<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20594
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934
September 30, 1997
(Date of earliest event reported)
UNIDYNE CORPORATION
(Exact name of small business issuer
as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE
(State or other jurisdiction 0-10372 23-2154902
of incorporation or organization) (Commission File No.) (IRS Employer Identification No.)
</TABLE>
118 PICKERING WAY, SUITE 104, EXTON, PENNSYLVANIA 19341
(Address of principal executive offices)
(610) 363-8237
(Issuer's telephone number)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 30, 1997, Registrant acquired all of the issued and
outstanding shares of the common stock of Sabina Industries, Incorporated, a
California corporation ("Sabina") in exchange for 500,000 newly issued shares
of Registrant's common stock, $.001 par value.
Sabina manufactures and sells DC electric motors, drives and controls to
industrial customers in the automotive, materials handling, plastic, printing,
textile and wire and cable industries. Sabina employs approximately 90 people
at facilities in Anaheim, California.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
A. Financial Statements of Businesses Acquired.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Sabina Industries, Incorporated
Anaheim, California
We have audited the accompanying balance sheets of Sabina Industries,
Incorporated as of March 31, 1997 and 1996, and the related statements of
income, stockholder's equity and cash flows for the years 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 financial position of Sabina Industries, Incorporated
as of March 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
MCGLADREY & PULLEN, LLP
/s/ MCGLADREY & PULLEN, LLP
Anaheim, California
December 8, 1997
1
<PAGE> 3
SABINA INDUSTRIES, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) Year Ended March 31,
September 30, --------------------------------------
ASSETS (NOTE 4) 1997 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Assets
Cash (Note 7) $ 217,903 $ 272,254 $ 99,004
Trade receivables, net of allowance for doubtful
accounts; September 30, 1997 $79,621;
March 31, 1997 $20,000; March 31, 1996
$13,000 2,008,809 1,411,140 1,409,311
Inventories (Note 2) 2,421,186 2,446,315 2,588,270
Prepaid expenses 87,607 21,530 22,859
Deferred income taxes (Note 6) 66,500 72,900 61,900
----------------------------------------------------
TOTAL CURRENT ASSETS 4,802,005 4,224,139 4,181,344
----------------------------------------------------
Equipment and Leasehold Improvements
Vehicles 221,371 245,794 189,516
Machinery and equipment 192,427 188,238 177,474
Office furniture equipment and fixtures 197,382 195,215 132,666
Leasehold improvements 79,767 76,052 76,052
-----------------------------------------------------
690,947 705,299 575,708
Less accumulated depreciation 468,266 455,732 444,412
-----------------------------------------------------
222,681 249,567 131,296
-----------------------------------------------------
$ 5,024,686 $ 4,473,706 $ 4,312,640
=====================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
- ----------------------------------------------------------------------------------------------------------------------
Current Liabilities
Bank lines of credit (Note 4) $ 620,000 $ 500,000 $ 368,911
Current portion, long-term debt (Note 4) 58,110 21,102 2,227
Accounts payable 845,318 706,221 932,449
Accrued compensation 297,691 270,955 234,483
Accrued profit sharing contribution payable (Note 5) 148,000 100,000 30,000
Income taxes payable 36,600 35,000 26,283
Customer deposits 147,975 24,417 104,913
-----------------------------------------------------
TOTAL CURRENT LIABILITIES 2,153,694 1,657,695 1,699,266
-----------------------------------------------------
Long-Term Debt, net of current portion (Note 4) - 46,834 7,077
-----------------------------------------------------
Commitments (Note 3)
Stockholder's Equity
Common stock, $.01 par value; 10,000,000
shares authorized, 4,400,000 shares issued
and outstanding 44,000 44,000 44,000
Additional paid-in capital 367 367 367
Retained earnings 2,826,525 2,724,810 2,561,930
-----------------------------------------------------
2,870,892 2,769,177 2,606,297
-----------------------------------------------------
$ 5,024,586 $ 4,473,706 $ 4,312,640
=====================================================
</TABLE>
See Notes to Financial Statements.
