UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Mark one
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of the Securities Exchange
Act of 1934
For the period ended June 30, 1997
-------------
OR
( ) 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
0-2545
----------------------
ALLIED RESEARCH CORPORATION
--------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 04-2281015
- ------------------------------ ---------------------------
(State or other jurisdiction of (I.R.S. Employer Number)
incorporation or organization)
8000 Towers Crescent Drive, Suite 750
Vienna, Virginia 22182
- ---------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 847-5268
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 30, 1997: 4,545,501.
<PAGE>
ALLIED RESEARCH CORPORATION
INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION - UNAUDITED NUMBER
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1996 and June 30, 1997.............................................2, 3
Condensed Consolidated Statements of Earnings
Three months and six months ended June 30, 1997 and 1996...........................4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1997 and 1996.........................................5, 6
Notes to Condensed Consolidated Financial Statements........................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................12
PART II. OTHER INFORMATION...................................................................................14
</TABLE>
<PAGE>
ALLIED RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C>
CURRENT ASSETS
Cash and equivalents, including restricted cash ........ $22,291 $32,860
Accounts receivable .................................... 20,220 11,889
Costs and accrued earnings on uncompleted contracts .... 3,876 14,694
Inventories ............................................ 4,790 7,171
Prepaid expenses and deposits .......................... 2,592 3,880
------- -------
Total current assets ........................... 53,769 70,494
PROPERTY, PLANT AND EQUIPMENT - AT COST
Buildings and improvements ............................. 11,910 13,316
Machinery and equipment ................................ 29,638 33,030
------- -------
41,548 46,346
Less accumulated depreciation .......................... 30,254 33,106
------- -------
11,294 13,240
Land ................................................... 1,274 1,412
------- -------
12,568 14,652
OTHER ASSETS
Intangibles, net of amortization ....................... 5,420 6,124
Restricted cash ........................................ 1,800 --
Other .................................................. 830 678
------- -------
8,050 6,802
------- -------
$74,387 $91,948
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
ALLIED RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(THOUSANDS OF DOLLARS)
LIABILITIES
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C>
CURRENT LIABILITIES
Notes payable ............................................. $ 480 $ 3,318
Current maturities of long-term debt ...................... 4,705 14,099
Accounts and trade notes payable .......................... 10,356 18,571
Accrued liabilities ....................................... 4,065 4,702
Customer deposits ......................................... 10,888 10,935
Income taxes .............................................. 1,286 805
------- --------
Total current liabilities ......................... 31,780 52,430
LONG-TERM DEBT, less current maturities ...................... 8,405 7,443
DEFERRED INCOME TAXES ........................................ 599 628
STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized, 10,000
shares; none issued .................................... --
Common stock, par value, $.10 per share; authorized
10,000,000 shares; issued and outstanding, 4,545,501
in 1997 and 4,443,092 in 1996 .......................... 455 444
Capital in excess of par value ............................ 11,632 10,846
Retained earnings ......................................... 21,773 17,482
Accumulated foreign currency translation adjustment ....... (257) 2,675
------- --------
33,603 31,447
------- -------
$74,387 $91,948
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
ALLIED RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C>
REVENUE ..................................... $ 24,630 $ 23,004 $ 54,395 $ 46,531
COST AND EXPENSES
Cost of sales ............................ 18,012 17,329 42,287 35,724
Selling and administrative ............... 3,107 3,659 6,429 7,123
Research and development ................. 316 363 683 774
---------- ---------- ---------- ----------
21,435 21,351 49,399 43,621
Operating income .................... 3,195 1,653 4,996 2,910
OTHER INCOME (DEDUCTIONS)
Interest expense ......................... (612) (862) (1,120) (1,540)
Interest income .......................... 191 334 444 731
Other - net .............................. (132) (115) 507 (231)
---------- ---------- ---------- ----------
(553) (643) (169) (1,040)
Earnings before income taxes ........ 2,642 1,010 4,827 1,870
INCOME TAXES ................................ 335 359 536 583
---------- ---------- ---------- ----------
NET EARNINGS ........................ $ 2,307 $ 651 $ 4,291 $ 1,287
========== ========== ========== ==========
NET INCOME PER COMMON SHARE ................ $ .51 $ .15 .95 .29
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES ........... 4,532,371 4,430,257 4,502,521 4,426,445
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
ALLIED RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended June 30
------------------------
Increase (decrease) in cash and equivalents .............................. 1997 1996
------- -------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings .......................................................... $ 4,292 $ 1,287
