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 ________________ to _______________
Commission File No. 33-55254-31
UNIDYN, CORP.
(Exact name of Small Business Issuer as specified in its charter)
NEVADA 87-0438639
(State or other jurisdiction of (I.R.S. Employer Identificatio
incorporation or organization) Number)
8621 North Seventy Ninth Avenue
Peoria, Arizona 85345
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (602) 979-2800
Indicate by check mark whether the Issuer (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 Issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the Issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of March 31, 1999
- ------------------------------------ ----------------------------------
$.001 PAR VALUE CLASS A COMMON STOCK 32,000,000 SHARES
1
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ITEM 1. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH
RESPECT TO THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS
DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE
SUB-HEADING, "BUSINESS RISKS." SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM
10KSB FOR THE YEAR ENDED DECEMBER 31, 1998.
OVERVIEW
The Company was incorporated in the State of Utah in 1986 as Macaw
Capital, Inc. and was reincorporated in 1993 in the State of Nevada. In December
of 1997, Macaw Capital, Inc. acquired a portion of the assets of Universal
Dynamics, Inc., a private manufacturer of environmental vibration testing
equipment formed in December 1989, and was renamed UniDyn, Corp. No material
relationship exists between the former management and directors of Macaw
Capital, Inc. and the current management and directors of UniDyn, Corp. UniDyn,
Corp. shares are currently traded under the symbol UNDY on the NASDAQ Electronic
Bulletin Board System.
The current company is in the business of providing products involving
quality control of manufactured electronics. These products fall under two
categories, A) Vibration Stress Screening (VSS) and B) Sterling inspection
products for on-line printed circuit board inspection.
A) The vibration test products are used to check the integrity of printed
circuit boards and other physical items eventually used in automotive and
electronics. This core business primarily consists of 1) the vibration hardware
or "shaker" unit which mechanically vibrates the test platform, 2) the vibration
control system which measures output and regulates shaker intensity, and 3) the
amplifier unit which provides power to the shaker. On the production line, VSS
can identify latent defects not readily identified through visual inspection or
during the development and design process. Vibration Stress Screening of
electronic and mechanical components, such as printed circuit boards saves
rework time during production, reduces warranty exposure and can enhance product
quality and longevity. VSS is most effective in detecting intermittent defects
such as loose connections, broken parts, cracked traces, poor solder joints and
mechanical flaws.
The Company currently markets its Vibration Control System product
under the NorthStar brand and to other OEM's to be repackaged for use in the
aerospace, automotive and semiconductor industries. The Company has also
purchased a complete line of shaker and amplifiers known in the industry under
the trade name "Derritron". Derritron has had a 30 year history in the shaker
business, and is considered a premier shaker product. This combined with the
Company's world class vibration control system, puts UniDyn in the position to
become a first tier provider of turn-key vibration test products.
B) UniDyn's flagship in new products is a product called "Sterling". The
Sterling product was completely acquired from Universal Dynamics in the second
quarter of 1998 after the patent
2
<PAGE>
search showed no prior art, and open for patent filing. UniDyn is currently in
the process of filing patents on this new testing process. The Company also has
firm commitments with a large Japanese company with a 45 year history of
providing various products for the printed circuit board industry. The Company
will provide product to the Japanese company under an exclusive OEM arrangement
in Japan. The quantity will be approximately 20 Sterling units a month during
the first year, and relating to the initial discovered demands of the Japanese
customer. The Company is in the process of engineering a "Production Model" for
delivery in 1999. The product technique is already tested at IBM and Delco
Electronics. The Company is constructing the production model for delivery.
The Sterling process provides for completely automated on-line quality control
testing of printed circuit boards. It is expected that the Sterling process can
significantly reduce warranty liability for a variety of industries, including
manufacturers of computers, consumer electronic products, and aerospace and
military systems, by anticipating hidden defects.
OVERVIEW ACQUISITIONS
To meet the objectives of its business plan and reach an economy of
scale in the short-term, the Company has entered into several asset acquisition
agreements. In December of 1997, the Company closed a transaction with Universal
Dynamics, Inc. an Arizona corporation, for the transfer of certain assets
including equipment, inventory, accounts receivable, software and other
intangible assets related to the NorthStar vibration control system business.
These systems are Microsoft Windows-based and have been integrated in the
Company's proprietary control systems software.
The Company also entered into an agreement to acquire a 100% interest
in the Derritron product of shakers and amplifiers, previously known as a United
Kingdom based manufacturer of vibration shakers and amplifiers. The Company
completed that acquisition in the second quarter of 1998. With this acquisition,
the Company will receive patents, products, manufacturing equipment and an
established market presence internationally. Derritron is currently 1 of only 4
shaker manufacturers worldwide with a full range of electrodynamic shakers, and
has a full selection of shaker models.
The Company also finished the acquisition of the "Sterling" product
rights from Universal Dynamics, Inc., an Arizona corporation, in the second
quarter of 1998. This acquisition was completed after the "Sterling" process was
discovered clear on the patent search during the second quarter.
RESULTS OF OPERATIONS
For the three months ending March 31, 1999, the Company posted a loss
of $42,007 on revenues of $401,200 ($165,895 earnings and $737,415 for the same
period in 1998). Substantially all sales were generated from the NorthStar
product. NorthStar is composed of off the shelf items and has minimal assembly
requirements. The Company was profitable for the quarter ($36,553) but its
subsidiary lost $78,560.
3
<PAGE>
Sales are subject to material monthly fluctuations as the Company
integrates recent acquisitions, modifies operations, introduces new product
lines, and modifies its existing customer base. There can be no assurance that
the Company will have the capital resources necessary to complete the
introduction of the Sterling Process in a timely manner in accordance with the
Company's business plan. The Company is currently involved with various funding
potentials for Sterling.
Cost of Goods Sold for the three months ended March 31, 1999 were
$121,588 with a resultant gross profit of $279,612 ($198,421 and $538,994 for
1998). Gross margin for the period ended March 31, 1999 was 70% (73% in 1998).
Until new products are introduced, including the Sterling Process, there is
significant uncertainty about future gross margins. Gross margin percentage is
highly dependent upon product prices, sales volumes, materials cost and
allocation of manufacturing overhead.
Selling, General and Administrative costs for the three months ended
March 31, 1999 were $317,055, ($332,049 in 1998). The Company currently leases a
total about 40 people in the United States and the United Kingdom. Management
believes that by leasing its primary workforce, the Company has substantially
limited fixed overhead costs and provided for a larger free-cash flow for the
Company's growth phase. It also allows for a better benefit base through managed
401K and health plans already established in the employee leasing companies.
For the three months ending March 31, 1999 the majority of the
Company's research was conducted at the Company's Engineering and Development
Center in American Fork, Utah. Substantial research and development costs were
incurred by Universal Dynamics for the development of the NorthStar and Sterling
Process products prior to the December, 1997 asset purchase.
LIQUIDITY AND CAPITAL RESOURCES
The Company is currently seeking additional working capital to meet its
short term growth planning including the acquisition of a potential supplier for
the Sterling system. Management believes, although there can be no assurance,
that the Company will have sufficient cash needs for the next 12 months
regardless of its success in attracting additional capital investment. However,
management also believes that a lack of additional working capital over the
remainder of the current fiscal year would substantially curtail the roll-out of
the Sterling Process product line. As of March 31, 1999, the Company has
approximately $103,050 in working capital.
4
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has adopted several notices
with regard to the treatment of interim financial statements. These issues are
presented in the Company's interim financial statements. As discussed in the
notes to the interim financial statements, the implementation of these new
pronouncements is not expected to have a material effect on the financial
statements.
BUSINESS RISKS
While management believes, but there can be no assurance, that the
Company is sufficiently capitalized to continue operations for the remainder of
the fiscal year, management is currently seeking additional capital investment
to fulfill inventory requirements and outstanding purchase orders which could
have a material impact on short-term growth objectives.
This report contains a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated. In this report, the words
"anticipates", "believes", "expects", "intends", "future" and similar
expressions identify forward-looking statements. Readers are cautioned to
consider the specific risk factors described in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998 and not to place undue reliance
on the forward-looking statements contained herein, which speak only as of the
date hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements, to reflect events or circumstances that may arise
after the date hereof.
IMPACT OF THE YEAR 2000 ISSUE
The "Year 2000 Problem" arose because many existing computer programs
use only the last two digits to refer to a year. Therefore, these computer
programs do not properly recognize a year that begins with "20" instead of the
familiar "19". If not corrected, many computer applications could fail or create
erroneous results. The extent of the potential impact of the Year 2000 Problem
is not yet known, and if not timely corrected, it could affect the global
economy.
Y2K Statement
The Company has verified that all internal software used in the
operations of the Company and related developments are Y2K compliant. The
Company sees no risk at this time pertaining to Y2K, and internal company
operations.
Products currently manufactured by the Company have also been Y2K
verified. All previous Company customers have the ability to purchase both
hardware and software upgrades from the Company which will certify their
products as Y2K compliant. The amount of needed hardware and software depends on
the associated production model in question.
ITEM 2. LEGAL PROCEEDINGS
Not applicable.
5
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Financial statements as of March 31, 1999
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIDYN, CORP.
