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, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: January 1, 1999 to March 31, 1999
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, 1999.
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS UNIDYNE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
-------- --------
<S> <C> <C>
Current assets:
Cash $ 52 $ 126
Accounts receivable, less allowance of $11 3,994 3,032
Inventory 7,240 7,429
Prepaid expenses 102 135
Deferred taxes 190 190
Other current assets 25 33
-------- --------
Total current assets 11,603 10,945
Property, plant and equipment
Land 160 160
Leasehold improvements 323 323
Buildings 3,639 3,639
Machinery and equipment 9,759 9,589
-------- --------
Total property, plant and equipment 13,882 13,712
Accumulated depreciation (5,722) (5,269)
-------- --------
Property, plant and equipment, net 8,159 8,444
-------- --------
Deferred income taxes 1,181 986
Goodwill 2,333 2,341
Patents 1,287 1,341
Other assets 1,476 1,291
-------- --------
6,277 5,959
-------- --------
TOTAL ASSETS $ 26,039 $ 25,348
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,393 $ 5,262
Current portion of long-term debt 593 565
Short-term debt 3,541 3,625
Accrued compensation 149 75
Income taxes payable 34 87
Deferred revenue 500 392
Other accrued liabilities 2,699 1,558
-------- --------
Total current liabilities 12,909 11,564
-------- --------
Long-term debt 3,649 3,797
Post-retirement benefits 4,357 4,491
Preferred dividends payable 787 700
-------- --------
8,793 8,988
-------- --------
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 5,000 5,000
Additional paid-in capital 13,127 13,127
Treasury stock (7) (7)
Retained deficit (13,792) (13,333)
-------- --------
Total Stockholders' Equity 4,337 4,796
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,039 $ 25,348
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 2
<PAGE>
UNIDYNE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
March 31, March 31,
1999 1998
(In thousands,
except per share data)
<S> <C> <C>
Net Sales $ 5,712 $ 6,267
Cost of sales 3,885 3,845
----------- -----------
Gross income 1,827 2,422
Selling and administrative expense 2,210 2,667
Research and development expense 71 25
----------- -----------
Income (loss) from operations (454) (270)
Interest expense 165 160
----------- -----------
(Loss) before income taxes (619) (430)
Income tax provision (benefit) (247) (172)
----------- -----------
Net (loss) (371) (258)
Preferred Dividends (87) (87)
----------- -----------
Loss Applicable to Common Stockholders ($ 458) ($ 345)
=========== ===========
Basic and diluted (loss) per share (0.05) (0.04)
Weighted average number of shares of common stock outstanding 9,335,352 9,335,352
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
UNIDYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
(in thousands)
Cash flows from operating activities:
Net income (loss) ($ 372) ($ 258)
Adjustments to reconcile net loss to
cash flows used for operating activities
Depreciation and amortization 453 355
Changes in-
Accounts receivable, net (962) 436
Inventories 189 (806)
Prepaid expenses and other assets 41 (704)
Accounts payable 131 (225)
Accrued compensation 74 13
Other liabilities 746 262
------- -------
Net cash (used for) operating activities 300 (927)
------- -------
Cash flows for investing activities:
Purchase of property, plant and equipment (170) 67
------- -------
Cash flows from financing activities:
Net borrowing on revolving loans 0 1,208
Principal payments on long-term debt (204) (804)
------- -------
Net cash provided by financing activities (204) 404
------- -------
Net increase in cash (74) (456)
------- -------
Cash, beginning of period 126 928
------- -------
Cash, end of period 52 472
======= =======
Cash paid for:
Interest 165 160
------- -------
Income taxes 0 0
------- -------
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE>
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, 1998.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" for the year ended December 31, 1998. Since the effective date of
the Statement was for years beginning after December 15, 1997, information for
1997 has not been presented.
NOTE 3 - REPORTABLE SEGMENTS
The Company's operations are classified into three principal reportable segments
that provide different products or services. The electric motors and variable
speed drives segment produces proprietary, specialized electric motors and
variable speed drives utilizing the Eddy Current Drive operating principle for
sale to customers in the automotive, transportation, manufacturing, and
processing system industries. The motor controls and systems segment produces
motor controls utilizing the alternative frequency operating principle and
integrates control systems for process system designers and large manufacturers.
