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, 1995
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, 1995: 4,409,528.
ALLIED RESEARCH CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION - UNAUDITED NUMBER
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1994 and June 30, 1995 .............. 2,3
Condensed Consolidated Statements of Earnings
Three months and six months ended June 30, 1995
and 1994 .......................................... 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1995 and 1994 ........... 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 ........................................ 17
ALLIED RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
(Unaudited)
June 30, 1995 December 31, 1994
CURRENT ASSETS
Cash and equivalents,
including restricted cash $11,743 $ 43,606
Accounts receivable 20,722 21,805
Costs and accrued earnings
on uncompleted contracts 9,987 8,391
Inventories 4,741 4,333
Prepaid expenses 1,616 1,004
Total current assets 48,809 79,139
PROPERTY, PLANT AND EQUIPMENT - AT COST
Buildings 12,751 11,411
Machinery and equipment 32,539 31,118
45,290 42,529
Less accumulated depreciation 28,647 28,155
16,643 14,374
Land 1,465 1,323
Total property, plant and
equipment 18,108 15,697
OTHER ASSETS
Deposit - restricted cash - 6,400
Intangibles 7,345 5,919
Other 269 231
Total other assets 7,614 12,550
$74,531 $107,386
The accompanying notes are an integral part of these statements.
ALLIED RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(THOUSANDS OF DOLLARS)
LIABILITIES
(UNAUDITED)
June 30, 1995 December 31, 1994
CURRENT LIABILITIES
Notes payable $ 365 $ 594
Current maturities of long-
term debt 8,241 25,802
Accounts and trade notes
payable 11,817 21,452
Accrued liabilities 13,990 12,427
Customer deposits 2,568 1,534
Income taxes 1,031 883
Total current liabilities 38,012 62,692
LONG-TERM DEBT, less current
maturities 9,135 14,108
DEFERRED INCOME TAXES 643 765
MINORITY INTEREST -- 123
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 4,409,528 in 1995
and 4,398,448 in 1994 441 440
Capital in excess of par value 10,697 10,658
Retained earnings 10,207 14,689
Accumulated foreign currency
translation adjustment 5,396 3,911
Total stockholders' equity 26,741 29,698
$74,531 $107,386
The accompanying notes are an integral part of these statements.
ALLIED RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Three months ended Six months
June 30, ended June 30,
1995 1994 1995 1994
Revenue $ 13,275 $ 18,481 $ 22,428 $ 44,391
Cost and expenses
Cost of sales 10,744 16,453 19,794 38,634
Selling and
administrative 3,506 3,495 5,775 6,155
Research and
development 298 654 493 1,175
14,548 20,602 26,062 45,964
Operating
income (loss) (1,273) (2,121) (3,634) (1,573)
Other income (deductions)
Interest expense (784) (807) (1,578) (1,495)
Interest income 251 498 1,071 1,229
Other - net 471 (47) 212 (12)
(62) (356) (295) (278)
Earnings (loss) before
income taxes (1,335) (2,477) (3,929) (1,851)
Income taxes (benefit) 423 (68) 553 180
NET EARNINGS (LOSS) $ (1,758) $ (2,409) $ (4,482) $ (2,031)
Net income (loss) per common
share $ (.40) $ (.55) $ (1.02) $ (.47)
Weighted average number
of shares 4,404,228 4,412,041 4,409,528 4,360,072
The accompanying notes are an integral part of these statements.
ALLIED RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Six months ended June 30
Increase (decrease) in cash and 1995 1994
equivalents
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (4,482) $(2,031)
Adjustments to reconcile net
earnings to net cash provided by
(used in) operating activities
Depreciation and amortization 413 511
Changes in assets and liabilities
(Increase) decrease in Accounts
receivable 3,772 (1,269)
Costs and accrued earnings on
uncompleted contracts (69) 3,555
Inventories 769 555
Prepaid expenses and other assets 1,462 6,138
Increase (decrease) in
Accounts payable, accrued
liabilities and customer deposits (9,479) (1,683)
Income taxes 97 706
Net cash (used in) provided by
operating activities (7,517) 6,482
Cash flows (used in) investing activities
Capital expenditures 24 (1,453)
Acquisitions (net of cash acquired) (2,600) (3,800)
Net cash (used in) investing
activities (2,576) (5,253)
The accompanying notes are an integral part of these statements.
