<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
September 2, 1996
---------------------------------
(Date of earliest event reported)
UNIDYNE CORPORATION
(Exact name of small business issuer
as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-10372 23-2154902
(State or other jurisdiction (Commission File No.) (IRS Employer Identification No.)
of incorporation or organization)
</TABLE>
118 PICKERING WAY, SUITE 104, EXTON, PENNSYLVANIA 19341
(Address of principal executive offices)
(610) 363-8237
(Issuer's telephone number)
<PAGE> 2
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
On September 2, 1996, Registrant completed the acquisition of 100% of
the issued and outstanding shares of the common stock of United Dynamatics,
Inc., a Delaware corporation ("UDI"). In separate transactions, Registrant
also acquired nine percent (9%) of the issued and outstanding common stock of
Maxwell Dynamometer Systems, Inc., a Delaware corporation related to UDI
("Maxwell"), and approximately $1.05 million in principal amount of debt
instruments issued by Maxwell. The above transactions were effective as of
September 1, 1996. (The UDI common stock, the Maxwell common stock and the
Maxwell debt instruments are herein collectively referred to as the "Assets").
The Assets were acquired in exchange for a total of 6,677,031 shares of
newly issued shares of Registrant's common stock, $.001 par value per share
(the "Common Stock"). The number of shares issued in exchange for the Assets
constituted approximately 90% of Registrant's issued and outstanding Common
Stock at the time of issuance. Prior to acquisition of the Assets, Robert M.
Bernstein owned 51.9% of the Registrant's issued and outstanding Common Stock.
Immediately following acquisition, Robert M. Bernstein and Harvey
Kravetz, being all of the directors and officers of Registrant before
Registrant's acquisition of the Assets, resigned. The following persons were
elected as directors of Registrant:
C. EUGENE HUTCHESON, age 53, has been Chief Executive Officer and
Chairman of the Board of Directors of UDI since its inception in 1995. He was a
co-founder of UDI and is Chairman of the Board and President of Maxwell. Mr.
Hutcheson serves as Chairman and Chief Executive Officer of Dynamatic
Corporation ("Dynamatic"), a wholly-owned subsidiary of UDI, and of Capital
Idea, Inc., a Colorado corporation which is the majority shareholder of Maxwell
("Capital Idea"). Previously, he was the Chairman and President of CIDCO Group,
Inc., which developed and patented products for the packaging and container
industry. Mr. Hutcheson is co-holder of a patent issued in September 1995 on a
chassis dynamomoter.
CHARLOTTE E. DOREMUS, age 52, Chief Administrative Officer, Secretary
and Director of UDI and Kenosha Corporation, is also Secretary/Treasurer and a
director of Maxwell and Capital Idea. Ms. Doremus has been an investor in
start-up companies for more than ten years. Ms. Doremus has also been an
Assistant to the Research Director and head of the Portfolio Review Department
at Argus Research Corp. and a Registered Representative and Portfolio Analyst
for Dean Witter Reynolds in New York City.
DAVID M. BARRETT, ESQ., age 58, is a senior partner of the law firm of
Barrett & Schuler, Washington, D.C. Mr. Barrett has been an instructor in law
at Notre Dame Law School. He has been an Assistant United States Attorney for
the District of Columbia and was recently appointed Independent Counsel for an
investigation of a Member of the Cabinet of the President of the United States.
DR. FRANK B. HOLZE, age 58, founded and manages Holze International
Investment, a Monaco-based investment consulting firm. Dr. Holze was with ITT
Corporation for 12 years. Subsequently, Dr. Holze was Vice President and a
member of the board of management in Europe for the Thyssen-Bornemisza Group,
which is based in Monaco, and was general manager of a number of the Group's
companies.
The following persons were elected as officers of Registrant:
C. EUGENE HUTCHESON - Chairman of the Board of Directors, President and
Chief Executive Officer
TIMOTHY M. FLYNN - Vice President and Assistant Treasurer
CHARLOTTE E. DOREMUS - Secretary and Treasurer
2
<PAGE> 3
The following persons are known by Registrant to be the beneficial
owners of more than five percent of Registrant's Common Stock as of September
6, 1996.
<TABLE>
<CAPTION>
Amount(1)
Name and Address and Nature Percentage
of Beneficial Owner of Ownership of Class
- ------------------- ------------ --------
<S> <C> <C>
Capital Idea, Inc. 4,603,860 57%
118 Pickering Way, Suite 104
Exton, PA 19341
C. Eugene Hutcheson 4,816,360(2) 59%
UNIDYNE Corporation
118 Pickering Way, Suite 104
Exton, PA 19341
Charlotte E. Doremus 4,816,360(3) 59%
UNIDYNE Corporation
118 Pickering Way, Suite 104
Exton, PA 19341
David M. Barrett 964,866(4) 12%
1000 Thomas Jefferson St., NW
Suite 305
Washington, D.C. 20007
Frank B. Holze 1,219,805(5) 15%
26 BIS Boulevard
Princess Charlotte
MC 98000 Monaco
</TABLE>
- --------------------------------
(1) Unless otherwise indicated, all ownership is direct.
