<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One) / X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 1997
/ / 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: 0-10372
UNIDYNE CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER
AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-2154902
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
118 PICKERING WAY, SUITE 104, EXTON, PA 19341
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(610) 363-8237
(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court.
Yes No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity , as of latest practicable date: 8,685,352 as of June
30, 1997.
Transitional Small Business Disclosure Format (check one): Yes No X
---- -----
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
UNIDYNE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER
1997 31, 1996
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash $175 $46
Accounts receivable 2,179 1,799
Inventory 4,065 3,583
Prepaid expenses 81 57
Deferred income taxes 442 136
--- ---
Total current assets 6,942 5,621
----- -----
Property, plant and equipment
Land 160 160
Buildings 3,828 3,800
Machinery and equipment 6,864 6,666
----- -----
Total property, plant and equipment 10,852 10,626
Accumulated depreciation (2,308) (1,711)
------- -------
Property, plant and equipment, net 8,544 8,915
Deferred income taxes 221 221
Patents 1,571 1,676
Other assets 788 804
--- ---
Total assets $18,066 $17,237
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,415 $2,268
Current portion of long-term debt 530 530
Accrued compensation 645 711
Other accrued liabilities 471 661
Income taxes payable 414 374
--- ---
Total current liabilities 4,475 4,544
----- -----
Long-term debt 5,042 4,767
Pension benefit obligations 2,167 2,033
Post retirement benefits other than pensions 3,380 3,238
Deferred revenue 175 ---
Stockholders' equity
Common Stock, $.001 par value, 50,000,000 shares authorized, 8,685,351 shares 9 9
issued and outstanding
Preferred Stock, $10 per share liquidation value, $10 par value, 20,000,000
shares authorized, 500,000 issued and outstanding 5,000 5,000
Additional paid-in capital 7,115 6,420
Retained deficit (9,297) (8,774)
------- -------
Total stockholders' equity 2,827 2,655
----- -----
Total liabilities and stockholders' equity $18,066 $17,237
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 3
UNIDYNE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales $3,784 $4,036 $7,895 $9,162
Cost of sales 2,639 2,605 5,356 5,426
----- ----- ----- -----
Gross income 1,145 1,431 2,539 3,737
Selling and administrative expense 1,503 1,197 2,850 2,611
Research and development expense 114 162 252 230
--- --- --- ---
Income (loss) from operations (472) 72 (563) 895
Interest expense 114 270 242 545
--- --- --- ---
Income (loss) before income taxes (586) (198) (805) 350
Income tax provision (benefit) (219) 3 (282) 274
----- - ----- ---
Net income (loss) ($367) ($201) ($523) $76
====== ====== ====== ===
Primary earnings (loss) per share ($0.05) ($0.03) ($0.08) $0.01
------- ------- ------- -----
Weighted average number of Common
Stock and equivalents outstanding 8,650,368 7,240,590 8,591,789 7,240,590
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 4
UNIDYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($523) $76
Adjustments to reconcile net income to
cash flows from operating activities
Depreciation and amortization 745 595
Deferred taxes (306) ---
Changes in-
Accounts receivable, net (381) 83
Inventories (482) (432)
Prepaid expenses and other assets (51) (39)
Accounts payable 147 221
Accrued compensation 321 159
Accrued expenses (150) 114
Other liabilities 451 386
--- ---
Net cash provided by (used for) operating activities (229) 1,163
----- -----
Cash flows for investing activities:
Purchase of property, plant and equipment (225) (78)
Cash flows from financing activities:
Net borrowings on revolving loans 454 ---
Issuance of Common Stock 308 ---
Principal payments on long-term debt (179) (1,072)
----- -------
Net cash provided by (used for) financing activities 583 (1,072)
--- -------
Net increase in cash 129 13
Cash, beginning of period 46 197
-- ---
Cash, end of period $175 $210
==== ====
Cash paid for:
Interest $242 $152
---- ----
Income taxes 2 84
- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 5
UNIDYNE CORPORATION
NOTES TO 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 periods presented. These financial statements should be read in
conjunction with the Company's annual report on Form 10-KSB for the year ended
December 31, 1996.
