<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT of 1934
For the year ended December 31, 1996
/ / 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
----- -----
Check if the disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this FORM
10-KSB or any amendment to this FORM 10-KSB ( ).
The issuer's net revenues for its most recent fiscal year were $16,605,000.
The aggregate market value of the issuer's voting stock held as of February 28,
1997 by non-affiliates of the issuer, based upon the average of the closing bid
and asked prices on that date, was approximately $9,462,241 .
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.
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Yes No X
----- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's common equity, as of the latest
practicable date: 8,525,360 AS OF FEBRUARY 28, 1997
Transitional Small Business Disclosure Format (check one ): Yes No X
--- ---
2
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
UNIDYNE Corporation, through its subsidiaries Dynamatic Corporation
("Dynamatic") and Maxwell Dynamometer Systems, Inc. ("Maxwell"), manufactures
vehicle testing equipment, including emissions testing and post-manufacturing
testing, and specialized electric motors and variable speed drives and controls
utilizing the Eddy Current Drive operating principle to control drive speed.
UNIDYNE Corporation and its subsidiaries are herein collectively referred to as
the "Company".
The Company's products are primarily marketed and sold by its field sales force
and in-house staff. At present, the Company has an established sales and
distribution network with customers located throughout the United States,
Canada, Mexico and other foreign countries.
HISTORY OF THE COMPANY
The Company was incorporated under the laws of the State of Delaware on
December 1, 1980, under the name of Blue Jay Energy Corporation, to engage in
oil and gas exploration and development. Subsequently, the Company changed its
name to Blue Jay Enterprises, Inc. ("Blue Jay"). In or about 1986, Blue Jay
ceased operations in the oil and gas field and until 1990 confined its
activities to the winding up of matters arising out of the prior years'
operations. Blue Jay discontinued all business operations in or about 1990.
On September 2, 1996, Blue Jay completed the acquisition of all the issued and
outstanding stock of United Dynamatics, Inc. ("UDI"), a Delaware corporation,
and certain assets of Capital Idea, Inc. ("Capital Idea"), a Colorado
corporation. After the acquisition, Blue Jay changed its name to UNIDYNE
Corporation. Dynamatic is a wholly-owned subsidiary of UDI. The acquisition of
UDI was treated as a reverse acquisition for accounting purposes. Accordingly,
the accompanying financial statements of the Company include amounts for
periods prior to the acquisition.
On September 2, 1996, the Company also acquired a 9% interest in Maxwell, a
Delaware corporation. On December 31, 1996, the Company acquired the remaining
91% of Maxwell through a merger of Maxwell into a wholly-owned subsidiary of
the Company. At the date of the merger, the majority owner of the Company was
also a majority owner of Maxwell. Accordingly, the accompanying financial
statements of the Company include amounts for periods prior to the acquisition.
On September 1, 1995, UDI acquired substantially all of the operating assets of
the Eddy Current Drive Division (the "Division") of Eaton Corporation
("EATON"). Effective with the acquisition, the Division commenced operations as
Dynamatic, a wholly-owned subsidiary of UDI.
PRODUCTS
Dynamatic manufactures specialized electric motors and variable speed drives
and controls utilizing the Eddy Current Drive operating principle to control
drive 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.
Maxwell has been designing and building engine and chassis dynamometers for
over 50 years. This equipment is used to test engine and chassis performance
for motor vehicles. Maxwell's customer base is made up of heavy-duty truck, bus
and automobile manufacturers, fleet owners and transit authorities throughout
the United States, Canada, and other foreign countries.
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NEW PRODUCTS
The United States Environmental Protection Agency ("EPA") has created an
Emission Testing Program (the "Program") which mandates enhanced emission tests
of vehicles in 22 states which have not attained a level of clean air required
by the Clean Air Act of 1990. Also, six additional states have voluntarily
agreed to comply with the enhanced standards of the Program for automobile
emissions testing. The enhanced emissions tests mandated by the Program must be
performed under conditions that more closely simulate actual driving
conditions, and are most effectively obtained by testing vehicles under load
conditions, utilizing a chassis dynamometer. The Company has developed and
intends to manufacture Emission Test Stands ("ETS") which are capable of
meeting the enhanced standards of the Program. The major components of the ETS
are a specialized chassis dynamometer designed and patented by Maxwell and
emissions testing equipment and computer controls designed and developed by
Dynamatic and Maxwell. The ETS will be assembled by Dynamatic.
SUPPLIERS
The Company currently purchases all of its materials from major vendors. The
Company has not experienced any significant delays in the past due to vendors'
inability to meet demand, and management believes that adequate materials will
continue to be available to meet current product needs.
In connection with the Program, the Company will enter into purchase
commitments with primary and secondary suppliers for key components of the ETS.
The Company will utilize major vendors to meet the demands of the Program.
Management believes that adequate supplies of components will be available.
MARKETING AND DISTRIBUTION
The Company markets and distributes its products under the Dynamatic and
Maxwell names. Dynamatic continues to be the leading supplier, integrator, and
manufacturer of standard Eddy Current drives, custom test stands and stamping
press drives, highly engineered definite purpose motors and Eddy Current
clutches, brakes and dynamometers. Dynamatic's products are sold through its
own in-house staff and field sales force, both directly and through
distributors throughout the United States, Canada and other foreign countries.
Maxwell markets its product through its own in-house staff. Maxwell markets its
engine and chassis dynamometers and brake testers to heavy duty truck, bus and
automobile manufacturers, fleet owners and transit authorities throughout the
United States, Canada and other foreign countries.
The ETS will be marketed through in-house staff and through a field sales
force. Initially, the Company will focus its marketing efforts in the states
which have announced the earliest implementation dates of the Program. These
appear to be Pennsylvania, California, Georgia, Virginia and New York.
COMPETITION
The Company competes on the basis of price, service, product quality, design
and performance characteristics.
The Company anticipates that it will compete for sales of the ETS primarily
with approximately four emissions testing equipment integrators (ESP,
Automotive Diagnostics, Snap-on/ Sun and Worldwide Environmental). Competition
for sales of the specialized chassis dynamometer designed for light trucks and
automobiles is expected to come primarily from two chassis dynamometer
manufacturers (Clayton Industries, Mustang Dynamometer). Maxwell encounters
competition for dynamometer sales primarily from five dynamometer manufacturers
(Clayton Industries, Mustang Dynamometer, Superflow, MAHA, and Schenk Pegasus).