2
<PAGE> 4
SABINA INDUSTRIES, INCORPORATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
September 30, Year Ended March 31,
-------------------------------------------------------------------
1997 1996 1997 1996
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 5,582,675 $ 5,592,757 $ 10,787,480 $ 8,392,612
Cost of Sales 4,025,701 4,026,453 7,990,538 6,114,357
-------------------------------------------------------------------
GROSS PROFIT 1,556,974 1,566,304 2,796,942 2,278,255
-------------------------------------------------------------------
Operating Expenses
Selling and marketing expenses 813,104 799,018 1,576,792 1,456,747
General and administrative
expenses (Notes 3 and 5) 538,852 523,326 930,741 658,093
-------------------------------------------------------------------
1,351,956 1,322,344 2,507,533 2,114,840
-------------------------------------------------------------------
OPERATING INCOME 205,018 243,960 289,409 163,415
Financial Expense, interest 31,492 24,075 58,931 29,451
-------------------------------------------------------------------
INCOME BEFORE TAXES 173,526 219,885 230,478 133,964
Federal and State Income
Taxes (Note 6) 71,811 66,000 67,598 38,173
-------------------------------------------------------------------
NET INCOME $ 101,715 $ 153,885 $ 162,880 $ 95,791
===================================================================
Earnings per share $ .02 $ .03 $ .04 $ .02
===================================================================
Weighted average common stock
shares outstanding 4,400,000 4,400,000 4,400,000 4,400,000
===================================================================
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 5
SABINA INDUSTRIES, INCORPORATED
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------- Paid-In Retained Stockholder's
Shares Amount Capital Earnings Equity
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1995 4,400,000 $ 44,000 $ 367 $ 2,466,139 $ 2,510,506
Net income - - - 95,791 95,791
--------------------------------------------------------------------------
Balance at March 31, 1996 4,400,000 44,000 367 2,561,930 2,606,297
Net income - - - 162,880 162,880
--------------------------------------------------------------------------
Balance at March 31, 1997 4,400,000 44,000 367 2,724,810 2,769,177
Net income (unaudited) - - - 101,715 101,715
--------------------------------------------------------------------------
Balance at September 30,
1997 (unaudited) 4,400,000 $ 44,000 $ 367 $ 2,826,525 $ 2,870,892
==========================================================================
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 6
SABINA INDUSTRIES, INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
September 30, Year Ending March 31,
------------------------------------------------------
1997 1996 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 101,715 $ 153,885 $ 162,880 $ 95,791
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 30,275 21,957 43,974 38,539
Provision for deferred income taxes 6,400 - (11,000) (2,400)
Provision for doubtful accounts 112,474 (686) 33,202 78,400
Changes in operating assets and
liabilities:
(Increase) decrease in:
Trade receivables (710,143) (803,925) (35,031) (173,337)
Income taxes receivable - - - 78,890
Inventories 25,129 7,539 141,955 (688,111)
Prepaid expenses (66,077) (11,532) 1,329 (1,366)
Increase (decrease) in:
Accounts payable 139,097 52,013 (226,228) 450,527
Accrued expenses 74,736 239,662 106,472 35,194
Income taxes payable 1,600 45,500 8,717 26,283
Customer deposits 123,558 18,146 (80,496) 104,913
------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (161,236) (277,441) 145,774 43,323
------------------------------------------------------
Cash Flows from Investing Activities,
purchase of equipment (3,391) (69,685) (162,245) (46,681)
------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from lines of credit and note
payable 170,000 366,235 624,839 2,168,851
Payments on lines of credit and note
payable (59,724) (69,591) (435,118) (2,139,197)
------------------------------------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 110,276 296,644 189,721 29,654
------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (54,351) 12,518 173,250 26,296
Cash, beginning of the period 272,254 99,004 99,004 72,708
------------------------------------------------------
Cash, end of the period $ 217,903 $ 111,522 $ 272,254 $ 99,004
======================================================
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 7
SABINA INDUSTRIES, INCORPORATED
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
September 30, Year Ending March 31,
------------------------------------------------
1997 1996 1997 1996
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Supplemental Disclosures of Cash
Flow Information
Cash payments for:
Interest $ 31,492 $ 20,400 $ 62,606 $ 25,775
================================================
Income taxes (refunds) $ 63,811 $ 70,000 $ 69,881 $ (64,600)
================================================
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 8
SABINA INDUSTRIES, INCORPORATED
NOTES TO FINANCIAL STATEMENT
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The Company is a producer of direct current motor drives as well as a
distributor of electric motors and accessories. It provides products to the
national marketplace from its locations in California and Pennsylvania on credit
terms established for each customer.