Dated: May 4, 1999
Ira Gentry, President and Director
6
<PAGE>
UNIDYN, CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1999
----------------------
ASSETS
CURRENT ASSETS
<S> <C>
Cash in bank $ 103,567
Accounts receivable 145,740
Deferred tax benefit 12,896
Prepaid expense 12,921
Inventory 34,500
----------------------
TOTAL CURRENT ASSETS 309,624
PROPERTY, PLANT & EQUIPMENT 82,986
OTHER ASSETS
Deferred tax benefit 196,500
Derrition Technology 4,008,400
----------------------
4,204,900
----------------------
$ 4,597,510
======================
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 84,778
Accrued expenses 16,327
Payable - related party 105,469
----------------------
TOTAL CURRENT LIABILITIES 206,574
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding
32,000,000 shares 32,000
Additional paid-in capital 4,341,832
Retained earnings 23,690
Accumulated other comprehensive loss (6,586)
----------------------
TOTAL STOCKHOLDERS' EQUITY 4,390,936
----------------------
$ 4,597,510
======================
</TABLE>
F-1
<PAGE>
UNIDYN, CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Net sales $ 401,200 $ 737,415
Cost of sales 121,588 198,421
----------------- -----------------
GROSS PROFIT 279,612 538,994
Other Income 0 30,000
General and administrative expenses 317,055 332,049
----------------- -----------------
317,055 332,049
----------------- -----------------
NET INCOME (LOSS)
BEFORE INCOME TAXES (37,443) 236,945
Income tax expense 4,564 71,050
----------------- -----------------
NET INCOME (LOSS) (42,007) 165,895
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustments (6,586) 0
----------------- -----------------
TOTAL COMPREHENSIVE INCOME (LOSS) $ (48,593) $ 165,895
================= =================
Net income (loss) per weighted average share $ (.00) $ .01
================= =================
Weighted average number of common shares used to
compute net income (loss) per weighted average share 32,000,000 30,600,000
================= =================
</TABLE>
F-2
<PAGE>
UNIDYN, CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
----------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (42,007) $ 165,895
Adjustments to reconcile net income (loss) to cash provided
(required) by operating activities:
Depreciation 3,602 990
Deferred taxes 1,604 0
Foreign currency translation (6,586) 0
Changes in assets and liabilities:
Accounts receivable 99,572 (119,254)
Inventory (327) (37,777)
Prepaid expenses 4,643 (1,492)
Accounts payable (88,360) 13,677
Accrued expenses (30,958) 0
Payable - related party 14,799 0
Income taxes payable (50) 71,000
----------------- -----------------
NET CASH PROVIDED (REQUIRED)
BY OPERATING ACTIVITIES (44,068) 93,039
INVESTING ACTIVITIES
Loans 0 (61,000)
Purchase of equipment / cost adjustment 8,699 0
----------------- -----------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 8,699 (61,000)
FINANCING ACTIVITIES
Line of credit repayments 0 (35,000)
Repayments - related parties 0 0
Loan principal payments 0 (74,775)
Loan proceeds 0 78,500
----------------- -----------------
NET CASH (USED) BY
FINANCING ACTIVITIES 0 (31,275)
----------------- -----------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (35,369) 764
Cash and cash equivalents at beginning of year 138,936 104,522
----------------- -----------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 103,567 $ 105,286
================= =================
Cash paid for income taxes $ 2,960 $ 50
Cash paid for interest 0 1,370
</TABLE>
F-3
<PAGE>
UNIDYN, CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Accounting Methods
The Company recognizes income and expenses based on the
accrual method of accounting.
Principals of Consolidation
The financial statements for March 31, 1999 contain the
accounts of the Company and its wholly-owned subsidiary,
Unidyn (Europe) Limited.
The financial statements for March 31, 1998 contain the
accounts of the Company and Universal Dynamics, Inc.
("Universal"). Universal could be considered an entity under
common control as at one time, the President of the Company
and the president of Universal were the same person. Also the
Company issued common stock to Universal to acquire the
NorthStar operations from Universal. NorthStar is currently
the main line of business for the Company. All significant
intercompany transactions have been eliminated on
consolidation.
Dividend Policy
The Company has not yet adopted any policy regarding payment
of dividends in cash.
Organization Costs
The Company amortized its organization costs over a five year
period.
Inventory
Inventory consists of items for resale and is valued at the
lower of cost (first-in, first-out basis) or market.
Allowance for Uncollectible Accounts
The Company provides an allowance for uncollectible accounts
based upon prior experience and management's assessment of the
collectability of existing accounts.
Revenue Recognition
Revenue is recognized upon shipment of products.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all
highly liquid investments with an original maturity of three
months or less when purchased to be cash equivalents.
Earnings (loss) per share
Earnings or loss per common and common equivalent share is
computed by dividing net earnings (loss) by the weighted
average common shares outstanding during each period.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, and expenses during
the reporting period. Estimates also affect the disclosure of
contingent assets and liabilities at the date of the financial
statements. Actual results could differ from these estimates.
Such estimates of significant accounting sensitivity are
allowance for doubtful accounts.
Stock Options
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and related interpretations in accounting for its
future employee stock options rather than adopting the
alternative fair value accounting provided for under Financial
Accounting Standards Board ("FASB") FASB Statement No. 123,
Accounting for Stock Based Compensation (SFAS 123).
Income Taxes
The Company records the income tax effect of transactions in
the same year that the transactions enter into the
determination of income, regardless of when the transactions
are recognized for tax purposes. Tax credits are recorded in
the year realized.
F-4
<PAGE>
UNIDYN, CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 1999
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Income Taxes (continued)
In February, 1992, the Financial Accounting Standards Board
adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, which supersedes substantially
all existing authoritative literature for accounting for
income taxes and requires deferred tax balances to be adjusted
to reflect the tax rates in effect when those amounts are
expected to become payable or refundable. The Statement was
applied in the Company's financial statements for the fiscal
year commencing January 1, 1993.
NOTE 2: ORGANIZATION AND HISTORY
The Company was incorporated under the laws of the State of
Utah on May 2, 1986 as Macaw Capital, Inc. On December 30,
1993, the Company was dissolved as a Utah corporation and
reincorporated as a Nevada corporation. On December 3, 1997,
the name was changed to UniDyn, Corp. The Company manufactures
and sells computer products that perform vibration testing to
assure product stability.
NOTE 3: FORWARD STOCK SPLIT
Effective December 3, 1997, pursuant to written action adopted
unanimously by the Board of Directors and a majority of the
shareholders, the Company changed its name to UniDyn, Corp.,
and approved an eight-for-one forward stock split on the
Company's common stock as follows: each outstanding share was
converted into eight shares. Before the change, the Company
was authorized to issue 100,000,000 shares of $.001 par value
common stock; after the forward stock split the Company shall
continue to be authorized to issue 100,000,000 shares of $.001
par value common stock. The number of outstanding shares of
common stock affected by the forward split was 4,000,000. The
number of issued and outstanding shares of common stock of the
Company after the forward stock split is 32,000,000.
NOTE 4: 1998 EVENTS
STERLING PATENT
During the quarter ended June 30, 1998, the Company issued
6,416,000 shares of restricted common stock, previously held
as treasury stock, to acquire a patent on the Sterling Project
from Universal. The patent will be amortized over fifteen
years. The Sterling Project will allow the testing of printed
circuit boards. Sterling will estimate the projected life of
each solder connection on the printed circuit board, which
will quantify the reliability of the manufactured part. The
Company expects to have a working production model by the end
of 1998 with sales expected in the second quarter of 1999.
DERRITRON TECHNOLOGY
Effective June 30, 1998, the Company issued 14,576,000 shares
of restricted common stock, previously held as treasury stock,
to acquire the technology. The technology will be amortized
over five years. The Company will need to spend some money to
upgrade the technology and expects sales to begin in the third
quarter of 1999. With this acquisition, the Company receives
patents, products, manufacturing equipment, and an established
market presence in England and other parts of Europe.
NOTE 5: SEGMENT INFORMATION
The Company's subsidiary had sales in Europe of $36,145, cost
of sales of $23,926, general and administrative expenses of
$90,779, and a net loss of $78,560. Included in cost of sales
is $16,533 paid to the Company for inventory to sell.
F-5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from UniDyn, Corp. March 31, 1999 financial statements and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000894542
<NAME> UniDyn, Corp.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 103,567
<SECURITIES> 0
<RECEIVABLES> 145,740
<ALLOWANCES> 0
<INVENTORY> 34,500
<CURRENT-ASSETS> 309,624
<PP&E> 92,485
<DEPRECIATION> (9,499)
<TOTAL-ASSETS> 4,597,510
<CURRENT-LIABILITIES> 206,574
<BONDS> 0
0
0
<COMMON> 32,000
<OTHER-SE> 4,358,936
<TOTAL-LIABILITY-AND-EQUITY> 4,597,510
<SALES> 401,200
<TOTAL-REVENUES> 401,200
<CGS> 121,588
<TOTAL-COSTS> 121,588
<OTHER-EXPENSES> 317,055
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (37,443)
<INCOME-TAX> 4,654
<INCOME-CONTINUING> (42,007)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,007)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
