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: September 30, 2000
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[] 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
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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 Identification
incorporation or organization) Number)
3640 East Roeser Road
Phoenix, Arizona 85040
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(Address of principal executive offices) (Zip Code)
1216 South 1580 West, #A
Orem, Utah 84058
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(Former address of principal executive offices) (former Zip Code)
Issuer's telephone number, including area code: (602) 426-8634
--------------------------
Indicate by check mark whether the Issuer (1) has filed all reports
required to be filed by Section 13or 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 September 30, 2000
------------------------------------ ------------------------------------
$.001 PAR VALUE CLASS A COMMON STOCK 35,321,000 SHARES
1
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
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UNIDYN, CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------------------- ---------------------
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
<S> <C> <C>
Cash in bank $ 901,132 $ 461,239
Accounts receivable 450,976 431,857
Stock subscription 0 207,000
Deferred tax benefit 0 14,500
Prepaid expense 11,850 11,850
Receivable - employees 20,500 0
Inventory 611,003 333,551
Deferred interest expense 20,000 0
---------------------- ---------------------
TOTAL CURRENT ASSETS 2,015,461 1,459,997
PROPERTY, PLANT & EQUIPMENT 640,036 560,642
OTHER ASSETS
Deposits and other 77,049 8,184
Goodwill (less amortization of $63,301) 1,202,804 1,266,105
Deferred tax benefit 196,000 181,500
Derritron Technology (less amortization
of $66,807) 3,941,593 4,008,400
---------------------- ---------------------
5,417,446 5,464,189
---------------------- ---------------------
$ 8,072,943 $ 7,484,828
====================== =====================
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 197,575 $ 290,485
Accrued expenses 44,547 31,835
Loans payable 10,336 314,680
Deposits 3,292 21,956
Payable - related party 0 119,369
---------------------- ---------------------
TOTAL CURRENT LIABILITIES 255,750 778,325
LONG-TERM LIABILITIES
Long-term debt and interest - related party 1,032,300 0
---------------------- ---------------------
TOTAL LIABILITIES 1,288,050 778,325
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 35,321,000 shares
(34,700,000 in 1999) 35,321 34,700
Additional paid-in capital 7,082,561 6,558,382
Retained earnings (deficit) (326,403) 120,007
Accumulated other comprehensive loss (6,586) (6,586)
---------------------- ---------------------
TOTAL STOCKHOLDERS' EQUITY 6,784,893 6,706,503
---------------------- ---------------------
$ 8,072,943 $ 7,484,828
====================== =====================
</TABLE>
3
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UNIDYN, CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net product sales $ 508,619 $ 446,480 $ 2,030,650 $ 1,199,973
Other sales 900,000 0 900,000 0
Cost of sales (226,482) (126,979) (945,214) (340,891)
--------------- ------------- -------------- -------------
GROSS PROFIT 1,182,137 319,501 1,985,436 859,082
Other Income 0 0 0 101,565
General and administrative expenses (864,898) (183,151) (2,431,846) (737,323)
--------------- ------------- -------------- -------------
NET INCOME (LOSS)
BEFORE INCOME TAXES 317,239 136,350 (446,410) 223,324
Income tax expense 0 49,180 0 59,803
--------------- ------------- -------------- -------------
NET INCOME (LOSS) 317,239 87,170 (446,410) 163,521
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustments 0 0 0 (6,586)
--------------- ------------- -------------- -------------
TOTAL COMPREHENSIVE INCOME (LOSS) $ 317,239 $ 87,170 $ (446,410) $ 156,935
=============== ============= ============== =============
Net income (loss) per weighted average share $ .01 $ .00 $ (.01) $ .01
=============== ============= ============== =============
Weighted average number of common shares
used to compute net income (loss) per
weighted average share 35,307,804 32,000,000 35,093,809 32,000,000
=============== ============= ============== =============
</TABLE>
4
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UNIDYN, CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
----------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (446,410) $ 163,521
Adjustments to reconcile net income (loss) to cash
provided (required) by operating activities:
Gain on subsidiary 0 (5,717)
Depreciation and amortization 219,193 15,493
Non-cash interest expense 84,500 0