A SUMMARY OF THE SIGNIFICANT ACCOUNTING POLICIES ARE AS FOLLOWS:
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Equipment and leasehold improvements:
Equipment and leasehold improvements are stated at cost. Depreciation is
computed primarily using the straight-line method over the estimated useful
lives of the related assets or lease term, if shorter, for leasehold
improvements. The estimated lives of the depreciable assets range from four to
ten years.
Income taxes:
Deferred income taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards and deferred tax liabilities are recognized for
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Earnings per share:
Earnings per share is computed using the weighted average number of common
shares outstanding during the periods presented. There are no common equivalent
shares outstanding during the periods presented.
7
<PAGE> 9
SABINA INDUSTRIES, INCORPORATED
NOTES TO FINANCIAL STATEMENT
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value of financial instruments:
Financial Accounting Standards Board (FASB) Statement No. 107, "Disclosure about
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value or other
valuation market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. Statement No.
107 excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash:
The carrying amount approximates fair value because of the short
maturity of the instruments.
Lines of credit and long-term debt:
The fair value of the Company's line of credit and long-term debt, which
approximate carrying values, are estimated based on the current rates
offered to the Company for debt with the same remaining maturities with
similar collateral requirements. For variable rate instruments, the fair
value approximates the carrying value as the maturity date for those
instruments is short term.
Interim financial information (unaudited):
The financial statements at September 30, 1997 and for the six month periods
ended September 30, 1996 and 1997 include all adjustments (consisting of normal
recurring adjustments) which management considers necessary for a fair statement
of the financial position at such dates and the operating results and cash flows
for those periods, however, it does not include all disclosures required for
fair presentation. Results for interim periods are not necessarily indicative of
results for the entire year or any future periods.
8
<PAGE> 10
SABINA INDUSTRIES, INCORPORATED
NOTES TO FINANCIAL STATEMENT
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New accounting pronouncements:
The Financial Accounting Standard Board (FASB) has issued Statement No. 128,
"Earnings Per Share", which supersedes APB Opinion No. 15. Statement No. 128
requires the presentation of earnings per share by all entities that have common
stock or potential common stock, such as options, warrants and convertible
securities outstanding that trade in a public market. Those entities that have
only common stock outstanding are required to present basic earnings per share
amounts. Diluted per share amounts assume the conversion, exercise or issuance
of all potential common stock instruments unless the effect is to reduce a loss
or increase the income per common share from continuing operations. All entities
required to present per share amounts must initially apply Statement No. 128 for
annual and interim periods ending after December 15, 1997. Earlier application
is not permitted. The adoption of Statement No. 128 would have no effect on 1997
reported income per share.
The FASB has also issued Statement No. 131 "Disclosure about Segments of an
Enterprise and Related Information". Statement No. 131 modifies the disclosure
requirements for reportable segments and is effective for the Company's year
ending June 30, 1999. The Company has not determined the effect of the adoption
of this Statement would have on the Company's reported segments.