ALLIED RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Six months ended June 30
1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt (25,727) (227)
Net increase in long-term borrowings -- (797)
Net increase (decrease) in short-
term borrowings (2,473) (5,928)
Stock option/stock plan 40 26
Common shares purchased and retired -- (3,509)
Deposits - restricted cash 6,400 9,019
Net cash provided by (used in)
financing activities (21,760) (1,416)
Effects of exchange rate changes on cash (10) 2,030
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (31,863) 1,843
Cash and equivalents at beginning of year 43,606 44,641
Cash and equivalents at end of period $ 11,743 $46,484
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for
Interest $ 620 $ 951
Taxes 373 11
The accompanying notes are an integral part of these statements.
ALLIED RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(THOUSANDS OF DOLLARS)
(UNAUDITED)
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheets as of June 30, 1995
and December 31, 1994, the condensed consolidated statements of
earnings and the condensed consolidated statements of cash
flows for the six months ended June 30, 1995 and 1994, 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, 1995 and 1994 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, 1994 Form 10-K filed with the Securities and
Exchange Commission, Washington, D.C. 20549. The results of
operations for the period ended June 30, 1995 and 1994 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), Barnes & Reinecke, Inc. (a
Delaware Corporation), and ARC Services, Inc. (a Delaware
Corporation).
Mecar, S.A.'s wholly-owned Belgian subsidiaries include, Mecar
Immobliere S.A., Sedachim, S.I., Tele Technique Generale,
Management Export Services, N.V., I.D.C.S., N.V. (which was
acquired May 9, 1995), VSK France (which was recently formed)
and VSK Electronics N.V. and its wholly-owned subsidiaries,
Classics, B.V.B.A. Detectia, N.V. and Belgian Automation
Units, N.V., (collectively "The VSK Group"). A minority
interest owned by VSK Electronics in Building Control
Services, N.V. (BCS) was accounted for under the equity method
in 1994. BCS was liquidated in 1995.
The VSK Group acquisitions were accounted for as purchases,
and revenue and results of operations from June 1, 1994 and
May 9, 1995 (dates of acquisition), have been consolidated.
Significant intercompany transactions have been eliminated in
consolidation.
NOTE 3 - ACQUISITION
On May 31, 1994, the Company's wholly-owned subsidiary, Mecar
S.A., acquired The VSK Group, a group of Belgian companies, as
well as a minority interest in a Belgian company, for
approximately $6,072 and on May 9, 1995, Mecar, S.A. acquired
I.D.C.S., N.V. a Belgian company and its minority interest in
Belgian Automation Unites, N.V. for a total of $2,972.
The companies manufacture, distribute and service an
integrated line of industrial security products, including
devices such as building access control, parking control,
intrusion and fire detection and intrusion and fire alarms.
The acquisitions have been accounted for as purchases and the
purchase prices in excess of the net assets acquired have been
reflected in intangibles. The financial statements include
the result of operations since the dates of acquisition. Pro
forma financial data for these acquisitions prior to the dates
of acquisition would not have a material effect on reported
results.
