<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended September 30, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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
of incorporation or organization) (IRS Employer Identification No.)
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: 9,335,352 as of
September 30, 1998.
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>
September 30, December 31,
ASSETS 1998 1997
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<S> <C> <C>
Current assets:
Cash 511 928
Accounts receivable, less allowance of $273 3,801 3,794
Inventory 9,650 9,293
Prepaid expenses 517 415
Other current assets 87 32
Deferred and other refundable taxes 1,094 1,094
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Total current assets 15,660 15,556
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Property, plant and equipment:
Land 160 160
Leasehold improvements 323 304
Buildings 3,678 3,678
Machinery and equipment 9,187 8,788
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Total property, plant and equipment 13,348 12,930
Accumulated depreciation (4,743) (3,697)
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Property, plant and equipment, net 8,605 9,233
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Other assets:
Deferred income taxes 475 282
Goodwill 2,391 2,479
Patents 1,529 1,490
Other assets 575 760
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Total other assets 4,970 5,011
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TOTAL ASSETS 29,235 29,800
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 4,268 4,726
Short-term debt 4,433 3,220
Accrued compensation 510 641
Income taxes payable 133 1,079
Due to funding sources - leases 0 647
Deferred revenue 379 433
Other accrued liabilities 2,060 1,112
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Total current liabilities 11,783 11,858
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Long-term liabilities:
Long-term debt 3,878 4,382
Post-retirement benefits - Pensions 2,372 2,116
Post-retirement benefits - Health 3,822 3,552
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Total long-term liabilities 10,072 10,050
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Stockholders' equity:
Common Stock $.001, par value, 50,000,000 shares
authorized, 9,335,352 shares issued and outstanding 9 9
Preferred Stock, $10 per share liquidation value, $10 par value, 20,000,000
shares authorized; 500,000 issued and outstanding 5,613 5,350
Additional paid-in capital 13,127 13,127
Treasury stock (7) (7)
Retained earnings (11,362) (10,587)
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Total stockholders' equity 7,380 7,892
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 29,235 29,800
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</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
1998 1997 1998 1997
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net Sales 6,463 4,115 20,029 13,071
Cost of sales 4,523 2,679 12,901 9,028
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Gross income 1,940 1,436 7,128 4,043
Selling and administrative expense 2,308 1,544 7,272 4,227
Research and development expense 67 114 189 376
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Income (loss) from operations (435) (222) (333) (560)
Interest expense 181 277 521 402
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Income (loss) before income taxes (616) (499) (854) (962)
Income tax provision (benefit) (246) (84) (341) (345)
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Net income (loss) (370) (415) (513) (617)
Preferred dividends (87) (87) (262) (262)
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Profit (loss) applicable to common
stockholders (457) (502) (775) (879)
Basic and diluted earnings (loss) per share ($0.05) ($0.07) ($0.08) ($0.12)
Weighted average number shares of common
stock outstanding 9,335,352 7,398,336 9,335,352 7,398,336
</TABLE>
The accompanying notes are an integral part of these financial statements.
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UNIDYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September
1998 1997
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) (513) (617)
Adjustments to reconcile net income to
cash flows from operating activities:
Depreciation and amortization 1,046 1,242
Deferred taxes (1,139) (893)
Changes in-
Accounts receivable, net (7) (144)
Inventories (357) (1,537)
Prepaid expenses and other assets 77 102
Accounts payable (458) 473
Accrued compensation (131) 338
Accrued expenses 453 293
Other liabilities 320 131
Advanced payments 0 797
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Net cash provided by (used for) operating activities (709) (185)
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Cash flows for investing activities:
Purchase of property, plant and equipment (418) (669)
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Cash flows from financing activities:
Net borrowings on revolving loans 1,826 574
Issuance of Common Stock 0 308
Principal payments on long-term debt (1,115) (256)
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Net cash provided by (used for) financing activities 711 626
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Cash acquired by acquisition 0 218
Net increase (decrease) in cash (416) 360
Cash, beginning of period 928 46
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Cash, end of period 511 406
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Cash paid for:
Interest 527 237
======= =======
Income taxes 0 2
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 5
UNIDYNE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(all $ amounts in 000's)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of the management of the Company, the accompanying
consolidated financial statements reflect all adjustments (consisting only of
normally recurring accruals) which are necessary for a fair presentation of the
Company's results of operation and changes in financial position for the interim
periods presented. These financial statements should be read in conjunction with
the Company's annual report on Form 10-KSB for the year ended December 31, 1997.
NOTE 2 - 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 has implemented the disclosure requirements of SFAS 128 as
required.
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 were $20,029 for the nine months ended September
30, 1998, an increase of $6,958 or 53.2%, as compared with net sales of $13,071
for the nine months ended September 30, 1997. Net sales of $6,463 in the third
quarter of 1998 increased $2,348, or 57.1%, as compared with net sales of $4,115
in the third quarter of 1997. The increase in the current year period was due
principally to inclusion of sales of Sabina Industries, Incorporated, which was
acquired by the Company effective September 30, 1997, and to increased sales in
the emission testing market.
