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 June 30,1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from April 1, 1999 to June 30, 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: 9,755,352 as of June 30, 1999.
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
Page 1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
UNIDYNE CORPORATION CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
-------- --------
<S> <C> <C>
Current assets:
Cash $ 167 $ 126
Accounts receivable, less allowance of $116 2,726 3,032
Inventory 7,672 7,429
Prepaid expenses 105 135
Deferred and other refundable taxes 190 190
Other current assets 65 33
-------- --------
Total current assets 10,925 10,945
Property, plant and equipment
Land 160 160
Leasehold improvements 323 323
Buildings 3,640 3,639
Machinery and equipment 9,781 9,589
-------- --------
Total property, plant and equipment 13,904 13,712
Accumulated depreciation (6,197) (5,269)
-------- --------
Property, plant and equipment, net 7,707 8,444
Deferred income taxes 1,140 986
Goodwill 2,329 2,341
Patents 1,237 1,341
Other assets 1,038 1,291
-------- --------
5,744 5,959
-------- --------
TOTAL ASSETS $ 24,376 $ 25,348
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,339 $ 5,262
Current portion of long-term debt 423 565
Short-term debt 2,965 3,625
Accrued compensation 192 75
Income taxes payable 219 87
Deferred revenue 589 392
Other accrued liabilities 1,749 1,558
-------- --------
Total current liabilities 10,473 11,564
-------- --------
Long-term debt 3,568 3,797
Post-retirement benefits - Pensions 4,751 4,491
Preferred dividends payable 625 700
-------- --------
8,944 8,988
-------- --------
Stockholders' equity:
Common Stock $.001, par value, 50,000,000 shares authorized,
9,755,352 shares issued and outstanding 10 9
Preferred Stock, $10 per share liquidation value, $10 par value,
20,000,000 shares authorized 0 5,000
Additional paid-in capital 18,497 13.127
Treasury stock (7) (7)
Retained deficit (13,541) (13,333)
-------- --------
Total Stockholders' Equity 4,959 4,796
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,376 $ 25,348
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 2
<PAGE>
UNIDYNE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
----------- ----------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 5,558 $ 7,299 $ 11,270 $ 13,566
Cost of sales 2,551 4,585 6,436 8,430
----------- ----------- ----------- -----------
Gross income 3,007 2,714 4,834 5,136
Selling and administrative expense 2,205 2,245 4,415 4,912
Research and development expense 66 97 137 122
----------- ----------- ----------- -----------
Income (loss) from operations 736 372 282 102
Interest expense 170 181 335 340
----------- ----------- ----------- -----------
Income (loss) before income taxes 566 191 (53) (238)
Income tax provision (benefit) 226 76 21 95
----------- ----------- ----------- -----------
Net income (loss) 340 115 (32) (143)
Preferred dividends 88 88 175 175
----------- ----------- ----------- -----------
Profit (loss) applicable to common stockholders 252 27 (207) (318)
----------- ----------- ----------- -----------
Basic and diluted earnings (loss) per share $ 0.03 $ 0.00 ($ 0.02) ($ 0.03)
Weighted average number shares of common
Stock outstanding 9,782,019 9,335,352 9,558,685 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)
Six Months Ended
June 30
1999 1998
------- -------
(in thousands)
Cash flows from operating activities:
Net income (loss) ($ 32) ($ 143)
Adjustments to reconcile net income to
cash flows provided by (used for)
operating activities
Depreciation and amortization 1,181 721
Changes in:
Accounts receivable, net 306 (391)
Inventories (243) (677)
Prepaid expenses and other assets (1) (532)
Accounts payable (922) 118
Accrued compensation 116 (128)
Accrued expenses 156 460
Other liabilities 702 (93)
------- -------
Net cash provided by (used for) operating
activities 1,263 (615)
------- -------
Cash flows for investing activities:
(Purchase) of property, plant and equipment (191) (397)
------- -------
Cash flows from financing activities:
Net borrowings on revolving loans (660) 1,602
Principal payments on long-term debt (371) (993)
------- -------
Net cash provided by (used for) financing
activities (1,031) 609
------- -------
Net increase (decrease) in cash 41 (403)
------- -------
Cash, beginning of period 126 928
Cash, end of period $ 167 $ 525
======= =======
Cash paid for:
Interest $ 292 $ 341
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)
These Notes to Financial Statements reflect events subsequent to May 14, 1999,
the date of the most recent Report of Independent Public Accountants, through
the date of this Quarterly Report on Form 10-QSB for the quarter ended June 30,
1999. These Notes to Financial Statements should be read in conjunction with
Financial Information and Other Information required to be furnished as part of
this Report, in particular (1) Management's Discussion and Analysis of Financial
Condition and Results of Operations for the six months ended June 30, 1999,
respecting the Company's capital requirements and liquidity, (2) Part II, Item
6, Reports on Form 8-K and (3) the Company's quarterly reports on Form 10-QSB
for the quarter ended March 31, 1999 and in conjunction with the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998, incorporated
herein by reference.