(2) Includes 127,885 shares which Mr. Hutcheson has the right to
acquire within sixty days through the exercise of options and 4,603,860 shares
owned by Capital Idea, of which Mr. Hutcheson is Chairman and Chief Executive
Officer and a 50% shareholder.
(3) Includes 187,885 shares which Ms. Doremus has the right to acquire
within sixty days through the exercise of options and 4,603,860 shares owned by
Capital Idea, of which Ms. Doremus is a director, Secretary and Treasurer, and a
50% shareholder.
(4) Includes 228,692 shares which Mr. Barrett has the right to acquire
within sixty days through the exercise of options.
(5) Includes 500,000 shares owned by Darnley Holdings, Ltd., a Bahamian
corporation, of which Mr. Holze is Director.
3
<PAGE> 4
The following is certain information regarding the Common Stock of
Registrant beneficially owned by each of its directors and executive officers
and all directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount(1)
Name and Address and Nature Percentage
of Beneficial Owner Position of Ownership of Class
- ------------------- -------- ------------ --------
<S> <C> <C> <C>
C. Eugene Hutcheson Chairman of the 4,816,360(2) 59%
Board of Directors,
Chief Executive
Officer and President
Timothy Flynn Vice President and 3,000(3) less than 1%
Assistant Treasurer
David M. Barrett Director 964,866(4) 12%
Frank B. Holze Director 1,219,805(5) 15%
Charlotte E. Doremus Secretary, Treasurer 4,816,360(6) 59%
and a Director
- ---------------- ======= ==
Directors and executive
officers as a group 7,116,531 88%
</TABLE>
- ----------------
(1) Unless otherwise indicated, all ownership is direct.
(2) Includes 127,885 shares which Mr. Hutcheson has the right to
acquire within sixty days through the exercise of options and
4,603,860 shares owned by Captial Idea, of which Mr. Hutcheson
is Chairman and Chief Executive officer and a 50% shareholder.
(3) Includes 1,000 shares which Mr. Flynn has the right to acquire
within sixty days through the exercise of options.
(4) Includes 228,692 shares which Mr. Barrett has the right to acquire
within sixty days through the exercise of options.
(5) Includes 500,000 shares owned by Darnley Holdings, Ltd., a
Bahamian corporation, of which Mr. Holze is Director.
(6) Includes 187,885 shares which Ms. Doremus has the right to acquire
within sixty days through the exercise of options and 4,603,860
shares owned by Capital Idea, of which Ms. Doremus is a director,
Secretary and Treasurer, and a 50% shareholder.
4
<PAGE> 5
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Registrant acquired the Assets from Capital Idea, David M. Barrett,
Frank B. Holze, Gregory J. Layton and Sharon D. Long in exchange for a total
of 6,677,031 shares of newly issued Common Stock of Registrant. The number of
shares issued on connection with these transactions was determined through
negotiation between Registrant and the former owners of the Assets. Prior to
Registrant's acquisition of the Assets, there was no material relationship
between Registrant or any of its affiliates, any director or officer of
Registrant or any associate of any such director or officer and the persons
from whom the Assets were acquired.
UDI, through its wholly-owned subsidiary, Dynamatic, manufactures
specialized electric motors and variable speed drives and controls utilizing
the Eddy Current Drive operating principle to control motor speed. The
variable speed drives are used in a variety of products including stamping
presses, pumps and special process equipment. Dynamatic also manufactures
engine dynamometers and transmission dynamometers for a variety of large
industrial customers, primarily in the automotive and heavy equipment
industries. UDI products are manufactured in facilities located in Kenosha,
Wisconsin, consisting of approximately 261,600 square feet of manufacturing,
laboratory and testing facilities and 46,100 square feet of office space
located on approximately 13.3 acres of land. Maxwell, which is based in Exton,
Pennsylvania, manufactures and installs customized dynamometer systems.
5
<PAGE> 6
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
United Dynamatics, Inc.:
We have audited the accompanying consolidated balance sheet of United
Dynamatics, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and the related consolidated statements of income and retained earnings
and cash flows for the four month period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Dynamatics, Inc. and
subsidiaries as of December 31, 1995 and the results of their operations and
their cash flows for the period then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
September 3, 1996 (except for the
matter described in note 3, as to
which the date is November 13, 1996).