NOTE 2 - DEFERRED REVENUE
Deferred revenue of $175,000 at June 30, 1997 represents advance payments
received from customers. The anticipated shipment date for these customer
orders is the third quarter of 1997.
NOTE 3 - EQUITY
In 1997 and 1996, the Company established stock option plans (the "Plans")
for certain management and directors, pursuant to which the Company issued
750,000 and 1,100,000 options, respectively. In March 1997, the Company issued
89,954 shares of its Common Stock, par value $.001 ("Common Stock") upon the
exercise of a portion of the options under the Plans in exchange for accrued
salaries and fees totaling approximately $345,000. In June 1997, the Company
issued 13,462 shares of its Common Stock in exchange for accrued salary
totalling approximately $42,000.
NOTE 4 - EARNINGS PER SHARE
Earnings (loss) per share is computed on the basis of the weighted average
number of common shares outstanding during the periods. The assumed exercise
of all outstanding stock options has been excluded from the computation of
earnings (loss) per share because the result was antidilutive. Also, the
computation of earnings (loss) per share includes preferred stock dividends of
$87,500 and $175,000 for the three and six months ended June 30, 1997.
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share." The
Company will implement the disclosure requirements of SFAS 128 as required.
NOTE 6 - SUBSEQUENT EVENT
In August 1997 the Company entered into an agreement to acquire Hicklin
Engineering, Inc., a leading developer and manufacturer of transmission and
drive-train component dynamometers and test systems, in exchange for 400,000
shares of the Company's Common Stock. The acquisition is expected to be closed
in August 1997.
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<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
ALL AMOUNTS USED HEREIN ARE IN THOUSANDS.
RESULTS OF OPERATIONS
NET SALES. Net sales of $7,895 for the six months ended June 30, 1997
decreased $1,267 or 13.8% as compared with net sales of $9,162 for the six
months ended June 30, 1996. The decrease in the current year period was due
principally to the lower volume of large press drive sales, combined with lower
net selling prices at Dynamatic Corporation ("Dynamatic"), a wholly-owned
subsidiary of the Company, as compared with the prior year period. This
decrease was partially offset by sales of the Company's emissions testing
products in the six months ended June 30, 1997. Net sales of $3,784 in the
second quarter of 1997 decreased $252 or 6.2% as compared with net sales of
$4,036 in the second quarter of 1996. The decrease was due primarily to lower
sales volume in the traditional Dynamatic product lines, combined with lower
net selling prices, partially offset by sales of the Company's emission testing
products in the current year quarter.
GROSS INCOME. Consolidated gross income of $2,539 or 32.2% to sales
for the six months ended June 30, 1997 decreased 32.1% compared with
consolidated gross income of $3,737 or 40.8% to sales for the six months ended
June 30, 1996. In the second quarter of 1997, consolidated gross income of
$1,145 or 30.3% to sales decreased 20.0% compared with consolidated gross
income of $1,431 or 35.5% to sales in the second quarter of 1996. The decrease
is primarily due to lower sales volume in the current year periods which
resulted in higher unabsorbed burden and lower net selling prices in the
current year periods.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative
expense, as a percent to net sales, increased to 39.7% and 36.1% for the second
quarter and first six months of 1997, compared to 30.0% and 28.5% for the
second quarter and first six months of 1996, respectively. The increase is
principally due to lower net sales combined with higher selling expenses
relative to the Company's emission testing products.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense of
$252 or 3.2% to sales for the six months ended June 30, 1997 increased $22 or
9.6% as compared with $230 or 2.5% to sales in the six months ended June 30,
1996. Research and development expenses are primarily expenditures relative to
development of the Company's emission testing products.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operating requirements and capital
expenditures through cash flows from operations and financing arrangements.
At June 30, 1997, the Company's working capital was approximately
$2,467, compared to working capital of approximately $1,077 at December 31,
1996. This increase is principally due to borrowings on long-term debt which
were used to fund inventory requirements for the Company's emission testing
products, the issuance of Common Stock and the exchange of accrued salaries and
fees for shares of the Company's Common Stock. At June 30, 1997, the Company
had approximately $100 available under its existing line-of-credit
arrangements.