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities
Depreciation and amortization .................................... 992 598
Changes in assets and liabilities
Accounts receivable ........................................... (9,068) 6,119
Costs and accrued earnings on uncompleted contracts ........... 9,397 (8,324)
Inventories ................................................... 1,491 (194)
Prepaid expenses and other assets ............................. 803 498
Accounts payable, accrued liabilities and customer deposits ... (5,674) (5,871)
Income taxes .................................................. 574 (238)
------- -------
Net cash provided by (used in) operating activities ...... 2,807 (6,125)
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Capital expenditures .................................................. (346) (263)
------- -------
Net cash (used in) investing activities .................. (346) (263)
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
ALLIED RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended June 30
------------------------
1997 1996
---------- ----------
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt ............................... (7,897) (2,057)
Increase in long-term debt ......................................... 1,800 --
Net (decrease) increase in short-term borrowings ................... (2,694) 1,190
Stock grant/stock plan ............................................. 581 44
Options exercised .................................................. 214 --
Deposits - restricted cash ......................................... (1,800) 1,463
-------- --------
Net cash (used in) provided by financing activities ... (9,796) 640
EFFECTS OF EXCHANGE RATE CHANGES ON CASH .............................. (3,233) 81
-------- --------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS ........... (10,568) (5,667)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ............................. 32,859 15,744
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD ................................. $ 22,291 $ 10,077
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------
Cash paid during the period for
Interest ........................................................ $ 685 $ 664
Taxes ........................................................... 405 329
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
ALLIED RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheets as of June 30, 1997 and December
31, 1996, the condensed consolidated statements of earnings and the
condensed consolidated statements of cash flows for the six months ended
June 30, 1997 and 1996, have been prepared by the Company without audit. In
the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flow at June 30, 1997 and 1996
have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's December
31, 1996 Form 10-K filed with the Securities and Exchange Commission,
Washington, D.C. 20549. The results of operations for the period ended June
30, 1997 and 1996 are not necessarily indicative of the operating results
for the full year.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
Allied Research Corporation (a Delaware Corporation) and the Company's
wholly-owned subsidiaries, Mecar, S.A. (a Belgian Company), Allied Research
Corporation Limited (a United Kingdom Company) and Barnes & Reinecke, Inc.
(a Delaware Corporation).
Mecar, S.A.'s wholly-owned Belgian subsidiaries include, Sedachim, S.I.,
Tele Technique Generale, and VSK Electronics N.V. and its wholly-owned
subsidiaries, Classics, B.V.B.A. Detectia, N.V., I.D.C.S., N.V. and Belgian
Automation Units, N.V., (collectively "The VSK Group").
Significant intercompany transactions have been eliminated in consolidation.
NOTE 3 - RESTRICTED CASH
Mecar is generally required under the terms of its contracts with foreign
governments to provide performance bonds, advance payment guarantees and
letters of credit. The credit facility agreements used to provide these
financial guarantees generally place restrictions on cash deposits and other
liens on Mecar's assets until the customer accepts delivery. Cash deposits
totaling approximately $18,219 at June 30, 1997 and $20,166 at December 31,
1996 are restricted or pledged as collateral for various bank agreements as
shown below.
7
<PAGE>
ALLIED RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1997
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 3 - RESTRICTED CASH - CONTINUED
Barnes and Reinecke has an agreement with its bank to provide financing in
exchange for a cash collateral deposit of $1,800 which is classified as
long-term.
1997 1996
---- ----
Cash
Credit facility and related term loan agreements $17,937 $18,382
Other bank guarantees and letters of credit 282 1,734
------- -------
18,219 20,116
Deposit - restricted cash - long term
Cash deposit pledge 1,800 --
------- -------
$20,019 $20,116
======= =======
NOTE 4 - INVENTORIES
Inventories are composed of raw materials and supplies.
NOTE 5 - NOTES PAYABLE
Barnes and Reinecke has a $1,250 revolving line-of-credit agreement which
had no outstanding balance at June 30, 1997. The outstanding borrowings
under the similar line were $250 at December 31, 1996. These lines-of-credit
expired June, 1997. In addition, there are two notes payable of $500 each to
the bank which had a total balance of $138 at June 30, 1997 and $661 at
December 31, 1996. Borrowings are secured by assets, as defined in the
agreement, and are guaranteed by Allied. The agreement contains covenants
requiring the maintenance of certain financial ratios and other matters. A
new agreement was signed June, 1997 and calls for a line-of-credit of
$3,500, a term loan of $500 and the capacity for $5,950 in letters of
credit, the agreement is collateralized by prepaid deposits from the
customer.