6
<PAGE> 7
UNITED DYNAMATICS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Assets
Current assets:
Cash $193
Accounts receivable, less allowance for doubtful accounts of $24 2,488
Inventory 2,763
Prepaid expenses 33
Deferred income taxes 159
----------
5,636
---------
Property, plant and equipment
Land 160
Buildings 3,687
Machinery and equipment 5,862
---------
9,709
Accumulated depreciation (360)
---------
9,349
Due from affiliate 47
Other assets 158
----------
$15,190
=======
Liabilities & stockholders' equity
Current liabilities:
Accounts Payable $500
Current portion of long-term debt 1,543
Short-term debt 1,860
Accrued compensation 647
Other accrued liabilities 500
Income taxes payable 138
----------
5,188
---------
Long-term debt 2,399
Note payable to EATON 2,718
Deferred income taxes 61
Pension benefit obligations 1,810
Post retirement benefits other than pensions 2,955
Stockholders' equity:
Common stock (1,500 shares issued and outstanding, no par value) 0
Additional paid-in capital 0
Retained earnings 59
-----------
59
-----------
$15,190
=======
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
UNITED DYNAMATICS, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 1, 1995)
TO DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Net sales $5,628
Costs and expenses
Cost of products sold 3,092
Selling and administrative expense 1,768
Research and development expense 339
-------
5,199
------
Income from operations 429
Interest expense 330
-------
Income before income taxes 99
Provision for income taxes 40
-------
Net income 59
Retained earnings, beginning of period ---
---------
Retained earnings, end of period $59
========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 9
UNITED DYNAMATICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 1, 1995)
TO DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $59
Adjustments to reconcile net income to net cash
flows from operating activities
Depreciation and amortization 372
Deferred taxes (98)
Changes in -
Accounts receivable, net (2,488)
Inventories 156
Prepaid expenses and other assets (203)
Accounts payable 500
Accrued compensation 463
Accrued expenses 377
Other liabilities 302
----------
Net cash used for operating activities (560)
----------
Cash flows for investing activities:
Purchase of property, plant and equipment (68)
Cash flows from financing activities:
Net borrowings on revolving loans 1,285
Net borrowings on subordinated debenture 50
Principal payments on long-term debt (469)
Advances to affiliates (47)
-----------
Net cash provided by financing activities 819
----------
Net increase in cash 191
Cash, beginning of period 2
------------
Cash, end of period $193
=========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $101
=========
Income taxes ---
============
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of United Dynamatics, Inc. and its subsidiaries
(the "Company"). The financial statements have been prepared in accordance
with generally accepted accounting principles and necessarily include amounts
based on judgments and estimates made by management. Actual results could
differ from those estimates.
Description of Business: The Company was established for the purpose of
acquiring the operating assets of the Eddy Current Drive Division ("ECD") of
EATON Corporation ("EATON"). This transaction was consummated effective
September 1, 1995. Operations commenced through Dynamatic Corporation, a
wholly-owned subsidiary of the Company ("Dynamatic"), effective with the
acquisition. Dynamatic manufactures specialized electric motors and variable
speed drives and controls utilizing the Eddy Current Drive operating principal
to control motor speed. The variable speed drives are used in a variety of
products including stamping presses, pumps, and special process equipment.
Dynamatic also manufactures engine dynamometers and transmission dynamometers
for a variety of large industrial customers, primarily in the automotive and
heavy equipment industries. Dynamatic sells its products primarily to
manufacturers and distributors located throughout the United States. Dynamatic
also has a relatively small amount of sales to customers in Canada and other
foreign countries.
On September 2, 1996, the Company and Capital Idea, Inc. ("Capital Idea"), a
Colorado corporation, one of the Company's shareholders, acquired 90 percent of
the outstanding common stock of Blue Jay Enterprise, Inc. ("Blue Jay"), in
exchange for all of the issued and outstanding stock of the Company and certain
assets of Capital Idea. Following the closing, Blue Jay changed its name to
UNIDYNE Corporation ("UNIDYNE").
Inventories: Inventories are stated at the lower of cost (first-in, first-out)
or market and consist of the following (000's):
<TABLE>
<S> <C>
Raw materials and manufactured parts $1,338
Work in process 1,217
Finished goods 208
------
$2,763
======
</TABLE>
The value of inventory includes costs for material, labor and production
overhead.
Property, Plant and Equipment: Property, plant and equipment acquired in
connection with the acquisition of ECD were recorded at the fair market value
as of the date of the acquisition. All property, plant and equipment acquired
since the date of the acquisition are stated at cost. Depreciation and
amortization are being recorded on a straight-line basis over the estimated
lives of the assets which range from 4 to 25 years.