Deferred taxes 0 11,000
Deferred interest 4,000 0
Foreign currency translation 0 (6,586)
Changes in assets and liabilities:
Accounts receivable (19,119) (190,580)
Inventory (277,452) (3,125)
Prepaid expenses 0 8,486
Accounts payable (92,910) 831
Accrued expenses 10,511 (30,958)
(Receivable) Payable - related party (20,500) 14,799
Deposits (87,529) 0
Income taxes payable 0 37,950
----------------- -----------------
NET CASH PROVIDED (REQUIRED)
BY OPERATING ACTIVITIES (625,716) 15,114
INVESTING ACTIVITIES
Purchase of equipment (168,479) 0
Loans 0 (87,150)
----------------- -----------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (168,479) (87,150)
FINANCING ACTIVITIES
Sale of common stock 707,801 0
Loan principal payments (423,713) 0
Loan proceeds 950,000 0
Cash remaining with former subsidiary 0 (17,996)
----------------- -----------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 1,234,088 (17,996)
----------------- -----------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 439,893 (90,032)
Cash and cash equivalents at beginning of year 461,239 138,936
----------------- -----------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 901,132 $ 48,904
================= =================
Cash paid for income taxes $ 0 $ 11,772
Cash paid for interest 998 0
</TABLE>
5
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UNIDYN, CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Accounting Methods
The Company recognizes income and expenses based on the accrual method
of accounting.
Principles of Consolidation
The financial statements for September 30, 2000 contain the accounts of
the Company and its wholly-owned subsidiaries Derritron Vibration
Products and Avalon Manufacturing Company.
The financial statements for September 30, 1999 contain the accounts of
the Company and its former wholly owned subsidiary, Unidyn (Europe)
Limited.
Dividend Policy
The Company has not yet adopted any policy regarding payment of
dividends in cash.
Inventory
Inventory consists of products held 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 collectibility 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 share equivalent is computed by
dividing net earnings (loss) by the weighted average number of 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 (SFAS123).
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.
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.
6
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UNIDYN, CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
September 30, 2000
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
reincorporated as a Nevada corporation. Effective December 3, 1997, the
name was changed to UniDyn, Corp. The Company manufactures and sells
products that perform testing to assure product workmanship and quality
of equipment used in the circuit board industry.
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 continued 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 was 32,000,000.
NOTE 4: 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 the rights to patent the Sterling Process from Universal
Dynamics, Inc. During the third quarter of 2000, a patent was filed on
the Sterling Product Line process. The associated patent cost will be
amortized over fifteen years for income tax purposes and 17 years for
accounting purposes.
The Sterling process will allow the industry to use a non-destructive
thermal energy emissions analysis technology that will reduce warranty
returns to a small fraction of current levels and increase
productivity. Industry data indicates that electronics manufacturers
currently experience a 4 percent to 7 percent return of finished
products under warranty. The Company reports that the Sterling
technology identifies defects in materials and assembly at levels of
accuracy and resolution which have been previously unattainable in any
test procedures suitable for mass production environments. The Sterling
equipment will quantify the reliability of the manufactured part and
indicate the workmanship areas of concern, even though the electronics
passed functional testing.
NOTE 5: 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 business and associated technology known as Derritron. Derritron
was an established business, which manufactured vibration shakers and
other related technology. With this acquisition, Unidyn received
patent, products, know how, drawings, trade name, manufacturing
equipment, and an established market presence in England and other
parts of Europe, Asia, South America, India, and China. This technology
has the capacity to be fully integrated with the NorthStar vibration
control systems acquired from Universal Dynamics. The technology is
being amortized over 15 years.