The financial statements furnished are unaudited. However, in the opinion of the
management of the Company, the accompanying consolidated financial statements
include all adjustments, consisting only of normally recurring accruals,
necessary for a fair presentation of the Company's results of operation and
changes in financial position for the interim periods presented. Operating
results for these interim periods are not necessarily indicative of results to
be expected for the entire year, due to seasonal, operating, and other factors.
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
During the first quarter of 1999, the Company consolidated its operations in the
area of electric motors and variable speed drives. As a result, the Company's
operations are now classified into two 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 either the Eddy current drive or adjustable frequency
operating principles for sale to customers in the automotive, transportation,
manufacturing, and processing systems industries. 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 for the
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.
Page 5
<PAGE>
Reportable Segments
(000's)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Electric motors & variable Dynamometers and
speed drives and controls testing systems All Other Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
External revenue 7,153 4,102 --- 11,270
- ----------------------------------------------------------------------------------------------------------------
Intersegment revenue 2,150 124 345 2,289
- ----------------------------------------------------------------------------------------------------------------
Profit (loss) 711 653 83 1,447
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Following is a reconciliation of profits of operating segments to income before
income taxes for the six months ended June 30, 1999.
Total profit (loss) for reportable segments 1,447
All other segments (54)
Elimination of intersegment profits (375)
Corporate expenses (1,071)
Unallocated
Income (loss) before income taxes (53)
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.
For the Six Months Ended June 30, 1999
(All amounts used herein are in thousands)
Results of Operations
Earnings
Earnings for common stock for the quarter ended June 30, 1999 were $252, or
$0.03 per common share ($0.03 fully diluted), compared to $27, or $0.00 per
common share, for the same period last year. For the six months ended June 30,
1999, earnings (loss) for common stock were ($207) or ($0.02) per common share,
compared to a loss of $318 or ($0.03) per common share for the same period in
1998.
The change in earnings for the quarter and six months ended June 30, 1999
resulted from an increase in sales of dynamometers and emission testing systems,
higher gross margins from cost cutting efforts, and a reduction in selling,
general, and administrative expense.
Page 6
<PAGE>
Net Sales
Net sales were $11,270 for the six months ended June 30, 1999, a decrease of
$2,296 or 17%, compared with net sales of $13,566 for the six months ended June
30, 1998. Net sales of $5,558 in the second quarter of 1999 decreased $1,741, or
24%, compared with net sales of $7,299 in the second quarter of 1998. The
decrease in the current year period was due principally to declines in sales of
the Company's electric motors and variable speed drives and controls business
and was partially offset by higher sales of emissions testing equipment and
dynamometers.
Gross Income
Consolidated gross income was $4,834 or 43% of sales, for the six months ended
June 30, 1999, compared with consolidated gross income of $5,136, or 38% of
sales, for the six months ended June 30, 1998. In the second quarter of 1999,
consolidated gross income was $3,007 or 54% of sales, compared with consolidated
gross income of $2,714, or 37% of sales, in the second quarter of 1998. The
increase in consolidated gross income resulted from higher sales of dynamometer
and emissions testing units and cost control programs.
Selling and Administrative Expense
Selling and administrative expense, as a percent to net sales, increased to
40% and 39% for the second quarter and first six months of 1999, compared to 31%
and 36% for the second quarter and first six months of 1998, respectively. The
increase is principally due to a 2% and 10% decrease in expense on a 24% and 17%
decrease in sales in the three and six month periods compared to the same
periods last year.