Research and Development: Research and development costs are charged to
expense as incurred.
10
<PAGE> 11
New Accounting Pronouncement: In 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121 ("SFAS 121")
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." The Company does not anticipate that the pronouncement, which
the Company intends to adopt during the first quarter of 1996, will have a
material impact on its financial statements.
NOTE 2: ACQUISITION OF ASSETS
The acquisition of ECD was accounted for under the purchase method of
accounting. Accordingly, Dynamatic's operating results have been included
with the Company's since September 1, 1995. The acquired assets and
liabilities assumed in the acquisition follow (000's):
<TABLE>
<S> <C>
Cash $2
Inventories 2,919
Property, plant and equipment 9,642
------
12,563
Post retirements health benefits 2,860
Accrued pension liability 1,716
Accrued vacation liability 184
Accrued warranty liability 161
Accrued real estate taxes 101
--------
Net assets purchased $7,541
======
The transaction was financed as follows (000's):
Subordinated debenture $450
Revolving loans 575
Note payable to bank 1,700
Term note to EATON 1,000
Mortgage note payable to EATON 1,211
Note payable to EATON 2,605
-------
$7,541
======
</TABLE>
11
<PAGE> 12
NOTE 3: DEBT
The Company's long-term debt, as of December 31, 1995, consists of the
following (000's):
<TABLE>
<S> <C>
15% Subordinated Debenture $ 500
9.5% Term Note 1,614
Term Note 637
Mortgage Note 1,191
------
3,942
Less - Current portion 1,543
------
$2,399
======
</TABLE>
The above table excludes the non-interest bearing note payable to
EATON which is discussed below.
In connection with the Company's financing of the purchase of ECD, the
Company issued a subordinated debenture, due January 31, 1996, payable to a
shareholder/director of the Company. The subordinated debenture includes
certain covenants, all of which were met as of December 31, 1995. In 1996, the
Company repaid this debt, together with all interest due.
On November 22, 1995, the Company also obtained a 9.5% term loan from
a bank (the "Loan"). The Loan is secured by a general business security
agreement and is payable at $28,000 monthly through August 2000. Interest is
also payable monthly.
In addition, the Company obtained a term note and mortgage note which
are payable to EATON. The term note was secured by inventory and was payable
at $83,000 monthly. The term note is due September 1996 and interest has been
imputed at 13.2%. In September 1996, the Company paid the final monthly
installment on this debt. The mortgage note is secured by the Company's
primary manufacturing facility and is payable at $18,000 (includes interest at
13%) monthly through September 2005.
The Company has a line-of-credit with a bank secured by accounts
receivable and all machinery and equipment. The line-of-credit has a maximum
borrowing limit of $3.0 million or a percentage of eligible receivables and
matures May 1, 1996. In 1996, the Company entered into a new line-of-credit
agreement with a maximum borrowing limit of $3.0 million or a predetermined
percentage of eligible receivables and inventory. Interest is payable monthly
at the bank's reference rate plus 1% (9.5% at December 31, 1995). At December
31, 1995, the Company had borrowed the maximum available under its
line-of-credit.
The Company must maintain certain financial ratios and other
requirements under the provisions of the 9.5% term note and the line-of-credit.
At December 31, 1995, the Company was not in compliance with certain of these
covenants. A waiver was received from the lender.
12
<PAGE> 13
Annual principal payments required under long-term debt obligations
are as follows (000's):
<TABLE>
<S> <C>
1996 $1,543
1997 415
1998 426
1999 437
2000 365
Thereafter 756
---
$3,942
======
</TABLE>
In connection with the acquisition of ECD, the Company issued a $4.5
million non-interest bearing note payable to EATON. Pursuant to this note, the
Company was required to pay, on an annual basis, an amount equal to 18% of
Dynamatic's earnings before interest and taxes. The present value of the
liability, discounted at 13%, is reflected in the financial statements at
$2,718,000, at December 31, 1995.
In November 1996, the Company and EATON amended the agreement pursuant
to which the Company purchased the ECD assets from EATON (the "Amendment").
Pursuant to the Amendment, UNIDYNE has been relieved of its obligation to make
payments on the $4.5 million note payable to EATON. The present value of such
payments is carried on the balance sheet at $2,972,000 at September 30, 1996.
In exchange, the Company will issue up to 800,000 shares of its Common Stock to
EATON. The Agreement is contingent upon the refinancing of the mortgage held
by EATON on the operating facilities. The transaction is expected to close on
or before December 15, 1996.