MAY 9, 1995 MAY 31, 1994
Fair value of tangible $2,587 $7,720
assets acquired
Liabilities assumed 855 6,285
Net assets acquired 1,732 1,435
Cash paid 2,972 6,072
Excess of cost over assets $1,240 $4,637
acquired
NOTE 4 - 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 $7,766 and $35,848 ($6,400 of
which is classified as long-term) at June 30, 1995 and
December 31, 1994, respectively, are restricted or pledged as
collateral for various bank agreements and are comprised as
follows:
1995 1994
Credit facility and related $7,364 $34,542
term loan agreements
Other bank guarantees and 402 1,222
letters of credit
Notes payable - 84
$7,766 $35,848
NOTE 5 - INVENTORIES
Inventories consist of the following:
JUNE 30, 1995 DECEMBER 31, 1994
Raw materials and supplies $4,741 $4,333
NOTE 6 - NOTES PAYABLE
At June 30, 1995 and December 31, 1994, secured short-term
loans of $365 and $594, respectively, were outstanding. In
June 1995, BRI amended its credit facility to two $500 term
loan facilities for capital improvements and a $750 revolving
line-of-credit which had an outstanding balance of $150 at
June 30, 1995. The line bears interest rate of prime plus
1.75% and is secured by BRI's eligible accounts receivable and
Allied's guarantee. The former agreement was a $1,000
revolving line-of-credit agreement which had an outstanding
balance of $500 as of December 31, 1994.
NOTE 7 - CREDIT FACILITY
Mecar is obligated under an amended credit agreement (the
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
Agreement provides for certain bank charges and fees as the
line is used, plus an annual fee of approximately 1.1% of
guarantees issued. In July, 1995, the credit facility was
amended to cover certain new orders received. As of June 30,
1995, guarantees of $4,943 under the former agreement remain
outstanding.
Advances under the credit facility were secured by deposits of
$2,828 at June 30, 1995 and deposits of $31,360 at December
31, 1994, $6,400 of which is classified as long-term deposit
at December 31, 1994. Amounts outstanding were also
collateralized by pledges of approximately $25,600 on Mecar's
assets, letters of credit and certain funds received under the
contracts financed. The Agreement provides for restrictions
on payments or transfers to Allied and ARCL for management
fees, intercompany loans, loan payments, the maintenance of
certain net worth, income and loss levels and the payment of
bank fees and charges as defined in the Agreement.
The term deposits were borrowed to secure approximately
$34,500 of financing at the inception of the Agreement for the
period ended June 30, 1995 and December 31, 1994,
respectively.
The Company is also liable for guarantees and other
instruments issued on its behalf by other banks which
approximate $837 at June 30, 1995, which are collateralized by
$402 of time deposits.
Mecar is obligated on a $5,000 mortgage on its manufacturing
and administration facilities. As amended, the balance of the
loan is payable in annual principal installments of
approximately $600 commencing in January 1996 (except for the
annual principal installment in the year 2000 which is
approximately $800) and the entire balance matures in 2004.
The Company is also obligated on a mortgage on The VSK Group's
building which has a balance due of $400 due in 20 years. The
mortgage is payable in annual installments of $20 plus
interest. In addition, the Company is obligated on an
outstanding loan for the acquisition of I.D.C.S., N.V. in the
amount of $1,822 payable in annual installments of $91 plus
interest.
NOTE 8 - LONG-TERM FINANCING
Scheduled annual maturities of long-term obligations as of June
30, 1995 are as follows:
YEAR AMOUNT
1996 $ 8,241
1997 650
1988 634
1999 634
7,217
Thereafter
$17,376
NOTE 9 - INCOME TAXES
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109") in 1993.
The provision for income taxes differs from the anticipated
combined federal and state statutory rates due to operating
losses and earnings from foreign subsidiaries.
The Company's Belgian subsidiaries have unused net operating
losses of approximately $20,000 at June 30, 1995, which under
Belgian law cannot be carried back but may be carried forward
indefinitely, and are subject to annual limitations.
As of June 30, 1995, the Company had unused foreign tax credit
carryforwards of approximately $1,000 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 $30,000 at
December 31, 1994. Determination of the amount of
unrecognized deferred tax liabilities is not practicable.