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<PAGE> 7
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
Effective March 10, 1997, the Company granted to certain officers,
directors and employees options to purchase a total of 750,000 shares of the
Company's Common Stock at a price of $6.00 per share. The options are
exercisable at any time during the five years after grant. During the first
quarter of 1997, two officers exercised options to purchase a total of 39,856
shares of Common Stock in exchange for approximately $129,500 in accrued
salary. In addition, three directors who were owed approximately $216,000 in
legal fees and consulting fees exercised options to purchase a total of 50,098
shares of Common Stock in exchange for such fees owed. In June 1997, an
officer exercised an option to purchase 13,462 shares of Common Stock in
exchange for approximately $42,000 in accrued salary.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 11, 1997, the Company's shareholders held their annual meeting in
New York, New York (the "Annual Meeting"). At the Annual Meeting, the
shareholders elected Charlotte E. Doremus and John M. Lison to the Company's
Board of Directors. 8,307,334 votes were voted in favor of, and no votes were
voted against, electing Ms. Doremus. There were 660 votes withheld. 8,307,334
votes were voted in favor of, and no votes were voted against, electing Mr.
Lison. There were 660 votes withheld.
The Company's shareholders also approved the Company's 1997 Omnibus
Stock Incentive Plan (the "1997 Incentive Plan"), which was adopted for
officers, directors and other employees of the Company and its subsidiaries and
provides for the granting of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, nonqualified
stock options, stock appreciation rights and grants of shares of the Company's
Common Stock, subject to certain restrictions, up to a maximum of 2,000,000
shares. Details of the Incentive Plan were disclosed in the Company's Proxy
Statement, dated May 9, 1997, a copy of which is attached by reference.
8,148,967 votes were voted in favor of, and 5,751 votes were voted against, the
adoption of the 1997 Incentive Plan. There were also 435 abstentions and
152,841 broker non-votes.
At the Annual Meeting, the Company's shareholders ratified the selection
of the Company's independent public accountants, Arthur Andersen LLP, to audit
the Company's books, records and accounts for the fiscal year ending December
31, 1997. 8,305,620 votes were voted in favor of, and 1,534 votes were voted
against, the selection of Arthur Andersen LLP as the Company's independent
public accountants. There were also 840 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBIT NO. DESCRIPTION
19.1* The Company filed a report on Form 8-K on January 15,
1997 describing the Company's acquisition of Maxwell
Dynamometer systems, Inc. The Company filed the
report on Form 8-KA on March 31, 1997 providing
financial information relating to that acquisition.
19.2* Schedule 14A Proxy Statement, filed May 9, 1997.
27.1 Financial data schedule
*Filed previously and incorporated herein by reference
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<PAGE> 8
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNIDYNE CORPORATION
Date: August 14, 1997 /s/ C. Eugene Hutcheson
--------------------------------------------
C. Eugene Hutcheson, Chairman, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: August 14, 1997 /s/ C. Eugene Hutcheson
--------------------------------------------
C. Eugene Hutcheson, Chairman, Chief Executive
Officer and President
Date: August 14, 1997 /s/ Timothy M. Flynn
--------------------------------------------
Timothy M. Flynn, Senior Vice President and Chief
Financial Officer
- 8 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 175
<RECEIVABLES> 2,190
<ALLOWANCES> 11
<INVENTORY> 4,065
<CURRENT-ASSETS> 6,942
<PP&E> 10,852
<DEPRECIATION> 2,308
<TOTAL-ASSETS> 18,066
<CURRENT-LIABILITIES> 4,475
<BONDS> 5,042
0
5,000
<COMMON> 9
<OTHER-SE> (2,182)
<TOTAL-LIABILITY-AND-EQUITY> 18,066
<SALES> 7,895
<TOTAL-REVENUES> 7,895
<CGS> 5,356
<TOTAL-COSTS> 2,850
<OTHER-EXPENSES> 252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 265
<INCOME-PRETAX> (805)
<INCOME-TAX> (282)
<INCOME-CONTINUING> (523)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (523)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> 0
</TABLE>