Mecar has a $878 line-of-credit agreement with a foreign bank which has a
balance of $342 at June 30, 1997 and no balance at December 31, 1996. The
line is secured by a cash deposit pledge equal to the full amount of the
line.
8
<PAGE>
ALLIED RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1997
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 6 - CREDIT FACILITY
The Company is obligated under a credit agreement (the Old Agreement) with a
banking pool comprised of four foreign banks that provided credit facilities
primarily for letters of credit, bank guarantees, performance bonds and
similar instruments required for specific sales contracts. The Old Agreement
provides for certain bank charges and fees as the line is used, plus a fee
of approximately 2% of guarantees issued. As of June 30, 1997, the credit
facility had been fully utilized and guarantees of $8,181 remain
outstanding.
The Company has a credit agreement (the New Agreement) with a banking pool
comprised of five foreign banks that provide similar credit facilities for
new contracts. The bank fee structure under the New Agreement and the Old
Agreement is similar. As of June 30, 1997, there were $12,620 guarantees
outstanding under this agreement.
At June 30, 1997, guarantees under the Old Agreement were secured by
deposits of $4,112, plus term deposits of $4,069. The term deposits
correspond to the term loan agreement with two of the institutions in its
foreign banking pool. The proceeds were placed in deposit accounts as
collateral for credit facility advances made by the pool under the Old
Agreement. Guarantees under the New Agreement total $12,620 and are
collateralized by deposits of $9,756. Amounts outstanding are also
collateralized by pledges of approximately $27,600 on Mecar's assets,
letters of credit and certain funds received under the contracts financed.
Both Agreements provide for restrictions on payments or transfers to Allied
and ARCL for management fees, intercompany loans, loan payments, the
maintenance of certain net worth levels and the payment of bank fees and
charges.
The Company is also liable for guarantees and other instruments issued on
its behalf by other banks which approximate $899 at June 30, 1997, which are
collateralized by $548 of time deposits.
Mecar is obligated on a $5,000 twenty year mortgage on its manufacturing and
administration facilities. As amended, the balance of the loan is payable in
annual principal installments of approximately $600 and matures in 2004. The
Company is also obligated on several mortgages on The VSK Group's buildings
which has a balance of approximately $1,200 at June 30, 1997. The mortgages
are payable in annual installments of approximately $250 plus interest.
NOTE 7 - LONG-TERM FINANCING
Scheduled annual maturities of long-term obligations as of June 30, 1997 are
approximately as follows:
Year Amount
---- ------
1998 $4,705
1999 3,500
2000 1,200
2001 1,200
2002 800
Thereafter 1,705
9
<PAGE>
ALLIED RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1997
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
The provision for income taxes differs from the anticipated combined federal
and state statutory rates due to operating loss carryovers and earnings from
foreign subsidiaries.
The Company's Belgian subsidiaries have unused net operating losses of
approximately $8,000 at June 30, 1997, which under Belgian law cannot be
carried back but may be carried forward indefinitely, and are subject to
certain annual limitations.
As of June 30, 1997, the Company had unused foreign tax credit carryforwards
of approximately $700 which expire through 2009.
Deferred tax liabilities have not been recognized for bases differences
related to investments in the Company's Belgian and United Kingdom
subsidiaries. These differences, which consist primarily of unremitted
earnings intended to be indefinitely reinvested, aggregated approximately
$23,000 at June 30, 1997. Determination of the amount of unrecognized
deferred tax liabilities is not practicable.
NOTE 9 - EARNINGS (LOSS) PER SHARE
Stock options outstanding have not been included in the per share
computation because there would not be a material effect on earnings per
share.
10
<PAGE>
ALLIED RESEARCH CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
JUNE 30, 1997
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
The Company conducts its business through its wholly-owned subsidiaries:
Mecar, S.A., ("Mecar"), a Belgian corporation, and its subsidiaries,
Sedachim, S.I., as well as Tele Technique Generale, VSK Electronics, N.V.,
Classics, B.V.B.A., Detectia, N.V., I.D.C.S., N.V., and Belgian Automation
Units, N.V. (collectively "The VSK Group"); Barnes & Reinecke, Inc.,
("Barnes") a Delaware corporation, headquartered in Illinois; and Allied
Research Corporation Limited, ("Limited") a U.K Company. This discussion
refers to the financial condition and results of operations of the Company
on a consolidated basis.