4
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The electric drives market is highly competitive. Dynamatic is the world's
leading manufacturer of Eddy Current products, but continues to experience
competitive pressures from manufacturers utilizing adjustable frequency and
direct current technologies.
PATENTS
Dynamatic and Maxwell hold a number of patents. In 1995, Maxwell designed and
patented a specialized chassis dynamometer for testing automobiles and light
trucks under the EPA's Program. Maxwell has obtained United States design and
utility patents on the chassis dynamometer which expire January 2010 and
February 2014, respectively. The Company has also patented the chassis
dynamometer in several foreign countries. Protection of these patents is
important to the Company's competitive position.
TRADEMARKS
Dynamatic has registered two of its trademarks, AJUSTO-Spede TM and DYNAMATIC
TM, in the United States and several foreign countries. All trademark filings
are monitored and renewals are applied for on a timely basis. The trademark
Dynamatic was first used on April 4, 1936.
GOVERNMENT APPROVAL
In order for equipment to be used in the Program, it must be certified by
each state implementing the Program. In February 1997, the Company provided an
ETS for a Beta site in Pennsylvania. The Company anticipates it will submit a
unit for certification to California in March 1997. The Company intends to
pursue certification in other states based upon scheduled Program
implementation dates.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 135 people at
locations in Kenosha, Wisconsin and Exton, Pennsylvania.
All hourly plant employees of Dynamatic are represented by a union. In
September 1996, Dynamatic and the union representing these employees reached
an agreement on a three year contract, which will expire on September 30, 1999.
The Company believes that its relations with its employees are satisfactory.
GOVERNMENT REGULATION
None of the Company's businesses are in regulated industries. However, the ETS
must be certified for sale in states participating in the Program.
ITEM 2. PROPERTIES
Dynamatic's principal operating facility, located in Kenosha, Wisconsin, is
owned by Kenosha Corporation, a wholly-owned subsidiary of the Company. The
facility is comprised of two buildings totaling 307,700 square feet, situated
on 13 acres of land. At present, approximately 16,500 square feet is used for
office space and approximately 196,600 square feet is used as laboratory and
factory space. The facility's production capacity exceeds the Company's current
needs.
The Company intends to utilize the excess production capacity and unused
factory space (approximately 65,000 square feet) to manufacture and inventory
the ETS and has begun to prepare the factory space for use and to acquire some
required machinery and equipment. In addition, approximately 29,600 square feet
of unused office space is available for sales, marketing and administrative
functions to support the ETS sales. The Company is also exploring the
acquisition of additional manufacturing facilities should the demands of the ETS
program require more capacity.
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The Company's principal offices are in Exton, Pennsylvania where it leases
10,500 square feet of office and factory space. The factory space is the
principal manufacturing facility of Maxwell.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth the high and low sales prices for the periods
indicated as reported by the Over The Counter Bulletin Board owned by NASDAQ,
Inc. between dealers and do not include retail mark-ups, mark downs, or
commissions and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
------------------------------------------------------
Low High
--- ----
------------------------------------------------------
<S> <C> <C>
Calendar year 1996
------------------------------------------------------
First quarter 1 1/2 2
------------------------------------------------------
Second quarter 1 1/2 4
------------------------------------------------------
Third quarter 3 5
------------------------------------------------------
Fourth quarter 4 6
------------------------------------------------------
Calendar year 1995
------------------------------------------------------
Period from Inception --- ---
(September 1, 1995) to
September 30, 1995
------------------------------------------------------
Fourth quarter 1/2 1 9/16
------------------------------------------------------
</TABLE>
At December 31, 1996, the Company had approximately 885 shareholders of record.
The Company has paid no dividends during the period of this report and no
common dividends are contemplated in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - TWELVE MONTHS ENDED DECEMBER 31, 1996 AS COMPARED WITH THE
PERIOD FROM INCEPTION (SEPTEMBER 1, 1995) TO DECEMBER 31, 1995.
All amounts used herein are in thousands.
Effective September 1, 1995, UDI acquired substantially all the assets of the
Division. On December 31, 1996, the Company acquired the remaining 91% of
Maxwell. The financial statements of the Company included in this report reflect
the results of operations, including Maxwell, since September 1, 1995.
Sales for the twelve months ended December 31, 1996 were $16,605 as compared
with $6,111 for the period from inception (September 1, 1995) to December 31,
1995. Cost of sales for the twelve months ended
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December 31, 1996 were $10,504 or 63.3% to sales as compared with $3,647 or
59.7% to sales for the period from inception (September 1, 1995) to December
31, 1995.
During the twelve months ended December 31, 1996, the Company had selling and
administrative expenses of $5,794 or 34.9% to sales as compared with selling
and administrative expenses of $2,023 or 33.1% to sales for the period from
inception (September 1, 1995) to December 31, 1995. During the twelve months
ended December 31, 1996, the Company incurred approximately $400 of
non-recurring charges relative to the acquisitions of Maxwell and UDI.
During the twelve months ended December 31, 1996, the Company had interest
expense and research and development expense of $1,027 or 6.2% to sales and
$501 or 3.0% to sales, respectively. During the period from inception
(September 1, 1995) to December 31, 1995, the Company had interest expense and
research and development expense of $415 or 6.8% to sales and $86 or 1.4% to
sales, respectively.
The dollar increases between the years are primarily due to the differences
between the length of the reporting periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of long-term and short-term liquidity are
projected cash from operations, borrowing capacity and projected proceeds from
the issuance of Common Stock. The Company believes that these sources are
sufficient to fund the anticipated future growth and expansion of the Company.
During the year ended December 31, 1996, the Company had cash flow from
operations of $2,514 and cash from borrowings on revolving loans and issuance
of Common Stock of $279 and $185, respectively. Investing activities used
cash of $508, primarily for building improvements and ordinary equipment
purchases, while financing activities used $2,183 for repayment of debt and
$438 for costs relative to a proposed future stock offering.
