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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One) / X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended September 30, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ------------- to --------------------
Commission file number: 0-10372
UNIDYNE CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER
AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-2154902
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
118 PICKERING WAY, SUITE 104, EXTON, PA 19341
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(610) 363-8237
(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity , as of latest practicable date: 9,185,352 as of
September 30, 1997.
Transitional Small Business Disclosure Format (check one ): Yes No X
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
UNIDYNE CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
SEPT. 30, DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash $406 $46
Accounts receivable 3,789 1,799
Inventory 7,201 3,583
Prepaid expenses 201 57
Deferred income taxes 729 136
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Total current assets 12,326 5,621
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Property, plant and equipment
Land 160 160
Buildings 3,787 3,800
Leasehold improvements 26 0
Machinery and equipment 10,033 6,666
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Total property, plant and equipment 14,066 10,626
Accumulated depreciation (2,828) (1,711)
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Property, plant and equipment, net 11,178 8,915
Deferred income taxes 521 221
Patents 1,571 1,676
Other assets 728 804
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Total assets $26,324 $17,237
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $3,237 $2,268
Current portion of long-term debt 340 530
Short term debt 198 0
Accrued compensation 898 711
Other accrued liabilities 709 661
Income taxes payable 874 374
Advance Payments 797 0
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Total current liabilities 7,053 4,544
Long-term debt 5,755 4,767
Pension benefit obligations 1,921 2,033
Post retirement benefits other than pensions 3,451 3,238
Deferred revenue 30 ---
Stockholders' equity
Common Stock, $.001 par value, 50,000,000 shares authorized, 9,185,352 shares 9 9
issued and outstanding.
Preferred Stock, $10 per share liquidation value, $10 par value, 20,000,000 5,000 5,000
shares authorized, 500,000 issued and outstanding
Additional paid-in capital 12,490 6,420
Retained deficit (9,385) (8,774)
Total stockholders' equity 8,115 2,655
Total liabilities and stockholders' equity $26,324 $17,237
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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UNIDYNE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales $5,176 $4,115 $13,071 $13,277
Cost of sales 3,672 2,679 9,028 8,103
Gross income 1,504 1,436 4,043 5,174
Selling and administrative expense 1,377 1,544 4,227 4,156
Research and development expense 124 114 376 344
Income (loss) from operations 3 (222) (560) 674
Interest expense 160 277 402 823
Income (loss) before income taxes (157) (499) (962) (149)
Income tax provision (benefit) (63) (84) (345) 190
Net income (loss) (94) (415) (617) (339)
Primary earnings (loss) per share (0.01) (0.06) (0.07) (0.05)
Weighted average number of Common
Stock and equivalents outstanding 9,185,352 7,398,336 9,185,352 7,398,336
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 4
UNIDYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($617) ($339)
Adjustments to reconcile net income to
cash flows from operating activities 882
Depreciation and amortization 1,242 0
Deferred taxes (893)
Changes in-
Accounts receivable, net (144) 473
Inventories (1,537) (485)
Prepaid expenses and other assets 102 (302)
Accounts payable 473 661
Accrued compensation 338 160
Accrued expenses 293 (137)
Other liabilities 131 624
Advance Payments 797
Net cash provided by (used for) operating 185 1,537
activities
Cash flows for investing activities:
Purchase of property, plant and equipment (669) (170)
Cash flows from financing activities:
Net borrowings on revolving loans 574 (10)
Issuance of Common Stock 308 75
Principal payments on long-term debt (256) (1,395)
Net cash provided by (used for) financing
activities 626 (1,330)
Cash Acquired by Acquisition 218 0
Net increase in cash 360 37
Cash, beginning of period 46 197
Cash, end of period 406 234
Cash paid for:
Interest 237 243
Income taxes 2 100
</TABLE>
The accompanying notes are an integral part of these financial statements.
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UNIDYNE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of the management of UNIDYNE Corporation (the "Company"), the
accompanying consolidated financial statements reflect all adjustments
(consisting only of normally recurring accruals) which are necessary for a fair
presentation of the Company's results of operation and changes in financial
position for the interim periods presented. These financial statements should
be read in conjunction with the Company's annual report on Form 10-KSB for the
year ended December 31, 1996.
NOTE 2 - ORGANIZATION OF THE BUSINESS AND CERTAIN OTHER MATTERS
On September 30, 1997, the company acquired all of the issued and
outstanding shares of common stock of Sabina Industries, Incorporated
("Sabina"). The purchase price did not include investment banking, legal and
other costs, and was paid through the exchange of 500,000 shares of the
Company's common stock, par value $.001 per share (the "Common Stock"), for
all the issued and outstanding shares of Sabina. The acquisition was accounted
for using the purchase method of accounting.
In August 1997, the Company entered into an agreement to acquire Hicklin
Engineering Inc. ("Hicklin"), a leading developer and manufacturer of
transmission and drive-train component dynamometers and test systems, in
exchange for 400,000 shares of the Company's Common Stock. The agreement by
its terms has expired. However, the Company is engaged in discussions with
Hicklin concerning a possible acquisition.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
REVENUE. Revenue related to the manufacture of the Company's emission
test business is recognized upon shipment of products to the customer. Revenue
related to lease income is recognized at the time of sale of leases to certain
third party lessors.
NOTE 4 - EQUITY
In 1997 and 1996, the Company established stock option plans (the "Plans")
for certain management and directors, pursuant to which the Company issued
750,000 and 1,100,000 options, respectively. In March 1997, the Company issued
89,954 shares of its Common Stock, upon the exercise of a portion of the
options under the Plans in exchange for accrued salaries and fees totaling
approximately $345,000. In June 1997, the Company issued 13,462 shares of its
Common Stock upon the exercise of a portion of the options under the Plans in
exchange for accrued salaries totalling approximately $42,000.