SALES
-----
Revenue for the first six months of 1997 was $54,395, a 17% increase from
the comparable period in 1996, principally due to Mecar's increase in
revenue. Mecar revenue was $41,100, or up 32% compared to $31,210 for the
period ended June 30, 1996. Barnes' revenue was $4,796, down 25% compared to
the same period in 1996. This decrease at Barnes is due to the completion of
a significant contract during the prior period. The VSK Group's revenue for
the first half of 1997 was $8,498 compared to $8,922 in 1996. This decrease
is due to the strengthening dollar, as sales increased by 8% over the same
period last year in VSK's functional currency. Limited did not have
significant revenue this period or in last year's comparable period.
Revenue for the quarter ended June 30, 1997 was $24,630, a 7% increase over
the quarter ended June 30, 1996. Mecar recognized revenue of $17,842 for the
quarter ended June 30, 1997, a 16% increase over the quarter ended June 30,
1996; Barnes' revenue of $2,520 for the quarter ended June 30, 1997
constituted a 18% decrease over the quarter ended June 30, 1996; the revenue
of The VSK Group of $4,267 for the quarter ended June 30, 1997 decreased in
U.S. dollars by 5% , however, they increased in VSK's functional currency by
5% over the quarter ended June 30, 1996.
The increase in revenue during the first six (6) months of 1997 resulted
principally from a higher backlog of orders at the end of calendar year 1996
than at the end of calendar year 1995 at Mecar and a substantial additional
order received by Mecar in the first quarter of 1997. Although Barnes'
revenues decreased, it continues to execute on the order it received during
calendar year 1996 for the benefit of a foreign-based customer and is
operating profitability.
BACKLOG
-------
As of June 30, 1997, the Company's backlog was $121,495 compared with
$79,600 at December 31, 1996 and $145,000 at March 31, 1997.
Mecar's backlog at June 30, 1997 was $95,147 compared with $115,000 at March
31, 1997.
Barnes' backlog as of June 30, 1997 was $12,314 compared with $16,000 at
March 31, 1997.
The backlog of The VSK Group as of June 30, 1997 and March 31, 1997 was
$14,214.
11
<PAGE>
ALLIED RESEARCH CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS - CONTINUED
JUNE 30, 1997
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
----------------------------
Cost of sales for the first six months of 1997 was approximately $42,287 or
78% of sales as compared to $35,724 or 76% for the first six months of 1996.
Cost of sales for the quarter ended June 30, 1997 was $18,012 or 73% of
sales compared to $17,339 or 75% of sales for the same period the previous
year. The percentage increase is primarily due to the product mix.
Selling and administrative expenses were approximately $6,427 of revenues or
12% as a percentage of sales for the six months ended June 30, 1997 as
compared to $7,123 or 15% for the six months ended June 30, 1996. Selling
and administrative expenses for the quarter ended June 30, 1997 were $3,107
or 13% of sales compared to 16% of sales for the same period in the previous
year. The decrease reflects scheduled reductions in certain expenditures and
increased amounts of revenue.
RESEARCH AND DEVELOPMENT
------------------------
Research and development expenses were 1% of sales for each of the six month
period and three month period ended June 30, 1997 as compared with 2% for
the corresponding periods in 1996.
OPERATING RESULTS
-----------------
Operating income reached $4,996 for the first six months of 1997 (or 9% of
revenue). This compares with an operating income of $2,910 for the six
months ended June 30, 1996. During the second quarter of 1997, the Company
had operating income of $3,195 (or 13% of revenue) compared with an
operating income of $1,653 for the quarter ended June 30, 1996. The improved
results are primarily attributable to increased amounts of revenue at Mecar.
INTEREST EXPENSE
----------------
Interest expense for the six months ending June 30, 1997 was $1,120,
compared to $1,540 for the six month period ended June 30, 1996, a 27%
decrease over the prior period. Interest expense decreased by approximately
29% for the three month period ended June 30, 1997 over the same period in
1996. Both decrease are due to reduced levels of borrowing.
INTEREST INCOME
---------------
Interest income decreased for the six months and three month period ended
June 30, 1997 as a result of lower levels of cash.
OTHER - NET
-----------
For the three and six months ended June 30, 1997 and 1996, Other - Net
represents primarily net currency gains and losses, resulting from foreign
currency transactions.