NOTE 6: OPTIONS
On April 1, 2000, as part of an agreement to provide the Company
investor relations and corporate communication services, Investor
Relations Group (IRG) was issued options to acquire 150,000 shares
(75,000 are exercisable for two years and 75,000 are exercisable for
three years) of restricted shares assignable to IRG officers and
employees. The issued options have an exercise price of $2.99 per share
based on the average sale price of the preceding five trading days
prior to April 1, 2000.
In connection with a $1 million loan received by the Company, during
the first quarter, the lender was paid a loan fee of $50,000 and was
granted warrants to acquire 150,000 shares at an exercise price equal
to 85% of the market price on the date of grant. The difference between
the exercise price and the calculated fair market value of the shares
issuable on exercise of the options was reported as interest expense
and amortized over the period of the loan.
7
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UNIDYN, CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
September 30, 2000
NOTE 6: OPTIONS (continued)
On July 31, 2000, the Company granted 100,000 options to a Company
officer and 50,000 options to one of the Company's directors. The
grants allowed for the purchase of Common Stock at $.89 per share,
based on the fair market value of the stock at the grant date. The
options vest over the next 4 years and have a term of ten years.
NOTE 7: CONTINGENCIES
On June 7, 2000, Unidyn Corp. signed a letter of intent to purchase a
commercial building in Phoenix, Arizona to relocate the Company's
current Avalon division and to provide additional facilities required
for Avalon's anticipated growth due to the Sterling Product. The
transaction is conditioned on a customary due diligence and the
availability of financing, which is currently being sought.
8
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ITEM 2. MANAGEMENTS 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. SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
YEAR ENDED DECEMBER 31, 1999.
OVERVIEW
UniDyn, Corp. (referred to as "UniDyn" or 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. The Common Shares of UniDyn, Corp.
are currently traded on the NASDAQ OTCBB under the symbol "UNDY".
The business of the Company is focused on developing, manufacturing,
assembling and distributing specialized engineering products. The current
product lines, including the vibration stress screening ("VSS") machinery
manufactured under the NorthStar and Derritron brands and the on-line inspection
products being developed at the Avalon facility as the Sterling Product Line,
are directed principally to testing electronic and mechanical components and
providing on-line quality control testing for printed circuit boards. In January
2000, the Company introduced and recognized its first revenues from the
Derritron line of products and anticipates the first shipment of the Sterling
Product Line in the fourth quarter of 2000. In addition to these product
introductions, the Company has established a license agreement for the Sterling
Product Line in the third quarter. The Company plans to continue seeking
additional licensing contracts for the Sterling Product Line and licensing
opportunities for all its products. The Company also plans to maintain its
emphasis on developing and distributing specialized engineering and testing
products and consider ancillary technology opportunities that capitalize on its
existing capacity as a builder of manufacturing equipment as well as its
engineering and testing capacities.
On December 31, 1999, the Company completed the acquisition of Avalon
Manufacturing Company, a private entity based in Phoenix, Arizona, with
significant experience in providing the equipment for the manufacture of printed
circuit boards. The Company is continuing to focus on the development and
initial manufacturing of the Sterling Product line at the Avalon facility, which
is expected to ship in the fourth quarter of 2000. The Avalon technology,
including its automatic board handling machinery, will be integrated in the
Sterling production process. The availability of the Avalon facility, staff, and
assets has been an important factor in allowing the Company to accelerate the
Sterling project and to attract engineers and other technical personnel for the
project.
The Company's traditional core business, through its NorthStar brand
and more recently through the Derritron and Avalon lines, offers vibration
testing and VSS products that are used to check the integrity of printed circuit
boards and other components for automotive and electronics applications. The
NorthStar vibration control system uses a Microsoft(R)-based Windows(R) product
acquired in 1997, which is fully integrated into the Company's proprietary
control system software package. The NorthStar and Derritron products include
the vibration hardware or "shaker" units which mechanically vibrate the test
platform, the vibration control system which measures output and regulates
shaker intensity, and the amplifier unit which provides power to the shaker
unit. The VSS products are marketed directly by the Company under the trade name
Derritron, and are also manufactured by the Company on an OEM basis and offered
for repackaging and sale for use in the aerospace, automotive and semiconductor
industries.