The dynamometers and testing systems segment produces engine and chassis
dynamometers and emissions test stands for the heavy-duty truck, bus, and
automobile manufacturers and automotive testing and repair markets. Separate
management of each segment is required because each business unit is subject to
different marketing, production, and technology strategies.
Reportable Segments
(000's)
<TABLE>
<CAPTION>
Electric motors & Motor Dynamometers
variable speed controls and and testing
drives systems systems All Other Total
- --------------------------- -------------------------- ------------------- --------------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
External revenue 3,287 1,212 1,211 2 5,712
- --------------------------- -------------------------- ------------------- --------------------- -------------- ------------------
Intersegment revenue 165 165
- --------------------------- -------------------------- ------------------- --------------------- -------------- ------------------
Profit (loss) 61 (270) (144) (266) (619)
- --------------------------- -------------------------- ------------------- --------------------- -------------- ------------------
</TABLE>
Following is a reconciliation of profits of operating segments to income before
income taxes for the three months ended March 31, 1999.
Total profit (loss) for reportable segments ($353)
All other segments
Elimination of intersegment profits (43)
Corporate expenses (279)
Unallocated 56
-----
Income (loss) before income taxes ($619)
Page 5
<PAGE>
There have been no differences from the last annual report in the basis of
measuring segment profit or loss. There have been no material changes in the
amount of assets for any operating segment since the last annual report.
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 $5,712 for the three months ended March 31, 1999, a
decrease of 8.8% as compared with net sales of $6,267 for the three months ended
March 31, 1998. The decrease in the current year period was due to a 12% sales
decline in the sales of electric motors and variable speed drives and a 38%
decline in the sales of motor controls and systems in the first quarter as
compared to a year ago, partially offset by a 92% increase in shipments of
emissions testing systems.
Gross income. Consolidated gross income of $1,827 or 32.0% to sales for the
first quarter of 1999, compared with gross income of $2,422 or 38.6% to sales
for the first quarter of 1998. This decrease is primarily the result of
increases in the costs of production of motor controls and electric motors.
Selling and administrative expense. Selling and administrative expense, as a
percent to net sales, decreased to 38.7% sales in the first quarter of 1999 as
compared with 42.5% to sales in the prior year quarter. The decrease is
principally due to the reduction of support personnel at the Company's Sabina
subsidiary.
Research and development expense. Research and development expense of $72 or
1.26% to sales in the current year quarter, as compared with $25 or 0.4% to
sales in the prior year quarter. The increase is primarily a result of
expenditure relative to developing internal manufacturing capability for
electronic control systems.
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, 1999, the Company's working capital was approximately ($1,306),
compared to working capital of approximately ($619) December 31, 1998. This
decrease is principally due to increases in other accrued liabilities. At March
31, 1998, the Company had nominal availabilty 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. The
maturity is June 1, 1999 and is secured by the Accounts Receivable of Sabina. On
April 2, 1998 the Company 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 December, 1998, the bank alleged that the Company was in
default of its covenants under the agreement. While the Company maintained that
no default had occurred, the Company and Union Bank negotiated a Forbearance
Agreement under which all of Sabina's remaining obligations to Union Bank will
be paid by May 31, 1999. At May 26, 1999, less than $100 remained to be paid.
The Company's subsidiary Dynamatic Corporation has had its line of credit
extended to May 31,1999. This line for $3,000 is through the Johnson Bank of
Racine, WI.
Subsequent to year end, the Company began discussions with a major financial
institution to obtain a $10,000,000 secured, three-year, revolving credit
facility with an additional line of up to $15,000,000 for acquisitions. The
Company
Page 6
<PAGE>
expects to close on this loan in the second quarter of 1999. This financing will
discharge the Company's obligations to Union Bank and Johnson Bank and provide
working capital and long-term financing for the Company.
The Company has undertaken a survey of its Year 2000 problem exposure. In
undertaking this survey, the Company considered both Information Technology
("IT") systems and non-IT systems such as imbedded microchips. As a result of
this survey, the Company identified measures which needed to be taken, most
significantly the upgrade of computer systems at all of its major locations.