Note 2. INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market. The
composition of the inventories is as follows:
<TABLE>
<CAPTION>
(Unaudited)
September 30, March 31,
-------------------------------------------
1997 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C>
Raw material $ 2,130,644 $ 2,143,886 $ 1,811,230
Work-in-process 72,636 87,338 237,450
Finished goods 217,906 215,091 539,590
-------------------------------------------
$ 2,421,186 $ 2,446,315 $ 2,588,270
===========================================
</TABLE>
9
<PAGE> 11
SABINA INDUSTRIES, INCORPORATED
NOTES TO FINANCIAL STATEMENT
- --------------------------------------------------------------------------------
NOTE 3. OPERATING LEASES AND RELATED PARTY TRANSACTIONS
The Company leases its Anaheim, California plant facilities under leases
expiring between July and October 1997. The leases provide that the lessee pay
all property taxes, insurance, and maintenance plus a monthly base rental of
$29,455. The Company also leases a facility in Hazelton, Pennsylvania under a
lease expiring May 31, 1998. The lease provides that the lessee pay a monthly
rent of $2,185. Subsequent to March 31, 1997, the Anaheim facilities leases were
extended to expire between July and October, 2002. These leases have provisions
for annual increases of $.02 per square foot leased. The total minimum rental
commitment at March 31, 1997, including the lease extensions, is $2,040,957
which is due as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------------------------------------
<S> <C>
1998 $ 359,909
1999 360,486
2000 370,153
2001 382,991
2002 395,829
2003 171,589
-------------
$ 2,040,957
=============
</TABLE>
The total rental expense included in the income statement for the years ended
March 31, 1997 and 1996 is $329,657 and $243,230, respectively. Additionally,
rent expense for the six month periods ended September 30, 1997 and 1996 were
$174,240 (unaudited) and $152,138 (unaudited), respectively.
The Anaheim, California facilities mentioned above are leased from the sole
stockholder. The rent expense included in the income statements for the years
ended March 31, 1997 and 1996 for these properties were $310,637 and $231,735,
respectively. Additionally, rent expense to the sole stockholder for the six
month periods ended September 30, 1997 and 1996 were $164,730 (unaudited) and
$148,568 (unaudited), respectively.
Bonuses paid to related parties under a discretionary bonus plan were $117,500
and $-0- for the years ended March 31, 1997 and 1996, respectively.
Additionally, bonuses to related parties under this plan for the six months
ended September 30, 1997 and 1996 were $-0- (unaudited) and $117,500
(unaudited), respectively.
10
<PAGE> 12
SABINA INDUSTRIES, INCORPORATED
NOTES TO FINANCIAL STATEMENT
- --------------------------------------------------------------------------------
NOTE 4. PLEDGED ASSETS, BANK LINES OF CREDIT, LONG-TERM DEBT AND FAIR
VALUE DISCLOSURE
A summary of the Company's bank line of credit and long-term debt, and
collateral pledged thereon, consisted of the following:
Bank lines of credit:
<TABLE>
<CAPTION>
(Unaudited)
September 30, March 31,
---------------------------------------
1997 1997 1996
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California United Bank, line of credit, not to exceed the lessor of
$1,250,000 or 75% of eligible accounts receivables, due on demand or,
if no demand, August 3, 1998, secured by accounts receivable,
inventories and all business equipment, guaranteed by Lester and
Katherine Tjelmeland, as individuals and the Tjelmeland Family Trust as
the sole stockholder. Interest is due in monthly installments at .5%
over the Wall Street Journal prime rate
(8.5% at March 31, 1997). $ 620,000 $ 500,000 $ 352,466
California United Bank, line of credit, not to exceed $50,000, due on
demand or, if no demand, August 4, 1997, secured by certain business
equipment, guaranteed by Lester and Katherine Tjelmeland, as
individuals and the Tjelmeland Family Trust as the sole stockholder.
Interest is due in monthly installments at 1.25%
over the Wall Street Journal prime rate. - - 16,445
-------------------------------------
$ 620,000 $ 500,000 $ 368,911
=====================================
</TABLE>
Long-term debt:
<TABLE>
<CAPTION>
(Unaudited)
September 30, March 31,
------------------------------------
1997 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Notes payable, banks, due in monthly installments ranging from $251,
including interest ranging from 9.5% to 1.25% over the Wall Street
Journal prime rate collateralized by certain vehicles
maturing from November 1997 to November 2000. $ 58,210 $ 67,936 $ 9,304
Less current maturities 58,210 21,102 2,227
-----------------------------------
$ - $ 46,834 $ 7,077
===================================
</TABLE>
11
<PAGE> 13
SABINA INDUSTRIES, INCORPORATED
NOTES TO FINANCIAL STATEMENT
- --------------------------------------------------------------------------------
NOTE 4. PLEDGED ASSETS, BANK LINES OF CREDIT, LONG-TERM DEBT AND FAIR
VALUE DISCLOSURE (CONTINUED)
The long-term debt and line of credit agreements contain various covenants,
including meeting certain financial ratio expectations, limitations on loans and
advances from the Company and limitations on the purchase of property and
equipment. Written waiver for the capital expenditure violation was obtained for
the year ended March 31, 1997, however, the Company has not received a written
waiver at September 30, 1997, regarding the default resulting from the change in
ownership of the Company, as described in Note 8. Due to this default, the
balance of the note payable at September 30, 1997 is classified as currently
due.