The Company's long-term debt, as reflected in the accompanying
financial statements, is not materially different from the fair market value.
NOTE 4: LEASE COMMITMENTS
The Company leases various office equipment under noncancelable operating
leases. Future minimum lease payments are as follows (000's):
<TABLE>
<S> <C>
1996 $190
1997 106
1998 94
1999 64
2000 50
--
$504
====
</TABLE>
Rental expense for the four months ended December 31, 1995 totaled $129,000.
13
<PAGE> 14
NOTE 5: PENSION PLANS
The Company has non-contributory defined benefit pension plans
covering the majority of employees. Plans covering salaried employees provide
benefits that are based on years of service and final average compensation.
Benefits for hourly employees are generally based on years of service. Company
policy is to fund at least the minimum amount required by applicable
regulations.
The components of pension expense for the four months ended December
31, 1995 follows (000's):
<TABLE>
<S> <C>
Service Cost $54
Interest cost on projected benefit obligation 39
Actual return on assets 0
Net amortization and deferral 0
-
$93
===
</TABLE>
The pension liability recognized in the balance sheet at December 31, 1995
follows (000's):
Accumulated pension benefit obligation:
<TABLE>
<S> <C>
Vested $1,127
Non-vested 15
-------
1,142
Value of future salary projections 668
-------
Total projected pension benefit obligation 1,810
Fair value of plan assets 0
-------
Projected benefit obligation in excess of plan assets $1,810
======
</TABLE>
Measurement of the projected benefit obligation was based on a
discount rate of 7.0%. The expected compensation growth rate was 3.0%.
NOTE 6: POST RETIREMENT BENEFIT PLANS OTHER THAN PENSIONS
Generally, employees become eligible for post retirement benefits
other than pensions, primarily health care and life insurance, upon retirement.
These benefits are payable for life, although the Company retains the right to
modify or terminate the plans providing these benefits. The plans are
contributory, with retiree contributions adjusted annually and contain other
cost sharing features, including deductibles and co-payments. Company policy
is to pay the claims as incurred. Liabilities relating to retirees as of
September 1, 1995 were retained by EATON.
14
<PAGE> 15
Expense for post retirement benefits other than pensions for the four months
ended December 31, 1995 follows (000's):
<TABLE>
<S> <C>
Service Cost 28
Interest cost on accumulated benefit
obligation 67
--
95
==
</TABLE>
The liability for post retirement benefit plans other than pensions recognized
in the balance sheet at December 31, 1995, follows (000's):
<TABLE>
<S> <C>
Accumulated post-retirement benefit obligation:
Retirees $0
Fully eligible plan participants 2,193
Other active plan participants 762
--------
$2,955
======
</TABLE>
The medical trend assumption was 12.0% grading down to 4.5%. A one
percentage - point increase in the assumed health care cost trend rate for each
year would increase the accumulated post retirement benefit obligation as of
December 31, 1995 and net post retirement health care cost for the four-month
period then ended by approximately $567,000 and $20,000, respectively. The
discount rate used to determine the accumulated post retirement benefit
obligation at December 31, 1995 was 7.0%.
NOTE 7: INCOME TAXES
The provision for income taxes for the four months ended December 31, 1995
consists of the following (000's):
<TABLE>
<S> <C>
Current -
U.S. Federal $96
State 42
--
138
Deferred (98)
----
Total Tax Provision $40
===
</TABLE>
Income tax expense differs from the amount currently payable because
certain revenues and expenses are reported in the income statement in periods
which differ from those in which they are subject to taxation. The principal
differences in timing between the income statement and taxable income involve
certain accrued expenses and reserves not currently deductible for tax purposes
and different methods used
15
<PAGE> 16
in computing tax and book depreciation. Such differences are recorded as
deferred income taxes in the accompanying balance sheet under the liability
method.
The components of the deferred income tax assets and liabilities,
measured under SFAS No. 109 at December 31, 1995, are listed below. There is
no valuation reserve for deferred tax assets.
<TABLE>
<S> <C>
Net current deferred tax assets $159
Net noncurrent deferred tax liabilities (61)
----
Net deferred tax assets $98
===
</TABLE>
The effective tax rate reconciled to the statutory U.S. Federal Income
Tax rate for the four month period ended December 31, 1995 follows:
<TABLE>
<S> <C>
U.S. Federal statutory rate 34.0%
State Income Taxes 6.0
---
40.0%
=====
</TABLE>
NOTE 8: RELATED PARTY TRANSACTIONS
The Company has a consulting agreement with a company affiliated with
a director/shareholder. Effective January 1, 1996, the agreement has been
changed to reflect fees at $100,000 per year. The amount charged to expense
for the four months ended December 31, 1995 was $67,000.