NOTE 10 - 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 (loss) per share.
NOTE 11 - RESTRUCTURING CHARGE
In the fourth quarter of 1993, the Company recorded an accrual
for restructuring costs totaling $2,883 ($.44 per share after
taxes) related to its Belgian manufacturing operations. The
charge provides for estimated employee severance, retraining,
early retirements and related costs attributable to a planned
workforce reduction initiated in late 1993. The company
anticipated that it would eliminate over the next years
approximately 32 permanent and 120 temporary factory and
administrative positions. The reductions were the result of
efficiencies implemented over the past several years, current
backlog levels and anticipated future workforce requirements
for Mecar's core defense operations, as well as those expected
to be redeployed as part of prospective diversification
ventures. During 1994, the Company increased the provision by
$326 to cover additional terminations. As of December 31,
1994, the restructuring has been substantially completed, and
the provision has been fully utilized, except for
approximately $64 which was disbursed in early 1995.
The Company conducts its business through its wholly-owned
subsidiaries: Mecar, S.A., ("Mecar"), a Belgian corporation,
and its subsidiaries, Mecar Immobliere, S.A., Sedachim, S.I.,
as well as Tele Technique Generale, VSK Electronics, N.V.,
Management Export Services, N.V., Classics, B.V.B.A.,
Detectia, N.V., I.D.C.S., N.V., VSK France and Belgian
Automation Units, N.V. ("The VSK Group"); Barnes & Reinecke,
Inc., ("Barnes") a Delaware corporation, headquartered in
Illinois; Allied Research Corporation Limited, ("Limited") a
U.K. Company; and ARC Services, Inc., ("Services") a Delaware
corporation, headquartered in Vienna, Virginia. 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 1995 was $22,428, a 49%
decrease from the comparable period in 1994, principally due
to Mecar's decrease in revenue. Mecar revenue was $9,138, or
down 77% compared to the period ended June 30, 1994. Barnes
revenues was $4,005, up 3% compared to the same period in
1995. Limited did not have revenues this period or in last
year's comparable period. Services had revenues of $35 in the
1995 period but did not have revenues in the comparable 1994
period.
Revenue for the quarter ended June 30, 1995 was $13,275, a 28%
decline from revenue for the quarter ended June 30, 1994 of
$18,481. Mecar recognized revenue of $6,023 for the quarter
ended June 30, 1995, a 37% decline from the quarter ended June
30, 1994. Barnes' revenue of $1,972 for the quarter ended
June 30, 1995 constituted a 3% decrease over the quarter ended
June 30, 1994, principally as a result of lower revenues from
its core engineering programs.
The decrease in Mecar's revenue resulted from delay in receipt
of substantial orders from its principal customers. Orders
from such customers were received later than expected and did
not contribute any revenue to the first six months of 1995.
In addition, Mecar's second quarter revenue was negatively
impacted as a result of the explosion which occurred at
Mecar's storage facility in April, 1995. This event caused a
two month termination in all manufacturing activities while
the damage was assessed and repaired. This decline was
partially offset by a settlement received for business
interruption from the Company's insurance carriers. Barnes'
revenue increased in the first half of 1995 over the first
half of 1994 due to an increase in other engineering programs.
The VSK Group contributed $9,250 to Company's revenues for the
period ended June 30, 1995; since it was not acquired until
the second quarter of 1994, The VSK Group did not contribute
to Company's revenues during the first half of 1994.
BACKLOG
As of June 30, 1995, the Company's backlog was $94,041
compared with $23,100 at December 31, 1994 and $40,730 at
March 31, 1995.