During the four months ended December 31, 1995, the Company had a negative cash
flow from operating activities of $512. Investing activities used cash of
$186 for equipment purchases, while financing activities provided cash of
$891 which was principally due to net borrowings on revolving loans of
$1,285, partially offset by repayments of debt of $444.
At December 31, 1996, the Company had working capital of $1,077.
In 1997, the Company expects to purchase up to $500 of machinery and
equipment for use in the manufacture of the ETS. It is anticipated that these
purchases will be funded through installment debt.
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ITEM 7. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of UNIDYNE Corporation
We have audited the accompanying consolidated balance sheet of UNIDYNE
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996,
and the related consolidated statements of income, stockholders' equity and
cash flows for the year ended December 31, 1996 and the period from inception
(September 1, 1995) to December 31, 1995. 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 financial position of UNIDYNE Corporation and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the year ended December 31, 1996 and the period from
inception (September 1, 1995) to December 31, 1995 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
February 21, 1997 (except with
respect to the matter described in
Note 4 as to which the date is
March 31, 1997).
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UNIDYNE CORPORATION
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 46
Accounts receivable, less allowance for doubtful accounts of $11 1,799
Inventory 3,583
Prepaid expenses 57
Deferred income taxes 136
-------
Total current assets 5,621
-------
Property, plant and equipment
Land 160
Buildings 3,800
Machinery and equipment 6,666
-------
10,626
Accumulated Depreciation (1,711)
-------
8,915
Deferred income taxes 221
Patents 1,676
Other assets 804
-------
Total assets $17,237
=======
Liabilities & Stockholders' equity
Current liabilities:
Accounts payable $2,268
Current portion of long-term debt 530
Accrued compensation 711
Other accrued liabilities 661
Income taxes payable 374
-------
Total current liabilities 4,544
-------
Long-term debt 4,767
Postretirement benefits - Pension 2,033
Postretirement benefits - Health 3,238
Stockholders' equity:
Common Stock, $.001 par value, 50,000,000 shares authorized and
8,525,360 shares issued and outstanding 9
Preferred Stock, at $10 per share liquidation value, $10 par value,
20,000,000 shares authorized, 500,000 issued and outstanding 5,000
Additional paid-in capital 6,420
Retained deficit (8,774)
-------
Total stockholders' equity 2,655
-------
Total liabilities and stockholders' equity $17,237
=======
</TABLE>
See accompanying notes to consolidated financial statements.
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UNIDYNE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION
(SEPTEMBER 1,1995) TO DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS PERIOD FROM
ENDED INCEPTION TO
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- -------------------
<S> <C> <C>
Net sales $16,605 $6,111
Costs and expenses:
Cost of products sold 10,504 3,647
Selling and administrative expense 5,794 2,023
Research and development expense 501 86
---------- ---------
16,799 5,756
---------- ---------
Income (loss) from operations (194) 355
Interest expense 1,027 415
---------- ---------
Loss before income taxes (1,221) (60)
Provision for income taxes 102 40
---------- ---------
Net loss ($1,323) ($100)
========== =========
Primary loss per share ($0.18) ($0.01)
---------- ---------
Weighted average number of shares of
Common Stock and equivalents
outstanding 7,443,922 7,240,590
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
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UNIDYNE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION
(SEPTEMBER 1, 1995) TO DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Preferred Additional Retained Total
Stock Stock Paid-in Earnings Stockholders'
Capital (Deficit) Equity
--------- ---------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C>
Balance at September 1, 1995 $7 $5,000 $ --- ($7,351) ($2,344)
Net loss (100) (100)
-------- -------- --------- ---------- -----------
Balance at December 31, 1995
7 5,000 --- (7,451) (2,444)
-------- -------- --------- ---------- -----------
Issuance of Common Stock 1 5,919 5,920
Stock Options Exercised 1 501 502
Net Loss (1,323) (1,323)
-------- -------- --------- ---------- -----------
Balance at December 31, 1996 $9 $5,000 $6,420 ($8,774) $2,655
======== ======== ========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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UNIDYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION
(SEPTEMBER 1, 1995) TO DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS PERIOD FROM
ENDED INCEPTION TO
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,323) ($100)
Adjustments to reconcile net loss to net cash
flows from operating activities
Depreciation and amortization 1,239 409
Deferred taxes (263) (98)
Accrued expenses converted into equity 87
Changes in -
Accounts receivable, net 837 (2,546)
Inventories (625) 244
Prepaid expenses and other assets (47) (224)
Accounts payable 1,377 436
Accrued compensation 451 501
Accrued expenses (7) 565
Other liabilities 788 301
---------- ---------
Net cash provided by (used for) operating activities 2,514 (512)
---------- ---------
Cash flows for investing activities:
Purchase of property, plant and equipment (508) (186)
Cash flows from financing activities:
Net borrowings on revolving line-of-credit 279 1,285
Net borrowings (repayments) on subordinated debenture (500) 50
Issuance of Common Stock 185 ---
Offering related costs (438) ---
Principal payments on long term debt (1,683) (444)
---------- ---------
Net cash provided by (used for) financing activities (2,157) 891
---------- ---------
Net increase (decrease) in cash (151) 193
Cash, beginning of period 197 4
---------- ---------
Cash, end of period $46 $197
========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $898 $208
---------- ---------
Income taxes 129 ---
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of UNIDYNE Corporation 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: On September 1, 1995, United Dynamatics, Inc. ("UDI")
was formed to acquire substantially all of the operating assets of the Eddy
Current Drive Division (the "Division") of Eaton Corporation ("EATON").
Effective with the acquisition, the Division commenced operations as Dynamatic
Corporation ("Dynamatic"), a wholly-owned subsidiary of UDI.
Dynamatic manufactures specialized electric motors and variable speed drives
and controls utilizing the Eddy Current Drive operating principle to control
drive 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.
On September 2, 1996, Blue Jay Enterprises, Inc. ("Blue Jay") acquired
all the issued and outstanding stock of UDI, a Delaware corporation, and
certain assets of Capital Idea, Inc., ("Capital Idea") a related party. After
the acquisition, Blue Jay changed its name to UNIDYNE Corporation (the
"Company"). Because Blue Jay was a public registrant with no operations, the
acquisition of UDI was treated as a reverse acquisition for accounting
purposes. Accordingly, the accompanying financial statements for the Company
include amounts for periods prior to the acquisition.
On September 2, 1996, the Company also acquired a 9% interest in Maxwell
Dynamometer Systems, Inc. ("Maxwell"), a Delaware corporation, in exchange for
160,500 shares of the Company's common stock, par value $.001 per share (the
"Common Stock"). On December 31, 1996, the Company acquired the remaining 91%
(81% from Capital Idea and 10% from minority interest shareholders) of Maxwell
in exchange for 192,332 shares of the Common Stock and 500,000 shares of the
Company's Class A Convertible Preferred Stock with a liquidation value of $10
per share and a 7% cumulative dividend (the "Preferred Stock"). The majority
owner of the Company was also the majority owner of Maxwell. Therefore, the
accompanying financial statements have been restated to include the accounts
of Maxwell for all periods presented. Maxwell manufactures and installs
customized dynamometer systems, primarily for trucks and buses.
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 $2,625
parts
Work in process 598
Finished goods 360
------
$3,583
======
</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 the Division 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 10 years for machinery
and equipment and 7 to 25 years for buildings.
Research and Development: Research and development costs are charged to expense
as incurred.
Earnings Per Share: Earnings per share is calculated based on the average
number of common shares outstanding plus the effects of any common stock
equivalents or convertible securities. For the year ended December 31, 1996
and the four months ended December 31, 1995 the effect of all common stock
equivalents and convertible securities was anti-dilutive.
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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 the pronouncement during the first quarter of
1996. It did not have a material impact on its financial statements.
NOTE 2: ACQUISITIONS
The acquisition of the Division 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
Postretirements 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 line-of-credit 575
Note payable to bank 1,700
Term note payable to EATON 1,000
Mortgage note payable to EATON 1,211
Note payable to EATON 2,605
-----
$7,541
======
</TABLE>
The Company acquired Maxwell through an exchange of stock with the
majority owner of Maxwell and with unrelated minority shareholders of Maxwell.
Since the majority owner of the Company was also a majority owner of Maxwell,
the acquisition of those shares was treated as a reorganization. Accordingly,
the accompanying financial statements for the Company have been restated to
include the accounts of Maxwell from inception (September 1, 1995), using the
historical basis of Maxwell's assets and liabilities. At September 1, 1995, the
retained deficit for Maxwell was $2,351,000 ($7,351,000 after adjusting for the
par value of the Preferred Stock issued). The remaining shares were treated
as the acquisition of minority interest shares. The resulting excess purchase
price was allocated to certain long-term assets.
As part of the acquisition of Maxwell, the Company acquired certain
technology and patents relative to a chassis dynamometer, which will be used in
the Company's automobile emissions testing products. The patent has been valued
by an independent appraiser at $20,000,000 and has an economic life of eight
years. For accounting purposes, the patent is reflected in the financial
statements at $1,676,000 (the excess purchase price over cost relative to
non-affiliates) and will be amortized over its economic life.
NOTE 3: OTHER ASSETS
In 1996, the Company incurred approximately $438,000 in professional fees
relating to a proposed offering. These costs will be deferred until the
proposed offering occurs.
NOTE 4: DEBT
The Company's long-term debt, as of December 31, 1996, consists of the
following (000's):
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<TABLE>
<S> <C>
Revolving line of credit $2,139
9.5% Term Note 1,274
Mortgage Note 1,884
------
5,297
Less - Current portion 530
------
$4,767
======
</TABLE>
On November 22, 1995, the Company obtained a 9.5% Term Note from a bank (the
"Note"). The Note is secured by a general business security agreement and is
payable at $28,000 monthly through August 2000. Interest is also payable
monthly.
In 1996, the Company entered into a new line-of-credit agreement with a bank
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% (9.25% at December 31, 1996). At December 31, 1996, the
Company had borrowed the maximum available under its line-of-credit. In March
1997, the line-of-credit was renewed. The new line-of-credit agreement contains
revised covenants and required a shareholder to pledge 500,000 shares of the
Preferred Stock as collateral. In exchange for making this pledge, the Company
revised the conversion ratio of the Preferred Stock from .54 to 1 to 1 to 1.
The renewal term expires in April 1998. Thus, the line-of-credit is classified
as long term debt.
In November 1996, the Company refinanced its prior mortgage note with a bank.
The mortgage note is secured by the Company's primary manufacturing facility
and is payable at $16,000 monthly, plus interest at 9.75% through October 2001.
A final principal payment of $966,000 is due November 2001.
The Company must maintain certain financial ratios and other requirements under
the provisions of the Note and the line-of-credit. At December 31, 1996, the
Company was not in compliance with certain of these covenants. A waiver was
received from the lender covering all periods through May 31, 1997. While the
Company believes it will meet the revised covenants, it is possible it will not
meet the requirements of certain financial covenants. Should this occur, a
shareholder has agreed to contribute additional capital as appropriate to meet
the requirements of the covenants.
Annual principal payments required under long-term debt obligations are as
follows (000's):
<TABLE>
<S> <C>
1997 $530
1998 2,669
1999 530
2000 444
2001 1,124
Thereafter ---
------
$5,297
======
</TABLE>
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 year ended December 31, 1996 and the
four months ended December 31, 1995 follow (000's):
<TABLE>
<CAPTION>
Year Ended Four Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Service Cost $170 $54
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C> <C>
Interest cost on projected benefit
obligation 126 39
Actual return on assets (3) 0
---- ----
$293 $93
==== ====
</TABLE>
The pension liability recognized in the balance sheet at December 31, 1996
follows (000's):
Accumulated pension benefit obligation:
<TABLE>
<S> <C>
Vested $1,600
Non-vested 19
------
1,619
Value of future salary projections 787
------
Projected benefit obligation 2,406
Fair value of plan assets 56
------
Funded Status 2,350
Unrecognized prior service cost (379)
Unrecognized gain 62
------
Projected benefit obligation in excess of plan assets $2,033
======
</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: POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS
Generally, employees become eligible for postretirement 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.
Expense for post retirement benefits other than pensions for the year ended
December 31, 1996 and for the four months ended December 31, 1995 follows
(000's):
<TABLE>
<CAPTION>
Year Ended Four Months
December 31, Ended December
1996 31, 1995
------------ --------------
<S> <C> <C>
Service Cost $84 $28
Interest cost on accumulated benefit obligation 200 67
--- ---
$284 $95
==== ===
</TABLE>
The liability for post retirement benefit plans other than pensions recognized
in the balance sheet at December 31, 1996, follows (000's):
<TABLE>
<S> <C>
Accumulated post-retirement benefit
obligation:
Retirees $0
Fully eligible plan participants 2,281
Other active plan participants 852
------
Subtotal 3,133
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C>
Unrecognized net gain 105
------
$3,238
======
</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,
1996 and net post retirement health care cost for the year ended December 31,
1996 and the four month period ended December 31, 1995 by approximately
$617,000, $61,000 and $20,000, respectively. The discount rate used to
determine the accumulated post retirement benefit obligation at December 31,
1996 was 7.0%.
NOTE 7: INCOME TAXES
The provision for income taxes for the year ended December 31, 1996 and the
four months ended December 31, 1995 consists of the following (000's):
<TABLE>
<CAPTION>
Year Ended Four Months
December 31, Ended
1996 December 31,1995
------------- ----------------
<S> <C> <C>
Current -
U.S. Federal $ 233 $96
State 132 42
-------- -------
365 138
Deferred (263) (98)
-------- -------
Total Tax Provision $102 $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 in computing tax and book depreciation. Such
differences are recorded as deferred income taxes in the accompanying balance
sheet under the liability method. A valuation reserve has been established for
all Maxwell operating losses.
The effective tax rate reconciled to the statutory U.S. Federal Income Tax rate
for the twelve month period ended December 31, 1996 and the four month period
ended December 31, 1995 follows:
<TABLE>
<CAPTION>
Year Ended Four Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C>
U.S. Federal statutory rate (34.0%) (34.0%)
State Income Taxes 6.6 46.2
Losses of Maxwell not benefitted 28.4 54.5
Non-deductible interest 5.3 ---
Other 1.4 ---
------ -----
7.7% 66.7%
====== =====
</TABLE>
NOTE 8: STOCKHOLDERS' EQUITY
In connection with the acquisition of the Division, the Company issued a $4.5
million non-interest bearing note payable to EATON. The Company was required to
repay this note an amount equal to 18% of Dynamatic's
17
<PAGE> 18
annual earnings before interest and taxes. The present value of the liability,
discounted at 13%, was reflected in the financial statements at $3,000,000, at
October 31, 1996.
In November 1996, the Company and EATON amended the agreement pursuant to which
the Company purchased the Division assets from EATON (the "Amendment").
Pursuant to the Amendment, the Company was relieved of its obligation to make
payments on the $4.5 million note payable to EATON. In exchange, the Company
issued 750,000 shares of its Common Stock to EATON.
In connection with the acquisition of the 19% minority interest in Maxwell, the
Company recorded common stock and additional paid-in capital of $1,676,000.
This represents the fair value of the Company's Common Stock at the date of
issuance exchanged for the 19% interest in Maxwell.
In connection with the acquisition of the 81% of Maxwell that was owned by the
majority owner of the Company, the Company issued 500,000 shares of Preferred
Stock. The Preferred Stock is redeemable at the Company's option after January
2002 at $11 per share. In addition, as discussed in Note 4, the Preferred
Stock is convertible into 500,000 shares of Common Stock.
In connection with the acquisition of certain assets of Capital Idea, the
Company recorded additional paid-in capital of $1,058,000. The assets
contributed were various receivables from Maxwell.
NOTE 9: RELATED PARTY TRANSACTIONS
The Company has a consulting agreement with a company affiliated with a
director/shareholder. Effective January 1, 1996, the agreement requires
payments of $100,000 per year. The amount charged to expense for the twelve
months ended December 31, 1996 and the four months ended December 31, 1995 was
$100,000 and $67,000, respectively.
UDI was provided administrative services by a company affiliated with an
officer/director through August 31, 1996. In the twelve months ended December
31, 1996 and the four months ended December 31, 1995, the Company recorded
administrative expense of $127,000 and $62,000, respectively.
The Company expensed $156,000 and $32,000 for the year ended December 31, 1996
and the four months ended December 31, 1995, respectively for legal fees to a
firm having a member who is a director of the Company. In addition, the
Company paid the law firm a $12,500 fee for services rendered in connection
with the 1995 acquisition of the Division.
UDI paid a shareholder a fee of $125,000 for services rendered in connection
with the 1995 acquisition of the Division.
The Company sub-leases its Exton, Pennsylvania facility from a shareholder/
director. The amount paid by the Company is a pass-through payment to the
ultimate landlord. The amounts charged to expense for the twelve months ended
December 31, 1996 and for the four months ended December 31, 1995 were $92,400
and $30,800, respectively.
On December 31, 1996, the Company acquired 81% of Maxwell from a director/
shareholder in exchange for 500,000 shares of the Preferred Stock.
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 10: STOCK BASED COMPENSATION PLANS
In 1996, the Company established a stock option plan for certain employees and
directors (the "1996 Stock Option Plan") and an employee stock purchase plan
(the "Plan"). The Company accounts for these plans under APB Opinion No. 25,
pursuant to which no compensation cost has been recognized. Had compensation
cost for these plans been determined consistent with FASB Statement No. 123,
the Company's net loss and loss per share would have been as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1996
----------------------------
<S> <C>
Net Loss: As reported ($1,323,000)
Pro Forma ($1,987,000)
Primary loss per share: As reported ($0.18)
Pro Forma ($0.27)
</TABLE>
In 1996, the Company granted the maximum number of 1,100,000 options under the
1996 Stock Option Plan. Options granted under the 1996 Stock Option Plan
constituted both incentive stock options (within the meaning of section 422 A
of the Internal Revenue Code of 1986) and non-qualified stock options at
prices not less than fair market value at the date of grant. Option shares
become exercisable at various dates and expire five years from the date of the
grant. In 1996, the Company issued 154,538 shares of the Common Stock upon
exercise of a portion of the options, in exchange for accrued salaries and
fees totaling $502,250.
18
<PAGE> 19
In connection with the acquisition of UDI, the Company granted 300,000 options
to purchase the Common Stock to professional advisors.
The following table summarizes the activity related to the Company's stock
options:
<TABLE>
<CAPTION>
Options Option Price Range
------- ------------------
<S> <C> <C>
Balance, December 31, 1995 0
Granted 1,400,000 1.80-4.00
Exercised (154,538)
---------
Balance, December 31, 1996 1,245,462
=========
</TABLE>
The weighted average exercise price of the options outstanding at December 31,
1996 was $3.09.
In 1996, employees purchased 27,400 shares of Common Stock under the Plan at
$4.00 per share, during a subscription period which ended December 23, 1996.
The subscription period for employee purchases under the Plan is no longer
open.
NOTE 11: 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.
The Company leases various office equipment under noncancelable operating
leases. Future minimum lease payments are as follows (000's):
<TABLE>
<S> <C>
1997 $375
1998 314
1999 135
2000 111
2001 ---
----
$935
====
</TABLE>
Rental expense for the year ended December 31, 1996 and for the four months
ended December 31, 1995 totaled $403,000 and 158,000, respectively.
19
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of UNIDYNE Corporation:
We have audited the accompanying statement of revenues, expenses and changes in
division equity of the Eddy Current Division for the eight month period ending
August 31, 1995, and the related statement of cash flows for the eight 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 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 month period ending August 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
September 3, 1996.
20
<PAGE> 21
EDDY CURRENT DRIVES DIVISION
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN DIVISION EQUITY
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Eight Months
Ended
August 31, 1995
---------------
<S> <C>
Revenues $11,988
Expenses
Cost of products sold 7,764
Selling and administrative expense 3,219
Research and development expense 212
------
11,195
------
Revenues in excess of expenses 793
Net repayments of corporate advances (988)
Division Equity, beginning of period (5,150)
-------
Division Equity, end of period ($5,345)
========
</TABLE>
21
<PAGE> 22
EDDY CURRENT DRIVES DIVISION
STATEMENTS OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Eight months
Ended
August 31, 1995
---------------
<S> <C>
Cash flows from operating activities:
Revenues in excess of expenses $793
Adjustments to reconcile revenues in excess of expenses
to cash flows from operating activities:
Depreciation and amortization 457
Changes in -
Accounts receivable, net (12)
Inventories 243
Prepaid expenses and other assets (381)
Accounts payable 239
Accrued compensation (124)
Accrued expenses (32)
Other liabilities (325)
-----
Net cash provided by operating activities 858
---
Cash flows for investing activities:
Purchase of property, plant and equipment (192)
Proceeds from disposition of property, plant and equipment 240
---
Net cash provided by investing activities 48
--
Cash flows from financing activities:
Net repayments of corporate advances (988)
Net Inter-divisional advances 63
--
Net cash used for financing activities (925)
-----
Net decrease in cash (19)
Cash, beginning of period 42
--
Cash, end of period $23
===
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: 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.
The Company 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 $2,145,000 for the eight
months ended August 31, 1995. 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 the Company 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 principle to control motor drive 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
was $303,000.
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.
A credit was recorded, relative to pensions, for the eight months ended
August 31, 1995 of $57,000.
23
<PAGE> 24
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 copayments. 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 was $744,000.
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 the 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.
24
<PAGE> 25
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
On September 2, 1996, Registrant, acting upon the authorization of its Board of
Directors, selected Arthur Andersen L.L.P. as its principal independent
accountant to replace Jones, Jensen & Co. Except as described below, the
reports of Registrant's prior principal accountant for the two most recent
fiscal years did not contain an adverse opinion or disclaimer of opinion, or
modification as to uncertainty, audit scope, or accounting principles. The
reports related to periods before Registrant acquired its current business
operations and to periods in which Registrant was a development stage company.
Accordingly, the reports noted that Registrant was a development stage company
which had no significant operating results to the date of such reports and
stated that unless Registrant was able to obtain significant outside financing,
there existed substantial doubt of its ability to continue as a going concern.
There were no disagreements with Registrant's current or former principal
accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
PART III
25
<PAGE> 26
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The following individuals are the present directors and executive officers of
the Company. The term of office for each director is listed below. All
Directors have served since their election on September 2, 1996, except for John
Lison who was elected March 10, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION TERM
- ---- --- -------- (YEARS)
-------
<S> <C> <C> <C>
C. Eugene Hutcheson 54 Chief Executive Officer, Chairman of the Board Three
of Directors and President
Charlotte E. Doremus 53 Chief Administrative Officer, Secretary, Treasurer One
and Director
David M. Barrett, Esq. 59 Director Three
Dr. Frank B. Holze 58 Director Two
John M. Lison, Esq. 52 Director One
Timothy M. Flynn 41 Senior Vice President and Chief Financial Officer N/A
Delbert A. Warosh 59 President of Dynamatic N/A
David E. Ingram 40 Executive Vice President - Maxwell N/A
</TABLE>
C. EUGENE HUTCHESON has been Chief Executive Officer, Chairman of the Board
of Directors and President of the Company since September 2, 1996 and 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 and of Capital Idea, which he founded in
1989. Previously, he was the Chairman and President of CIDCO Group, Inc.,
which developed and patented products for the packaging and container industry.
CHARLOTTE E. DOREMUS has been Chief Administrative Officer, Secretary,
Treasurer and Director of the Company since September 2, 1996 and of UDI and
Kenosha Corporation since its inception in 1995. Ms. Doremus 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. 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 has been appointed Independent Counsel for an
investigation of a Cabinet Member of the President of the United States.
DR. FRANK B. HOLZE 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.
JOHN M. LISON, Esq., is founder and managing partner of Chicago-based law firm,
Lison and Griffin, P.C. where he oversees the firm's finance, government
relations, acquisitions and re-structuring processes.
26
<PAGE> 27
Lison formerly served as Vice President, Secretary, and General Counsel for
Atcor, Inc., a manufacturing company. Prior to that, Lison was Vice President,
Legal for Heizer Corporation.
TIMOTHY M. FLYNN has been Senior Vice President and Chief Financial Officer
of the Company since September 2, 1996 and of UDI since May 1996. Prior to
joining UDI in May 1996, Mr. Flynn was responsible for the Credit and
Administration functions for North, Central and South America at Konica
Business Machines USA, Inc.
DELBERT A. WAROSH has been President of Dynamatic since June 1996. Mr.
Warosh has held various management positions at Dynamatic over the past 30
years. Prior to his appointment as President, Mr. Warosh was the Plant General
Manager.
DAVID E. INGRAM has been Executive Vice President of Maxwell since March 1996.
Mr. Ingram is responsible for sales, marketing and operations. Prior to joining
Maxwell, Mr. Ingram held various sales and marketing positions with Aloha
Leasing and Sanwa Leasing Company.
ITEM 10. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation paid or accrued by the Company to or on behalf of its Chief
Executive Officer and other named executive officers of the Company for
services rendered in all capacities to the Company and its subsidiaries for the
year ended December 31, 1996 and the four months ended December 31, 1995.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE (1)
- --------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARD PAYOUTS
------------------- ------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
NAME AND OTHER RESTRICTED
PRINCIPAL ANNUAL STOCK OPTIONS/ ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS LTIP PAYOUTS COMPENSATION
- -------- ---- ------- ----- ------------ ------ ---- ------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. Eugene Hutcheson 1996 $234,000 --- --- --- 212,500 --- ---
Chief Executive Officer, ---------------------------------------------------------------------------------------------------
Chairman of the Board 1995 128,000 --- (2) --- --- --- ---
of Directors, President and
Director
- --------------------------------------------------------------------------------------------------------------------------------
Charlotte E. Doremus 1996 204,000 --- --- --- 212,500 --- ---
Chief Administrative Officer --------------------------------------------------------------------------------------------------
Secretary, Treasurer and 1995 68,000 --- --- --- --- --- ---
Director
- --------------------------------------------------------------------------------------------------------------------------------
Dr. Frank B. Holze - 1996 --- --- (3) --- 31,000 --- ---
Director --------------------------------------------------------------------------------------------------
1995 --- --- (3) --- --- --- ---
- --------------------------------------------------------------------------------------------------------------------------------
David M. Barrett, Esq. 1996 --- --- (4) --- 241,000 --- ---
Director --------------------------------------------------------------------------------------------------
1995 --- --- (4) --- --- --- ---
- --------------------------------------------------------------------------------------------------------------------------------
Timothy M. Flynn - 1996 48,000 --- --- --- 3,000 --- ---
Chief Financial Officer --------------------------------------------------------------------------------------------------
and Senior Vice President 1995 --- --- --- --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Delbert A. Warosh 1996 114,000 --- --- --- --- --- ---
President-Dynamatic ---------------------------------------------------------------------------------------------------
1995 33,000 --- --- --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
David E. Ingram - 1996 63,000 --- --- --- --- --- ---
Executive Vice President ---------------------------------------------------------------------------------------------------
- - Maxwell 1995 --- --- --- --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The compensation information for 1995 is for the period from inception
(September 1, 1995) to December 31, 1995.
(2) Excludes a fee of $125,000 for services rendered in connection with
the acquisition of the Division.
(3) Excludes consulting fees for the year ended December 31, 1996 and the
four months ended December 31, 1995 of 100,000 and $67,000,
respectively.
(4) Excludes legal fees to Barrett and Schuler for the year ended December
31, 1996 and the four months ended December 31, 1995 of $156,000 and
$44,500, respectively.
Directors of the Company did not receive any compensation for services rendered
in such capacity for the year ended December 31, 1996 and the four months ended
December 31, 1995.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
OPTIONS/ SAR GRANTS IN LAST FISCAL YEAR
---------------------------------------
- ----------------------------------------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN PRICE PER EXPIRATION
NAME OPTIONS FISCAL YEAR SHARE DATE
---- ------- ----------- ----- ----
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
C. Eugene Hutcheson 212,500 31% 3.25 September 2, 2001
- ----------------------------------------------------------------------------------------------------------------
Charlotte E. Doremus 212,500 31% 3.25 September 2, 2001
- ----------------------------------------------------------------------------------------------------------------
Dr. Frank B. Holze 31,000 4% 3.25 September 2, 2001
- ----------------------------------------------------------------------------------------------------------------
David M. Barrett 241,000 34% 3.25 September 2. 2001
- ----------------------------------------------------------------------------------------------------------------
Timothy M. Flynn 3,000 less than 1% 3.25 September 2, 2001
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following persons are known by Registrant to be the beneficial owners of
more than five percent of Registrant's Common Stock as of December 31, 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 49%
118 Pickering Way, Suite 104
Exton, PA 19341
C. Eugene Hutcheson 5,086,360(2) 54%
UNIDYNE Corporation
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C> <C>
118 Pickering Way, Suite 104
Exton, PA 19341
Charlotte E. Doremus 5,086,360(3) 54%
UNIDYNE Corporation
118 Pickering Way, Suite 104
Exton, PA 19341
David M. Barrett 964,866(4) 10%
1000 Thomas Jefferson St., NW
Suite 305
Washington, D.C. 20007
Frank B. Holze 1,219,805(5) 13%
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, 4,603,860 shares owned by
Capital Idea, of which Mr. Hutcheson is Chairman of the Board of Directors and
Chief Executive Officer and a 50% shareholder, and 270,000 shares which Capital
Idea has the right to acquire upon conversion of the Company's Class A
Convertible Preferred Stock (the "Preferred Stock").
(3) Includes 187,885 shares which Ms. Doremus has the right to acquire
within sixty days through the exercise of options, 4,603,860 shares owned by
Capital Idea, of which Ms. Doremus is a director, Secretary and Treasurer, and
a 50% shareholder, and 270,000 shares which Capital Idea has the right to
acquire upon conversion of the Preferred Stock.
(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.
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 as of December 31, 1996.