The Company is provided administrative services by a company
affiliated with a director/shareholder. For the four months ended December 31,
1995, the Company recorded administrative expense of $62,000. In addition, the
Company has advanced an additional $47,000 to this affiliated company.
The Company expended $20,000 for the four months ended December 31,
1995 for legal fees to a firm having a member who is an officer/director of
the Company.
The Company paid a shareholder a fee of $125,000 for services rendered
in connection with the acquisition of ECD.
The Company believes that all related party transactions were on terms
equivalent to terms which would have existed if the participants had been
unrelated.
NOTE 9: COMMITMENTS AND CONTINGENCIES
The Company, in the normal course of business, is party to various
claims with regard to its products and other matters. Management believes that
the ultimate resolution of these matters will not have a material impact on the
Company's financial position.
16
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To United Dynamatics, Inc.:
We have audited the accompanying statements of revenues, expenses and changes
in division equity of the Eddy Current Division for the eight and twelve month
periods ending August 31, 1995 and December 31, 1994, and the related
statements of cash flows for the eight and twelve month periods then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of the Eddy Current Division
and its cash flows for the eight and twelve month periods ending August 31,
1995 and December 31, 1994 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
September 3, 1996
17
<PAGE> 18
EDDY CURRENT DRIVES DIVISION
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN DIVISION EQUITY
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995, AND THE
TWELVE MONTHS ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Eight Months Twelve Months
Ended Ended
August 31, 1995 December 31,1994
--------------- ----------------
<S> <C> <C>
Revenues $11,988 $17,698
Expenses
Cost of products sold 7,764 10,455
Selling and administrative expense 3,219 3,842
Research and development expense 212 658
------------------- -----------------
11,195 14,955
-------------- -----------------
Revenues in excess of expenses 793 2,743
Net repayments of corporate advances (988) (2,456)
Division Equity, beginning of period (5,150) (5,437)
-------------- -----------------
Division Equity, end of period ($5,345) ($5,150)
============== =================
</TABLE>
EDDY CURRENT DRIVES DIVISION
STATEMENTS OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995 AND THE
TWELVE MONTHS ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Eight months Twelve Months
Ended Ended
August 31, 1995 December 31, 1994
--------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Revenues in excess of expenses $793 $2,743
Adjustments to reconcile revenues in excess of expenses
to cash flows from operating activities:
Depreciation and amortization 457 666
Changes in -
Accounts receivable, net (12) 78
Inventories 243 (462)
Prepaid expenses and other assets (381) (300)
Accounts payable 239 (16)
Accrued compensation (124) 171
Accrued expenses (32) (37)
Other liabilities (325) (444)
-------------------- ----------------
Net cash provided by operating activities 858 2,399
--------------------- -----------------
Cash flows for investing activities:
Purchase of property, plant and equipment (192) (60)
Proceeds from disposition of property, plant and equipment 240 ---
-------------- -----------
Net cash provided by (used for) investing activities 48 (60)
-------------- -----------
Cash flows from financing activities:
Net repayments of corporate advances (988) (2,456)
Net inter-divisional advances 63 159
--------------- -------------
Net cash used for financing activities (925) (2,297)
------------ -----------------
Net increase (decrease) in cash (19) 42
Cash, beginning of period 42 0
--------------- ---------------
Cash, end of period $23 $42
=================== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ --- $ ---
======================== =========================
Income taxes --- ---
========== ==========================
</TABLE>
18
<PAGE> 19
EDDY CURRENT DRIVES DIVISION
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying financial statements include
the accounts of the Eddy Current Drives Division of EATON Corporation (the
"Company"). The financial statements have been prepared in accordance with
generally accepted accounting principles and necessarily include amounts based
on judgments and estimates made by management.
ECD has historically depended upon EATON for support for various
services such as selling, legal, financial, human resources, insurance, risk
management and communications. EATON allocated the cost for these services
among its businesses based on operating revenues, payroll expense and gross
property employed. The allocated cost for these services is included in
selling, general and administrative expense and totaled $2,145 and $2,318
for the 8 and 12 months ended August 31, 1995 and December 31, 1994,
respectively. Management believes that the method used to allocate these
expenses reasonably reflects the costs of actual services provided. The
accompanying statements do not include a provision for income taxes because ECD
was included in the consolidated return of EATON for the periods presented.