In a production environment, the VSS test equipment can identify latent
defects not readily recognizable through visual inspection or during the
development and design process. The use of on-line VSS testing for 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.
Through 1999, essentially all of the Company's revenues came from its
NorthStar line. Early in 1998, the Company acquired the production, engineering,
patents, drawings and intellectual property and other rights and assets for the
shaker and amplifiers, which had been manufactured in England for more than 30
years under the trade name Derritron. At the time of the Company's acquisition
of Derritron, the production of the Derritron line had been suspended by the
prior owners. During 1999, the Derritron operations were reorganized at a
facility in Riverside, California; operations at the plant commenced on January
2, 2000 and the first shipments of the Company's Derritron products were made in
the first quarter
9
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of 2000. During the end of the first quarter and in April 2000, the Company
transferred its NorthStar production to the Riverside facility to allow the
Company to offer turnkey vibration test products from its Riverside location.
The transfer of the NorthStar product into the Derritron operations in
Riverside, California was completed during the second quarter of 2000 and the
Company is currently finalizing its pre-production and commercial development
efforts for the Sterling Product line at its Avalon facility. The Sterling
Product has been designed as a stand-alone piece of equipment that will provide
for a fully integrated, on- line quality control testing of printed circuit
boards. During the third quarter the Company announced the filing of a U.S.
patent on its breakthrough "Sterling" technology. Because of the patent filing
and continued success with the development of the Sterling Product line,
management anticipates that commercial production of the Sterling Product line
will be undertaken during the fourth quarter of 2000. The Company expects to
offer the product principally on an OEM basis and licensing opportunities to
third parties when appropriate. Initial production commitments are expected to
increase to the rate of approximately 20 Sterling Units per month with
production to be scaled and maintained, initially on requirements of the
Japanese consortium and subsequently on a broader-based market of domestic and
foreign customers.
As described above, to date, the Company has acquired a substantial
portion of its technology and its production assets through arrangements with
third parties. The Company intends to continue to consider strategic
acquisitions and to use its expanding internal product development and
production capacity to enhance the assets acquired from third parties. In
addition, the Company will continue to develop new equipment and technology
internally as circumstances warrant and as capital resources and technical
talent are available.
RESULTS OF OPERATIONS
For the quarter ended September 30, 2000 compared to the quarter ended
September 30, 1999
For the three months ending September 30, 2000, the Company reported,
on a consolidated basis, sales of $1,408,619 as compared to sales of $446,480
for the same quarter in 1999, resulting in a gain of $317,239 for the three
months ending September 30, 2000 as compared to a gain of $87,170 for the same
quarter in 1999. The gains were a result of continued revenue generation from
the Company's divisional core businesses and additional revenues of $900,000
generated by the first third party licensing agreement for the Sterling Product
Line. During the third quarter, the Company recorded revenues of approximately
$325,048 and $1,083,571 from the shipments, services and license agreement sales
generated at the Derritron and Avalon facilities respectively. Management
anticipates that during the next six month period, the Company will move toward
customary production level costs and expenses, while Derritron production
expands, the NorthStar production continues, the Sterling Product line is
introduced, and further Sterling Product licensing agreements are pursued.
While the Company's product lines are not subject to inherent seasonal
shifts, with the relatively low level of sales of the Company's products to
date, the Company's sales have been sensitive to small shifts in revenues and
production which have resulted in material monthly fluctuations. In addition,
the Company's results to date have been impacted by the financial effect of
acquisitions, changes in facilities, modification of operations, introduction of
new product lines and shifts in the existing customer base.