Year 2000 compliant enterprise resource planning (ERP) systems have been
implemented at its Sabina subsidiary and are in the final stages of installation
and testing at its Dynamatic subsidiary, and is expected to be operational by
June 1, 1999. The Company's other subsidiaries have upgraded their accounting
and financial systems to Year 2000 compliant versions of their software.
The Company uses a variety of digital controls in its products. All of the major
suppliers of microprocessors to the Company have provided assurance that their
systems are in compliance. To the best of the Company's knowledge, none of the
digital controls supplied to its customers include microprocessors or software
which are not Year 2000 compliant.
The cost of acquiring, installing, converting, and testing new Year 2000
compliant software is estimated by the Company to be $136,000. Hardware costs
are estimated to be $20,000. As of December 31, 1998, the Company has incurred
substantially all of these total estimated costs for Year 2000 remediation.
These costs were funded by internally generated funds and leases. No significant
IT projects have been deferred due to Year 2000 remediation efforts.
The Company is developing contingency plans to deal with reasonably likely worst
case scenarios, and expects to have a contingency plan in place by the third
quarter of 1999.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
None
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.
Trading in the Company's stock on NASDAQ was halted on April 7, 1999, pending
responses to questions by NASDAQ regarding the resignation of the Company's
former auditors. Subsequently, the Company received notice from the NASDAQ Stock
market that its common stock may be delisted for failure to comply with certain
of NASDAQ's listing requirements. The Company has requested an oral hearing
before the NASDAQ Listing Qualifications Panel, pursuant to procedures set forth
in NASDAQ's Marketplace Rules. The hearing date has been set for June 17, 1999
and trading in the Company's common stock will remain halted until after the
hearing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
Page 7
<PAGE>
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
13.1 Form 10-KSB, dated May 20, 1999
19.5 Form 8-K, dated April 2, 1999
19.6 Form 8-K/A, dated April 12, 1999
19.7 Form 8-K/A, dated April 13, 1999
19.8 Form 8-K/A, dated May 3, 1999
(b)(1) The Company filed a Report on Form 8-K dated April 2 1999. Item
4 of such Form 8-K reported that the Company's auditors had
resigned as of March 26, 1999.
(b)(2) The Company filed a Report on Form 8-K/A, dated April 12, 1999.
Item 4 of such Form 8-K/A reported that the Accountant's Report
for the years ended December 31, 1996 and 1997 did not contain
any adverse opinion or disclaimer of opinion and for the year
ended December 31, 1997 had been modified for an uncertainty as
to going concern.
(b)(3) The Company filed a Report on Form 8-K/A, dated April 13, 1999.
This modified a Form reference.
(b)(4) The Company filed a Report on Form 8-K/A, dated May 3, 1999.
Item 4 of such Form 8-K/a reported that the Company had hired
the firm of Strouss, Hui & Ellis, P.C. of Jenkintown,
Pennsylvania, as its auditors.
Page 8
<PAGE>
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: May 28, 1999 /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: May 28, 1999 /s/ C. Eugene Hutcheson
-------------------------------------
C. Eugene Hutcheson, Chairman and
Chief Executive Officer
Date: May 28, 1999 /s/ Wayne R. Lorgus
-------------------------------------
Wayne R. Lorgus, President and
Chief Financial Officer
Page 9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 52
<SECURITIES> 0
<RECEIVABLES> 4,005
<ALLOWANCES> 11
<INVENTORY> 7,240
<CURRENT-ASSETS> 11,603
<PP&E> 13,882
<DEPRECIATION> (5,722)
<TOTAL-ASSETS> 26,039
<CURRENT-LIABILITIES> 12,909
<BONDS> 0
0
5,000
<COMMON> 9
<OTHER-SE> (672)
<TOTAL-LIABILITY-AND-EQUITY> 26,039
<SALES> 5,712
<TOTAL-REVENUES> 5,712
<CGS> 3,885
<TOTAL-COSTS> 3,885
<OTHER-EXPENSES> 281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165
<INCOME-PRETAX> (619)
<INCOME-TAX> (247)
<INCOME-CONTINUING> (371)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (371)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