Description of Business: The Company manufactures specialized
electric motors and variable speed drives and controls utilizing the Eddy
Current Drive operating principal to control motor speed. The variable speed
drives are used in a variety of products including stamping presses, pumps, and
special process equipment. The Company also manufactures engine dynamometers
and transmission dynamometers for a variety of large industrial customers,
primarily in the automotive and heavy equipment industries. The Company sells
its products primarily to manufacturers and distributors located throughout the
United States and also has a relatively small amount of sales to customers in
Canada and other foreign countries.
Research and Development: Research and Development costs are charged
to expense as incurred.
NOTE 2: LEASE COMMITMENTS
The Company leases various office equipment under non-cancelable
operating leases. Rental expense for the eight months ended August 31, 1995
and the twelve months ended December 31, 1994 was $303,000 and $469,000,
respectively.
NOTE 3: PENSION PLANS
The Company has non-contributory defined benefit plans covering the
majority of employees. Plans covering salaried employees provide benefits that
are based on years of service and final average compensation. Benefits for
hourly employees are generally based on years of service. Company policy is to
fund at least the minimum amount required by applicable regulations.
19
<PAGE> 20
A credit was recorded, relative to pensions, for the eight months
ended August 31, 1995 and the twelve months ended December 31, 1994 of $57,000
and $96,000, respectively.
NOTE 4: POST RETIREMENT BENEFIT PLANS OTHER THAN PENSIONS
Generally, employees become eligible for post retirement benefits
other than pensions, primarily health care and life insurance, upon retirement.
These benefits are payable for life, although the Company retains the right to
modify or terminate the plans providing these benefits. The plans are
contributory, with retiree contributions adjusted annually and contain other
cost sharing features, including deductibles and co-payments. Company policy
is to pay the claims as incurred.
The expense for post retirement benefits other than pensions for the
eight months ended August 31, 1995, and for the twelve months ended December
31, 1994, was $744,000 and $1,128,000, respectively.
NOTE 5: COMMITMENTS AND CONTINGENCIES
The Company, in the normal course of business, is party to various
claims with regards to its products and other matters. Management believes
that the ultimate resolution of these matters will not have a material impact
on the Company's financial position.
NOTE 6: SUBSEQUENT EVENT
On September 1, 1995, Dynamatic Corporation ("Dynamatic"), a
wholly-owned subsidiary of United Dynamatics, Inc. ("UDI"), acquired
substantially all of the operating assets of the Company for approximately $6.3
million (includes a $2.6 million note payable to EATON). In addition, Kenosha
Corporation, a wholly- owned subsidiary of UDI, acquired the operating
facilities of the Company for approximately $1.2 million.
20
<PAGE> 21
EDDY CURRENT DRIVES DIVISION
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN DIVISION EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Revenues $9,406
Expenses
Cost of products sold 5,864
Selling and administrative expense 2,563
Research and development expense 154
----------
8,581
---------
Revenues in excess of expenses 825
Net borrowings of corporate advances 133
Division Equity, beginning of the period (5,150)
---------
Division Equity, end of period ($4,192)
========
</TABLE>
21
<PAGE> 22
EDDY CURRENT DRIVES DIVISION
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Revenues in excess of expenses $825
Adjustments to reconcile revenues in excess of expenses
to cash flows from operating activities:
Depreciation and amortization 343
Changes in -
Accounts receivable, net (507)
Inventories 112
Prepaid expenses and other assets (320)
Accounts payable (2)
Accrued compensation (104)
Accrued expenses 71
Other liabilities (242)
------------------
Net cash provided by operating activities 176
-----------------
Cash flows for investing activities:
Purchase of property, plant and equipment (73)
Cash flows for financing activities:
Net borrowings of corporate advances 133
Net inter-divisional advances (242)
-------------------
Net cash used for financing activities (109)
-------------------
Net decrease in cash (6)
Cash, beginning of period 42
----------------
Cash, end of period $36
================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $---
===================
Income taxes ---
====================
</TABLE>
22
<PAGE> 23
EDDY CURRENT DRIVES DIVISION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
In the opinion of the management of the Company, the accompanying Statements of
Revenues, Expenses and Division Equity, and the Statements of Cash Flows,
reflect all adjustments (consisting only of normally recurring accruals) which
are necessary for a fair presentation of the Company's results of operation and
changes in financial position for the interim period presented.
23
<PAGE> 24
UNITED DYNAMATICS, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
Assets (unaudited)
June 30, 1996 December 31, 1995
------------- -----------------
(in thousands)
<S> <C> <C>
Current assets
Cash $207 $193
Accounts receivable 2,412 2,488
Inventory 3,041 2,763
Prepaid expenses 51 33
Deferred income taxes 159 159
------------ ----------
5,870 5,636
--------- ---------
Property, plant and equipment
Land 160 160
Buildings 3,687 3,687
Machinery and equipment 5,918 5,862
--------- ----------
9,765 9,709
Accumulated depreciation (908) (360)
---------- ----------
8,857 9,349
Due from affiliate 335 47
Other assets 164 158
---------- ----------
$15,226 $15,190
======= =======
Liabilities & Stockholders' equity
Current liabilities:
Accounts payable $712 $500
Current portion of long-term debt 648 1,543
Short-term debt 1,860 1,860
Accrued compensation 630 647
Other accrued liabilities 455 500
Income taxes payable 328 138
--------- ----------
4,633 5,188
-------- ---------
Long-term debt 2,193 2,399
Note payable to EATON 2,887 2,718
Deferred income taxes 61 61
Pension benefit obligations 1,885 1,810
Post retirement benefits other than pensions 3,097 2,955
Stockholders' equity:
Common Stock 0 0
Additional paid-in capital 0 0
Retained earnings 470 59
---------- -----------
470 59
---------- -----------
$15,226 $15,190
======= =======
</TABLE>
24
<PAGE> 25
UNITED DYNAMATICS, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Net sales $8,662
Costs and expenses
Cost of products sold 5,231
Selling and administrative expense 2,077
Research and development expense 230
----------------
7,538
---------------
Income from operations 1,124
Interest expense 439
----------------
Income before income taxes 685
Provision for income taxes 274
----------------
Net income 411
Retained earnings, beginning of period 59
-----------------
Retained earnings, end of period $470
=================
</TABLE>
25
<PAGE> 26
UNITED DYNAMATICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $411
Adjustments to reconcile net income to net cash
flows from operating activities
Depreciation and amortization 565
Changes in-
Accounts receivable, net 76
Inventories (278)
Prepaid expenses and other assets (41)
Accounts payable 212
Accrued compensation (17)
Accrued expenses 145
Other liabilities 386
----------------
Net cash provided by operating activities 1,459
---------------
Cash flows for investing activities:
Purchase of property, plant and equipment (56)
Cash flows for financing activities:
Principal payments on long-term debt (1,101)
Advances to affiliates (288)
---------------
Net cash used for financing activities (1,389)
--------------
Net increase in cash 14
Cash, beginning of period 193
--------------
Cash, end of period $207
=============
Supplemental disclosures of cash flow information:
Cash paid during the six month period for:
Interest $152
=========
Income taxes 84
=========
</TABLE>
26
<PAGE> 27
UNITED DYNAMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
In the opinion of the management of the Company, the accompanying
consolidated financial statements reflect all adjustments (consisting only of
normally recurring accruals) which are necessary for a fair presentation of the
Company's results of operation and changes in financial position for the
interim period presented. These financial statements should be read in
conjunction with the Company's financial statements for the four month period
ended December 31, 1995.
NOTE 2: DUE FROM AFFILIATE
During 1996, the Company advanced Maxwell Dynamometers, Inc.
("Maxwell") an additional $288,000. The advances have been used to fund the
operations of Maxwell relative to the Company's future involvement with Maxwell
in the emissions testing market. The majority owner of the Company is also the
majority owner of Maxwell.
NOTE 3: NEW ACCOUNTING PRONOUNCEMENT
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The Company
adopted SFAS 121 during the first quarter of 1996, which did not have a
material impact.
27
<PAGE> 28
UNITED DYNAMATICS, INC.
PRO FORMA EARNINGS PER SHARE
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
THE FOUR MONTHS ENDED DECEMBER 31, 1995.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended Four Months Ended
June 30, 1996 December 31, 1995
------------- ------------------
<S> <C> <C>
Net Income $411 $59
Primary earnings per share $0.06 $0.01
Weighted average number of Common Stock and
equivalents outstanding 7,205,298 7,180,090
</TABLE>
28
<PAGE> 29
EXHIBIT NO.
10.1 First Amended Purchase and Sale Agreement, dated July
31, 1996, among Robert M. Bernstein, Blue Jay Enterprises, Inc.
and certain shareholders of UDI.*
10.2 Second Amendment to Purchase and Sale Agreement, dated
September 2, 1996, among Robert M. Bernstein, Blue Jay
Enterprises, Inc. and certain shareholders of UDI.*
10.3 Second Amended Purchase and Sale Agreement, dated
September 2, 1996, among Robert M. Bernstein, Blue Jay
Enterprises, Inc. and Capital Idea, Inc.*
- ------------
* Filed previously.
29
<PAGE> 30
SIGNATURES
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 hereunto duly authorized.
Date: November 14, 1996 /s/ C. Eugene Hutcheson
------------------------
C. Eugene Hutcheson
Chairman, Chief Executive Officer
and President
30