Provided payments are not accelerated due to the default noted above, aggregate
maturities of long-term debt at March 31, 1997, are due in future years as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1998 $ 21,102
1999 19,240
2000 18,867
2001 8,727
-----------
$ 67,936
===========
</TABLE>
NOTE 5. PROFIT SHARING PLAN
The Company has a profit sharing plan which covers substantially all full-time
employees and requires contributions each year of not less than 5% of the
Company's income before profit sharing plan contributions and taxes on income.
The Company can terminate the plan at any time. Contributions to the plan were
$100,000 and $30,000 for the years ended March 31, 1997 and 1996, respectively.
Additionally, contributions to the plan for the six month periods ended
September 30, 1997 and 1996 were $48,000 (unaudited) and $100,000 (unaudited),
respectively.
12
<PAGE> 14
SABINA INDUSTRIES, INCORPORATED
NOTES TO FINANCIAL STATEMENT
- --------------------------------------------------------------------------------
NOTE 6. FEDERAL AND STATE INCOME TAXES
The provision for federal and state income taxes consist of the following:
<TABLE>
<CAPTION>
March 31,
-------------------------
1997 1996
----------------------------------------------------------------------------------
<S> <C> <C>
Current
Federal tax $ 66,308 $ 39,773
State taxes 12,290 800
------------------------
TOTAL CURRENT INCOME TAXES 78,598 40,573
------------------------
Deferred
Federal 5,400 (1,600)
State (16,400) (800)
------------------------
TOTAL DEFERRED TAXES (11,000) (2,400)
------------------------
$ 67,598 $ 38,173
========================
</TABLE>
The Company's total deferred tax current assets at March 31, 1997 and 1996
consists of the following components:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Allowance for doubtful accounts $ 8,000 $ 4,000
Inventory 22,900 27,000
Accrued compensated absences 42,000 50,000
Net operating loss carryforwards - 12,000
------------------------
72,900 93,000
Less valuation allowance - 31,100
------------------------
$ 72,900 $ 61,900
========================
</TABLE>
The provision for income taxes for the years ended March 31, 1997 and 1996
differs from the amount obtained by applying the U.S. federal income tax rate to
pretax income due to the following:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Federal income tax computed at the statutory rate $ 80,700 $ 46,900
State income tax, net of federal benefit 13,800 800
Change in valuation allowance (31,100) (13,800)
Other 4,198 4,273
------------------------
$ 67,598 $ 38,173
========================
</TABLE>
13
<PAGE> 15
SABINA INDUSTRIES, INCORPORATED
NOTES TO FINANCIAL STATEMENT
- --------------------------------------------------------------------------------
NOTE 7. MAJOR CUSTOMER AND CONCENTRATIONS
The Company has concentrations of sales to the ski lift and exercise equipment
industries.
Revenues for the years ended March 31, 1997 and 1996 include sales to customers
that individually account for more than 10% of the Company's total revenue.
Revenue from these customers for the years ended March 31, 1997 and 1996 and
accounts receivable as of March 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
------------------------------------------------------------------
Receivable Receivable
Customer Revenue Balance Revenue Balance
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Customer A $ 1,175,000 $ 27,000 $ 1,519,000 $ 400
Customer B * * 2,207,000 72,000
Customer C * * 881,000 21,000
</TABLE>
* Sales to this customer was under 10% of sales reported on the Company's
statement of income.
NOTE 8. CONCENTRATION OF CREDIT RISK
At March 31, 1997 and September 30, 1997, the Company has approximately $372,000
and $397,000 (unaudited), respectively, of operating funds in a financial
institution in excess of the FDIC insured amount of $100,000 per financial
institution.
NOTE 9. SUBSEQUENT EVENT MERGER
On September 30, 1997, the Company entered into a merger agreement with UNIDYNE
Corporation, a publicly traded company. The stockholder of the Company will
exchange all of the issued and outstanding shares of the Company for 500,000
shares of Unidyne Corp. No adjustments have been made to these financial
statements to affect this acquisition price nor any other "push down"
adjustments.
14
<PAGE> 16
B. Pro Forma Financial Information.
On September 30, 1997, Registrant acquired all of the issued and
outstanding shares of common stock of Sabina Industries, Incorporated
("Sabina"). The purchase price was paid through the exchange of 500,000
shares of the Company's common stock, par value $.001 per share, for all
the issued and outstanding shares of Sabina. The acquisition was accounted
for using the purchase method of accounting.
The pro forma financial information is presented for the year ended
December 31, 1996 and nine-months ended September, 30, 1997 and presents
the acquisition of Sabina as if it occurred on January 1, 1996. A pro
forma balance sheet is not presented, as the historical balance sheet
included in the Company's quarterly report for the period ended September
30, 1997 includes the assets and liabilities of Sabina that were acquired.
UNIDYNE CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Statements of Income
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1996
Historical Adjustments (1) Pro forma
---------- ----------- ---------
<S> <C> <C> <C>
Sales $16,605 $10,787 $27,392
Cost of Sales 10,504 8,311 18,815
--------- -------- ----------
Gross income 6,101 2,476 8,577
Selling and administrative expense 5,794 2,508 8,302
Research and development expense 501 35 536
--------- -------- ----------
Income (loss) from operations (194) (67) (261)
Interest expense 1,027 59 1,086
--------- -------- ----------
Income (loss) before taxes (1,221) (126) (1,347)
Income taxes 102 (45) 57
--------- -------- ----------
Net income (loss) $ (1,323) $ (81) $ (1,404)
========= ======== ==========
Loss Per Share $ (0.18)
==========
Weighted average number of 7,943,922
common stock and common ==========
stock equivalents
</TABLE>
(1) Represents the historical results of operations of Sabina for the
year-ended March 31, 1997. Certain reclassifications were made to conform
to Unidyne Corporation's presentation. Sabina's historical financial
statements have been adjusted to include additional depreciation of $355
based on the preliminary purchase price allocation.
<PAGE> 17
<TABLE>
<CAPTION>
Nine months ended September 30,1997
Historical Adjustments (1) Pro forma
---------- ----------- ---------
<S> <C> <C> <C>
Sales $ 13,071 $ 7,536 $ 20,607
Cost of Sales 9,028 5,596 14,624
-------- -------- --------
Gross income 4,043 1,940 5,983
Selling and administrative expense 4,227 2,337 6,564
Research and development expense 376 -- 376
-------- -------- --------
Income from operations (560) (397) (957)
Interest expense 402 34 436
-------- -------- --------
Income (loss) before taxes (962) (431) (1,393)
Income taxes (345) (155) (500)
-------- -------- --------
Net income (loss) $ (617) $ (276) $ (893)
======== ======== ========
Loss Per Share $ (0.13)
========
Weighted average number of 9,126,737
common stock and common =========
stock equivalents
</TABLE>
(1) Represents the historical results of operations of Sabina for the nine
months ended September 30, 1997. Certain reclassifications were made to
conform to Unidyne Corporation's presentation. Sabina's historical
financial statements have been adusted to include additional depreciation
of $266 based on the preliminary purchase price allocation.
<PAGE> 18
C. EXHIBIT No.
10.1* Agreement and Plan of Reorganization dated September 30, 1997
between UNIDYNE Corporation and Lester K. TJELMELAND and KATHERINE
TJELMELAND as Trustees of the TJELMELAND Trust dated August 2, 1991
who are the Stockholders of Sabina Industries, Incorporated, a
California corporation.
- ------------
* Filed previously.
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 15, 1997 /s/ C. EUGENE HUTCHESON
--------------------------------
C. Eugene Hutcheson
Chairman, Chief Executive Officer
and President
