<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 March 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ------------- to --------------------
Commission file number: 0-10372
UNIDYNE CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER
AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-2154902
(State or other jurisdiction (IRS Employer Identification No.)
of Incorporation or organization)
118 PICKERING WAY, SUITE 104, EXTON, PA 19341
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(610) 363-8237
(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court.
Yes No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity , as of latest practicable date: 9,335,352 as of March
31, 1998.
Transitional Small Business Disclosure Format (check one ): Yes No X
---- ----
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
UNIDYNE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
ASSETS 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
- ------------------------------------------------------------------------------------------------------------------------
Cash 472 $ 928
- ------------------------------------------------------------------------------------------------------------------------
Accounts receivable, less allowance of $128 3,358 3,794
- ------------------------------------------------------------------------------------------------------------------------
Inventory 10,098 9,293
- ------------------------------------------------------------------------------------------------------------------------
Prepaid expenses 689 415
- ------------------------------------------------------------------------------------------------------------------------
Other current assets 149 32
- ------------------------------------------------------------------------------------------------------------------------
Deferred and other refundable taxes 1,094 1,094
- ------------------------------------------------------------------------------------------------------------------------
---------- -----------
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Total current assets 15,860 15,556
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Property, plant and equipment
- ------------------------------------------------------------------------------------------------------------------------
Land 160 160
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Leasehold improvements 307 304
- ------------------------------------------------------------------------------------------------------------------------
Buildings 3,618 3,678
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Machinery and equipment 8,718 8,788
- ------------------------------------------------------------------------------------------------------------------------
---------- -----------
- ------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment 12,863 12,930
- ------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation (3,864) (3,697)
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 8,999 9,233
- ------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 459 282
- ------------------------------------------------------------------------------------------------------------------------
Goodwill 2,391 2,479
- ------------------------------------------------------------------------------------------------------------------------
Patents 1,561 1,490
- ------------------------------------------------------------------------------------------------------------------------
Other assets 883 760
- ------------------------------------------------------------------------------------------------------------------------
---------- -----------
- ------------------------------------------------------------------------------------------------------------------------
5,294 5,011
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 30,153 $29,800
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------
Current liabilities:
- ------------------------------------------------------------------------------------------------------------------------
Accounts payable 4,501 $4,726
- ------------------------------------------------------------------------------------------------------------------------
Short-term debt 3,816 3,220
- ------------------------------------------------------------------------------------------------------------------------
Accrued compensation 654 641
- ------------------------------------------------------------------------------------------------------------------------
Income taxes payable 982 1,079
- ------------------------------------------------------------------------------------------------------------------------
Due to funding sources - leases 184 647
- ------------------------------------------------------------------------------------------------------------------------
Deferred revenue 557 433
- ------------------------------------------------------------------------------------------------------------------------
Other accrued liabilities 1,811 1,112
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 12,505 11,858
- ------------------------------------------------------------------------------------------------------------------------
Long-term debt 4,015 4,382
- ------------------------------------------------------------------------------------------------------------------------
Post-retirement benefits - Pensions 2,201 2,116
- ------------------------------------------------------------------------------------------------------------------------
Post-retirement benefits - Health 3,642 3,552
----------- -----------
- ------------------------------------------------------------------------------------------------------------------------
9,858 10,050
- ------------------------------------------------------------------------------------------------------------------------
Deferred revenue
- ------------------------------------------------------------------------------------------------------------------------
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 5,438 5,350
- ------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 13,128 13,127
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock (7) (7)
- ------------------------------------------------------------------------------------------------------------------------
Retained deficit (10,778) (10,587)
- ------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 7,790 7,892
- ------------------------------------------------------------------------------------------------------------------------
Total Liabilities And Stockholders' Equity 30,153 $29,800
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
UNIDYNE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
THREE THREE
MONTHS MONTHS
ENDED ENDED
- ---------------------------------------------------------------------------------------------
MARCH 31, MARCH 31,
1998 1997
- ---------------------------------------------------------------------------------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sale 6,267 $4,111
- ---------------------------------------------------------------------------------------------
Cost of sales 3,845 2,716