Cost of Goods Sold - For the three months ended September 30, 2000, the
costs of goods sold were $226,482 with a gross profit margin of $282,137 on
product sales of $508,619 as compared to $126,979 of costs of goods sold and a
$319,501 gross profit margin on product sales of $446,480 for the same period of
1999, resulting in gross profit margins for the three month period ended
September 30, 2000 of 55% as compared to a 72% gross margin for the same period
in 1999 (when the sales were primarily of the NorthStar product). Management
anticipates that as its production expands and the product mix is diversified,
it will achieve a blended gross margin of approximately 40-50% on its products,
including direct labor and customary allocated manufacturing overhead. However,
until the new product lines have been introduced, and the Company has developed
an operating history, there is significant uncertainty about future gross
margins, particularly since gross margins are highly dependent on product
prices, sales volumes, materials cost and allocation of manufacturing overhead.
Research and Development - For the three months ending September 30,
2000, the Company's research and development efforts were conducted at the
Company's Engineering and Development Centers in American Fork, Utah and
Phoenix, Arizona. Although the NorthStar production activities have been
transferred from Utah to the Derritron facility in Riverside, California,
research and development efforts will continue to be based in Utah and Arizona.
Research and Development costs were approximately $275,373, consisting of
purchased materials and leased employee costs, for the three months ending
September 30, 2000, a significant portion of the total operations at both the
Utah and Arizona facilities, and were recorded as a portion of the selling,
general and administrative costs. The Company's research
10
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and development efforts constituted 32% of the total selling, general and
administrative cost for the quarter ending September 30, 2000.
Selling, General and Administrative Costs - For the three months ended
September 30, 2000, selling, general, and administrative costs were $864,898, as
compared to $183,151 in the same period of 1999. The significant increase in
general and administrative cost was attributed to the additional staff and
facilities needed for the Derritron facility, the cost of the efforts for the
development of the Sterling and Derritron Product lines, and principally to the
fact that to date, the Company has included staff, facilities, and related
overhead of the production managers, engineers, research and development efforts
(see "Research and Development" section above) and the labor and overhead costs
in American Fork, Utah and Riverside, California as selling, general and
administrative costs and has not attributed them to the direct costs of goods
sold or the research and development efforts for the various product lines.
For the nine month period ended September 30, 2000 compared to the nine
month period ended September 30, 1999
For the nine months ending September 30, 2000, the Company reported, on
a consolidated basis, a loss of $446,410 on revenues of $2,930,650 as compared
to a gain of $156,935 on revenues of $1,199,973 for the same period in 1999. The
increase in revenue was a result of continued revenue generation from the
Company's divisional core businesses and $900,000 generated by the Avalon's
divisions first licensing of the Sterling Product Line. The Company recorded
revenues of approximately $1,122,772 and $1,807,878 from the shipments and
services earned at the Derritron and Avalon facilities respectively. These
increases in revenues were offset by the combination of the investment, which
the Company is continuing to make in bringing the Derritron facility to full
capacity and the continuing development, engineering and other pre-production
costs attributable to the Sterling Products line.
Cost of Goods Sold - For the nine months ended September 30, 2000 the
costs of goods sold was $945,214 with a gross profit margin of $1,085,436 as
compared to $340,891 of costs of goods sold and a $859,082 gross profit margin
for the same period of 1999, resulting in gross profit margins for the nine
month period ended September 30, 2000 of 53% as compared to a 72% gross profit
margin for the same period in 1999 (when the sales were primarily of the
NorthStar product).
Research and Development - For the nine months ending September 30,
2000, the Company's research and development costs were approximately $719,849,
a significant portion of the total operations at both the Utah and Arizona
facilities and were recorded as a portion of the selling, general and
administrative costs. The Company's research and development efforts constituted
30% of the total selling, general and administrative cost for the nine month
period ending September 30, 2000.
