UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2001
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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
incorporation or organization) Identification Number)
3640 East Roeser Road
Phoenix, Arizona 85040
- ----------------------------------------- --------------------------
(Address of principal executive offices) (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 June 30, 2001
- ------------------------------------ -------------------------------
$.001 PAR VALUE CLASS A COMMON STOCK 36,382,546 SHARES
1
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BASIS OF PRESENTATION
General
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB and, therefore, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' equity in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the six
months ended June 30, 2001 are not necessarily indicative of the results that
can be expected for the year ending December 31, 2001.
2
UNIDYN, CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
---------------------- ----------------------
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
Cash in bank $ 122,368 $ 222,074
Accounts receivable 414,186 568,670
Receivables - Employees 13,000 15,500
Deferred tax benefit 0 14,500
Prepaid expense 11,850 11,850
Inventory 1,148,198 895,217
Deferred interest expense 42,875 18,000
---------------------- ----------------------
TOTAL CURRENT ASSETS 1,752,477 1,745,811
PROPERTY, PLANT & EQUIPMENT 644,490 620,250
OTHER ASSETS
Deposits and other 23,830 98,971
Goodwill 1,139,498 1,181,702
Deferred tax benefit 196,000 181,500
Derritron Technology 3,874,787 3,919,324
---------------------- ----------------------
TOTAL OTHER ASSETS 5,234,115 5,381,497
---------------------- ----------------------
$ 7,631,082 $ 7,747,558
====================== ======================
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 53,027 $ 89,997
Accrued expenses 65,940 64,973
Loans payable current portion 0 5,633
Deposits 0 21,561
---------------------- ----------------------
TOTAL CURRENT LIABILITIES 118,967 182,164
LONG-TERM LIABILITIES
Note payable 1,376,087 1,047,300
---------------------- ----------------------
TOTAL LIABILITIES 1,495,054 1,229,464
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 36,382,546 shares
(35,382,546 in 2000) 36,383 35,383
Additional paid-in capital 7,536,909 7,148,409
Retained earnings (deficit) (1,430,678) (659,112)
Accumulated other comprehensive loss (6,586) (6,586)
---------------------- ----------------------
TOTAL STOCKHOLDERS' EQUITY 6,136,028 6,518,094
---------------------- ----------------------
$ 7,631,082 $ 7,747,558
====================== ======================
See Notes to Unaudited Consolidated Financial Statements.
3
UNIDYN, CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
------------- ------------- -------------- -------------
Net sales $ 606,730 $ 823,385 $ 1,240,358 $ 1,522,031
Cost of sales 236,051 377,754 466,460 718,732
------------- ------------- -------------- -------------
GROSS PROFIT 370,679 445,631 773,897 803,299
General and administrative expenses (779,023) (735,403) (1,545,464) (1,566,948)
------------- ------------- -------------- -------------
NET INCOME (LOSS)
BEFORE INCOME TAXES (408,344) (289,772) (771,566) (763,649)
Income tax expense 0 0 0 0
------------- ------------- -------------- -------------
NET INCOME (LOSS) $ (408,344) $ (289,772) $ (771,566) $ (763,649)
============= ============= ============== =============
Basic & diluted net income (loss)
per weighted average share $ (0.01) $ (0.01) $ (0.02) $ (0.02)
============= ============== ============== =============
Weighted average number of common shares used to
compute net income (loss) per weighted average share 36,241,242 35,155,475 35,382,546 35,819,010
============= ============= ============== =============
See Notes to Unaudited Consolidated Financial Statements.
4
UNIDYN, CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2001 2000
----------------- -----------------
OPERATING ACTIVITIES
Net income (loss) $ (771,566) $ (763,649)
Adjustments to reconcile net income (loss) to cash
provided (required) by operating activities:
Depreciation and amortization 157,273 142,450
Non-cash interest expense 61,412 69,500
Deferred interest 0 2,000
Changes in assets and liabilities:
Accounts receivable 154,483 (301,737)
Inventory (252,981) (62,831)
Prepaid expenses 0 (1,900)
Accounts payable (36,970) (194,078)
Accrued expenses 966 58,340
Payable - related party 2,500 (30,500)
Deposits 53,580 (52,828)
----------------- -----------------
NET CASH PROVIDED (REQUIRED)
BY OPERATING ACTIVITIES (631,303) (1,135,233)
INVESTING ACTIVITIES
Purchase of equipment / cost adjustment (94,771) (174,753)
----------------- -----------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (94,771) (174,753)
FINANCING ACTIVITIES
Sale of common stock 340,000 617,051
Loan principal payments (5,632) (394,490)
Loan proceeds 292,000 950,000
----------------- -----------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 626,368 1,172,561
----------------- -----------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (99,706) (137,425)
Cash and cash equivalents at beginning of year 222,074 461,239
----------------- -----------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 122,368 $ 323,814
================= =================
Cash paid for income taxes $ 0 $ 0
Cash paid for interest 0 427
See Notes to Unaudited Consolidated Financial Statements.