------------- -------------
- ---------------------------------------------------------------------------------------------
Gross income 2,422 1,395
- ---------------------------------------------------------------------------------------------
Selling and administrative expense 2,667 1,347
- ---------------------------------------------------------------------------------------------
Research and development expense 25 138
------------- --------------
- ---------------------------------------------------------------------------------------------
Income (loss) from operations (270) (90)
------------- ---------------
- ---------------------------------------------------------------------------------------------
Interest expense 160 128
------------- --------------
- ---------------------------------------------------------------------------------------------
(Loss) before income taxes (430) (218)
------------- --------------
- ---------------------------------------------------------------------------------------------
Income tax provision (benefit) (172) (87)
------------- --------------
- ---------------------------------------------------------------------------------------------
Net (Loss) ($258) ($131)
------------- -------------
- ---------------------------------------------------------------------------------------------
Preferred Dividends (87) (87)
------------- -------------
- ---------------------------------------------------------------------------------------------
Loss Applicable to Common Stockholders ($345) ($218)
- ---------------------------------------------------------------------------------------------
Basic and diluted (loss) per share ($0.04) ($0.03)
------------- -------------
- ---------------------------------------------------------------------------------------------
Weighted average number of shares of Common
- ---------------------------------------------------------------------------------------------
Stock outstanding 9,335,352 8,533,116
------------- ----------
- ---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
UNIDYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Three Months Three Months
- ------------------------------------------------------------------------------------------------
Ended Ended
- ------------------------------------------------------------------------------------------------
March 31, March 31,
- ------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------
(in thousands)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
- ------------------------------------------------------------------------------------------------
Net income (loss) $ (258) ($131)
------------- -------------
- ------------------------------------------------------------------------------------------------
Adjustments to reconcile net Loss to
- ------------------------------------------------------------------------------------------------
cash flows used for activities
- ------------------------------------------------------------------------------------------------
Depreciation and amortization 355 369
------------- -------------
- ------------------------------------------------------------------------------------------------
Changes in-
- ------------------------------------------------------------------------------------------------
Accounts receivable, net 436 (195)
------------- -------------
- ------------------------------------------------------------------------------------------------
Inventories (806) 167
------------- -------------
- ------------------------------------------------------------------------------------------------
Prepaid expenses and other assets (704) (22)
------------- -------------
- ------------------------------------------------------------------------------------------------
Accounts payable (225) (540)
------------- -------------
- ------------------------------------------------------------------------------------------------
Accrued compensation 13 233
------------- -------------
- ------------------------------------------------------------------------------------------------
Accrued expenses 514 (298)
------------- -------------
- ------------------------------------------------------------------------------------------------
Other liabilities (252) 287
------------- -------------
- ------------------------------------------------------------------------------------------------
Net cash (used for) operating (927) (130)
------------- -------------
- ------------------------------------------------------------------------------------------------
activities
- ------------------------------------------------------------------------------------------------
Cash flows for investing activities:
- ------------------------------------------------------------------------------------------------
Purchase of property, plant and equipment 67 (159)
------------- -------------
- ------------------------------------------------------------------------------------------------
Cash flows from financing activities:
- ------------------------------------------------------------------------------------------------
Net borrowing on revolving loans 1,208 554
------------- -------------
- ------------------------------------------------------------------------------------------------
Principal payments on long-term debt (804) (74)
------------- -------------
- ------------------------------------------------------------------------------------------------
Net cash provided by financing (404) 480
------------- -------------
- ------------------------------------------------------------------------------------------------
activities
- ------------------------------------------------------------------------------------------------
Net increase in cash (456) 191
------------- -------------
- ------------------------------------------------------------------------------------------------
Cash, beginning of period 928 46
------------- -------------
- ------------------------------------------------------------------------------------------------
Cash, end of period $ 472 $237
------------- -------------
- ------------------------------------------------------------------------------------------------
Cash paid for:
- ------------------------------------------------------------------------------------------------
Interest $ 160 $126
------------- -------------
- ------------------------------------------------------------------------------------------------
Income taxes 0 2
------------- -------------
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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 - EQUITY
In February 1998, the Company authorized the issuance of 75,000 of its
Common Stock Par Value $.001 (Common Stock), and 56,200 Preferred Class "C" Par
Value $10.00 shares for the acquisition of ELA Machine Co., Inc. and the
partial retirement of ELA's subordinated debt in the amount of $463
present value. ELA Machine Co., Inc. manufacturers and assembles specialized
engineered machinery and systems for the packaging and process industries. The
ELA transaction was not consummated and is presently being renegotiated.