Selling, General and Administrative Costs - For the nine months ended
September 30, 2000, selling, general, and administrative costs were $2,431,846,
as compared to $737,323 in the same period of 1999. The significant increase in
general and administrative cost was attributed to the additional staff and
facilities needed to establish the Derritron facility, the cost of the efforts
for the development of the Sterling Product line, and principally to the fact
that to date, the Company has included staff, facilities, and related overhead
of the production managers, engineers, research and development efforts and the
labor and overhead costs in American Fork, Utah and Riverside, California as
selling, general and administrative costs and has not attributed them to the
direct costs of goods sold or the research and development efforts for the
various product lines. The Company expects Selling, General and Administrative
costs to remain at the current level until additional production capacity is
needed or the costs are directly allocated to product lines or research and
development.
As of September 30, 2000, the Company's workforce consisted of 34
leased personnel all located in the United States. Management believes that by
leasing its primary workforce, the Company has controlled its fixed overhead
costs and has been able to provide its staff with advantages of improved
benefits package and access to retirement plans which can be provided through
the larger group status of a leasing arrangement. Management will continue to
review this structure, as conditions require.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had a total cash availability of
$901,132 compared to $461,239 available as of December 31, 1999, a $439,893
increase. During the third quarter of 2000, the Company issued 84,000 shares of
Common Shares of which 64,000 were issued on the exercise of previously granted
options and 20,000 were options issued to and exercised by a Company officer,
and recorded as compensation in accordance with APB 25. The net cash received
was $74,550. (See Item 2 below).
11
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During the first nine months of 2000 compared to the first nine months
of 1999, the Company shifted a significant portion of its assets toward the
purchasing of equipment and resources necessary to the development of the
Sterling Product Line and preparing the Company for the anticipated growth in
operations as a result of the Sterling Product Line. The Company intends to
continue to seek additional working capital to meet its operating requirements
and to provide further capital for expansion, acquisition of strategic
technologies and direct costs related to the introduction of the Sterling
Product line. While, the Company believes that additional capital will be needed
to maintain the growth plans of the Company, management believes that the
working capital now available to it along with funds generated from operations
will be sufficient to meet capital requirements for the next 12 months even if
substantial additional working capital does not become available.
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.
YEAR 2000 STATEMENT
The Company has verified that all internal software used in the
operations of the Company and related developments are Year 2000 compliant. The
Company sees no risk at this time pertaining to Year 2000, and internal Company
operations. Products currently manufactured by the Company have also been Year
2000 verified. All previous Company customers have the ability to purchase both
hardware and software upgrades from the Company, which will certify their
products as Year 2000 compliant. The amount of needed hardware and software
depends on the associated production model in question.
FORWARD-LOOKING STATEMENTS
Safe Harbor statement under the Private Securities Litigation Reform
Act of 1995: Except for historical information contained herein, the matters
discussed in this filing are forward-looking statements that involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting the Company's operations, markets, products
and prices and other factors discussed in the Company's various filings with the
Securities and Exchange Commission.
PART 2. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the third quarter of 2000, the Company issued 84,000 Common
Shares; 64,000 were issued on the exercise of previously granted options, and
20,000 were issued on options granted to and exercised by a Company officer, and
recorded as compensation in accordance with APB 25. Of the 64,000 Common Shares
issued, 5,000 were on the exercise of options by a former employee at $.16 per
share and 59,000 were through the exercise of warrants exercised by shareholders
that were a result of a private placement that was done in the 4th quarter of
1999 at $1.25 per share. As a result of the exercise of the options and
warrants, cash of $800 and $73,750 was received respectively, resulting in net
proceeds to the Company of $74,550. The proceeds were used to meet Unidyn's
operational needs and to provide further capital for direct cost related to the
development of the Sterling Product Line. The $1.25 warrants were the result of
a private placement in the fourth quarter of 1999 to institutional investors and
individual accredited investors, including current shareholders without any
public offering. The issuances were made in reliance on the exemption from
registration provided by Rule 506 of Regulation D.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(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: October 13, 2000 /s/ Ira Gentry
--------------------------------------------
Ira Gentry, CEO, President
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