accruing tax expense even though the consolidated operations are showing a pre-tax loss. The figures for the nine months ended September 26, 1998 are as follows:
Taxable Income* Tax Expense Effective Rate --------------- ----------- --------------- Domestic ($1,114,000) $ -0- Foreign $1,665,000 $514,000 31% ========== ======== $551,000 $514,000 93% ========== ========
*Before loss from discontinued operations Liquidity and Capital Resources Cash and cash equivalents totaled $2.0 million at September 26, 1998, as compared to $0.6 million at December 31, 1997. Cash provided by operating activities amounted to $0.9 million in the first nine months of 1998, as compared to $0.8 million in the comparable period of 1997. During the first nine months, accounts receivable decreased by $0.1 million, inventory decreased by $0.7 million, and accounts payable and other accrued expenses decreased by $1.0 million from December 31, 1997, respectively. During the nine months ended September 26, 1998, NAI had borrowings of long term debt and notes payable of $3.4 million, and had payments of long term debt and notes payable of $2.9 million. Net borrowings of $0.5 million were used for working capital purposes. From time to time, borrowings are necessary because of the timing differences between payments due to NAI's vendors and the payment of related receipts by NAI's customers. Payments due to vendors tend to precede the payment of related receivables. At various times during the year NAI borrows funds in the first month of each quarter in order to meet its financial obligations to its vendors. This is necessitated because a disproportionate amount of NAI's quarterly shipments take place in the last three weeks of the quarter. Because of this shipment schedule, the first month of the following quarter usually results in low receivable collections and high vendor payments. This is usually reversed as the quarter progresses and the borrowed funds are paid back to the extent possible. At September 26, 1998 NAI's outstanding borrowing under NAI's credit agreement was $6.5 million. NAI will be required to repay $750,000 on December 31, 1998. The remaining amount outstanding is due and payable on January 15, 1999. As of September 26, 1998 NAI would have been in violation of the consolidated current ratio and consolidated quick ratio debt covenants under its credit agreement had it not received a waiver from its two lending banks. At the same time, NAI also received a waiver to allow it to defer a required principal payment of $750,000 until the maturity of the loan on January 15, 1999. The terms of the waivers provide that NAI must comply with all of the terms of its credit agreement. The waivers also require the Secretary or Executive Vice President of NAI to certify periodically to the lenders that NAI is not in default under the terms of its credit agreement and that NAI's representations and warranties set forth in its credit agreement continue to be true and accurate. The covenant waivers will expire on the fiscal quarter ended December 31, 1998 at which time NAI anticipates that it will once again be in violation of the same two covenants. It is NAI's intention to request a waiver on the two covenants as well as a deferral on the principal requirement of $750,000. If the banks were to refuse to grant such a waiver, NAI would be in default under the terms of its credit agreement, and the entire loan balance currently amounting to $6,500,000 would be due immediately. It is unlikely that NAI would be able to make the payment in this schedule without an alternative financing plan in place. No plans are in place to cure the inadequate cash flow situation. NAI's cash flow is a major reason why the NAI board is in favor of the merger. It is the intent of DRS to use a portion of the proceeds from the Mellon credit agreement to pay down the entire outstanding principal and interest amounts under NAI's credit agreement. NAI has had preliminary discussions with its two principal banks regarding the need to refinance the January 1999 balloon payment requirement. However, the banks have not made any commitment regarding the loans. Although the NAI board has discussed the possibility of alternative financing, NAI has not approached any new potential lenders. The NAI board believes that it is difficult to approach potential lenders when the perception is that NAI will be merging with DRS in the near future. 10 Inflation NAI'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. Year 2000 NAI's Year 2000 Project is proceeding on schedule. NAI's Year 2000 Project is addressing the issue of computer and embedded computer chips being unable to distinguish between the year 1900 and the year 2000. NAI's Year 2000 Project is divided into three major sections: (1) IT Systems (infrastructure and applications software); (2) External Agents (third-party suppliers and customers); and (3) Product Issues (Year 2000 issues inherent in products sold by NAI). The IT Systems section evaluates hardware and systems software. This section is on schedule, and NAI estimates that approximately 95% of the activities related to this section were completed as of September 26, 1998. All IT Systems activities are expected to be completed by December 31, 1998. The External Agents section includes the process of identifying and prioritizing critical suppliers and customers at the direct interface level, and communicating with them about their plans and progress in addressing the Year 2000 problem. Detailed evaluations of the most critical third parties have not yet been initiated but will commence before December 31, 1998 and should be completed by mid-1999. These evaluations will be followed by the development of contingency plans, if considered necessary. The Product Issues section includes the process of identifying any products sold by NAI which may not be Year 2000 compliant, determining a corrective course of action and disseminating relevant information to customers. Detailed evaluations have recently begun, are approximately 15% complete and scheduled to be completed by mid-1999. The total cost associated with required modifications to become Year 2000 compliant is not expected to be material to NAI's financial position. The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could materially and adversely affect NAI's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of third-party suppliers and customers, NAI is unable to determine at this time whether the consequences of Year 2000 failure will have a material impact on NAI's results of operations, liquidity or financial condition. NAI's Year 2000 Project is expected to reduce significantly NAI's level of uncertainty about the Year 2000 problem. NAI believes that, with the completion of its Year 2000 Project as scheduled, the possibility of significant interruptions of normal operations should be reduced. The Company does not currently have any contingency plans in place to address the failure of timely conversion of its and/or third-party systems in respect of the Year 2000 issue. 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, Inc. and involves risks and uncertainties that could cause actual future activities and results of operations to be materially different from those set forth in the forward- 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." 11 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 Amendment No. 2 to Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized. NAI TECHNOLOGIES, INC. (Registrant) DATE January 22, 1999 By: /s/ Richard A. Schneider ---------------------- ------------------------------------ Richard A. Schneider Executive Vice President (On behalf of the registrant and as Principal Financial Officer)
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