Gross Income. Consolidated gross income was $7,128, or 35.6% of
sales, for the nine months ended September 30, 1998, compared with consolidated
gross income of $4,043, or 30.9% of sales, for the nine months ended September
30, 1997. In the third quarter of 1998, consolidated gross income was $1,940, or
30.0% of sales, compared with consolidated gross income of $1,436 or 34.9% of
sales, in the third quarter of 1997. The increase in consolidated gross income
for the nine months ended September 30, 1997 resulted from sales in the emission
testing market and the inclusion of the sales of Sabina Industries,
Incorporated, while consolidated gross income in the third quarter was effected
by reduced margins in July and August, 1998.
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<PAGE> 6
Selling and Administrative Expense. Selling and administrative
expense in the third quarter of 1998 were $2,308, or 35.7% of sales, and for the
nine months ended September 30, 1998, were $7,272, or 36.3% of sales, compared
to 37.5% and 32.3% in the respective periods in 1997. The lower percentage
expense between the quarters is due principally to the effect of cost cutting
measures instituted by the Company in the first quarter of 1998, while the nine
month comparison reflects the higher level of sales and marketing expenditures
devoted to the emission testing products in 1998, which were not a factor during
the first six months of 1997.
Research and Development Expense. Research and development expenses
were $189, or 0.1% of sales, for the nine months ended September 30, 1998, as
compared with $376, or 2.9% of sales, in the nine months ended September 30,
1997. Research and development expenses relative to development of the Company's
emission testing products, which are now fully developed, decreased
substantially between the periods.
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, 1998 the Company's working capital was approximately
$3,536, compared to working capital of approximately $3,698 at December 31,
1997. The decrease in working capital resulted from increased short-term
borrowings on revolving debt, which were used to fund repayment of long-term
debt. At September 30, 1998, the Company had no availability under its existing
line-of-credit arrangements.
On April 2, 1998 the Company secured an Operating Line of Credit with
Union Bank of California, N.A., in the amount of $1,250 for its subsidiary,
Sabina Industries. The maturity is June 1, 1999 and is secured by the Accounts
Receivable of Sabina. On April 2, 1998 the Company also secured a term loan with
Union Bank of California, N.A., in the amount of $200 for its subsidiary, Sabina
Industries. The maturity date is June 1, 2001.
In 1998, the Company purchased $418 of machinery and equipment for
use in the manufacture of the ETS product line and the upgrading of its computer
network. These purchases were funded through a combination of installment debt,
leases and operating cash flow.
The Company's subsidiary, Dynamatic Corporation, has had its line of
credit extended from July 31, 1998 to November 16, 1998. This line for $3,000 is
through Johnson Bank of Racine, Wisconsin.
UNIDYNE has addressed the Year 2000 problem in regards to its
accounting and financial systems by installing "in compliance" software at its
Sabina subsidiary in the first half of 1998. The system is fully installed and
functioning. The same system will begin to be installed at UNIDYNE's largest
subsidiary, Dynamatic Corporation, on or about January 1, 1999, and is scheduled
to be fully operational by March 31, 1999, or soon thereafter. UNIDYNE and its
other subsidiaries has overcome the Year 2000 obstacle.
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<PAGE> 7
PART II. OTHER INFORMATION
Item 3. LEGAL PROCEEDINGS
Subsequent to September 30, 1998, the Company refiled the federal
income tax returns, based on a calendar year, for 1995 and 1996. The loss in
tax year 1996 and 1997, when carried back to 1995, results in a total
reduction of the $875 tax liability recorded on the Financial Statement for
1997.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
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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: November 16, 1998 /s/ C. Eugene Hutcheson
-----------------------------
C. Eugene Hutcheson, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: November 16, 1998 /s/ C. Eugene Hutcheson
-----------------------------
C. Eugene Hutcheson, Chairman
and Chief Executive Officer
Date: November 16, 1998 /s/ Francis T. Prendergast, CPA
-----------------------------
Francis T. Prendergast, CPA
Chief Financial Officer
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 511
<SECURITIES> 0
<RECEIVABLES> 3,960
<ALLOWANCES> (159)
<INVENTORY> 9,650
<CURRENT-ASSETS> 15,660
<PP&E> 13,348
<DEPRECIATION> (4,743)
<TOTAL-ASSETS> 29,235
<CURRENT-LIABILITIES> 11,783
<BONDS> 0
0
5,612
<COMMON> 9
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29,235
<SALES> 20,029
<TOTAL-REVENUES> 20,029
<CGS> 12,901
<TOTAL-COSTS> 7,272
<OTHER-EXPENSES> 189
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 521
<INCOME-PRETAX> (854)
<INCOME-TAX> (341)
<INCOME-CONTINUING> (513)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (513)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