Mecar's backlog at June 30, 1995 was $65,272 compared with
$13,100 at March 31, 1995. The increase is primarily
attributable to the receipt by Mecar of approximately $48,000
in new orders from its principal customers. In addition,
during the second quarter of 1995, Mecar's principal customers
further opened a letter of credit on a contract which
constituted a major portion of Mecar's backlog prior to the
receipt of the newly-awarded contracts. The balance of the
letter of credit is expected to be opened before year end and
Mecar has reached an agreement to defer the payment of certain
costs until the receipt of final payment. Accordingly, Mecar
is proceeding to complete the balance of this contract with
shipments scheduled throughout the next few months which
should be concluded in the fall of 1995.
Barnes' backlog as of June 30, 1995 was $5,658 compared with
$6,168 at March 31, 1995.
The backlog of The VSK Group as of June 30, 1995 was $23,111
compared with $21,438 as of March 31, 1995.
As a result of the increased backlog and the further opening
of the letter of credit referenced above, the Company expects
to operate at a profit on substantially increased revenue in
the second half of 1995. It is uncertain whether such profit
will fully offset the losses in the first half of 1995.
OPERATING COSTS AND EXPENSES
Cost of sales for the first six months of 1995 were
approximately $19,794 or 92% of sales as compared to $38,634
or 87% for the first six months of 1994. The percentage
increase is primarily due to the reduced amounts of revenue
realized in 1995.
Selling and administrative expenses were approximately $5,775
or 28% of revenues for the six months ended June 30, 1995 as
compared to $6,155 or 14% for the six months ended June 30,
1994. The decrease reflects schedule reductions in certain
expenditures. Such expenses were $3,506 for the second
quarter of 1995 as compared to $3,459 for the second quarter
of 1994. This increase was caused, in part, by the expensing
of costs incurred in an acquisition transaction which was
abandoned in May, 1995.
RESEARCH AND DEVELOPMENT
Research and development expenses were 2% as a percentage of
sales for each of the six month period and three month period
ended June 30, 1995 as compared with 3% for the corresponding
periods in 1994. The decreases are the result of cash
conservation efforts throughout the Company.
OPERATING RESULTS
There was an operating loss of $3,634 for the first six months
of 1995 (or 1.16% of revenue). This compares with an
operating loss of $1,573 (or 1.04% of revenue) for the six
months ended June 30, 1994. During the second quarter of
1995, the Company experienced an operating loss of $1,273 (or
1.10% of revenues) compared with an operating loss of $2,121
(or 111% of revenues) for the quarter ended June 30, 1994.
The decline is primarily because of lower revenue at Mecar.
The second quarter operating results were negatively impacted
by the shut down of Mecar's facilities due to the April, 1995
explosion and were positively impacted by a one-time payment
representing the business interruption portion of the
settlement with Mecar's insurers (see "Update on Mecar
Explosion" below).
INTEREST EXPENSE
Interest expense for the first six months of 1995 increased,
compared to the same period in 1994, as a result of increased
borrowing. Interest expense for the second quarter of 1995
decreased compared to the first quarter of 1994 as a result of
decreased borrowing caused by the partial payment of the Term
Loan.
INTEREST INCOME
Interest income decreased for the first six months of 1995
over the comparable period in 1994 as a result of lower levels
of cash.
OTHER - NET
For the six months ended June 30, 1995, Other - Net represents
the net gain resulting from foreign currency transactions plus
other miscellaneous income.
UPDATE ON MECAR EXPLOSION
Property damage as a result of the April 1995 explosion was
limited principally to storage facilities and the primary
loading facility. All necessary repairs have been completed.
Workers who were laid-off as a result of the explosion have
returned to work and manufacturing operations have resumed.
Mecar has reached a final settlement with its insurers
resulting in an aggregate payment of approximately $3,800.
Such amount has been used in part to offset costs of repairs
to the damaged facilities, for administrative costs incurred
and business interruption losses as a result of the explosion.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1995 and throughout 1994,
Allied funded its operations principally with internally
generated cash and back-up credit facilities required for
foreign government contracts. At June 30, 1995, the Company
had unrestricted cash (i.e., cash not required by the terms of
the bank agreement to collateralize contracts) of
approximately $3,976, as compared with approximately $7,000 as
of March 31, 1995.