NOTE 5 - EARNINGS PER SHARE
Earnings (loss) per share is computed on the basis of the weighted average
number of common shares outstanding during the periods. The assumed exercise
of all outstanding stock options has been excluded from the computation of
earnings (loss) per share because the result was antidilutive. Also, the
computation of earnings (loss) per share includes preferred stock dividends of
$262,500 and $175,000 for the three and nine months ended September 30, 1997.
NOTE 6 - NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share." The
Company will implement the disclosure requirements of SFAS 128 as required.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
ALL AMOUNTS USED HEREIN ARE IN THOUSANDS.
RESULTS OF OPERATIONS
NET SALES. Net sales of $13,071 for the nine months ended September 30,
1997 decreased $206 or 1.6% as compared with net sales of $13,277 for the nine
months ended September 30, 1996. The decrease in the current year period was
due principally to lower large press drive sales, combined with lower sales at
Dynamatic Corporation ("Dynamatic"), a wholly owned subsidiary of the Company
which were offset by higher sales of emission testing products. Net sales of
$5,176 in the third quarter of 1997 increased $1,061 or 25.8% as compared with
net sales of $4,115 in the third quarter of 1996. The increase was due
primarily to higher sales volume in the emission test system product line,
which offset lower large press drive and Dynamatic sales.
GROSS INCOME. Consolidated gross income of $4,043 or 30.9% of sales for the
nine months ended September 30, 1997 decreased 21.9% compared with consolidated
gross income of $5,174 or 39.0% of sales for the nine months ended September
30, 1996. In the third quarter of 1997, consolidated gross income of $1,504 or
29.1% of sales increased 4.7% compared with consolidated gross income of $1,436
or 34.9% of sales in the third quarter of 1996. The decrease in gross income
for the nine month period is primarily due to higher costs associated with the
startup of the emission testing products business. The increase in gross
income for the three month period is primarily due to increased sales
associated with the emission testing products business.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense, as a
percent of net sales, was 26.6% and 32.3% for the third quarter and first nine
months of 1997, compared to 37.5% and 31.3% for the third quarter and nine
months of 1996, respectively. The full year to year increase is principally
due to higher selling expenses relative to the Company's emission testing
products.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense of $376
or 2.9% of sales for the nine months ended September 30, 1997 increased $32 or
9.3% as compared with $344 or 2.6% of sales for the nine months ended September
30, 1996. Research and development expense of $124 or 2.4% of sales for the
three months ended September 30, 1997 increased $10 or 8.8% as compared with
$114 or 2.8% of sales for the three months ended September 30, 1996. Research
and development expenses are primarily expenditures relative to development of
the Company's emission testing products.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operating requirements and capital expenditures
through cash flows from operations and financing arrangements.
At September 30, 1997, the Company's working capital was approximately
$5,273, compared to working capital of approximately $1,077 at December 31,
1996. This increase is principally due to borrowings on long-term debt and use
of advance payments which were used to fund inventory requirements for the
Company's emission testing products, the acquisition of Sabina, the sale of
Common Stock and the exchange of accrued salaries and fees for shares of the
Common Stock. At September 30, 1997, the Company had approximately $120
available under its existing line-of-credit arrangements.
On November 11, 1997, the Company received a notice to levy from the United
States Internal Revenue Service and the State of Wisconsin seeking to
recover an alleged income tax liability of approximately $875,000 for the 12
months ended August 31, 1996. The accompanying financial statements make
provision for the full amount of this liability. The Company will be required
to pay the amount claimed and will thereupon be entitled to an offsetting tax
refund for a substantial portion of the amount paid.
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<PAGE> 7
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
7.1 On September 30, 1997, the Company acquired all of the issued
and outstanding common stock of Sabina in exchange for 500,000 newly issued
shares of the Common Stock. 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. The
issuance of the Company's Common Stock to Sabina was exempt from the federal
securities laws pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(A) EXHIBIT DESCRIPTION
---------------- -----------
NO.
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<S> <C>
19.1* The Company filed a report on Form 8-K on October 15, 1997 describing the
Company's acquisition of Sabina Industries, Inc.
27.1** Financial Data Schedule
</TABLE>
*Filed previously and incorporated herein by reference.
**Filed herewith.
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<PAGE> 8
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNIDYNE CORPORATION
<TABLE>
<S> <C>
Date: November 11, 1997 /s/ C. Eugene Hutcheson
--------------------------------------------
C. Eugene Hutcheson, Chairman, Chief Executive Officer and President
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Date: November 11, 1997 /s/ C. Eugene Hutcheson
--------------------------------------------
C. Eugene Hutcheson, Chairman, Chief Executive Officer and
President
Date: November 11, 1997 /s/ Jeffrey M. Granger
--------------------------------------------
Jeffrey M. Granger, Treasurer
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 406
<SECURITIES> 0
<RECEIVABLES> 3,882
<ALLOWANCES> 93
<INVENTORY> 7,201
<CURRENT-ASSETS> 12,326
<PP&E> 14,006
<DEPRECIATION> 2,828
<TOTAL-ASSETS> 26,324
<CURRENT-LIABILITIES> 7,053
<BONDS> 0
0
5,000
<COMMON> 9
<OTHER-SE> 3,105
<TOTAL-LIABILITY-AND-EQUITY> 26,324
<SALES> 13,071
<TOTAL-REVENUES> 13,071
<CGS> 9,028
<TOTAL-COSTS> 4,227
<OTHER-EXPENSES> 376
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 402
<INCOME-PRETAX> (962)
<INCOME-TAX> (345)
<INCOME-CONTINUING> (617)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (617)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