Accordingly, no shares of Common or Preferred Stock have been issued.
NOTE 3 - 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 $6,267 for the three months ended March 31,
1998 AN INCREASE OF 66% as compared with net sales of $4,111 for the three
months ended March 31, 1997. The increase in the current year period was due
principally to the sales reflected from its acquisition of Sabina Industries
Incorporated in the third quarter of 1997.
Gross income. Consolidated gross income of $2,422 or 38.6% to sales
for the first quarter of 1998, compared with gross income of $1,395 or 33.9% to
sales for the first quarter of 1997. The increase is primarily due to sales in
the emission testing market and sales reflected from it's acquisition of Sabina
Industries Incorporated.
<PAGE> 6
Selling and administrative expense. Selling and administrative
expense, as a percent to net sales, INCREASED to 42.5% to sales in the first
quarter of 1998 as compared with 32.8% to sales in the prior year quarter. The
increase is principally the addition of sales, service and support personnel in
the emission testing market and the addition of selling and administration
expenses of Sabina.
Research and development expense. Research and development expense of
$25 or 0.4% to sales in the current year quarter, as compared with $70 or 1.7%
to sales in the prior year quarter. The DECREASE is primarily a result of
LOWER expenditures relative to IMPROVEMENTS IN the Company's TRADITIONAL
PRODUCTS.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of long-term and short-term liquidity
are projected cash from operations and borrowing capacity. The Company
believes that these sources are sufficient to fund the anticipated future
growth of the Company.
At March 31, 1998, the Company's working capital was approximately
$3,355, compared to working capital of approximately $3,697 at December 31,
1997. This decrease is principally due to borrowing on short-term revolving
debt which was used to reduce accounts payable and long term debt. At March 31,
1998, the Company had approximately $120 available under its existing
line-of-credit arrangements.
At December 31, 1997, the Company had working capital of $3,697.
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. 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.
The maturity date is June 1, 2001.
In 1998, the Company expects to purchase up to $300 of machinery and
equipment for use in the manufacture of the ETS product line. These purchases
have been funded through installment debt in the refinancing of equipment line
of credit.
The Company's subsidiary Dynamatic Corporation has had its line of
credit extended from April 30, 1998 to July 31, 1998. This line for $3,000 is
through the Johnson Bank of Racine, WI.
<PAGE> 7
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES.
Effective February 25, 1998, the Company granted to certain officers,
directors and employees options to purchase a total of 395,000 shares of the
Company's Common Stock at a price of $7.00 per share. The options are
exercisable at any time during the five years after grant.
Item 3. LEGAL PROCEEDINGS
The Company has been named as a defendant in an action filed by the
former stockholders of Sabina. The complaint alleges fraud and
misrepresentation in connection with the Company's September 30, 1997
acquisition of all of the outstanding stock of Sabina. The complaint seeks
recission and compensatory damages in an unspecified amount. The Company has
denied all allegations of wrongdoing and is vigorously defending the action.
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 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 due to subsequent operating
losses in 1997.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
*Filed previously and incorporated herein by reference
<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.
<TABLE>
<S> <C>
UNIDYNE CORPORATION
Date: May XX, 1998 /s/ C. Eugene Hutcheson
--------------------------------------------
C. Eugene Hutcheson, Chairman and
Chief Executive Officer
</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>
Date: May XX, 1998 /s/ C. Eugene Hutcheson
--------------------------------------------
C. Eugene Hutcheson, Chairman and
Chief Executive Officer
Date: May XX, 1998 /s/ Charlotte E. Doremus
--------------------------------------------
Secretary and Treasurer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 472
<SECURITIES> 0
<RECEIVABLES> 3,360
<ALLOWANCES> (2)
<INVENTORY> 10,094
<CURRENT-ASSETS> 16,319
<PP&E> 12,863
<DEPRECIATION> (3,864)
<TOTAL-ASSETS> 30,153
<CURRENT-LIABILITIES> 12,505
<BONDS> 9,858
0
5,437
<COMMON> 553
<OTHER-SE> 2,343
<TOTAL-LIABILITY-AND-EQUITY> 30,153
<SALES> 6,267
<TOTAL-REVENUES> 6,267
<CGS> 3,845
<TOTAL-COSTS> 2,691
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160
<INCOME-PRETAX> (430)
<INCOME-TAX> (172)
<INCOME-CONTINUING> (258)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (258)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