Research and Development Expense
Research and development expenses were $137, or 1.2% of sales, for the six
months ended June 30, 1999, compared with $122, or 0.1% of sales, in the six
months ended June 30, 1998. While research and development expenses decreased in
the current quarter by 31% versus last year, research and development expenses
in the first three months of 1999 were higher than the comparable period last
year as a result of completing emissions testing software for state
certification.
Income Taxes
Income taxes for the three and six months were $226 and $21, or 40% of pretax
income in both periods, compared to $76 and ($95), or 40% of pretax income in
both periods for the prior year.
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.
Page 7
<PAGE>
At June 30, 1999, the Company's working capital was $452, compared to working
capital of ($619) at December 31, 1998. This increase is principally due to a
reduction of trade payables and bank loans.
On July 8, 1999, the Company obtained Credit Committee approval for a
three-year, $10,000 revolving line of credit and term loan from Congress
Financial Corporation, a subsidiary of First Union Bank, N.A. This agreement
will provide advances against eligible receivables and inventory, and a $1,932,
60-month term loan secured by the Company's machinery and equipment. The loans
will bear interest at 1.25% over the prime lending rate.
During the quarter, the Company repaid revolving credit and term loans from
Union Bank of California, in the amount of $851. The Company intends to repay
its revolving line of credit and equipment term notes to Johnson Bank of Racine,
WI, in the current amount of $4,292 when the new credit facility with Congress
Financial is completed.
On June 30, 1999, the holder of the Company's 500,000 shares of outstanding
preferred stock agreed to convert its shares to 500,000 shares of common stock.
The Company has agreed to pay the remaining accrued but unpaid dividends on the
preferred stock over the next 12 months.
Y2K
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 its Dynamatic subsidiary. 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. Hardware costs are
estimated to be $20. 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.
Page 8
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
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 made a presentation at an oral
hearing on June 17, 1999 before the NASDAQ Listing Qualifications Panel,
pursuant to procedures set forth in NASDAQ's Marketplace Rules. The Company is
awaiting the results of the panel's decision as to whether trading on NASDAQ may
resume.
ITEM 2. Changes in Securities
On April 14, 1999, the Company issued 210,000 shares of common stock in stock
grants to attract and retain certain key employees. The stock issued is
restricted, and resale is subject to the restrictions of Rule 144 of the
Securities and Exchange Act of 1933.
On June 17, 1999, a major stockholder and two other holders of accounts payable
of the Company converted $185,000 in trade accounts payable to common stock. For
purposes of the conversion, a value of $0.88 per share was used. The stock
issued is restricted, and resale is subject to the restrictions of Rule 144 of
the Securities and Exchange Act of 1933.
On June 30, 1999, the holder of the Company's outstanding preferred stock agreed
to convert all of its preferred shares to 500,000 shares of common stock.
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
Page 9
<PAGE>
ITEM 6. Exhibits and Reports
a. Exhibits
None
b. Reports on Form 8-K
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.
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.
The Company filed a Report on Form 8-K/A, dated April 13, 1999. This modified a
Form reference.
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.
No other reports on Form 8-K were filed in the second quarter of 1999.
Page 10
<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: July 29, 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: July 29, 1999 /s/ C. Eugene Hutcheson
-----------------------------
C. Eugene Hutcheson, Chairman
and Chief Executive Officer
Date: July 29, 1999 /s/ Wayne R. Lorgus
-----------------------------
Wayne R. Lorgus, President
and Chief Financial Officer
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 167
<SECURITIES> 0
<RECEIVABLES> 2,726
<ALLOWANCES> 116
<INVENTORY> 7,672
<CURRENT-ASSETS> 10,925
<PP&E> 13,904
<DEPRECIATION> (6,197)
<TOTAL-ASSETS> 24,376
<CURRENT-LIABILITIES> 10,473
<BONDS> 0
10
0
<COMMON> 0
<OTHER-SE> 4,949
<TOTAL-LIABILITY-AND-EQUITY> 24,376
<SALES> 5,558
<TOTAL-REVENUES> 5,558
<CGS> 2,551
<TOTAL-COSTS> 2,551
<OTHER-EXPENSES> 2,271
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170
<INCOME-PRETAX> 566
<INCOME-TAX> 226
<INCOME-CONTINUING> 340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 340
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