5
UNIDYN, CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
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 balance sheets for 2001 and 2000 contain the accounts of the Company and its
wholly owned subsidiaries, Avalon Manufacturing Co. and Derritron Vibration
Products.
Dividend Policy
To date, the Company has not 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 value. The June 30, 2001 inventory,
including finished goods, raw materials and works in process was $1,148,198.
Revenue Recognition
Revenue is recognized upon shipment of products.
Allowance for Uncollectible Accounts
The Company provides an allowance for uncollectible accounts based upon prior
collection experience and management's assessment of the potential collect
ability of existing accounts.
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 per share
Earnings per common and common equivalent share are computed by dividing net
earnings by the weighted average common shares outstanding during each year.
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
may differ from these estimates.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB25) and related interpretations
in accounting for its 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).
6
UNIDYN, CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
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.
NOTE 2: ORGANIZATION AND HISTORY
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 at the
Derritron facility and equipment for the circuit board industry at the Avalon
facility.
NOTE 3: 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 costs are currently being amortized over fifteen years for
income tax purposes and 17 years for accounting purposes, and were recorded as
part of property, plant, and equipment.
NOTE 4: 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 currently being amortized
over 15 years.
NOTE 5: OPTIONS/WARRANTS
On February 8, 2001, the Company granted 250,000 options to an employee as part
of an incentive package to join the Company. The grant allowed for the purchase
of Common Stock at $0.85 per share, based on the fair market value of the stock
at the grant date plus 15% in compliance with the Company's stock options plan.
The options vest over the next five years and have a term of ten years.
On February 14, 2001, the Company re-priced a total of 1.5 million previously
issued options of its officers that allowed for the purchase of Common Stock at
$0.66 per share, based on the fair market value of the stock at the grant date
plus 15% in compliance with the Company's stock options plan. The previously
issued options allowed the officers to purchase Common Stock at $1.10 per share.
7
UNIDYN, CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001
NOTE 5: OPTIONS (continued)
On March 27, 2001, the Company granted 5,000 options to an employee for meeting
project goals. The grant allowed for the purchase of Common Stock at $0.455 per
share, based on the fair market value of the stock at the grant date plus 15% in
compliance with the Company's stock options plan. The options vest over the next
five years and have a term of ten years.
On April 13, 2001, the Company issued 400,000 warrants for the purchase of the
Company's common stock in connection with a private placement of 1,000,000 of
the Company's restricted common stock. The warrants issued consisted of 200,000
warrants exercisable at $1.00 per share and 200,000 warrants exercisable at
$1.75 per share; the warrants expire on September 1, 2001 and March 1, 2002
respectively.
NOTE 6: SEGMENT INFORMATION
For the three and six month periods ending June 30, 2001, the Company's Avalon
Subsidiary had sales of $236,598 and $343,180, cost of goods sold of $100,129
and $124,785, general and administrative expenses of $178,159 and $431,119, and
net loss of $41,689 and $212,724, respectively.
For the three and six month periods ending June 30, 2001, the Company's
Derritron Subsidiary had sales of $370,132 and $897,178, cost of goods sold of
$135,922 and $341,675, general and administrative expenses of $395,167 and
$741,164, and net loss of $160,957 and $185,661, respectively.
UniDyn's corporate division, which generates no income and incur's costs for
corporate employees and corporate overhead costs, had costs for the three and
six month periods ending June 30, 2001 totaling $205,697 and $373,181,
respectively.
NOTE 7: GOODWILL
Goodwill relates to the acquisition of Avalon and will be amortized over fifteen
years. The Company assigned some of the excess purchase price to property,
plant, and equipment. The Company determined there were no other intangible
assets to record, and thus recorded goodwill for the balance of the excess of
purchase price over net assets acquired.
NOTE 8: NOTES PAYABLES
On March 17, 2000, the Company obtained a loan from an unrelated party for
$1,000,000. The loan matures on March 17, 2003 and carries a 6% simple annual
interest rate with no principle or interest payments due until the maturity of
the note. The Company has accrued for the interest in the current period and
increased the Company's obligation for long-term debt appropriately.
Additionally, the Company issued 150,000 Stock Purchase Warrants at an exercise
price of $2.77, or 85% of the market price at date of issue. The difference
between market and issue was recorded as deferred interest with an adjustment to
additional paid in capital. The deferred interest will be expensed, as it is
amortized over the period of the loan.