12
<PAGE>
ALLIED RESEARCH CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS - CONTINUED
JUNE 30, 1997
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
NET EARNINGS
------------
The Company had a $4,291 net profit for the first six months of 1997
compared with a net profit of $1,287 for the same period of 1996.
The Company earned $2,307 for the three month period ending June 30, 1997
compared with $651 for the comparable period in 1996.
The increased earnings are attributable to operations at Mecar. The VSK
Group continues to provide a steady and stable return to the Company.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During the first six months of 1997 and throughout 1996, Allied funded its
operations principally with internally generated cash and back-up credit
facilities required for foreign government contracts. At June 30, 1997, the
Company had unrestricted cash (i.e., cash not required by the terms of the
bank agreement to collateralize contracts) of approximately $4,072, as
compared with approximately $4,654 as of March 31, 1997.
In 1997, Mecar extended its bank pool agreement to finance orders received
from its principal customers. The financing continues to consist of
performance bonds, advance payment guarantees and import letters of credit
and a $1,000 cash line-of-credit. The financing has been provided on
substantially the same terms and conditions as historically provided by the
bank pool and as summarized in prior Company filings. The financing
documents continue to restrict the amount of payments Mecar may make to any
affiliated company, including the Company, absent bank pool approval.
During the second quarter of 1997, Barnes obtained a new bank facility. The
facility provides a line-of-credit of up to $3,500, a term loan of $500 and
the capacity to issue up to $5,950 in letters of credit. The letters of
credit are required by Barnes' $9,000 contract executed in December, 1996.
As of June 30, 1997, Barnes was obligated on a $1,800 long-term advance from
a customer and an outstanding balance on a term note of $495.
Accounts receivable at June 30, 1997 increased over December 31, 1996 by
$8,331 and cost and accrued earnings on uncompleted contracts decreased by
$10,818 from 1996 as a result of shipments. Inventories decreased by $2,381
over 1996 and prepaid expenses decreased by $1,288. Current liabilities
decreased by $20,650 from December 31, 1996 levels as a result of payments
of current maturities of long-term debt, accrued liabilities and accounts
payable.
Long-term debt (including current maturities thereof) as of June 30, 1997,
decreased by approximately $8,432 from December 31, 1996 as a result of
scheduled repayments of the term loan supporting Mecar's credit facility and
reductions in VSK's debt.
In summary, working capital was approximately $18,064 at June 30, 1997,
which is an increase of $3,925 from December 31, 1996.
13
<PAGE>
ALLIED RESEARCH CORPORATION
JUNE 30, 1997
- --------------------------------------------------------------------------------
PART II. OTHER INFORMATION
14
<PAGE>
ALLIED RESEARCH CORPORATION
JUNE 30, 1997
- --------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company's annual meeting of shareholders was held on June
4, 1997.
(b) The matters voted upon at the meeting referred to in the
foregoing Item 4(a) were (i) the ratification of the selection of Grant Thornton
LLP as the Company's independent auditors for 1997 (ii) the election of five (5)
directors to serve for the ensuing year and until their successors are elected
and qualified and (iii) the approval of the Company's 1997Incentive Stock Plan
(the "Plan"). As to the ratification of the selection of Grant Thornton as the
Company's independent auditors for 1997, 3,273,164 shares was voted for, 3,543
shares were voted against, 170,165 shares abstained from voting and there were
no shares counted as broker non-votes. With respect to the election of directors
to serve for the ensuing year, shares were voted for (or votes were withheld)
for the five (5) nominees, all of whom were elected, as follows: J. R. Sculley -
3,113,379 (333,493); Clifford C. Christ - 2,870,209 (576,663); Earl P. Smith -
2,870,497 (576,375); Robert W. Hebel - 2,863,666 (583,206); and Harry H. Warner
- - 3,067,126 (379,746). With respect to the approval of the Plan, 2,527,991
shares were voted for, 689,844 shares were voted against, 172,215 shares
abstained from voting and there were 47,822 shares counted as broker non-votes.
15
<PAGE>
ALLIED RESEARCH CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIED RESEARCH CORPORATION
/s/ J. R. Sculley
Date: July 25, 1997 ---------------------------
J. R. Sculley
Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $22,291
<SECURITIES> 0
<RECEIVABLES> 20,220
<ALLOWANCES> 0
<INVENTORY> 4,790
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0
0
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</TABLE>