<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 5,086,360(2) 54%
Board of Directors,
Chief Executive
Officer and President
----------------------------------------------------------------------------------------
Timothy M. Flynn Senior Vice President and 8,000(3) less than 1%
Chief Financial Officer
----------------------------------------------------------------------------------------
David M. Barrett Director 964,866(4) 10%
----------------------------------------------------------------------------------------
Frank B. Holze Director 1,219,805(5) 13%
----------------------------------------------------------------------------------------
Charlotte E. Doremus Chief Administrative 5,086,360(6) 54%
Officer,
Secretary, Treasurer
and a Director
----------------------------------------------------------------------------------------
Delbert A. Warosh President of 3,000 less than 1%
Dynamatic
----------------------------------------------------------------------------------------
Directors and executive
officers as a group 7,282,031 77%
----------------------------------------------------------------------------------------
</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, 4,603,860 shares owned by
Capital Idea, of which Mr. Hutcheson is Chairman of the Board of Directors and
Chief Executive Officer and a 50% shareholder, and 270,000 shares which
Capital Idea has the right to acquire upon conversion of the Preferred Stock.
(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.
29
<PAGE> 30
(6) Includes 187,885 shares which Ms. Doremus has the right to acquire
within sixty days through the exercise of options, 4,603,860 shares owned by
Capital Idea, of which Ms. Doremus is a director, Secretary and Treasurer, and
a 50% shareholder, and 270,000 shares which Capital Idea has the right to
acquire upon conversion of the Preferred Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was provided administrative services by Capital Idea through August
31, 1996. In the twelve months ended December 31, 1996 and the four months
ended December 31, 1995, the Company recorded administrative expense of
$127,000 and $62,000, respectively.
The Company was provided legal services by the firm Barrett and Schuler. David
M. Barrett, Esq., a director of the Company, is a partner in the firm. The
Company paid or accrued $156,000 and $44,500 for the year ended December 31,
1996 and for the four months ended December 31, 1995, respectively.
The Company has a consulting agreement with Dr. Frank B. Holze, a director of
the Company. Effective January 1, 1996, the agreement was changed to reflect
fees at $100,000 per year. The amount charged to expense for the twelve months
ended December 31, 1996 and for the four months ended December 31, 1995 was
$100,000 and $67,000, respectively.
The Company paid C. Eugene Hutcheson a fee of $125,000 for services rendered in
connection with the acquisition of the Division.
The Company sub-leases its Exton, Pennsylvania facility from Capital Idea. The
amount paid by the Company equals the amount paid by Capital Idea to the
landlord. The amounts charged to expense for the twelve months ended December
31, 1996 and the four months ended December 31, 1995 were $92,400 and $30,800,
respectively.
On December 31, 1996, the Company acquired 81% of Maxwell from Capital Idea
for 500,000 shares of Preferred Stock. The Preferred Stock was entitled to
receive dividends in the amount of 7% of the liquidation preference of $10.
The Preferred Stock is redeemable by the Company on or after January 1, 2002 at
the redemption price of $11 per share and was convertible to Common Stock at
the rate of .54 of a share of Common Stock for each share of Preferred Stock.
In March 1997, Capital Idea agreed to pledge the Preferred Stock as collateral
for a loan to the Company. In exchange, the Company amended the terms of the
Preferred Stock to provide that it is convertible into Common Stock at the rate
of one share of Common Stock for each share of Preferred Stock and that the
Preferred Stock will have the same voting rights as Common Stock.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibit No. Description
----------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company.*
3.2 Amended and Restated Bylaws of the Company.*
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 Amended 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.*
16.1 Letter of Jones, Jensen & Co.*
19.1 Section 14(c) Information Statement, dated August 12, 1996.*
19.2 Form 8-K, dated September 13, 1996.*
19.3 Form 8-K/A, dated September 17, 1996.*
19.4 Form 8-K dated January 15, 1997.*
19.5 Form 8-K/A dated March 31, 1997.*
27.1 Financial Data Schedule.**
</TABLE>
- -------------------
* Filed previously and incorporated herein by reference.
** Filed herewith.
(b) The Company filed a Report on Form 8-K on June 7, 1996. Item 5
of such Form 8-K reported on the Company's execution of
agreements to purchase all of the issued and outstanding
Common Stock of UDI and certain other assets.
(c) The Company filed a Report on Form 8-K on September 9, 1996.
Item 4 of such Form 8-K reported on the Change in Registrant's
Certifying Accountants. Item 5 of such Form 8-K reported on
the Company's amendment of its Certificate of Incorporation
and By-laws. The Company filed a Report on Form 8-K/A on
September 17, 1996 amending the Form 8-K.
(d) The Company filed a Report on Form 8-K on September 13, 1996.
Item 1 of such Form 8-K reported on the Changes in Control of
Registrant. Item 2 of such Form 8-K reported on the
Acquisition or Disposition of Assets. The Company filed a
Report on Form 8-K/A on November 14, 1996 providing financial
information relating to the Assets acquired.
(e) The Company filed a Report on Form 8-K on January 15, 1997.
Item 2 of such Form 8-K reported on the Company's acquisition
of the common stock of Maxwell Dynamometer Systems, Inc. which
it did not previously own. The Company filed a Report on Form
8-K/A on March 31, 1997 providing financial information
relating to the Assets acquired.
30
<PAGE> 31
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: March 31, 1997 /s/ C. Eugene Hutcheson
-----------------------------------
C. Eugene Hutcheson, Chairman,
Chief Executive Officer and President
Pursuant to the requirements of the Securities and 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: March 31, 1997 /s/ C. Eugene Hutcheson
----------------------------------------
C. Eugene Hutcheson, Chairman, Chief
Executive Officer and President
Date: March 31, 1997 /s/ Timothy M. Flynn
----------------------------------------
Timothy M. Flynn, Senior Vice President and Chief
Financial Officer
31
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 46
<SECURITIES> 0
<RECEIVABLES> 1,810
<ALLOWANCES> 11
<INVENTORY> 3,583
<CURRENT-ASSETS> 5,621
<PP&E> 10,626
<DEPRECIATION> 1,711
<TOTAL-ASSETS> 17,237
<CURRENT-LIABILITIES> 4,544
<BONDS> 4,767
0
5,000
<COMMON> 9
<OTHER-SE> (2,354)
<TOTAL-LIABILITY-AND-EQUITY> 17,237
<SALES> 16,605
<TOTAL-REVENUES> 16,605
<CGS> 10,504
<TOTAL-COSTS> 10,504
<OTHER-EXPENSES> 6,308
<LOSS-PROVISION> (13)
<INTEREST-EXPENSE> 1,027
<INCOME-PRETAX> (1,221)
<INCOME-TAX> 102
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,323)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> 0
</TABLE>