During the first quarter of 2001, the Company obtained two loans from an
unrelated party for $142,000 and $150,000, respectively. The first promissory
note was issued on February 8, 2001 in the amount of $142,000. The loan matures
on February 8, 2004 and carries an 8% simple annual interest rate with no
principle or interest payments due until the maturity of the note. The second
promissory note was issued on March 28, 2001 in the amount of $150,000. The loan
matures on March 28, 2004 carries an 8% simple annual interest rate with no
principle or interest payments due until the note's maturity. The Company has
accrued for the interest in the current period and increased the Company's
obligation for long-term debt appropriately.
8
UNIDYN, CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2001
NOTE 9: SUBSEQUENT EVENTS
The Company continues to evaluate the Sterling Product and determine its
marketability, operating modifications and the capital requirements to pursue
the product. As previously stated, operating results suggest that the distinct
parameters previously observed may not be achievable on a consistent basis in
the current Sterling Product configuration. Based on the reports, the
introduction of a commercial product and the associated revenues will be delayed
and may not be realized. Depending on the determination of the previously stated
factors, the Company's direction may affect the amortization of the associated
intellectual properties.
9
ITEM 2. MANAGEMENT'S 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, 2000.
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 then
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 specially engineered products. The current product lines
include the vibration stress screening ("VSS") equipment manufactured under the
Derritron brand name and machinery for the unpopulated circuit board industry
under the Avalon brand name.
On December 31, 1999, the Company completed the acquisition of Avalon
Manufacturing Company, a private entity based in Phoenix, Arizona, which offers
significant experience in providing the equipment for the manufacture of printed
circuit boards. At the Avalon facility, the Company is focusing on meeting the
needs of its current customer base as well as establishing new and redesigned
products for its market.
The Company's traditional core business, through its NorthStar brand and more
recently through the Derritron line, offers vibration testing and Vibration Test
Screening products that are utilized 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 1) vibration hardware or "shaker" units which mechanically vibrate 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
unit. These Vibration Test Screening products are marketed directly by the
Company under the trade name Derritron, and are also manufactured by the Company
on an OEM basis. Through OEMs, the products may be repackaged and sold for use
in the aerospace, automotive and semiconductor industries.
In a production environment, the Vibration Test Screening 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 may 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.
During 1999, the Derritron operations were reorganized; operations at a facility
in Riverside, California commenced on January 2, 2000 and the first shipments of
the Company's Derritron products were made in the first quarter 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 consolidation
of the NorthStar product into the Derritron operations in Riverside, California
was completed during the second quarter of 2000.
During 2000, the Company expended significant resources into the startup of the
Derritron division in Riverside, CA and for the development of products at both
the Derritron and Avalon Divisions. The Company's Derritron Division engineered,
designed, and produced several products including: VP-5, VP- 30 and VP-50
Shakers, and power and logic modules for the Derritron amplifiers.
During 2000, the Company used its Avalon facilities to work on the development
of the Sterling Product Line, which has been designed as a stand-alone piece of
equipment that would provide for a fully
10
integrated, on-line quality control testing of printed circuit boards. The
Sterling Technology has patents pending in the United States and Taiwan; which
protects the Company in the targeted worldwide markets. As a result of the
efforts made toward new product developments, the Company expended significant
resources toward research and development during the year 2000 and the first six
months of 2001 (see Research and Development section in the Company's Results of
Operations Section).
During the second quarter of 2001, evaluations of the Sterling Product, beta
site data and other testing results, as disclosed in the Company's May 7th press
release suggest that the distinct parameters previously observed might not be
achievable on a consistent basis in the current Sterling Product configuration.
Based on the reports, the introduction of a commercial product and its
associated revenues are expected to be delayed and may not be realized. At a
special meeting on May 5th, 2001, the Board of Directors instructed management
to continue to review the Sterling Product to determine its marketability and
the capital requirements to pursue the product. Subsequently, management was
instructed to report to the Board on operating modifications, which may be
required if the Company continues or suspends the Sterling Project. In the
interim, the Board confirmed management's intent to focus Company operations on
its core Derritron Product Line. The evaluation of the Sterling Product
continues.
As of June 30, 2001, the Company's workforce consisted of approximately 17
leased personnel all located in the United States. In response to a general
decline in the circuit board and related industries and the current evaluation
of the Sterling Project, the Company significantly reduced the size of its
leased workforce during April and May and continues to make efforts to reduce
costs. 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 packages and access to retirement plans
which can be provided through the larger group status of a leasing arrangement.
Management will continue to review the leasing structure as conditions require.
As described above, the Company has acquired a substantial portion of its
technology and production assets through arrangements with third parties. The
Company intends to continue to contemplate strategic alliances, acquisitions,
and mergers to enhance and fund the development 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 allow.
RESULTS OF OPERATIONS
For the quarter ended June 30, 2001 compared to the quarter ended June 30, 2000
For the three month period ending June 30, 2001, the Company reported, on a
consolidated basis, sales of $606,730 as compared to sales of $823,385 for the
same quarter in 2000, resulting in a loss of $408,344 for the three months
ending June 30, 2001 as compared to a loss of $289,772 for the same quarter in
2000. The revenues were a result of continued revenue generation from the
Company's divisional core products. During the second quarter, the Company
recorded revenues of approximately $236,598 and $370,132 from the shipments,
services, and equipment sales generated at the Avalon and Derritron facilities
respectively. Avalon and Derritron sales revenues decreased significantly from
the second quarter of 2000, as the result of an overall decline in their
markets. This market decline curtailed many of the Company's customers from
expending funds on capital equipment, which are the Company's core products.
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 our modification
of operations, introduction of new product lines and shifts in the existing
customer base. As a builder of manufacturing and testing equipment, the
Company's sales revenues are also being directly affected by the general decline
in the circuit board and related industries, which the Company cannot control.
This general industry decline is directly affecting our operating results and
has translated into a reduction in the Company's sales of equipment. A
continuation or worsening of the current downturn would have a long-term
material impact on the Company's future results.
Cost of Goods Sold - For the three months ended June 30, 2001, the costs of
goods sold were $236,051 with a gross profit margin of $370,679 on product sales
of $606,730 as compared to $377,754 of costs of goods sold and a $445,631 gross
profit margin on product sales of $823,385 for the same period of 2000,
resulting in gross profit margins for the three month period ended June 30, 2001
of 61% as compared to
11
a 54% gross margin for the same period in 2000. Due to the general decline and
delaying of capital equipment purchasing by the Company's customers, gross
margins were increased in the second quarter of 2001 as the Company's customers
decided to service and replace parts. Service and parts have significantly
higher margins than the Company's core equipment product lines, which
contributed to the increase in gross margins.
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, the Company
has developed an operating history, and the related economic factors stabilize,
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 month period ending June 30, 2001, the
Company's research and development efforts were conducted at all the Company's
locations. Research and Development costs were approximately $242,796,
consisting of purchased materials, outside consulting and leased employee costs,
for the three month period ending June 30, 2001. Research and Development costs
are a significant portion of the total operations and were recorded as a portion
of the selling, general and administrative costs. The Company's research and
development efforts constituted 31% of the total selling, general and
administrative costs for the quarter ending June 30, 2001. During the current
evaluation period of the Sterling Product Line, management anticipates a
significant decrease in research and development costs.
Selling, General and Administrative Costs - For the three months ended June 30,
2001, selling, general, and administrative costs were $779,023, as compared to
$735,403 in the same period of 2000, a $43,620 increase. A significant portion
of the Company's selling, general, and administrative costs were research and
development efforts. (see "Research and Development" section above)
For the six month Period ended June 30, 2001 compared to the six month Period
ended June 30, 2000
For the six month period ending June 30, 2001, the Company reported, on a
consolidated basis, sales of $1,240,358 as compared to sales of $1,522,031 for
the same six month Period in 2000, resulting in a loss of $771,566 for the six
months ending June 30, 2001 as compared to a loss of $763,649 for the same six
month Period in 2000. The revenues were a result of continued revenue generation
from the Company's divisional core products. During the first six month Period,
the Company recorded revenues of approximately $343,180 and $897,178 from the
shipments, services, and sales generated at the Avalon and Derritron facilities
respectively. Avalon's sales revenues decreased significantly from the first six
month Period of 2000, as the result of an overall decline in the circuit board
market. This market decline curtailed many of Avalon's customers from expending
funds on capital equipment, which are Avalon's core products.
In spite of an the overall economic downturn being experienced throughout the
equipment sector and the resulting decreases the Company experienced in the
second quarter, the Derritron Division's sales revenues increased over $80,000
compared to the same period in 2000, due to previous gains in the first quarter
and continued NorthStar controller sales, new product introductions, and
increased service revenues. Management anticipates that during the next six
month period, the Derritron Division's sales revenues will increase as its
current innovative products, including power and logic modules and VP-5, VP-30,
and VP- 50 shakers, gain acceptance in the marketplace and additional new
products, including the VP-200 and slave logic modules, are developed and
marketed. However, a continuation or worsening of the current economic downturn
would have a long-term material impact on the Company's future results.
Cost of Goods Sold - For the six months ended June 30, 2001, the costs of goods
sold were $466,460 with a gross profit margin of $773,897 on product sales of
$1,240,358 as compared to $718,732 of costs of goods sold and a $803,299 gross
profit margin on product sales of $1,522,031 for the same period of 2000,
resulting in gross profit margins for the six month period ended June 30, 2001
of 62% as compared to a 53% gross margin for the same period in 2000. Due to the
general decline and delaying of capital equipment purchasing by the Company's
customers, gross margins were increased in the first quarter of 2001 as the
Company's customers decided to service and replace equipment parts. Service and
parts have significantly higher margins than the Company's core equipment
product lines.
Research and Development - For the six month period ending June 30, 2001, the
Company's research and development efforts were conducted at all the Company's
locations. Research and Development costs were
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approximately $479,174, consisting of purchased materials, outside consulting
and leased employee costs, for the six month period ending June 30, 2001.
Research and Development costs are a significant portion of the total operations
and were recorded as a portion of the selling, general and administrative costs.
The Company's research and development efforts constituted 31% of the total
selling, general and administrative costs for the six month Period ending June
30, 2001. During the current evaluation period of the Sterling Product Line,
management anticipates a significant decrease in research and development costs.
Selling, General and Administrative Costs - For the six months ended June 30,
2001, selling, general, and administrative costs were $1,545,464, as compared to
$1,566,948 in the same period of 2000. The $21,484 decrease in fixed selling,
general and administrative expenses, is a direct result of management's
continuing effort to reduce fixed overhead costs. Management primarily
accomplished this through cost reductions in payroll and related costs, these
reductions were offset by increases in research & development costs, which were
a significant portion of the Company's selling, general, and administrative
costs. (see "Research and Development" section above)
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, the Company had a total cash availability of $122,368 compared
to $222,074 available as of December 31, 2000, a $99,706 decrease. Until the
determination of the Sterling Product in May 2001, the Company continued to
expend significant cash towards the purchasing of equipment and resources
necessary for the development of the Sterling and Derritron Product Lines and
preparing the Company for the anticipated growth in operations as a result of
the introductions of additional products. During the first six month period of
2001, the Company obtained two loans from an unrelated party for $142,000 and
$150,000, respectively. (See Note 9: Notes Payable).
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 anticipated expansion
of Derritron's product line.
While the Company believes that additional capital will be needed for growth
plans of the Company, management believes that the working capital now available
to it along with funds generated from operations, the possible disposition of
selected assets and the economies realized from reductions in the work force,
will allow it to meet capital requirements for the next 12 months, even if
substantial additional working capital does not become available. However,
management also realizes that due to the Company's limited working capital
reserves, a continuation or worsening of the current worldwide economic downturn
would have a material impact on the Company's future results and may create a
going concern issue for the Company.
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.
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.
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 13, 2001, the Company issued 1,000,000 shares of restricted common
stock for $340,000. As an additional incentive to the investor, the Company
issued 400,000 warrants for the purchase of the Company's common stock. The
issued warrants consisted of 200,000 warrants exercisable at $1.00 per share and
200,000 warrants exercisable at $1.75 per share; the warrants expire on
September 1, 2001 and March 1, 2002 respectively. 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. The transaction was
undertaken to an investor as a private placement without any public offering.
The investor was accredited and had a prior business relationship with the
Company. The issuances was made in reliance on the exemption from registration
provided by rule 506 of Regulation D.
In connection with obtaining a loan from an unrelated party, the Company issued
150,000 Stock Purchase Warrants at an exercise price of $2.77, or 85% of the
market price at date of issue. The difference between market price and issue
price was recorded as deferred interest with an adjustment to additional paid in
capital. The deferred interest will be expensed, as it is amortized over the
period of the loan.
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
On May 5, 2001, the Board of Directors held a special meeting as the result of
an evaluation of the Sterling Product Line, which indicated that the project was
experiencing environmental production inconsistencies. After a review of the
available information, the Board concluded that the state of the project
warranted immediate public disclosure while the Company continued reviewing the
project to determine its status and to consider the future direction of the
project. In the discussion, Ira Gentry, CEO and Chairman, disagreed with the
Board's assessment of the status of the Sterling Product, but indicated his
desire to defer to the Board's views. Mr. Gentry voluntarily resigned as
Chairman and CEO at the meeting. The Sterling product review is currently in
process.
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: August 14, 2001 /s/ John Provazek
----------------------------
John Provazek, CEO
UniDyn, Corp.
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