Cash decreased from December 31, 1994 to June 30, 1995 by
approximately $31,800 principally due to operating losses
incurred and scheduled repayment of the Term Loan (as herein
defined).
In July, 1995, Mecar executed and delivered an amendment to
its bank pool agreement. The amendment provides that the bank
pool (consisting of the same four banks which participated in
the original pool) will provide performance bonds, advance
payment guarantees and import letters of credit required to
support the contracts received by Mecar during the first half
of 1995, including the $48,000 of new orders received from
Mecar's principal customers. The loan facility evidenced by
the amendment is supported by a term loan from certain of the
banks (the "Term Loan") and a partial guarantee by the
regional government in Belgium (the "Walloon Region"). The
proceeds of the Term Loan are deposited with the banks as
collateral and the Term Loan is supported, in part, by the
guarantee of the Walloon Region. Mecar's obligations under
the amendment are also supported by a $3,000 guarantee by the
Company. In addition, the amendment requires that not less
than $6,667 of the $15,000 loan from Limited to Mecar be
converted to Mecar capital by October 31, 1995.
The amendment continues to restrict the amount of payments
Mecar may make to any affiliated company, including the
Company, absent bank pool approval. The amendment generally
restricts such payments to $2,000 on an annual basis.
In the second quarter of 1995, Barnes amended its bank
facility from a $1,000 line of credit to: (i) a $750 line-of-
credit; (ii) a $500 term loan (repayable over a 3 year period)
to reimburse Barnes for capital expenditures incurred in 1994;
and (iii) a $500 facility to finance 1995 capital
expenditures. As of June 30, 1995, the line-of-credit had an
outstanding balance of $150.
Accounts receivable at June 30, 1995 decreased over December
31, 1994 by $1,083 and cost and accrued earnings on
uncompleted contracts increased by $1,596 from 1994 as a
result of a decrease in production. Inventories remained
level. Prepaid expenses and deposits increased $612 primarily
due to the deposits on new orders received. Current
liabilities decreased by $24,680 from December 31, 1994 levels
as a result of payments of current maturities of long term
debt.
Long-term debt (including current maturities thereof) as of
June 30, 1995, decreased by approximately $25,720 from
December 31, 1994 as a result of scheduled repayments of the
Term Loan. Such indebtedness is expected to increase as a
result of the bank pool amendment since the Term Loan will be
re-advanced to Mecar to further collateralize the loan
facility.
The second quarter acquisition of I.D.C.S., N.V. was financed
by additional bank financing, as well as seller financing and
thus did not adversely affect liquidity. The acquisition did
result in an increase of approximately $1.2 million in
intangibles.
In summary, working capital was approximately $10,797 at June
30, 1995, which is a decrease of $5,650 from December 31,
1994. The decrease is primarily attributable to cash used for
operating activities.
In July, 1995, Services modified its licensing arrangements
concerning the development of a reverse osmosis water
purification system by agreeing to limit its obligation to
make future payments to a final payment of approximately $22
in August, 1995.
The Company continues to experience liquidity deficiencies
caused by the losses incurred during the last 21 month period
as well as the delay in receipt of contracts from its
principal customers. These events have caused a diminution in
the amount of unrestricted cash at Mecar. Accordingly, Mecar
will be processing its recently increased backlog of orders on
a restricted budget based upon limited liquid assets.
The long-term liquidity of the Company continues to remain
principally dependent upon Mecar's ability to generate cash
from operations. Due to cash flow deficiencies, the Company
has been forced to place substantial restrictions on its
diversification programs thereby continuing the Company's
reliance on Mecar. While Mecar has broadened it customer base,
it remains chiefly reliant on orders from its principal
customers.
PART II. OTHER INFORMATION
None.
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
_________________________________
Date: August 11, 1995 J. R. Sculley
Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer