<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 26, 2000.
REGISTRATION NO. 333-51124
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UNITREND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
8731-0203
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
34-1904923
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
4665 West Bancroft
Toledo, Ohio 43615
419-536-2090
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DOUGLAS E. STALLINGS
General Counsel
4665 West Bancroft
Toledo, Ohio 43615
419-536-2090
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
MICHAEL A. SMITH
CARLILE PATCHEN & MURPHY LLP
366 E. Broad Street
Columbus, Ohio 43215
614-228-6135
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock no par value....... 4,000,000 $10.00 $40,000,000 $10,560.00
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such an offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
State.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED DECEMBER 1, 2000
4,000,000 SHARES
[Unitrend LOGO]
new rules for technology(TM)
COMMON STOCK
Unitrend, Inc. (the "Company") is a development stage company focusing
on the computer enclosure and power supply industries. The Company is preparing
for release of the VersaCase(R) computer enclosure, Stable Power Supply(TM) and
related products in the third quarter of 2001. The Company has had no revenues
from product sales and is offering for sale up to 4,000,000 shares of Common
Stock, no par value, (the "Shares").
We are offering the Shares on a "best efforts" basis with no aggregate
minimum offering specified. (See "Plan of Distributions").
There has been no market for the Company's common stock ("Common Stock")
prior to this offering and there can be no assurance that a public market will
develop by reason of this offering. If such a market should develop, there is no
assurance that it will be sustained, or that it will develop into a market
greater than a limited market. The initial public offering price for the Shares
has been determined solely by the Company, and does not necessarily bear any
direct relationship on the Company's assets, operations, book value or other
established criteria of value. (See "Risk Factors" and "Dilution").
AN ELECTRONIC FORMAT OF THIS PROSPECTUS IS AVAILABLE ON THE COMPANY'S WEBSITE AT
HTTP://WWW.UNITREND.COM.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION FROM THE OFFERING PRICE. SEE "RISK FACTORS" BEGINNING ON
PAGE 5 AND "DILUTION" BEGINNING ON PAGE 12.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY STATE SECURITIES
COMMISSION OR THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC(1) COMMISSIONS(2) COMPANY(3)
<S> <C> <C> <C>
Per Share $10.00 $ -- $10.00
Total Offering $40,000,000.00 $ -- $40,000,000
</TABLE>
Our offering of shares will terminate no later than 180 days after the date of
this Prospectus (the "Termination Date").
(1) Shares are being offered at a price of $10.00 per Share which was
arbitrarily determined. A minimum investment of 100 shares ($1,000) is required
for each investor; provided, however, that we may, in our sole discretion,
reduce the size of the minimum investment. Payment in full is due upon
subscription. This offering will terminate on or before 180 days after the date
of this Prospectus, unless all of the Shares offered hereby are sold prior to
such date. When subscriptions are received and accepted, investors whose
subscriptions for Shares have been accepted will be issued Common Stock
certificates evidencing the number of Shares acquired. (See "Stock Purchase
Information" and "Plan of Distribution.") (2) The Shares are being offered by
the Company on a "best efforts" basis with respect to the Shares up to the
maximum number of Shares being offered hereby. There is no underwriter or
independent broker/dealer involved in the distribution of Shares. The offering
of Shares will be made by the Company's officers and directors without use of an
underwriter or any independent broker/dealer. No underwriting discounts or
commissions will be paid to such officers and directors. It is our intention to
offer and sell the Shares by contacting prospective investors through
appropriate newspaper and magazine advertisements as well as through the use of
the Internet to electronically deliver copies of this Prospectus to prospective
investors. (See "Stock Purchase Information" and "Plan of Distribution.") (3)
This amount is before deducting of offering and related expenses incurred in
connection with this offering which are estimated to be approximately
$150,000.00 and include filing, printing, legal, electronic delivery and other
miscellaneous fees.
<PAGE> 3
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to the
more detailed information and financial statements (including notes thereto)
appearing elsewhere in this Prospectus.
The Company.
Unitrend(R), a Nevada corporation, is a development stage company founded
in April, 1996 with the purpose of expanding the useful life of computer
technology. Our mission is to maximize our customers' return on investment in
information systems by extending the value of older technologies as they combine
with the latest advances. We utilize proprietary and patented technology to
design, develop, manufacture, and market our products.
Our first product is the modular VersaCase computer enclosure. Our current
goal is to establish VersaCase as the industry standard for open architecture
computer enclosures while enhancing quality and adaptability. VersaCase is a
computer enclosure which allows a user or technician to rapidly access all
internal components of a computer. This architecture dramatically reduces
downtime for maintenance, and allows quick upgrading of a single component (such
as the computer's central processing unit) without having to replace or tear
down and rebuild the entire computer. We have also patented a computer power
supply unit that greatly enhances the energy performance and cooling operations
inside a computer case. Our power supply unit is known as the "Stable" power
supply(TM). These products save substantial time and financial resources for
both users and technical support staff. Up to the date of the filing of this
document, we have not had any sales of the VersaCase computer enclosure or
Stable power supply.
We have equipped a 13,000 square foot light assembly and metal fabricating
plant in Wauseon, Ohio for the assembly of our VersaCase product. The facility
will ultimately have the production capacity of 3,000 VersaCase units per day
and will be staffed by 35 hourly and 5 salaried employees. The plant is operated
by our subsidiary, Osborne Manufacturing, Inc. (OMI). Consolidated financial
information in this Prospectus includes information for OMI. Additionally, we
have several agreements with nationally known suppliers who have long-term
operating histories as manufacturers and providers of component parts for the
computer industry.
The VersaCase and Stable power supply will be marketed and sold through
direct and indirect channels. After introducing the product to North America, we
intend to expand to Europe, Asia/Pacific, and Latin America, although not
necessarily in that order. The unique modularity of VersaCase enables the
end-user to save considerable time and money, whether the product is utilized as
a personal computer (PC) or as a server in a network of computers. Due to the
mission-critical nature of computer network activities, our primary marketing
efforts are directed at server applications. We will also market to high-end PC
users concerned with complex, high quality computer systems and expect these
users to be strong early adopters of our technology.
In addition to its assembly plant in Wauseon, Ohio Unitrend has its
headquarters at 4665 West Bancroft Street, Toledo, Ohio 43615, (419) 536-2090.
The Offering.
We are offering the Shares on a "best efforts" basis.
There has been no market for our Common Stock prior to this offering and we
do not currently have any arrangements, commitments, or understandings with any
persons with respect to the creation of a public market for our Common Stock.
Therefore, there can be no assurance that a public market will develop by reason
of this offering. If such a market should develop, there is no assurance that it
will be sustained, or that it will develop into a market greater than a limited
market. The initial public offering price for our Shares has been determined
solely by us and does not necessarily bear any direct relationship to our
assets, operations, book or other established criteria of value. See "Risk
Factors," "Dilution" and "Plan of Distribution."
Immediately upon the completion of the sale of 500,000 Shares offered
hereby, we intend to apply for inclusion of our Common Stock on the NASDAQ Small
Cap Market under the symbol "UTRN." In the event that we do not apply for
inclusion of our Common Stock on the NASDAQ Small Cap Market, or in the event
that our Common Stock is not accepted for inclusion on the NASDAQ Small Cap
Market, an investor will likely find it difficult to dispose of Shares or to
obtain current quotations as to the value of the Shares.
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<TABLE>
<S> <C>
Securities Offered.............................. 4,000,000 shares of Common Stock
Shares to be Outstanding After the Offering..... 73,383,580 shares of Common Stock
Use of Proceeds to the Company.................. We intend to use a substantial portion of the net
proceeds of this offering to complete our
manufacturing and assembly operations and to
market our products with the balance used for
working capital and general corporate purposes.
See "Use of Proceeds."
Proposed NASDAQ Symbol.......................... UTRN
</TABLE>
RISK FACTORS
See "Risk Factors" for a detailed discussion of certain risk factors that
should be considered by prospective investors in connection with an investment
in the Shares offered hereby, including, without limitation:
- We are a development stage company.
- Our products are based in part on new technology, of which there can be
no assurance of market acceptance.
- We expect to encounter significant competition in our market from larger
domestic and international competitors.
- We have significant accumulated losses to date.
SUMMARY FINANCIAL INFORMATION.
Selected Consolidated Financial Data. The following audited selected
consolidated historical financial data as of and for the years ended December
31, 1999, 1998, 1997, and 1996 has been derived from our Financial Statements,
which have been audited by GBQ Partners, LLP ("GBQ"), independent auditors. We
have retained GBQ to audit our financials for each of the four years listed in
the table below. The table also includes unaudited financial information for the
periods ended September 30, 1999 and 2000. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Company's Consolidated Financial Statements and
the Notes to the Consolidated Financial Statements, which are included herein.
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
--------------
1999 1998 1997 1996 2000 1999
------ ------ ------ ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating results:
Revenues.............................. -- -- -- 1 -- --
COGS.................................. -- -- -- -- -- --
Research & Development expenses....... 7 207 214 81 17 7
Selling, General & Administrative
expenses........................... 1,232 807 1,079 5,488 919 706
Operating loss........................ (1,239) (1,014) (1,293) (5,569) (935) (712)
Net income............................ (1,335) (1,100) (1,293) (5,569) (965) (781)
Basic & diluted (loss) per share........ (0.02) (0.02) (0.02) (0.07) (0.01) (0.01)
Balance sheet data:
Cash & cash equivalents............... 9 2 -- 78 1 22
Total assets.......................... 2,030 1,777 299 365 2,051 1,893
Long-term debt........................ 2,021 421 26 14 395 1,514
</TABLE>
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RISK FACTORS
All statements, trend analysis and other information contained in this
Prospectus regarding markets for our products, trends and net revenues, gross
margins and other anticipated expense levels, and any statement that contains
the words "anticipate," "believe," "plan," "estimate," "expect," "intend" and
other similar expressions, constitute forward-looking statements. These
forward-looking statements are subject to business and economic risks, including
those risks identified in "Risk Factors" and elsewhere in this Prospectus and
our actual results of operation may differ significantly from those contained in
the forward-looking statements because of such risks. The cautionary statements
in this Prospectus apply to all forward-looking statements wherever they may
appear in this Prospectus.
The securities offered hereby involve a high degree of risk. Prospective
purchasers, prior to making an investment, should carefully consider the
following risks and speculative factors associated with this offering.
1. Limited Operating History; Unprofitable History; Going Concern Opinion.
We are a development stage company incorporated on April 11, 1996.
Accordingly, we have only a limited operating history upon which an evaluation
of our business can be based. Our operations must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stage of development, particularly companies in new and rapidly evolving
markets. To address these risks, we must, among other things, respond to
competitive developments, continue to attract, retain and motivate qualified
persons, and continue to develop our products and services. There can be no
assurance that we will be successful in addressing such risks.
We have incurred net losses since our inception and expect to continue to
operate at a loss for the foreseeable future. Our accumulated deficit in our
development stage as of September 30, 2000 was approximately $10,350,000. There
can be no assurance that we will achieve or sustain profitability.
Our accountants have issued a "Going Concern" opinion in connection with
our audited financial statements. Such opinion indicates substantial doubt about
our ability to continue as a going concern.
2. New Product, New Uncertain Market.
There appear to be no products substantially similar to VersaCase currently
available in the market. At this time, we are dependent upon the commercial
success of VersaCase and our Stable power supply products. There can be no
assurance that the sale of VersaCase will result in net positive earnings. The
manufacturing costs, cost of distribution, and other related costs for the
production of VersaCase have not been established. Additionally, the market
price for VersaCase has not been firmly established. There have been no sales of
our products and no distribution or marketing agreements have been entered into.
There can be no assurance that such agreements will be entered into.
Since the market for VersaCase is new and evolving, it is difficult to
predict the future growth rate, if any, and size of this market. There is
currently no market for the VersaCase, and there can be no assurance that a
market for the VersaCase will develop, that the VersaCase will be adopted or
that individual owners of personal computers, in home or in business, or
manufacturers of personal computers or of furniture and fixtures accommodating
personal computers will use VersaCase. We presently do not have any contracts
for the sale of our product. We are unsure when we will have a product ready for
sale because of the uncertainty of our ability to raise funds by this offering.
3. Protection of Proprietary Assets.
We have received comprehensive patents on the VersaCase as well as the
Stable power supply. In addition, we have been successful in registering the
Unitrend and VersaCase names with the United States Patent and Trademark Office.
We have filed, and are in the process of filing for, other patent and trademark
protection both domestically and internationally.
We are not currently aware of a competitive product in the marketplace.
However, there can be no assurance that steps taken by us to protect our
intellectual property will be adequate to prevent misappropriation of our
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technology or that our competitors will not independently develop technologies
that are substantially equivalent or superior to our technology. In the event
that protective measures are not successful, our business, operating results,
and financial condition could be materially and adversely affected. In addition,
our growth strategy includes a plan to enter the international market, and the
laws of some foreign countries may not protect our proprietary rights to the
same extent as do the laws of the United States.
We are also subject to the risk of adverse claims and litigation alleging
infringement of intellectual property rights of others. Although we believe that
our technology does not infringe on the proprietary rights of others and we have
not received any notice of claimed infringements, there can be no assurance that
third parties will not assert infringement claims against us in the future based
on patents or trade secrets or that such claims will not be successful. We could
incur substantial costs in defending ourselves and our customers against any
such claims, regardless of the merits of such claims. Parties making such claims
may be able to obtain injunctive or other equitable relief which could
effectively block our ability to sell our products in the United States and
abroad, and could result in an award of substantial damages. In the event of a
successful claim of infringement, Unitrend and its customers and end-users may
be required to obtain one or more licenses from third parties. There can be no
assurance that the Company or our customers could obtain necessary licenses from
third parties such licenses may not be available at reasonable costs if at all.
The defense of any lawsuit could result in time consuming and expensive
litigation, damages, license fees, royalty payments and restrictions on our
ability to sell our products, any of which could have a material adverse effect
on our business, financial condition and results of operations.
4. Competition; Industry Market.
The market for the computer hardware industry is intensely competitive,
constantly evolving and subject to rapid technological change. Due to this
rapidly changing environment, the utility of VersaCase may become apparent to
competitors, thereby attracting additional competition to its industry segment.
Such competition could materially and adversely affect our business, operating
results or financial condition. Such a rapidly changing environment could also
affect the utility of VersaCase in the market. In addition, such a rapidly
changing market may make VersaCase and related products obsolete before we
recover any of our investment. Among our competitors and potential competitors
are numerous companies that have substantially greater financial resources and
marketing experience than the Company. The key competitive factors include, but
are not limited to, the uniqueness of the technology, efficiency in completing
contracts on a timely basis, quality control and manufacturing, experience in
applying technology, refinement of methodology and general business operations.
5. Product Development and Product Offering.
We are currently developing two products for resale and/or licensing at
this time. Any near term future revenues will be based solely on those products.
We intend to supplement our product line with additional accessories or products
in the future. Accordingly, broad acceptance of our VersaCase and Stable power
supply and the development of supporting products and services to VersaCase is
critical to our future success. There can be no assurance that any products now
under development, or to be developed, will be commercially successful or
accepted in the marketplace. Nonacceptance of our products will have a
significant negative impact on our earnings. To the date of this offering, the
total amount expended to develop our products, including operational costs, has
been approximately $10,350,000 and an additional $3,500,000 will be needed to
complete the technology and prepare the products for production and sales.
VersaCase is designed around certain standards of the computer industry,
including the ATX logic boards, standard eight (8) slot architecture, standard
on/off controls, current power supplies, and current hard drive accessories. Our
products will therefore be dependent upon the industry continuing with existing
standards, or our products adapting to new standards. For the foreseeable
future, we are not aware of any proposed changes in the industry standards which
would affect the use and utility of the VersaCase. However, there is no
assurance that the existing standards, to which VersaCase is designed, will
continue in a consistent manner in the future. The amendment of such design
standards and our inability to adapt VersaCase to the new standards will
materially adversely affect our operating results and financial condition.
In addition, the continuing development of the Internet in the evolution of
computers and so called "web access devises" may significantly change the way
computing is done and the methods by which end users access
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information. For example, under some potential scenarios, the roll of the PC and
accessing information may be supplanted by lower cost wireless Internet
appliances which will enable end users, through the Internet, to access word
processing, data and other software programs that are currently housed on
individual PCs. Should scenarios develop wherein the PC is no longer as widely
used as presently anticipated, could have a material adverse effect on our
operating results and financial condition.
6. Inexperienced Management.
Our performance is substantially dependent on the performance of our
executive officers and key employees. While our management has experience in
manufacturing and in computer hardware, our management does not have any
experience in managing a public company of this magnitude. We presently have
"key person" life insurance policies on Douglas Stallings, our General Counsel.
We previously had $5,000,000 key person insurance on Conrad A. H. Jelinger;
however, this policy lapsed in the third quarter of 2000. The loss of the
services of any of our executive officers or other key employees, including, in
particular, Conrad A. H. Jelinger, could have a material adverse effect on our
business, operating results, or financial condition.
Our future success also depends on our continuing ability to identify,
hire, train and retain other highly qualified technical and managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that we will be able to attract, assimilate, or retain other highly
qualified technical and managerial personnel in the future. The inability to
attract and retain the necessary technical and managerial personnel could have a
material adverse effect upon our business, operating results, or financial
condition.
7. Concentration of Stock Ownership.
Upon completion of this offering, our directors and officers will own
approximately 71% of our outstanding common stock. As a result, officers,
directors and their affiliates will be able to exercise significant influence
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. Such concentration
of ownership may also have the effect of delaying or preventing a change in
control of Unitrend.
8. Dependence on Contract Manufacturing and Limited Source Suppliers.
Our operational strategy relies on outsourcing of manufacturing. Certain
key components used in the manufacture of our products are currently available
only from limited sources. Consequently, we may seek to secure additional
sources of supply, including additional contract manufacturers.
We may in the future experience problems with our various component
suppliers, such as inferior quality, insufficient quantities, and late delivery.
There can be no assurance that such problems will not generate material
liabilities for, or adversely impact our relations with, our customers. In
addition, we may, in the future, experience pricing pressure from our contract
manufacturers. There can be no assurance that we will manage our contract
manufacturers effectively or that these manufacturers will meet our future
requirements for timely delivery of products of sufficient quality and quantity.
We intend to introduce certain new products and product enhancements in 2001
which will require that we rapidly achieve volume production by coordinating our
efforts with those of our suppliers and contract manufacturers. As of the date
of this offering, approximately $526,000 has been expended by us for product
development of these new products and product enhancements. No assurance can be
provided that any new products or enhancements will be introduced. The ability
of our contract manufacturers to provide adequate supplies of high-quality
products or the loss of any of our contract manufacturers could cause a delay in
our ability to fulfill orders while we identify a replacement manufacturer and
could have a material adverse effect upon our business, operating results, and
financial condition.
9. Management of Growth.
We have significantly expanded our operations since our inception, and our
success is dependent upon our continued expansion, particularly in hiring
additional technical and customer support personnel, developing our sales and
marketing network, and expanding our manufacturing capacity. There may be only a
limited number of persons with the requisite skills to serve in these positions
and it may become increasingly difficult for us to hire such personnel. Future
expansion by the Company may also significantly strain our management,
marketing,
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manufacturing, financial, and other resources. In addition, our future results
of operations are dependent upon the continued expansion of the network of
representatives to market our products domestically and abroad. There can be no
assurance that our systems, procedures, controls, and existing space will be
adequate to support our future operations. Failure to manage our growth properly
could have a material adverse effect on our business, financial condition, and
operating results.
10. Risk of Product Defects.
Products as complex as those we offer at times contain undetected errors
when first introduced or as new versions are released, despite extensive
testing. We expect that such errors will be found from time to time in new or
enhanced products after commencement of commercial shipments. The occurrence of
such errors could result in the delay or loss of market acceptance of our
products, the impairment of development efforts and the loss of credibility with
our customers, any of which could have a material adverse effect on our
business, operating results, and financial condition.
11. Anticipated Fluctuations in Operating Results.
It is anticipated that as our Company matures, our sales and operating
results may fluctuate from quarter to quarter and from year to year due to a
combination of factors, many of which are outside our control; including without
limitation (i) the timing and amount of significant orders from our customers,
(ii) the ability to obtain sufficient supplies of sole or limited source
components for our products, (iii) the ability to attain and maintain production
volumes and quality levels for our products, (iv) the mix of distribution
channels and products, (v) new product introductions by our competitors, (vi)
our success in developing, introducing, and shipping product enhancements and
new products, (vii) pricing actions by the Company or our competitors, (viii)
changes in material costs, and (ix) general economic conditions. To achieve our
revenue objectives, we expect that we will have to obtain orders during a
quarter for shipment in that quarter. As a result of all of the foregoing, there
can be no assurance that we will be able to achieve or sustain profitability on
a quarterly or annual basis.
12. Dependence on Offering Proceeds.
We have had no sales of our products to date and are dependent on the
proceeds of this offering in order to enable us to complete our manufacturing
facilities so that we may commence production of our products. In the event that
we do not raise the maximum amount of offering proceeds sought pursuant to this
Prospectus, we will be required to seek funding from additional sources in order
to fully implement our business plan. In addition, because there is no aggregate
minimum offering, we will accept and immediately begin to use all proceeds from
accepted subscriptions. As is indicated under the heading "Use of Proceeds," to
achieve full capacity levels we must raise a minimum of $14,850,000 (including
projected expenses of $150,000). Also, we will be unable to complete our tooling
and commence manufacturing of our products at a minimum level if we do not raise
at least $5,150,000. In such event, we will be required to seek financing from
additional sources. There can be no assurance that such financing will be
available on acceptable terms, if at all. In addition, in the event that we
raise at least $14,850,000 we will have enough funds to commence manufacturing
and produce units but we may not have sufficient funds to continue full scale
production. The occurrence of any of these events could have a material adverse
effect on our business, operating results and financial condition.
13. Directors' and Officers' Liability Limited.
The Company's Bylaws provide that the directors and officers of the Company
will not be held liable to the Company or its stockholders for monetary damages
if he or she acted in good faith and in the manner he or she reasonably believed
to be in or not opposed to the best interest of the Company and, with respect to
criminal action or proceeding, had no reasonable cause to believe that his or
her conduct was unlawful.
14. Absence of Public Market; Possible Volatility of Stock Price.
Prior to this offering, there has been no public market for our Common
Stock, and there can be no assurance that a public trading market will develop.
If developed, there can be no assurance that it will become more than a limited
market. In addition, future announcements about our Company or our competitors
with respect to such
8
<PAGE> 9
events as technological innovations, new product introductions, litigations, or
earnings estimates and opinions published by financial analysts may cause the
market price for our Common Stock to fluctuate substantially. Stock prices for
many technology companies fluctuate wildly for reasons that may be unrelated to
those companies' operating results. These fluctuations, as well as general
economic, political and market conditions such as recession, may adversely
affect the market price for our Common Stock.
15. No Underwriter or Independent Broker/Dealer.
We have not retained an underwriter or independent broker/dealer to assist
in this offering of the Shares. Our officers and directors have limited
experience in the offering sale of securities on behalf of an issuer, and,
consequently, they may be unable to affect the sale of the maximum number of
Shares being offered hereby. In the event that we retain an underwriter or
independent broker/dealer, the offering of the Shares will be suspended until
such time as the Registration Statement, of which this Prospectus is a part, is
amended to reflect such retention. The Registration Statement would then require
additional review and clearance by the Securities and Exchange Commission
("Commission"), National Association of Securities Dealers, Inc., and, if
necessary, state securities authorities. In the event we retain an underwriter
or independent broker/dealer we will incur significant additional expenses in
the form of selling commissions, legal fees and printing costs.
16. Dilution.
The price per share of the common stock offered pursuant to this offering
is substantially higher than the net tangible book value per share of the Common
Stock as of September 30, 2000, which was $0.01. Therefore, purchasers of Common
Stock offered pursuant to this offering will incur an immediate and substantial
dilution in the value of their shares, and may incur additional dilution upon
the exercise of outstanding stock options. Assuming all 4,000,000 shares offered
pursuant to this offering are sold, the net tangible book value per share of the
common stock immediately after the sale will be $0.56. This is an immediate
dilution of $9.44 per share to purchasers pursuant to this offering.
17. Arbitrary Establishment of Offering Price.
The offering price of the shares to be sold in connection with this
offering is not based upon any factors but has been arbitrarily determined by
management.
18. No Dividends.
The Company has not paid any dividends on our Common Stock and we do not
expect to declare or pay any dividends in the foreseeable future. We intend to
follow a policy of retaining all earnings, if any, to finance development and
expansion of our business.
19. Possible Sale of Outstanding Shares.
Of the 69,383,580 shares of Common Stock currently issued and outstanding,
55,487,000 are "Restricted Securities," as that term is defined under Rule 144,
promulgated under the Securities Act of 1933 (the "Securities Act"). In general,
under Rule 144, a person who has satisfied a one-year holding period may, under
certain circumstances, sell within any 3-month period a number of shares which
does not exceed the greater of 1% of the then outstanding shares of Common Stock
or the average weekly trading volume in such shares during the four calendar
weeks prior to such sale. Rule 144 also permits, under certain circumstance, the
sale of shares without any quantity or other limitations by persons who are not
affiliates of the Company and who have satisfied the one-year holding
requirement. In addition, some of the stock owned by management of Unitrend is
escrowed pursuant to State Blue Sky laws. As a result, as of the date of this
Prospectus, there are 131,000 shares which could be sold in accordance with Rule
144 when and if a public market develops for the Common Stock. The sale of a
substantial amount of our Common Stock in the open market could have a
significant adverse effect on the market price of our securities.
20. Broad Discretion as to the Application of Proceeds.
A substantial portion of the proceeds of this offering will be applied to
working capital of the Company. Accordingly, Company's management will have
broad discretion as to the application of such proceeds.
9
<PAGE> 10
USE OF PROCEEDS
The net proceeds to the Company from the sale of 4,000,000 shares of Common
Stock offered hereby, after deducting expenses of the offering, are estimated to
be $39,850,000.
We intend to use a substantial portion of the net proceeds of this offering
to complete tooling, expand our facilities and prepare our manufacturing and
assembly facility of full scale operations. We expect that approximately
$1,700,000 of the offering proceeds will be used for the acquisition of
additional manufacturing equipment, $2,900,000 will be used for expansion of our
facilities, $2,100,000 will be used for research and development, and
$12,600,000 will be used to ramp up for full scale production. In addition, we
estimate to spend approximately $4,300,000 on marketing expenses. The remaining
proceeds, approximately $16,250,000, will be used for working capital and
general corporate purposes.
We may seek to borrow funds for all or a portion of the expenses outlined
above. In the event that financing is obtained, proceeds of this offering not
used for the purposes set forth above will be added to our working capital.
We may, when and if the opportunity arises, acquire other businesses
involved in complimentary industries for the purposes of expanding our business.
If such opportunities arise, we may use a portion of the working capital and/or
the issuance of securities for that purpose. We have no specific arrangements
with respect to any acquisitions at the present time nor are we presently
involved in any negotiations or discussions with respect to any acquisition and
there can be no assurance that any acquisition will be made.
The allocation net proceeds of this offering set forth above represents our
best estimate based on our present plans and assumptions regarding general
economic and industry conditions in our future revenues and expenditures. If any
of these factors change, or our assumptions regarding completion and ramping up
of our manufacturing facilities prove incorrect, we may find it necessary and
advisable to reallocate some of the proceeds or use portions thereof for other
purposes.
DIVIDEND POLICY
It is the present intention of the Company's Board of Directors not to pay
dividends, but rather to use the Company's cash resources for the expansion of
its operations.
10
<PAGE> 11
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 2000, and as adjusted to give effect to the sale of 4,000,000
shares of Common Stock offered by the Company hereby.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-------------------------------
ACTUAL(1) AS ADJUSTED(2)
------------ ---------------
(UNAUDITED)
<S> <C> <C>
Stockholders' equity:
Common stock, no par value 200,000,000 shares authorized;
69,383,580 share outstanding; 73,883,580 outstanding as
adjusted(3)............................................... $ 3,301,503 $ 43,151,503
Additional paid-in-capital.................................. 8,023,695 8,023,695
Deficit accumulated in the development stage................ (10,353,252) (10,353,252)
------------ -------------
Total stockholders' equity........................ 971,946 40,821,946
------------ -------------
Total liabilities and stockholders' equity.................. $ 2,051,304 $ 41,901,304
============ =============
</TABLE>
---------------
(1) Derived from financial statements included elsewhere in this Prospectus.
(2) Adjusted to reflect the sale of the maximum of Shares offered hereby and the
application of the net proceeds set forth in "Use of Proceeds."
(3) Does not include 6,885,970 shares of Common Stock reserved for issuance upon
the exercise of certain stock options issued pursuant to the Company's Stock
Option Plans. See "Management -- Stock Options Plans."
11
<PAGE> 12
DILUTION
At September 30, 2000, the net tangible book value of the Company was
$939,559, or $0.01 per share of Common Stock. As a result of the sale of
4,000,000 shares of Common Stock offered by the Company hereby and the receipt
of the estimated net proceeds of $39,850,000 therefrom, the Company's pro forma
net tangible book value at September 30, 2000 would have been $40,789,559, or
$0.56 per share. This represents an immediate increase in net tangible book
value of $.55 per share to the present shareholders and an immediate dilution of
$9.44 per share to the purchasers of Common Stock ("New Investors").
The following table illustrates the dilution to New Investors' equity on a
per share basis as described above:
<TABLE>
<S> <C>
Public offering price....................................... $10.00
Net tangible book value at September 30, 2000(1).......... 0.01
Increase attributable to New Investors(2)................. 0.55
Pro forma net tangible book value after offering............ 0.56
Dilution of net tangible book value to New Investors(3)..... $ 9.44
======
</TABLE>
---------------
(1) Net tangible book value per share is determined by dividing the number of
shares of Common Stock outstanding into the tangible net work of the Company
(tangible assets less liabilities).
(2) Based on the public offering price.
(3) Dilution per share is determined by subtracting the net tangible book value
per share after the offering from the public offering price per share.
The following table summarizes, as of December 31, 1999, the differences
between the existing shareholders and the New Investors with respect to the
number of shares of Common Stock purchased, the total consideration paid and the
average price per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------------------
NUMBER PERCENT AMOUNT PERCENT AVERAGE
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing Shareholders
Shares held before offering........ 69,383,580 94.50% $ 3,301,503 7.62% $ 0.05
New Investors........................ 4,000,000 5.50% $40,000,000 92.38% $10.00
---------- ------ ----------- ------ ------
Total...................... 73,383,580 100% $43,301,503 100% $ 0.59
========== ====== =========== ====== ======
</TABLE>
12
<PAGE> 13
SELECTED FINANCIAL DATA
The following selected financial data of the Company with respect to the
financial statements for the three years in the period ended December 31, 1999
is derived from the Company's consolidated financial statements which were
examined by GBQ Partners, LLP. The opinion of GBQ Partners, LLP with respect to
the financial statements referred to above appears elsewhere herein. In the
opinion of management, the unaudited information for the nine-month periods
ending September, 1999 and 2000 has been prepared on the same basis as the
three-year audited information and includes all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the
information set forth therein. Results for the nine-month periods are not
necessarily indicative of results to be expected for the full year.
STATEMENTS OF OPERATION
For the Years Ended December 31, 1999, 1998 and 1997 and for the Nine Month
Periods Ending September 30, 1999 and September 30, 2000.
<TABLE>
<CAPTION>
SEPTEMBER 27,
1994
NINE MONTHS NINE MONTHS (DATE OF INCEPTION)
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998 1997 1999
------------- ------------- ------------- ------------- ------------- -------------------
(UNAUDITED) (UNAUDITED) (AS RESTATED) (AS RESTATED)
<S> <C> <C> <C> <C> <C> <C>
Sales................ $ -- $ -- $ -- $ -- $ -- $ 603
Research and
development
expenses........... (16,680) (6,523) (6,523) (206,956) (213,898) (508,908)
Selling, general and
administrative
expenses........... (918,775) (705,932) (1,232,339) (806,820) (1,078,849) (8,698,677)
----------- ----------- ----------- ----------- ----------- -----------
Operating loss....... (935,455) (712,455) (1,238,862) (1,013,776) (1,292,747) (9,207,585)
Interest income...... 831 -- 1,546 -- -- 1,546
Interest expense..... (29,966) (69,008) (97,268) (61,387) -- (158,655)
----------- ----------- ----------- ----------- ----------- -----------
Net loss before
cumulative effect
of change in
accounting
principal.......... (964,590) (781,463) (1,334,584) (1,075,163) (1,292,747) (9,364,694)
Cumulative effect of
change in
accounting
principle.......... (--) (--) -- (23,968) -- (23,968)
----------- ----------- ----------- ----------- ----------- -----------
Net loss............. $ (964,590) $ (781,463) $(1,334,584) $(1,099,131) $(1,292,747) $(9,388,662)
=========== =========== =========== =========== =========== ===========
Basic and diluted
loss before
cumulative effect
of per share effect
of change in
accounting
principle.......... $(0.01) $(0.01) $(0.02) $(0.02) $(0.02) $(0.14)
Cumulative effect of
change in
accounting
principle.......... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net Loss............. $(0.01) $(0.01) $(0.02) $(0.02) $(0.02) $(0.14)
=========== =========== =========== =========== =========== ===========
Weighted average
shares outstanding
used to compute
basic and diluted
income (loss) per
share.............. 69,383,580 69,368,370 69,059,567 67,471,023 63,343,945 65,860,755
=========== =========== =========== =========== =========== ===========
</TABLE>
13
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------- ------------ -------------
(UNAUDITED) (AS RESTATED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................ $ 1,231 $ 8,779 $ 1,891
Current portion of notes receivable................. 22,458 22,458 7,000
Prepaid expenses.................................... -- 19,830 19,830
---------- ---------- ----------
Total current assets...................... 23,689 51,067 28,721
---------- ---------- ----------
PROPERTY AND EQUIPMENT, AT COST
Land................................................ 67,485 67,485 67,485
Building and improvements........................... 376,385 376,385 348,573
Furniture and fixtures.............................. 82,395 72,295 44,981
Computer equipment.................................. 151,062 125,054 121,787
Computer software................................... 46,719 45,328 44,929
Automobiles......................................... 15,937 15,937 --
Construction in process............................. 1,469,429 1,429,429 1,240,349
---------- ---------- ----------
2,209,419 2,131,913 1,868,104
Less accumulated deprecation........................ (226,565) (198,879) (165,637)
---------- ---------- ----------
Net property and equipment........................ 1,982,847 1,933,034 1,702,467
---------- ---------- ----------
OTHER ASSETS
Patent costs, net of accumulated amortization....... 29,390 30,790 --
Loan costs, net of accumulated amortization......... 2,997 3,813 4,903
Notes receivable.................................... 12,381 11,550 40,612
---------- ---------- ----------
Total other assets........................ 44,768 46,153 45,515
---------- ---------- ----------
TOTAL ASSETS.............................. $2,051,304 $2,030,254 $1,776,703
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable.................................... 303,803 292,143 573,294
Current portion of long-term debt................... 19,332 19,332 19,332
Accrued payroll and sundry taxes.................... 360,709 14,922 56,597
---------- ---------- ----------
Total current liabilities................. 683,844 326,397 649,223
---------- ---------- ----------
LONG TERM LIABILITIES
Accrued interest.................................... 5,607 72,215 1,245
Notes payable -- bank............................... 231,964 244,892 261,002
Note payable -- stockholder......................... 157,943 1,703,854 158,531
---------- ---------- ----------
Total long term liabilities............... 395,514 2,020,961 420,778
---------- ---------- ----------
COMMON STOCK SUBJECT TO RESCISSION.................. -- -- 92,250
---------- ---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, shares authorized and
shares issued and outstanding, respectively....... 3,301,503 3,301,503 2,906,343
Additional paid-in capital.......................... 8,023,695 5,770,055 5,762,187
Deficit accumulated in the development stage........ (10,353,252) (9,388,662) (8,054,078)
---------- ---------- ----------
Total stockholders' equity (deficit)...... 971,946 (317,104) 614,452
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)............................... $2,051,304 $2,030,254 $1,776,703
========== ========== ==========
</TABLE>
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with our "Selected
Consolidated Financial Data" and our financial statements and accompanying notes
appearing elsewhere in this Prospectus. This document contains forward-looking
statements that involve risks and uncertainties. The cautionary statements made
in this document should be read as being applicable to all related
forward-looking statements wherever they appear in this document. Actual results
may differ materially from those indicated in forward-looking statements.
Overview.
We invent and market computer-related products designed to make technology
simple, accessible and affordable through modularity. We have exclusive rights
to patented and patent pending products and technology for certain
computer-related products. Our VersaCase computer enclosure system, which we
have begun marketing to businesses and other entities employing servers, allows
users to quickly access computer components by incorporating a pull-drawer
design of high modularity, this reducing downtime and extending the service life
of information technology.
We are a development stage company that commenced operations in April 1996
and have incurred significant losses since that date. In 1998 we acquired Server
Systems Technology, Inc. (SSTI), a related Ohio corporation formed September 27,
1994. SSTI held the patent on technology crucial to the VersaCase line of
products. We acquired SSTI in a stock-for-stock exchange. Also in 1998, we
incorporated Osborne Manufacturing, Inc. (OMI) as an Ohio corporation to
function as the business entity for a joint venture between our Company and one
of our former employees. OMI is to act as the primary assembling and shipping
facility for our line of products. We presently hold a majority interest in OMI,
which will be reduced to a minority interest two years after OMI begins
producing Unitrend products on a regular basis and upon OMI obtaining
profitability. To date, we have not generated any revenue from sales of our
patented and patent pending products or through licensing agreements, but have
relied on private equity financing and loans from our founder. Furthermore, we
have not yet been profitable since our inception and expect to incur additional
operating losses in 2000 as we ramp up for production and sales of our VersaCase
product. As of December 31, 1999, Unitrend and OMI had an accumulated deficit of
$9,388,662. At December 31, 1999, we had available net operating loss carry
forwards of approximately $4.1 million for federal income tax reporting purposes
which begin to expire in 2011. To date, our operations have consisted
predominately of incidental sales of computer components while we have
principally concentrated on the progression of the VersaCase enclosure and
related products. We have not achieved profitability on a quarterly or an annual
basis and anticipate that we will continue to incur net losses through the third
quarter of 2001. Expenses incurred have been primarily for development of the
VersaCase enclosure system, tooling and administrative support. We expect to
incur significant engineering, pre-production, sales, general and administrative
expenses and, as a result, we will need to generate significant revenue to
achieve profitability. Additionally, our lack of operating history makes it
difficult for us to predict future operating results and, accordingly, there can
be no assurance that we will sustain revenue growth or achieve profitability in
future quarters. Although our core management team has worked together for
several years, none of the present members of management has extensive
experience in managing a large public business in the computer industry. We
intend to hire accomplished individuals in the industry to supplement our
current management team. However, we cannot assure that we will be able to
attract and retain such persons.
We expect that our initial revenues will primarily be derived from direct
sales of our VersaCase computer enclosure system to businesses specializing in
providing remote server-related services and larger entities which own onsite
server-based network equipment. We expect that substantially all of our revenue
during 2001 will be derived from customers based in the United States. We expect
that revenue from customers based outside the United States will increase in
future periods. In addition to revenue derived from direct sales, we expect that
revenue through indirect distribution channels will increase in future periods.
While computer case sales are generally not affected by seasonality, sales
fluctuations may be traced by changes in computer standards as those changes
relate to the layout of components within computer cases. Where strategically
beneficial, we believe that we will be able to enter into strategic alliances
with companies focusing on the development of computer peripherals, logic boards
and power supplies. Our notion that we can develop such strategic relationships
stems
15
<PAGE> 16
from the idea that entities with a vested interest in computer components used
inside computer enclosures will profit from the perpetuation of open
architecture in server-based computer network equipment. The creation of such
alliances cannot be guaranteed.
We plan to initially sell and distribute the VersaCase to two specific PC
applications: high-end PC users, such as automated manufacturing functions, and
entry-level servers. We intend to market and sell our products to nonprofit and
commercial organizations, individuals, and original equipment manufacturers
(OEMs). OEM sales and licensing, large corporate and government accounts, and
large volume value added reseller (VAR) sales will be managed by Unitrend's
direct sales organization. Sales to all other organizations will be through
distributors. We are in the process of establishing a multi-channel distribution
network that will allow us to leverage the distributors who are strategically
focused on offering value added products and services to the computer industry.
Lastly, we will sell the Versa Case and future products directly to end-users
through our Internet site. We intend to promote end-user demand, and will
support our efforts through a variety of marketing programs including but not
limited to, trade and consumer advertising, public relations, and trade shows.
While our initial focus is the North American market, we plan to expand to
Europe, Asia/Pacific, and Latin America as opportunity arises. The data
presented at the beginning of the business section illustrates the size of these
market segments.
Results of Operations.
We had no net revenues in 1999, 1998 or 1997. Consequently, there was no
cost of revenues or gross profit in 1999, 1998 or 1997.
We incurred an operating loss of $1,238,862 for the year ended December 31,
1999 ("1999"); $1,013,776 for the year ended December 31, 1998 ("1998"); and
$1,292,747 for the year ended December 31, 1997 ("1997").
Research and development expenses, which were expensed as they were
incurred, consist primarily of salaries and related expenses for: personnel
engaged in engineering and development; fees paid to research and engineering
consultants and outside service providers; costs of prototypes and test units;
and other expenses related to the design, development, testing and enhancements
of VersaCase and our future products. Our research and development expenses
decreased $200,433 to $6,523 in 1999 from $206,956 in 1998. This decrease is due
to the finalization in 1998 of many design elements of our initial products as
we prepare to produce those products. Research and development expenses
decreased $6,942 in 1998 from $213,898 in 1997, and increased $132,367 in 1997
from $81,531 in 1996. We anticipate that our research and development costs for
2000 will increase dramatically, as we begin marketing VersaCase units and
refocus our efforts toward the expansion of our product base. We believe that
research and development is critical to our strategic product development
objectives and intend to enhance our products and technology to meet the
changing requirements of the market demand.
Selling, general and administrative expenses consist primarily of salaries
and related costs of: sales, marketing and customer support activities; legal
services; and finance, information technologies, human resources, and executive
expenses; as well as costs associated with trade shows, promotional activities;
advertising and public relations. Legal services for the Company consisted of
salaries, filing fees, dues and subscriptions and new and ongoing patent and
trademark filings and prosecution costs. Prosecution costs include those legal
fees directly associated with the process of obtaining patents on inventions
under the control of or otherwise originating from the Company. Finance,
information technologies, human resources and executive expenses consisted of
expenses relating to salaries, information systems expansion, professional fees,
facilities' expenses and other general corporate expenses. Our selling, general
and administrative expenses increased $425,519 to $1,232,339 in 1999 from
$806,820 in 1998, decreased $272,029 in 1998 from $1,078,849 in 1997, and
decreased $4,409,307 in 1997 from $5,488,150 in 1996. The 1999-1998 increase was
due to salaries from hiring additional full-time and part-time employees and
increases in wages to existing employees as well as additional costs of outside
consultants and companies hired by the Company to aid in its marketing and
production efforts. The 1998-1997 decrease is primarily due to cost-cutting
efforts by our management. The 1997-1996 decrease is reflective of the
cancellation of compensation expense recorded in 1996 of options granted to Mr.
Eric Jelinger. We expect that selling, general and administrative expenses will
increase in the future as we
16
<PAGE> 17
hire additional personnel, expand our operations domestically, initiate
additional marketing programs, establish sales offices in new locations and
incur additional costs related to the growth of our business and our operations
as a public company.
Our Prosecution costs decreased $228 to $1,980 in 1999 from $2,208 in 1998,
decreased $8,566 in 1998 from $10,774 in 1997, and decreased $5,987 in 1997 from
$16,761 in 1996. The general trend of decreasing yearly expenses for Prosecution
costs is linked directly to the more significant initial costs associated with
the pursuit of patent protection. The Company expects that as it grows to
promote its products in the national markets and generates additional inventions
that its Prosecution costs will increase. However, there can be no assurances
that the Company will be able to promote its products in the national market or
that it will generate any additional inventions.
From inception through 1999, stock options were issued to employees and
certain non-employee consultants, which were formalized in writing under our
1999 Stock Option Plan. As of December 31, 1999, 3,944,270 total options have
been granted to non-employee consultants at a price of $0.50. Options to
non-employee consultants were recorded as consulting expenses and disclosed as
selling, general and administrative expenses in the Company's accompanying
consolidated financial statement, using the fair market value of the services
rendered or the options granted on the date the options were issued. We
recognized $7,868 of compensation expense to non-employees relating to these
options during 1999, $55,316 in 1998, and $252,011 in 1997. We determined that
the per share weighted average fair value of post-splits stock options granted
during 1999 was $0.50 on the date of grant.
Interest expense increased $35,881 to $97,268 in 1999 compared to $61,387
in 1998. There was no interest expense recorded in 1997. These increases in
interest expenses are attributed directly to notes payable to the founder,
issued in 1998 and 1999, which have an interest rate calculated as the prime
rate on the first business day of the year, payable in ten equal annual
installments after we are profitable for one year. The founder made no similar
loans in 1997.
Three Months Ended September 30, 2000 and 1999.
Results of Operations -- Third Quarter of 2000 Compared to Third Quarter of
1999. We had no net revenues during the quarter ended September 30, 2000 or the
quarter ended September 30, 1999. We expect to begin selling the VersaCase in
the third quarter in 2001.
We had an operating loss of $254,213 during the quarter ended September 30,
2000 as compared to a loss of $269,567 during the quarter ended September 30,
1999, a decrease of 6%. Our loss decreased due to a reduction in selling,
general and administrative expenses and research and development costs.
Selling, general and administrative expenses decreased to $254,213 during
the quarter ended September 30, 2000 as compared to $263,044 for the quarter
ended September 30, 1999, a decrease of 3%. This change was due primarily to a
decrease in payroll and related employee benefit costs of approximately $8,000
during the quarter ended September 30, 2000 as compared to the quarter ended
September 30, 1999. These costs decreased due to a change in the Company's
staffing requirements subsequent to the quarter ended September 30, 1999.
Contract labor decreased by approximately $22,000 and professional fees
increased by approximately $20,000 due to professional assistance directly
relating to the Company's numerous filings with the United States Securities and
Exchange Commission.
During the quarter ended September 30, 2000, there were no stock options
granted to non-employees under our 1999 Stock Option Plan. During the quarter
ended September 30, 1999, 58,270 stock options were granted to non-employees at
an exercise price of $0.50 each, under our 1999 Stock Option Plan. Options to
the non-employee consultants were recorded for $4,915 in consulting expenses
based on the fair market value of the services rendered.
Results of Operations -- First Nine Months of 2000 Compared to First Nine
Months of 1999. We had no revenues during the nine months ended September 30,
2000 or the nine months ended September 30, 1999. We expect to begin selling the
VersaCase in the second or third quarter in 2001.
17
<PAGE> 18
We had an operating loss of $935,455 during the nine months ended September
30, 2000 as compared to operating loss of $712,455 during the nine months ended
September 30, 1999, an increase of 31%. As discussed below, this operating loss
grew due to an increase in selling, general and administrative expenses.
Research and development expenses increased to $16,680 for the nine months
ended September 30, 2000 as compared to $6,523 for the nine months ended
September 30, 1999. This increase was due to a consulting fee paid during the
year 2000 first quarter to an international product design and consulting firm
to examine the Company's products for possible improvement and modification
suggestions prior to the commencement of full-scale production. We believe that
research and development expenses will increase as we go forward.
Selling, general and administrative expenses increased to $918,775 during
the nine months ended September 30, 2000 as compared to $705,932 during the nine
months ended September 30, 1999, an increase of 30%. This change was due
primarily to an increase in payroll and related employee benefit costs of
approximately $150,000 during the nine months ended September 30, 2000 as
compared to the nine months ended September 30, 1999. These costs increased due
to the hiring of additional employees subsequent to the nine months ended
September 30, 1999. Other significant increases in officers' insurance,
professional fees, building and related costs and depreciation were
approximately $25,000, $30,000, $10,000 and $5,000, respectively. The Company
saw decreases of approximately $20,000 in contract labor and computer supplies
during the nine months ended September 30, 2000 as compared to the nine months
ended September 30, 1999.
During the nine months ended September 30, 2000, 78,102 stock options were
granted to non-employees at an exercise price of $0.50 each, under our 1999
Stock Option Plan. Options to the non-employee consultants were recorded for
$11,844 in consulting expenses based on the fair market value of the services
rendered.
We had an increase in plant, property and equipment of $77,499 due to the
purchase of furniture, fixtures, computer equipment and software as well as
additional tooling and dies under construction. Accrued expenses increased to
$360,709 for the nine months ended September 30, 2000 compared to $14,922 at
years end December 31, 1999. Since April 1, 2000, the employees have agreed to
defer compensation for their services until such a time that the Company's cash
flow deficiencies are satisfied. This will occur upon approval of the Company's
registration statements with the Securities and Exchange Commission. The note
payable to our President/majority stockholder decreased to $157,943 during the
nine months ended September 30, 2000 because he forgave prior years loans of
$2,171,854 and the associated interest of $69,942. This was accounted for as
contributed capital.
Liquidity and Capital Resources.
The Company has financed its operations since inception primarily through
public and private sales of equity securities, as well as through loans from its
President/majority stockholder, Conrad A.H. Jelinger.
As of September 30, 2000, the Company's cash totaled $1,231. Loans from Mr.
Jelinger during the nine months ended September 30, 2000 totaled $625,943. On
March 31, 2000 our President/majority stockholder forgave loans to the Company
of $2,171,854 and accrued interest of $69,942. This was accounted for as
contributed capital.
Primary uses of cash and cash equivalents for the nine months ended
September 30, 2000 included $543,064 for the Company's operations and working
capital requirements, payments on notes payable of $12,928, and purchases of
property and equipment of $77,499.
The Company's future cash requirements will depend upon numerous factors,
including the amount of revenues generated from operations (if any), the cost of
the Company's sales and marketing activities and the progress of the Company's
research and development activities, none of which can be predicted with
certainty. The Company will continue to seek additional funding following this
period ended September 30, 2000. On September 15, 2000, the Company received
approval of its Form 10-12B/A registration statement with the Securities and
Exchange Commission filed on August 30, 2000. Following this approval, the
Company filed an S-8 to register stock options on September 25, 2000. The
Company will meet its funding requirements for the tooling costs, operating
costs and other funding requirements through loans by the majority stockholder
as well as raising additional equity through a registration of its securities
with the Securities and Exchange Commission.
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<PAGE> 19
Management expects these documents to be submitted for approval by the end of
the fourth quarter 2000. There can be no assurance any additional funding will
be available on acceptable terms or at all. Moreover, if additional financing is
not available, the Company could be required to reduce or suspend its
operations, seek an acquisition partner or sell securities on terms that may be
highly delusive or otherwise disadvantageous to current shareholders. The
Company may in the future experience operating difficulties and delays in its
production development due to working capital constraints. Any such difficulties
or delays could have a material adverse effect on the Company's business,
financial condition and results of operation.
Year 2000 Issues.
The Company experienced no significant problems or malfunctions relating to
the Year 2000 situation during the nine months ended September 30, 2000.
Therefore, the Company had no costs relating to this issue during this period.
Recent Accounting Pronouncements.
In June 2000, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101B, which delayed the implementation of SAB
No. 101 "Revenue Recognition in Financial Statements" until the fourth quarter
of fiscal years beginning after December 15, 1999. We do not expect the adoption
of SAB No. 101 to have an impact on our financial conditions or results of
operations.
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS" No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities -- an Amendment of SFAS 133." We do
not expect the adoption of SFAS No. 138 or 133 to have an impact on our
financial conditions or results of operations.
In September 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 140 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities -- a Replacement of FASB Statement No. 125." We do not expect the
adoption of SFAS No. 140 to have an impact on our financial conditions or
results of operations.
In October 2000, the Securities and Exchange Commission adopted the rule
"Selective Disclosure and Insider Trading." These new rules were adopted to
address three issues: the selective disclosure by issuers of material nonpublic
information; when insider trading liability arises in connection with a trader's
"use" or "knowing possession" of material nonpublic information; and when the
breach of a family or other non-business relationship may give rise to liability
under the misappropriation theory of insider trading. The rules are designed to
promote the full and fair disclosure of information by issuers, and to clarify
and enhance existing prohibitions against insider trading. We maintain the
Company is in compliance with these rules and these rules will not have an
impact on our financial conditions or results of operations.
No other accounting pronouncements have been issued that have any effect on
the Company.
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<PAGE> 20
BUSINESS
General.
Unitrend is a development stage company formed by Mr. Conrad A. H. Jelinger
of Toledo, Ohio in 1996 for the purpose of preserving and adding value to
existing and future computer technology. We have designed and developed the
VersaCase computer enclosure and Stable power supply. We will utilize
proprietary and patented technology invented by Mr. Jelinger to produce our
products.
In 1994, prior to the formation of Unitrend, Conrad Jelinger and his
brother Eric Jelinger, formed Server Systems Technology, Inc. ("SSTI"), an Ohio
corporation. SSTI was the initial vehicle through which Conrad and Eric Jelinger
applied for the basic patents regarding the VersaCase concepts. For various
business reasons, Conrad Jelinger formed Unitrend, Inc. in 1996 which, at that
time, was a corporation wholly owned by Conrad Jelinger. From April of 1996 to
December of 1998, SSTI and Unitrend continued to operate in a parallel fashion
whereby SSTI owned the patents for the VersaCase concept and Unitrend developed
the manufacturing and technical expertise. For various business reasons, SSTI
was merged into Unitrend on December 15, 1998.
In April of 1998, Unitrend formed another entity called Osborne
Manufacturing, Inc., an Ohio corporation ("OMI"). We own sixty percent (60%) of
OMI and a former employee of Unitrend owns the remaining forty percent (40%).
Our ownership interest will be reduced to forty percent (40%) three years after
the commencement of OMI's production of the VersaCase units, if OMI is
profitable during the period.
Unitrend was incorporated as VersaCase, Inc. in Ohio in 1996. The name was
changed to Unitrend in May, 1996 . In July, 1999, the Company merged with
Unitrend, Inc., a Nevada corporation, with the Nevada corporation surviving. As
used herein, the "Company" or "Unitrend" includes, unless the context otherwise
indicates, Unitrend and its predecessors. The Company maintains its principal
executive offices at 4665 West Bancroft, Toledo, Ohio 43615, (419)536-2090.
To date, the Company has conducted initial market research, completed
design and engineering specifications, built several prototypes of the unit and
substantially completed tooling for the manufacture of the VersaCase and Stable
power supply. We intend to market and sell our products to four domestic
business segments; (1) business, (2) education, (3) government, and (4) the
military. Proceeds of this offering will be used to introduce the VersaCase and
Stable power supply on a limited basis, measure market response, finalize
production capabilities, initiate production and commence an aggressive
promotion of the products on a nationwide basis.
The VersaCase is an innovative modular enclosure system that allows the end
user to easily configure, modify, repair and update hardware components
contained within the computer case. The VersaCase enclosure permits rapid access
to the computer chassis through a drawer that integrates sliders (similar to a
file cabinet) creating an "electronics in a drawer" environment. Within the
VersaCase drawer, the hardware of the personal computer becomes modular, which
means that all major computer components are easily accessible for removal,
upgrading or repair applications. With the VersaCase, it is no longer necessary
to breakdown the system for hardware changes. To access the inside of the
computer, the user simply opens a drawer and does what needs to be done.
The Stable power supply, like the VersaCase, is intended to help end users
deal with upgrades and repairs. Typically, power supplies are sealed units that
are not serviceable by the end user. In almost every case, the only solution
when power supply difficulties arise is total replacement. Also, when upgrading
to a higher wattage, power supplies need to be removed and replaced in total.
This process will often take more than one hour when done be a trained
technician and is costly in both down time and labor charges. With the Stable
power supply, most of these problems are negated. First, Stable power supplies
are totally modular being comprised of three basic subsystems: (1) the upper
power module; (2) the base power distribution module; and (3) the cooling plug-
ins.
The upper power module is the power supply itself. Mounted and shielded by
a metal housing, the power supply is hardwired to a quick disconnect plug that
allows it to be mated to the power distribution base.
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<PAGE> 21
The power distribution module is, in turn, wired to the peripherals through
removable connection cables. Unlike the power supplies provided with most
computers today, if the power module needs service, upgrading or replacement,
the base unit stays wired to the internal peripherals reducing the labor from an
hour to just a few seconds. The base unit also includes a LED display array that
allows the user to diagnose common power supply problems and further expedite
repairs. The Stable power supply also has an optional connector port to expand
its versatility and enable it to include an internal power backup, redundant
power backup, RPM display, hardwire on/off circuits, and thermal display. With
an optional battery pack, the power supply can be repaired or exchanged with the
power on and computer running.
The cooling plug-ins allow the user to select the best type of cooling fans
for their systems as a whole.
Product Development.
The VersaCase is an innovative modular enclosure system that allows the
user to efficiently and easily configure, modify, repair and update hardware
components contained in a personal computer case. The VersaCase enclosure
permits rapid access to the computer chassis through a drawer that integrates
sliders similar to a file cabinet creating an "electronics in a drawer"
environment. Within the VersaCase drawer, the entire hardware of a personal
computer becomes modular, which means that all major computer components are
easily accessible for upgrading or repair applications. With VersaCase, it is no
longer necessary to break down the system for hardware changes. The user simply
opens the drawer and makes the changes that need to be done.
The direct benefits in saving time and money are substantial when
contrasting the VersaCase to standard case enclosures. Set forth below are
estimated time and cost data comparing the VersaCase with standard cases as
measured by four common applications (network upgrade, motherboard upgrade,
drive replacement and change in power supply).
Comparative Application Data
<TABLE>
<CAPTION>
STANDARD VERSACASE
---------------------- ----------------
APPLICATION TIME COST* TIME COST*
----------- ----------- ------- ------- -----
<S> <C> <C> <C> <C>
Network Upgrade 1 hr $ 80 1 min $ 1
Upgrade Motherboard 1-2 hrs $80-160 10 mins $13
Drive Replacement 1-2 hrs $80-160 5 mins $ 7
Power Supply 1-1 1/2 hrs $80-120 1 min $ 1
</TABLE>
---------------
* All costs are rounded to the nearest dollar and based on $80 per hour, all
data derived internally.
The benefits of the VersaCase are further supported when analyzed in
connection with the total cost of ownership. Cost savings are particularly
evident given the continuing rapid change in computer technology which makes
entire systems obsolete and requires additional investment in new equipment and
supporting software. Set forth in the table below is a comparison of the total
costs of owning a standard case system as compared to a VersaCase unit over four
generations. While the initial cost of the VersaCase unit ($400-450) is more
expensive than a standard case and about the same as a rack mount case, over the
long run, other cases are estimated to be 50% more costly than the VersaCase.
Total Cost of Ownership Analysis
<TABLE>
<CAPTION>
GENERATION
(APPROXIMATELY STANDARD VERSACASE
NINE MONTHS) ACTIVITY/DESCRIPTION COST COST
-------------- -------------------- --------- ---------
<C> <S> <C> <C>
1st Initial Purchase, maintenance, and repair $2,380.00 $2,372.00
2nd System is upgraded, plus maintenance costs $ 640.00 $ 415.00
3rd Replace standard case system; upgrade
VersaCase: and perform maintenance $2,100.00 $ 585.00
4th Both systems upgraded; routine maintenance,
and one repair $ 920.00 $ 635.00
--------- ---------
Total Cost $6,040.00 $4,007.00
</TABLE>
---------------
* All costs are rounded to the nearest dollar and based on $80 per hour, all
data derived internally.
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<PAGE> 22
In addition to the foregoing, by virtue of the strength of the enclosure,
the VersaCase allows users the option of multiple configurations. Users can
safely stack their machines up to six units high without worry about enclosure
collapse due to unit weight. Users can also easily move to a rack mounted
environment without having to change and/or upgrade their computer enclosure
technology. In many situations, by using the VersaCase, maintenance, repairs and
testing can all be accomplished with the power source still engaged.
We are also designing and developing components to take full advantage of
the of our open architecture. We are in the process of designing components for
various size drives, as well as a unique snap-in and power supply.
Like the VersaCase, the Stable power supply provides substantial benefits
saving time and money related to repairs when contrasted with standard computer
power supplies. Originally the Stable power supply was a component which we
developed for the VersaCase. However, at the Comdex Trade Show in 1997, there
was a great deal of interest in the Stable power supply and we modified its
development to enable it to be sold as a separate product. Therefore, while the
Stable power supply remains a key feature of the VersaCase system, it may be
sold independently. Depending on the class and quality, the Stable power supply
costs no more than other high end power supplies. However, compared with less
expensive low power rated imports, they could cost two-to-three times as much.
Since power supplies are one of the greatest sources of computer failure, it
only takes one repair cycle for the Stable to return a savings to the end users.
Patents and Trademarks.
The United States Patent Office has issued patents for the VersaCase
enclosure system and Stable power supply. Patents for other accessories and
parts have also been applied for, or are being researched. In addition, we have
secured trademark registrations for the names VersaCase(R) and Unitrend(R) and
have applied for trademark registration for Stable power supply(TM).
Market Development, Research and Competition.
Our research has determined that market demand exists for a "user friendly"
high quality, medium cost, computer enclosure. Because many end users do most of
the routine maintenance and repair of their own computer equipment, rapid easy
access to internal computer components is a significant benefit. Prior to the
development of the VersaCase, access to internal computer components was time
consuming and expensive.
Our Management believes that there are currently four major trends which
are creating increased demand for the VersaCase technology:
First, is the development and introduction of the ATX platform by
Intel. Intel introduced the ATX logic board platform in 1996. ATX is a
smaller, more efficient system than its predecessors and is the dominant
platform of the industry. The wide spread use of the ATX platform, which is
compatible with the VersaCase, means that approximately 90% of all desktop
computers will be capable of using VersaCase technology. Intel's
introduction of the ATX logic board platform has also generated a new
standard for personal computer open architecture.
The second major trend which we believe will create an increased
demand for flexible cases such as the VersaCase, is the increasingly rapid
development cycle for new technology updates. Small, medium and large
businesses need to continuously upgrade their technology. Moreover, they
need to routinely deal with maintenance issues. For instance, software
upgrades such as Microsoft's Windows 98, are requiring users to upgrade
their current system's memory, and in many cases CD ROM capabilities. In
addition, the increasing use of the Internet will continue to drive the
need for hardware upgrades into the foreseeable future. The cost of these
upgrade applications is significant when dealing with standard computer
case configurations. The VersaCase allows computer end users to deal with
these issues in a more cost effective manner.
A third factor which may drive the demand for the VersaCase is the
general growth in the personal computer market. Industry sources estimate
that desk top computer sales will continue to grow in excess of 10% per
year through the year 2000.
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<PAGE> 23
The fourth trend which we believe will drive sales for the VersaCase
is the increase in build-your-own systems. In many instances, computers and
users are moving towards this latest market trend which enables users to
customize their computer systems.
The computer enclosure market is intensely competitive. To date,
competitors have focused primarily on cost and style issues. While Unitrend is
much smaller and not as well financed than many other computer case
manufactures, we have not elected to compete by traditional means but rather by
developing a modular system that provides greater adapt- ability and flexibility
than our competitors. By taking this innovative approach, we believe that we
will be able to successfully compete in the computer case market.
Industry.
The computer industry has experienced remarkable growth. According to
eTForecasts, PC shipments reached 39.9 million units domestically, and 107
million units worldwide in 1999, a growth of 20.5% over 1998. While the Y2K
issue motivated some purchases, this sales pattern reflects both the acquisition
of first machines and replacement of existing units. Worldwide PC sales are
expected to reach over 215,000,000 units by the year 2005.
Domestic and Worldwide PC Shipments*
<TABLE>
<CAPTION>
1998 1999 2000**
---- ---- ------
<S> <C> <C> <C>
Domestic.................................................... 34.2 39.9 45.3
Worldwide................................................... 88.8 107 124.5
</TABLE>
---------------
* Shipments are measured in millions of units
** Projected numbers
Source: eTForecasts
According to International Data Corp., revenue from worldwide PC sales for
1998 was $171 billion, and in 1999 worldwide revenues were up to $189 billion,
representing a 10.5% increase over the previous year. Projected worldwide
revenue for 2000 is $204 billion, a 7.9% increase.
The PC server market likewise grew at a rapid pace. According to market
researcher eTForecasts, 1999 worldwide server shipments reached 3.7 million
units. Worldwide sales by 2005 are projected to be 11.5 million units. The top
four vendors in this segment are Compaq, Hewlett-Packard, IBM and Dell.
Growth in the computer market reflects the rush to build information
highways within and between both work and home environments. The trend of
connecting people and business is further illustrated by the dramatic growth of
Web Hosting, Application Service Providers (ASPs), Internet Service Providers
(ISPs), and a rapid growth in the number of new companies entering this market.
In order to support this high level of "instant" connectivity, these companies
are building massive "server farms" using fiber optic communications to
accelerate the transmission of data by two to three times current speeds. For
example, Intel has built its first server farm in Santa Clara, CA and has
aggressive plans to open more hosting facilities around the world, each with
5,000 to 10,000 servers (Computer Reseller News, 10/8/99). Level 3
Communications, an international communications network company, is building a
worldwide network with "gateway" sites planned in 56 U.S. and 21 International
cities (Level 3 Communications web site 3/15/00).
Open Architecture.
The concept of open architecture enables computer users to combine various
components and peripherals from different manufacturers. To some extent, the
industry has moved in the direction of common standards typified by open
architecture. For example, mounting boards, DVD's, CD-ROM's, floppy drives, and
serial ports, to name a few are designed according to a set of common
specifications. In addition, the ATX logic board platform developed by Intel,
the world's largest manufacturer of microprocessors, sets the standard for
placement
23
<PAGE> 24
of connecting devices to the logic board. However, fiercely competitive market
forces have thus far defeated true open architecture.
Major assemblers such as IBM, Dell, Gateway and Compaq build units that
support only their proprietary components. If one of these parts should fail,
the only option is to replace it with the same part from the same company. While
this provides additional revenue for the PC producer, the consumer and business
users suffer in significant ways. Consumers are locked into the price,
availability, and delivery time dictated by the PC producer, which can add to
downtime and cost of maintenance.
Accessibility.
In order to simplify the repair and upgrade of computers, the industry is
beginning to create hardware that is easily accessible. Historically, the design
of computer enclosures has severely limited one's ability to service both
critical and ordinary problems with a PC. Rapid access is especially important
in mission-critical applications where occasionally a technician must make a
prompt intervention to save the computer network from crashing. Unfortunately,
the human expert often loses this race. These system crashes are all too
frequent and widely publicized, as in the cases of internet companies E-bay and
Amazon.com. The loss in reputation and revenues can be significant. Sandy Carter
of IBM stated that some of their customers lose $10,000 per minute of downtime
(Computer Reseller News, 5/21/99).
Some industry leaders are moving toward tool-less cases that can be opened
by pressing tabs to lift the top panel. Apple introduced the G-3 model
highlighting the ease of access to the "guts" through a drop-down side panel.
Gateway, Dell, and IBM have recently introduced models that move in this
direction as well.
Continuous Need to Upgrade.
Both hardware and software components are updated at an astounding pace.
Moore's Law states that processing power doubles roughly every 18 to 24 months.
The rapid release of 12 Intel micro processing chips from the 8080 through the
Pentium III Xeon over the last 25 years shows that Moore's observation it still
remarkably accurate, while also demonstrating technology's rushing rate of
change. A steady stream of software upgrades takes advantage of this additional
processing power to create more powerful, intuitive, and stable software. We
become increasingly dependent on the software, and thus the software upgrades,
which in turn require upgrading the computer's memory, storage, or processing
capabilities. This cycle becomes so expensive that the estimated 5 year total
cost of ownership for a Windows based PC is $47,500 (March 2000 Fujitsu web
site, citing a study by the Gartner Group). Instead of upgrading the computer,
entire existing systems are often simply discarded.
Scalability.
The ability to change internal components is essential for extending the
investment in computer technology. As the Fortune Tech Buyers Guide states,
"scalability is key, especially in PCs. Better systems provide plenty of
expansion slots and extra drive bays so PCs can grow as needed" (Fortune Tech
Buyers Guide Supplement, Summer 1999, p. 130, 141).
Unitrend Solution.
We believe Unitrend is well positioned to offer solutions to many of the
issues listed above. VersaCase was designed with these factors in mind,
resulting in a product that addresses all four areas: true open architecture;
complete accessibility; rapid upgrade and maintenance; and creative scalability.
True Open Architecture. The VersaCase achieves true open architectural
design by allowing the combination of various technologies and/or peripherals
from different manufacturers. VersaCase accepts all industry standard
components, such as motherboard configurations from Intel. Because the case
design allows for the acceptance of any non-proprietary part, the consumer will
not be restricted to using proprietary components. This significantly enhances
the computer's value by allowing the owner to choose the best component for each
repair and upgrade.
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<PAGE> 25
Complete Accessibility. The VersaCase allows a user or technician to
quickly access the internal components of a computer. The design of the case is
similar to a drawer, thereby providing quick access, without tools, to the
inside of the computer. Internal components become modules that can be installed
or replaced simply and easily. This design simplifies routine repair,
maintenance, and upgrade procedures. This full-access-design is vital for
mission-critical applications. Often, a failure in server system can be isolated
to two or three units, and the technician must rapidly check all three units to
save the entire system from shutting down. Standard computer enclosures require
considerable time to access all internal components because they must be
laboriously dismantled. With the VersaCase, the technician simply slides open
the drawer. What can take agonizing minutes or even hours with a typical
enclosure is done in seconds or minutes with a VersaCase.
Rapid Upgrade and Maintenance. The drawer-like design of the VersaCase not
only allows full access to all the internal components, it dramatically reduces
the time required to get to any given component. The time it takes to perform
upgrades and repairs is doubly expensive when you add the cost of the person's
time performing the task to the lost productivity of the user while the system
is down. In effect, every minute saved by VersaCase buys back two minutes of
user and technical support time. The total cost of ownership for a computer
built with VersaCase is greatly reduced by allowing individual components to be
upgraded. With other cases, many components such as the motherboard or central
processing unit (CPU) cannot be changed, and you are forced to discard the
entire PC. With other cases, you are forced to buy a whole new computer, leaving
you with many perfectly good, but unusable, components. Instead of spending
thousands of dollars every two years for a whole new system, VersaCase lets you
spend a couple hundred dollars (or less) by merely upgrading the old component
and continuing to use the remaining components.
Creative Scalability. The VersaCase provides increased flexibility. It can
be used as a PC or a server. As a server, the unit can be used in a rack-mount
application or as a standalone unit. Up to fifteen 3 1/2" drives can be mounted
internally onto three independent universal mounting racks, or six 5 1/4" drives
can be mounted onto two independent universal mounting racks. Removable drive
bay panels allow for any combination of drive sizes to be installed. Due to the
inter-changeability of the components, hundreds of configurations are possible.
In summary, the VersaCase offers new technology to the market, which gives
you the ability to easily maintain and upgrade your system while providing
unsurpassed configuration options. VersaCase simplifies changes and extends the
life of computers, saving substantial time and money for both companies and
individuals.
Competition.
We will compete in the computer enclosure market, initially focusing on the
high-end PC and entry-level server segments. The computer enclosure market is
intensely competitive. Within the enclosure market, we will encounter
competition primarily from large domestic enclosure manufacturers and
distributors such as Berno, Inc., California P.C. Products, American Portwell,
and Antec. To our knowledge, no competing company offers an enclosure which
contains all the features and benefits of the VersaCase. As noted above, some
major computer assembly firms, e.g., IBM, Gateway, Acer and Dell, have
introduced PC models that contain some modular features that are found in a
VersaCase. No one, however, has designed or introduced a model that delivers all
the scalable and versatile technology that the VersaCase offers.
We will also encounter strong competition from international computer
enclosure companies who sell to worldwide original equipment manufacturers and
distributors. These international companies also set up their own distribution
networks in international markets, including the United States. The
international market is extremely competitive due primarily to aggressive
pricing. Examples of international companies include: Chung Long Metal Co.,
Ltd.; Karrie Ind.; MacCase Ind. Corp.; Leadertech Systems; Everfit Computer
Supply; and Evergreat Group.
The VersaCase is more expensive to purchase than traditional computer
enclosures, with a retail price around $400. This price is competitive when
compared to higher end rackmount servers. We will compete in the computer
enclosure market by demonstrating the value of the features and benefits of
VersaCase. We separate ourselves from other companies now offering computer
enclosures by focusing on common sense solutions. VersaCase is convertible
technology. Accordingly, it may be used as a single unit, in multiple stacks,
rack-mount
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<PAGE> 26
configuration, or as a workstation. It can be used in a variety of applications
including, but not limited to, file server, disk array, or jukebox. Further,
non-proprietary components can be used to configure for a specific application,
and possibly achieve lower operating costs.
There can be no assurance that we will be able to compete effectively in
this marketplace. While unit cost and actual pricing is being established for
the product, there is no production and sales history to determine the accuracy
of these figures. Therefore, it is not possible to determine whether we can
effectively compete with other computer enclosure manufacturers on price alone.
An inability to compete with other computer enclosure manufacturers would
adversely affect our business, financial condition, and results of operations.
Growth Strategy.
Our growth strategy is built around five imperatives: maintaining
technology leadership; increasing market share; acquisition of other business
entities; leveraging strategic relationships; and the recruiting and retention
of key personnel.
Maintaining Technology Leadership. The cutting edge of our effort to
achieve technological leadership is to establish a standard for open
architecture and modularity in the computer enclosure industry. Other
components, accessories, and products are in various stages of development. They
will be supported by an aggressive research and development budget.
Increasing Market Share. Our entry into the market is estimated at a modest
level to allow us to grow at a reasonable pace. However, we make no
representations or guarantees that we will be able to manage the growth of our
business. Once VersaCase is introduced, we expect that there will be significant
interest across a number of market segments. VersaCase is unique in its
versatile application as a PC or server enclosure. The ease of access and
scalability will provide numerous benefits to routine and mission-critical users
that will propel and increase market share.
Acquisition of Other Business Entities. In order to expand our
technological and market capabilities, we may consider the pursuit of other
companies. Such acquisitions may include core and non-core entities. A core
entity may be a research and development group, and a non-core firm could be one
that might enhance our production process.
Leveraging Strategic Relationships. We intend to leverage our relationship
with companies that complement our mission. For instance, the uniqueness of
VersaCase technology will create opportunities for us to establish strong
relationships with key distributors. These distributors will be able to offer
their clients a product that is very competitive and distinctive. We have been
approached by distributors to consider a channel relationship or exclusive
position with them. While we must maintain a broader market focus, we may
selectively enter into agreements that would enhance market credibility and
penetration.
Recruitment and Retention of Key Personnel. An entrepreneurial spirit that
was based in creativity, risk and reward drove the birth of this Company. We
intend to maintain this quality by offering competitive salary and incentive
compensation. Our overriding human resources philosophy is to build a corporate
culture that supports the success of each employee, as well as the Company.
Marketing and Sales.
We are implementing brand-building strategies for the Unitrend, VersaCase
and Stable power supply brands. Our brand objective is to identify emerging
trends in computer-related technologies and to provide streamlined solutions
that make those technologies more user friendly. The VersaCase computer
enclosure is the first product that we are marketing. We will continue to build
equity in the brand by promoting the unique and patented VersaCase features via
multiple mediums to diverse market segments.
VersaCase and Stable will be marketed for two specific PC applications:
high-end PC users, such as automated manufacturing functions, and entry-level
servers. We intend to market and sell our products to non-profit and commercial
organizations, individuals, and original equipment manufacturers (OEMs). OEM
sales and licensing, large corporate and government accounts, and large-volume
value added re-seller (VAR) sales will be
26
<PAGE> 27
managed by Unitrend's direct sales organization. Sales to all other
organizations will be through distributors. We are in the process of
establishing a multi-channel distribution network that will allow us to leverage
the distributors who are strategically focused on offering value added products
and services to the computer industry. Lastly, we will market the VersaCase and
future products directly to end-users through our Internet site. However, we
will modify our distribution plans as demanded by the markets we serve in order
to maximize efficiency throughout all channels of distribution. We intend to
promote end-user demand, and will support our sales through a variety of
marketing programs including but not limited to: trade and consumer advertising,
public relations, and trade shows.
While our initial focus is the North American market, we plan to expand to
Europe, Asia/Pacific, and Latin America as opportunity arises. The date
presented at the beginning of the business section illustrates the size of these
market segments.
Products.
VersaCase is our flagship product. The VersaCase has undergone an extensive
development process. Five developmental VersaCase prototypes have been
developed, including the yet-to-be-released production-level beta units. These
units will undergo rigorous in-house testing as well as field placement at
selected sites, which will mirror our more prominent market segments.
The VersaCase is comprised of a number of characteristics and features,
such as:
- Chassis and outer shell are made of 16-gauge steel.
- Up to fifteen 3 1/2" drives can be mounted internally onto three
independent universal mounting racks or six 5 1/4" drives can be mounted
onto two independent universal mounting racks.
- Removable drive bay panels allow for any combination of drive sizes to be
installed.
- Front mounted DB connector for easy laptop docking or serial, SCSI, USB
and parallel connections.
- Front DB connector can be swapped with a wireless infrared connecting
port.
- High-security tumbler lock to protect against unauthorized entry into the
computer's interior.
- Easy to read control panel with LED readouts for Power, Turbo, HHD1
activity, HHD2 activity, Power supply cooling fan failure warning, and
Processor cooling fan failure warning, as well as a System Reset switch
and Turbo speed switch.
- 19" Rack-Mount ready chassis with invertible outer shell to maintain
EMI/RFI shielding.
- Ultra-strong construction to allow units to be stacked up to six high
with docking pin accessory.
- Rugged design allows even the heaviest CAD Monitors to be placed on top
of unit.
- Ball bearing drawer sliders with heavy-duty 100 lb. weight capacities,
for smooth opening and closing.
- Removable back plane with 25-pin, 9-pin DB connector ports and RJ port.
- Optional 10, 12, or 16 slot back planes available for AT, ATX, Passive
back plane and other designs.
- Includes Stable power supply (when available) or allows the use of
standard Slim power supplies mounted in either a horizontal or vertical
position.
- Rear mounted cable transom to facilitate moving wires when opening and
closing chassis drawer.
- Quick-release power supply base unit used to distribute power to
electrical components which accepts optional battery pack for
uninterrupted power in case of power supply failure.
- Removable thread-mounted feet allow unit to be bolted down on or under
table, desk, wall, rack, etc.
27
<PAGE> 28
Operations.
For the design, development, and manufacturing of our products, we rely on
a skilled work force imbued with a strong work ethic and moderate wage scale. In
addition, principal suppliers have been selected based on experience and pricing
considerations.
Manufacturing Facility. VersaCase will be assembled at a light assembly and
metal fabricating plant in Wauseon, Ohio, which is located 30 miles west of
Toledo. The 13,000 square foot facility will assemble the VersaCase units and
related products. The facility is expected to ultimately have the production
capacity of 3,000 units per day based on a three-shift schedule. The facility
will be operated as Osborne Manufacturing, Inc. (OMI), a joint venture between
Unitrend, Inc., and upon OMI obtaining profitability, and Jon Osborne. Until
OMI's third year of production of VersaCase units for Unitrend, we will hold a
majority ownership of the joint venture, at which time our ownership will be
reduced to 40%.
It is expected that 35 hourly and five salaried employees will staff the
plant. The facility is located in an area that features a solid workforce and
reasonable wage scale. Located near Interstates 80/90 and 75, the manufacturing
facility affords excellent shipping access. The facility is 15 minutes from the
Toledo, Ohio airport and a short distance from the Fulton County airport.
Manufacture of Stable Power Supply. We do not presently intend to build the
Stable power supply in our Wauseon, Ohio plant. Rather, we have had discussions
with a major U.S. manufacturer to produce this product pursuant to our
specifications and ship the units to our Wauseon plant for either inclusion in
the VersaCase or separate sale. We have chosen not to enter into a contract with
a manufacturer at this time (pending the completion of this Offering) in order
to obtain sufficient capital to begin full scale production.
Key Suppliers. We will use a large national metals company which is
established, well- known and respected in the computer industry, as our major
vendor. They will produce the VersaCase chassis through a hard-tool process, and
will apply the interior rails and feet to the bottom of the unit. The vendor
also has the ability to customize parts with soft-tool applications.
Fulton Industries of Wauseon, Ohio will produce the small steel components
that will be used in the VersaCase. Fulton Industries is located in close
proximity to the main manufacturing facility and offers over 75 years experience
in this market.
Adept Mold of Detroit, Michigan has been selected to supply the plastic
components for the VersaCase. Similar to the other vendors, Adept was selected
based on its location, price, competitive service, and molding expertise.
Once again, we do not have any written contracts with any of our potential
suppliers pending completion of this Offering and our obtaining sufficient
capital to begin full scale operations. At that time we expect to formalize our
verbal agreements in written form.
We intend to establish a comprehensive quality control system and will seek
ISO9000 compliance from the International Standards Organization. Our intent is
to base our quality control program around preventative logic rather than a
detection philosophy and practice. This will be accomplished by establishing a
rigorous inspection protocol at each assembly station. Documentation will be
accomplished by computer-generated evaluation methodologies.
Research and Development.
Apart from tooling costs of $1,469,429, as of September 30, 2000, we have
invested $525,588 in research and development. To date, our primary focus has
been the development of the VersaCase and Stable power supply. We are developing
accessories that will further enhance the VersaCase, and allow for further
customization. It is our intent to continue to innovate by developing similar
products that will enable a computer user to save time and money while upgrading
and repairing his or her computer. The design of the Stable power supply unit is
complete. We have already received one patent on the power supply and expect to
seek others. Other product designs are also on the drawing board. There is no
guarantee that any of these products will become viable revenue sources.
28
<PAGE> 29
We believe timely introduction of new and enhanced products will be
essential to maintaining a competitive edge. However, we make no representation
or guarantee that we will be able to establish or maintain a competitive edge in
the marketplace. Consequently, the human and financial commitment to research
and development will increase proportionately to meet these demands.
PROPERTIES
Unitrend's headquarters comprise approximately 10,000 square feet of space
in an office building owned by the Company at 4665 West Bancroft Street, Toledo,
Ohio 43615. The building houses the Company's principal executive offices, as
well as limited laboratory and technical development space.
EMPLOYEES
Unitrend currently has eight full time employees and no part-time
employees.
LEGAL PROCEEDINGS
The Company was served with notice of a lawsuit filed in the United States
District Court for Hawaii on April 24, 2000. Two former employees, spouses to
each other, are suing for the return of their investment of $250,000, based upon
Hawaiian State securities law. The Company believes this lawsuit has no merit
and intends to vigorously defend itself.
On November 16, 2000 the company was served with notice of a lawsuit filed
in the Lucas County Court of Common Pleas. The suit was instituted by a former
employee of the Company, who seeks an unspecified monetary judgement in an
amount greater than $25,000 relating to claims of consulting fees and back
wages. We intend to file a counter claim against this former employee and
vigorously defend ourself.
29
<PAGE> 30
MANAGEMENT
Our executive officers, directors and key employees are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Conrad A. H. Jelinger 48 President, Chief Executive Officer,
Chairman, interim CFO and Director
Kathleen M. Novak 26 Senior Vice President
Douglas E. Stallings 35 General Counsel
Eric V. Jelinger 46 Director
Dale Boley 31 Director
Robert J. Hayes 43 Director
Martha A. Moloney 61 Director
Darryl Stolper 58 Director
</TABLE>
Conrad A. H. Jelinger.
Conrad A. H. Jelinger is the founder of Unitrend and has been Chairman,
President and CEO of the Company since its inception in 1996 and was appointed
interim CFO in 2000. Mr. Jelinger has more than 30 years of experience in the
technical, manufacturing and computer industry. This includes serving as
President and CEO of Server Systems Technologies from September 1994 to April
1996. While Mr. Jelinger was at Server Systems Technologies a temporary receiver
was appointed for that company as a result of litigation. The receivership was
lifted in 1997 when the litigation settled. Mr. Jelinger attended the University
of Toledo, where he studied Business Administration. He also completed technical
and electronics training while serving in the United States Navy in addition to
numerous trade certifications. Mr. Jelinger has been awarded several United
States Patents. Mr. Jelinger is one of our executive officers.
Kathleen M. Novak.
Kathleen M. Novak joined Unitrend in December 1996 as Marketing Analyst. In
October 1997 Ms. Novak was appointed Investor Relations Specialist and in August
1999 was appointed Director of Administration. Ms. Novak was appointed Senior
Vice President in February 2000. Ms. Novak holds a B.S. in Finance and Marketing
from Ohio University. Ms. Novak is one of our executive officers.
Douglas E. Stallings.
Douglas E. Stallings joined Unitrend in November 1996 as General Counsel.
From September 1994 to present, Mr. Stallings has been a part-time instructor at
the University of Toledo College of Business, Department of Management. From
November 1994 to December 1995, Mr. Stallings was in private practice where he
concentrated on business and corporate law and general civil law. Mr. Stallings
holds a J.D. from the University of Toledo College of Law and a B.A. in
Broadcast Communications from Brigham Young University. Mr. Stallings is one of
our key employees.
Eric V. Jelinger.
Eric V. Jelinger has been a member of the Board of Directors since July
1999 and was elected as Assistant Secretary of the Company in July 1999. Eric
Jelinger is the brother of Conrad Jelinger. Since June of 1994, Eric Jelinger
has been a vascular interventional radiologist at the Joint Township District
Memorial Hospital in St. Mary's, Ohio. In addition, he was Vice President and
member of the Board of Server Systems Technologies from 1994 to 1996. While Mr.
Jelinger was at Server Systems Technologies a temporary receiver was appointed
for that company as a result of litigation. The receivership was lifted in 1997
when the litigation settled. Since January of 1999, he has also held the
following additional business positions: Managing Member of Van Hague Elevator
Company (a business holding company), Managing Director of Golden Apple Limited
(a real estate development company), and Managing Director of AP Net Limited (an
on-line tutorial company). Since June of
30
<PAGE> 31
1998, he has been President of 5171 CRA, Inc. (an aircraft rental company). Eric
Jelinger received a B.A. from the University of Toledo in 1980 and a M.D. from
the Medical College of Ohio in 1985. He completed his fellowship in vascular
interventional radiology in 1991 at Georgetown University Hospital.
Dale Boley.
Dale Boley has been a member of the Board of Directors since July 1999.
From 1992 to October of 1996, Mr. Boley was a production operator at Teleflex
Automotive in Van Wert, Ohio. From 1996 to 1997, Mr. Boley was a sales agent
with Sharron Realty Associates in Van Wert, Ohio. In addition, since January of
1999, Mr. Boley has been a Manager of Van Hague Elevator Company. Mr. Boley
attended Lima Technical College focusing on computers and received a P.C. in
Microcomputers Sales and Marketing in 1991.
Robert J. Hayes.
Robert J. Hayes became a member of the Board of Directors in March 2000. As
Senior Vice President for Fitch USA, Mr. Hayes directs the Mechanical and
Electrical Engineering Groups. In addition, he participates in programs
involving all phases of product design, from conceptualization through
production. Mr. Hayes' project involvement includes work for such clients as
BioImage (a Kodak company), Ciba Corning Diagnostics Corp., Compaq, Diebold,
Lear Siegler Seymour, Rubbermaid, Lionel and Valentine Research. He is named on
numerous design and utility patents. Mr. Hayes holds a B.S. in Mechanical
Engineering from Cleveland State University.
Martha A. Moloney.
Martha A. Moloney became a member of the Board of Directors in March 2000.
From 1972 to 1977, Ms. Moloney was Vice President and Board member at Steger
Schowel, a restaurant supply distribution company. Since 1990, Ms. Moloney has
been in private practice while concurrently serving as a Counselor with Catholic
Charities at numerous area hospitals. Ms. Moloney holds a B.A. in Psychology
from Maryville University and a M.SW. From St. Louis University.
Darryl Stolper.
Darryl Stolper became a member of the Board of Directors in March 2000.
From 1978 to the present, Mr. Stolper has worked at Paul Revere Secondary School
where he is department Chairman for, and Teacher of, American History. A
historian and writer, Mr. Stolper has been published in numerous periodicals
including Reel West and Blues Unlimited. Mr. Stolper is recognized as an
authority in music recording history, and has served as a consultant to Rhino
Records and provided expert testimony in numerous legal cases. Since 1985, Mr.
Stolper has served as an elected member of the Pacific Palisades, California
Board of Governors. Mr. Stolper holds a B.A. in Physical Anthropology and
American History from California State University, Northridge and M.A. in
American Studies from Pepperdine University.
Stock Option Plan.
We currently operate under the 1999 Unitrend Equity Incentive Plan which
governs all aspects of option grants to employees and others who have made a
substantial contribution to the success of the Company. All options granted to
employees vest over a three year period, commencing on the date of hire, and
continuing based upon years of employment. Options which are granted as past
consideration for services vest immediately.
Further, as a result of the SSTI merger and the subsequent stock splits,
the Board has modified and amended the 1999 Equity Incentive Plan to clarify
treatment of options absorbed by the merger and the effect of the stock splits
on options already granted.
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<PAGE> 32
Option Grants in Last Fiscal Year.
The following table sets forth total grants of stock options through the
fiscal year ended December 31, 1999, for the officers and directors of the
Company.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
ASSUMED ANNUAL
NUMBER OF RATES OF STOCK
SECURITIES PRICE APPRECIATION
UNDERLYING % FOR OPTION TERM
OPTIONS EXERCISE (C)
GRANTED PRICE EXPIRATION ------------------
(A) (B) DATE 5% 10%
------------ -------- ---------- ------ ------
<S> <C> <C> <C> <C> <C>
Kathleen M. Novak 800,000 $0.50 01/04/10 $0.61 $0.73
</TABLE>
Employment Contracts and Changes in Control Agreements.
Conrad A.H. Jelinger has executed an employment contract with the Company,
as well as a Trade Secret Agreement and a Non-Compete Agreement. Mr. Jelinger
currently has no severance package and 500,000 stock options. Mr. Jelinger is
eligible to participate in the 2000 Cash Incentive Plan.
Kathleen M. Novak has executed an Employment Agreement with the Company, as
well as a Trade Secret Agreement and Non-Compete Agreement. Ms. Novak currently
has no severance package. Ms. Novak is entitled to participate in the Equity
Incentive Plan and the 2000 Cash Incentive Plan. Ms. Novak has been granted and
has the right to exercise 200,000 options resulting from her employment. If she
leaves the Company, these options will convert to non-qualified options and she
will have the remaining term of the 10 year period to exercise. Additionally,
Ms. Novak was granted 800,000 options in January, 2000 under the 1999 Equity
Incentive Plan. These options will vest over a three year period. In the event
of termination, Ms. Novak will have 3 months to exercise the options or forfeit
them.
Board Compensation.
Unitrend, Inc. currently offers no compensation to members of the Board,
except reasonable reimbursement for expenses.
32
<PAGE> 33
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 1999 the Company was indebted to Conrad A.H. Jelinger in
the aggregate amount of $1,703,854. Mr. Jelinger has continued to make loans to
the Company in 2000. This indebtedness related to loans made by Mr. Jelinger to
the Company in 1998 and 1999. The loans accrue interest at the market rate as
determined on the first business day of the year, and are payable in ten equal
annual installments after the Company has become profitable for one year. On
March 31, 2000, Mr. Jelinger forgave loans to the Company of $2,171,854 and
accrued interest of $69,942. This was accounted for as contributed capital.
From January 1, 1998, to December 31, 1998, the Company sold 3,731,060
shares of common stock with a total value of $1,865,530 through a Regulation A
offering. During that same time period, and pursuant to the same Regulation A
offering, the Company conducted an exchange and rescission offering to all
then-existing shareholders of Company stock. Pursuant to that offering, the
company exchanged 2,081,200 Regulation A shares for Unitrend, Inc. private
placement stock on a one-for-one basis, for a total value of $1,040,600. The
total number of shares of common stock rescinded in that offering amounted to
195,840, with a total value of $97,920. The 1998 Regulation A offering
transactions were conducted without the aid of an underwriter, and with the
exception of approximately one corporation and seven trusts, all dealt with
individuals. The proceeds of that Regulation A offering were used in the
following manner: $1,040,600 was applied directly to the exchange of Regulation
A stock for previously-sold private placement securities, as show above; from
the cash proceeds of $1,865,530, approximately 32% was used for manufacturing
expenses, 24% was used for general and administrative expenses, and 44% was used
for the purchase of assets. During this 1998 period, the Company issued 758,000
options at a strike price of $0.50 per share to seven non-employee individuals
who provided various business, financial, strategic and technological consulting
services to the Company. Pursuant to the option plan, the options granted expire
on the date(s) specified in the option agreement(s), but in no event shall the
term of the options exceed ten years from the date of grant.
Through the aforementioned Regulation A offering and a private placement
exemption from January 1, 1999, to December 31, 1999, the Company exchanged
184,500 shares of common stock with a total value of $92,250. During the same
period, the Company booked sales of 585,820 shares of stock purchased by Mr.
Conrad A.H. Jelinger on behalf of others through a private placement exemption.
The Company's note payable to Mr. Jelinger was used for the purchase of said
stock via a reduction of the payable to Mr. Jelinger by the same amount sold.
Also during the period, the Company sold 5,000 shares of common stock with a
total value of $10,000 also through a private placement exemption.
Those 1999 transactions were conducted without the aid of an underwriter,
and with the exception of approximately two corporations and one trust, all
dealt with individuals. The sale of 5,000 shares of stock was a non-cash
transaction in which the sale relieved the Company from paying in cash a
significant portion of the retainer associated with a contract to engage the
purchaser to provide services for Unitrend, Inc. During this 1999 period, the
Company issued 118,270 options at a strike price of $0.50 per share to six
non-employee individuals who provided various business, financial, strategic,
technological and public relations consulting services to the Company. Pursuant
to the option plan, the options granted expire on the date(s) specified in the
option agreement(s), but in no event shall the term of the options exceed ten
years from the date of grant.
33
<PAGE> 34
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of the Company's shares of Common Stock as of October 1, 2000, and as adjusted
to reflect the sale of the Common Stock offered by the Company pursuant to this
offering, by (i) all those know by the Company to be beneficial owners of more
than 5% of its Common Stock; (ii) all Directors; and (iii) all Officers and
Directors of the Company as a group. Unless otherwise indicated, each of the
shareholders has sole voting and investment power with respect to the Common
Stock beneficially owned.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER MAXIMUM OFFERING
-------------------------- -----------------------
NUMBER OF NUMBER OF
SHAREHOLDER SHARES PERCENT(1) SHARES PERCENT
----------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Conrad A. H. Jelinger 45,796,000(2) 59% 45,796,000 56%
4665 West Bancroft
Toledo, OH 43615
Eric V. Jelinger 10,000,000 13% 10,000,000 12%
4665 West Bancroft
Toledo, OH 43615
Dale Boley 30,000 * 30,000 *
4665 West Bancroft
Toledo, OH 43615
Martha Moloney 895,800(3) * 895,800 *
4665 West Bancroft
Toledo, OH 43615
Darryl Stolper 5,200 * 5,200 *
4665 West Bancroft
Toledo, OH 43615
Kathleen M. Novak 1,060,000(4) * 1,060,000 *
4665 West Bancroft
Toledo, OH 43615
Total for Officers 57,787,000 74% 57,787,000 71%
and Directors
</TABLE>
---------------
(1) Percentages are calculated to include all outstanding securities and
securities deemed outstanding pursuant to Rule 13d-3 (d)(1) under the
Securities Exchange Act of 1934.
(2) Total includes 500,000 options that are fully vested and subject to
exercise.
(3) Total includes 800,000 options that are fully vested and subject to
exercise.
(4) Total includes 1,000,000 options that are fully vested and subject to
exercise.
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<PAGE> 35
DESCRIPTION OF CAPITAL STOCK
The Company's Amended Articles of Incorporation authorized 200,000,000 of
Common Stock, without par value.
Common Stock.
The holders of the Common Stock are entitled to receive such dividends, if
any, as may be declared from time-to-time by the Board of Directors in its
discretion from funds legally available therefore. Upon liquidation or
dissolution of the Company, after the payment of expenses of the Company, the
assets of the Company will be distributed ratably among the holders of the
Common Stock. The shares of the Common Stock have no preemptive or other
subscription rights and there are no conversion rights or redemption or sinking
fund provisions with respect to such shares. All of the outstanding shares
of the Common Stock are, and the shares of the Common Stock to be sold by
the Company in the offering made hereby, will be fully paid and non-accessible.
As of September 30, 2000, there were 842 holders of Common Stock of the Company.
Market Price Of and Dividends On the Registrants Common Equity and Related
Stockholder Matters.
There is no established trading market for common shares of the Company's
securities. As of December 31, 1999, the Company had outstanding shares in the
amount of 69,383,580 held by 772 holders of record. As of December 31, 1999, the
Company had outstanding options to purchase 6,885,970 of common stock, of which
5,069,433 are exercisable. As of September 30, 2000, the Company has issued
options to purchase 7,764,072 shares of common stock, all of which are
exercisable.
The Company has not paid dividends since its formation and does not
currently intend to do so.
Indemnification of Directors and Officers.
A director of the Company may not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (iii) for acts or omissions not in
good faith or which involve international misconduct or a knowing violation of
law, or (iii) for any transaction from which the director derived any improper
personal benefit. The provisions of the Company's Bylaws eliminating the
liability of directors for monetary damages do not affect the standard of
conduct to which directors must adhere, nor do such provisions affect the
availability of equitable relief. In addition, such limitations on personal
liability do not affect the availability of monetary damages under causes of
action based on federal law.
Article Ten of the Company's Bylaws provides for indemnification of its
officers and directors. In addition, the Company provides director and officer
insurance coverage for benefit of its directors and officers.
Transfer Agent and Registrar.
The Transfer Agent and Registrar for the Common Stock is Transfer Online,
Inc.
PLAN OF DISTRIBUTION
The Company is offering up to 4,000,000 Shares at a price of $10.00 per
Share. The Shares will be sold on a "best efforts" basis. The offering will
terminate 180 days after the date of this Prospectus. The Company may allocate
among or reject any subscriptions, in whole or in part.
The Shares will be offered and sold by the Company's officers, directors,
and employees without compensation. The representative of the Company who is
expected to offer and sell the Shares on behalf of the Company is Mr. Conrad A.
H. Jelinger. Neither the Company nor any its officers, directors or employees is
registered as broker or dealer under Section 15 of the Exchange Act.
We have not retained an underwriter or any independent broker or dealer to
assist in the offer of Shares. It is our intention to sell and offer the Shares
by contacting perspective investors through appropriate newspaper and
35
<PAGE> 36
magazine advertising as well as through the use of Internet to electronically
deliver copies of this Prospectus to prospective investors.
Those subscribing to purchase Shares must complete a Stock Purchase
Agreement, a form of which is included as an appendix to this Prospectus.
Residents of some states must also complete a suitability questionnaire, a form
of which is also attached as an appendix to this Prospectus.
We reserve the right to reject any subscription for Shares in its entirety
or to allocate Shares among prospective purchasers. If any subscription is
rejected, funds received by the Company for such subscription will be returned
to the applicable prospective purchaser without interest or deduction.
Because there is no minimum aggregate offering, certificates representing
Shares will be issued to purchasers as subscriptions are accepted by Unitrend.
Until the certificates are delivered to the purchasers, such purchasers, if any,
will be deemed subscribers only and not shareholders of the Company. All funds
received by the Company will be placed directly in the Company's operating
account for immediate use.
Although it is our intention to develop a public market for the Common
Stock by soliciting broker/dealers who are members of the NASD to make a market
in the Common Stock, to date the Company is not entered into any such
arrangements, commitments or understandings with any person with respect to the
creation of the public market for Common Stock.
EXPERTS
Certain legal matters in connection with this offering are being passed
upon for the Company by Carlile Patchen & Murphy LLP, Columbus, Ohio.
The audited financial statements and schedules included in this Prospectus
and elsewhere in the Registration Statement have been examined by GBQ Partners,
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
expects in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933 with
respect to the Common Stock offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement, certain items of which
are omitted in accordance with the rules and regulations of the Commission. The
omitted information may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C., and copies of such material can be obtained from the public
reference section of the Commission, Washington, D.C. 20549 at prescribed rates.
For further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto and the financial statements, notes and schedules filed as part thereof.
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or the Underwriters. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
to any person in any jurisdiction in which such offer or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such an
offer or solicitation.
36
<PAGE> 37
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
Annual Financial Statements of Unitrend, Inc.:
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Stockholders' Equity........... F-5, 6
Consolidated Statements of Cash Flows..................... F-7, 8
Notes to Consolidated Financial Statements................ F-9 to 17
Interim Financial Statements of Unitrend, Inc. (Unaudited):
Condensed Consolidated Balance Sheet at September 30, 2000
and December 31, 1999.................................. F-18
Condensed Consolidated Statement of Operations for Three
and Nine Months Ended September 30, 2000 and 1999.......... F-19
Condensed Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999.......... F-20
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1999 and 1998 and for
the Nine Months Ended September 30, 2000............... F-21
Notes to Consolidated Financial Statements................ F-22, 23
</TABLE>
F-1
<PAGE> 38
To the Stockholders
Unitrend, Inc.
Toledo, Ohio
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Unitrend,
Inc. and Subsidiary (Development Stage Companies) as of December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the years ended December 31, 1999, 1998,
1997, and for the period from the inception date of September 27, 1994 to
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Unitrend,
Inc. and Subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years ended December 31, 1999, 1998,
1997, and for the period from the inception date of September 27, 1994 to
December 31, 1999 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in the
notes to the financial statements, the Company is in the development stage, has
suffered development stage losses, and has a net capital deficiency. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in the
going concern note in the accompanying notes to the consolidated financial
statements. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Columbus, Ohio
January 21, 2000
/s/ Groner, Boyle & Quillin, LLP
F-2
<PAGE> 39
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1998
1999 (AS RESTATED)
---------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 8,779 $ 1,891
Current portion of notes receivable....................... 22,458 7,000
Prepaid expenses.......................................... 19,830 19,830
---------- ----------
Total current assets.............................. 51,067 28,721
---------- ----------
PROPERTY AND EQUIPMENT, at cost
Land...................................................... 67,485 67,485
Building and improvements................................. 376,385 348,573
Furniture and fixtures.................................... 72,295 44,981
Computer equipment........................................ 125,054 121,787
Computer software......................................... 45,328 44,929
Automobiles............................................... 15,937 --
Tooling and dies under construction....................... 1,429,429 1,240,349
---------- ----------
2,131,913 1,868,104
Less accumulated depreciation............................. (198,879) (165,637)
---------- ----------
Net property and equipment............................. 1,933,034 1,702,467
---------- ----------
OTHER ASSETS
Patent licensing costs, net of accumulated amortization... 30,790 --
Loan costs, net of accumulated amortization............... 3,813 4,903
Notes receivable.......................................... 11,550 40,612
---------- ----------
Total other assets................................ 46,153 45,515
---------- ----------
TOTAL ASSETS...................................... $2,030,254 $1,776,703
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable.......................................... $ 292,143 $ 573,294
Current portion of long-term debt......................... 19,332 19,332
Accrued payroll and sundry taxes.......................... 14,922 56,597
---------- ----------
Total current liabilities......................... 326,397 649,223
---------- ----------
LONG-TERM LIABILITIES
Accrued interest.......................................... 72,215 1,245
Note payable - bank....................................... 244,892 261,002
Note payable - stockholder................................ 1,703,854 158,531
---------- ----------
Total long-term liabilities....................... 2,020,961 420,778
---------- ----------
COMMON STOCK SUBJECT TO RESCISSION.......................... -- 92,250
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Controlling interests:
Common stock, no par value............................. 3,301,503 2,906,343
Additional paid-in capital............................. 5,770,055 5,762,187
Deficit accumulated in the development stage........... (9,388,662) (8,054,078)
---------- ----------
Total stockholders' equity (deficit).............. (317,104) 614,452
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)....................................... $2,030,254 $1,776,703
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 40
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997 AND FOR THE PERIOD FROM THE
INCEPTION DATE OF SEPTEMBER 27, 1994 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEPTEMBER 27,
1994
YEAR ENDED YEAR ENDED (DATE OF INCEPTION)
YEAR ENDED DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
DECEMBER 31, 1998 1997 1999
1999 (AS RESTATED) (AS RESTATED) (AS RESTATED)
------------ ------------- ------------- --------------------
<S> <C> <C> <C> <C>
Sales.............................. $ -- $ -- $ -- $ 603
Research and development
expenses......................... (6,523) (206,956) (213,898) (508,908)
Selling, general and administrative
expenses......................... (1,232,339) (806,820) (1,078,849) (8,698,677)
----------- ----------- ----------- -----------
Operating loss..................... (1,238,862) (1,013,776) (1,292,747) (9,207,585)
Interest income.................... 1,546 -- -- 1,546
Interest expense................... (97,268) (61,387) -- (158,655)
----------- ----------- ----------- -----------
Net loss before cumulative effect
of change in accounting
principle........................ (1,334,584) (1,075,163) (1,292,747) (9,364,694)
Cumulative effect of change in
accounting principle............. -- (23,968) -- (23,968)
----------- ----------- ----------- -----------
Net loss........................... $(1,334,584) $(1,099,131) $(1,292,747) $(9,388,662)
=========== =========== =========== ===========
Basic and diluted loss per share:
Before cumulative effect of change
in accounting principle.......... $ (0.02) $ (0.02) $ (0.02) $ (0.14)
Cumulative effect of change in
accounting principle............. -- -- -- --
----------- ----------- ----------- -----------
Net loss........................... $ (0.02) $ (0.02) $ (0.02) $ (0.14)
=========== =========== =========== ===========
Weighted average shares outstanding
used to compute basic and diluted
loss per share................... 69,059,567 67,471,023 63,343,945 65,860,755
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 41
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997 AND FOR THE PERIOD FROM THE
INCEPTION DATE OF SEPTEMBER 27, 1994 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
---------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
------------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE --
SEPTEMBER 27, 1994
(INCEPTION)................ -- $ -- $ -- $ -- $ --
Sale of stock to founders for
cash at .000006 per share
on September 27, 1994...... 17,500,000 100 454,910 -- 455,010
Sale of common stock to
founder for cash at
$0.000002 per share on
April 12, 1996............. 45,296,000 113 -- -- 113
Stock options issued on
July 2, 1996............... -- -- 4,999,950 -- 4,999,950
Net loss since inception to
December 31, 1996.......... -- -- -- (5,662,200) (5,662,200)
------------ ---- ---------- ----------- -----------
BALANCE --
DECEMBER 31, 1996
(AS RESTATED).............. 62,796,000 213 5,454,860 (5,662,200) (207,127)
Exercise of stock options for
common stock at $0.000005
per share on
December 10, 1997.......... 10,000,000 50 -- -- 50
Stock options issued on
January 15 and
November 26, 1997.......... -- -- 252,011 -- 252,011
Cancellation of stock options
for common stock at
$0.000005 per share on
December 31, 1997.......... (10,000,000) (50) -- -- (50)
Net loss - 1997.............. -- -- -- (1,292,747) (1,292,747)
------------ ---- ---------- ----------- -----------
BALANCE --
DECEMBER 31, 1997
(AS RESTATED).............. 62,796,000 213 5,706,871 (6,954,947) (1,247,863)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 42
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997 AND FOR THE PERIOD FROM THE
INCEPTION DATE OF SEPTEMBER 27, 1994 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
------------------------ PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE --
DECEMBER 31, 1997
(AS RESTATED)............ 62,796,000 $ 213 $5,706,871 $(6,954,947) $(1,247,863)
Sale of common stock for
cash at $0.50 per share
from January 17 to April
13, 1998................. 5,812,260 2,906,130 -- -- 2,906,130
Stock options issued on
January 15, August 1, and
August 31, 1998.......... -- -- 55,316 -- 55,316
Net loss -- 1998........... -- -- -- (1,099,131) (1,099,131)
---------- ---------- ---------- ----------- -----------
BALANCE --
DECEMBER 31, 1998
(AS RESTATED)............ 68,608,260 2,906,343 5,762,187 (8,054,078) 614,452
Sale of common stock for
cash at $0.50 per share
from January 1 to June
30, 1999................. 770,320 385,160 -- -- 385,160
Stock options issued on
January 15, August 10,
August 15, and November
29, 1999................. -- -- 7,868 -- 7,868
Common stock issued for
services at $2.00 per
share on August 30,
1999..................... 5,000 10,000 -- -- 10,000
Net loss -- 1999........... -- -- -- (1,334,584) (1,334,584)
---------- ---------- ---------- ----------- -----------
BALANCE --
DECEMBER 31, 1999........ 69,383,580 $3,301,503 $5,770,055 $(9,388,662) $ (317,104)
========== ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 43
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997 AND FOR THE PERIOD FROM THE
INCEPTION DATE OF SEPTEMBER 27, 1994 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 27, 1994
YEAR ENDED DECEMBER 31, DECEMBER 31, (DATE OF INCEPTION)
DECEMBER 31, 1998 1997 TO DECEMBER 31,
1999 (AS RESTATED) (AS RESTATED) 1999
------------ ------------- ------------- -------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss........................... $(1,334,584) $(1,099,131) $(1,292,747) $(9,388,662)
----------- ----------- ----------- -----------
Adjustments to reconcile net loss
to net cash used in operating
activities:
Change in accounting principle... -- 23,968 -- 23,968
Options issued for services...... 7,868 55,316 252,011 5,315,145
Depreciation and amortization.... 35,265 34,673 44,761 207,647
Bad debt......................... 8,149 -- -- 8,149
Accrued interest income.......... (1,545) (1,546) -- (3,091)
Common stock issued for
services...................... 10,000 -- -- 10,000
Increase in operating assets:
Other assets..................... -- 5,537 6,040 --
Prepaid expense.................. -- (19,830) -- (19,830)
Increase (decrease) in operating
liabilities:
Accounts payable................. (281,151) 453,526 95,842 292,143
Accrued payroll and sundry
taxes......................... (41,675) (138,170) 141,136 14,922
Accrued interest................. 70,970 1,245 -- 72,215
----------- ----------- ----------- -----------
Total adjustments........ (192,119) 414,719 539,790 5,921,268
----------- ----------- ----------- -----------
Net cash used in operating
activities....................... (1,526,703) (684,412) (752,957) (3,467,394)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payment for patent licensing
costs............................ (31,723) -- -- (31,723)
Purchase of property and
equipment........................ (263,809) (1,540,723) (158,292) (2,131,913)
Loans to related parties........... -- -- (277) (18,191)
Repayment from (loans to) other
entities......................... 7,000 7,999 (35,916) (23,916)
Repayment from employee............ -- 3,041 -- 3,041
Payment of organizational cost..... -- -- -- (30,168)
Repayment from stockholder......... -- 49,430 94,390 --
----------- ----------- ----------- -----------
Net cash used in investing
activities....................... (288,532) (1,480,253) (100,095) (2,232,870)
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 44
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997 AND FOR THE PERIOD FROM THE
INCEPTION DATE OF SEPTEMBER 27, 1994 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 27, 1994
YEAR ENDED DECEMBER 31, DECEMBER 31, (DATE OF INCEPTION)
DECEMBER 31, 1998 1997 TO DECEMBER 31,
1999 (AS RESTATED) (AS RESTATED) 1999
------------ ------------- ------------- -------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of loan costs.............. -- (5,448) -- (5,448)
Loan from stockholder.............. 1,545,323 123,737 26,229 1,703,854
Proceeds from note payable......... -- 290,000 -- 290,000
Payments on notes.................. (16,110) (9,566) -- (25,776)
Proceeds from sale of common stock
and exercise of stock options.... 292,910 1,865,430 -- 2,613,563
Payments for stock rescissions..... -- (97,920) (30,000) (134,170)
Sales of stock subject to
rescission for cash.............. -- -- 779,510 1,267,020
----------- ----------- ----------- -----------
Net cash provided by financing
activities.................... 1,822,123 2,166,233 775,739 5,709,043
----------- ----------- ----------- -----------
Net increase (decrease) in
cash.......................... 6,888 1,568 (77,313) 8,779
Cash -- beginning of year.......... 1,891 323 77,636 -
----------- ----------- ----------- -----------
Cash -- end of year................ $ 8,779 $ 1,891 $ 323 $ 8,779
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest......................... $ 26,298 $ 61,387 $ 2,021 $ 92,151
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE> 45
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, 1997 AND FOR THE PERIOD FROM
THE INCEPTION DATE OF SEPTEMBER 27, 1994 TO DECEMBER 31, 1999
NATURE AND SCOPE OF BUSINESS
Unitrend, Inc. (the Company) a Nevada corporation as of January 1999,
formerly an Ohio corporation, is a development stage company formed to produce
computer ergonomic enclosures for a national market. The Company was
incorporated on April 11, 1996 as Versa Case, Inc. On May 15, 1996, the Company
changed its name to Unitrend, Inc. The Company's operations to date have
consisted primarily of incidental sales of computer components while the company
personnel have concentrated on the development of the enclosures. Expenses
incurred have been primarily for administrative support, tooling and product
development of the enclosures that will ultimately be sold, which has resulted
in an accumulated deficit in the development stage of approximately $9,400,000.
On April 16, 1998, the Company formed another entity called Osborne
Manufacturing, Inc. (OMI). The Company owns sixty percent of OMI and a current
employee owns the remaining forty percent. The Company's ownership will be
reduced to forty percent, three years after the commencement of OMI's production
of the "VersaCase(R)" units from the Company. OMI was organized to do all of the
production of "VersaCase(R)" units as well as manufacturing for other entities.
OMI is located in a single leased facility in Wauseon, Ohio. The Company has
advanced OMI monies for operating expenses and expects to be repaid in full.
Total advances as of December 31, 1999 and 1998 were $283,943 and $18,194,
respectively. Interest is being accrued on the outstanding balance of the
advances at the prime rate (8.25% at December 31, 1999). The total accrued
interest was $11,804 and $1,636 at December 31, 1999 and 1998, respectively. All
intercompany balances have been eliminated in the accompanying consolidated
financial statements. Expenses incurred have been primarily for administrative
support, tooling and product development of the enclosures that will ultimately
be sold, which has resulted in an accumulated deficit in the development stage
of approximately $200,000.
The Company merged with Server Systems Technology, Inc., (SSTI) effective
December 15, 1998. SSTI was formed September 27, 1994. It owns several patents
that are key to the Company's products, but otherwise has ceased its development
stage operations when the Company was formed in April 1996. SSTI and the Company
were entities under common control prior to the merger.
Generally accepted accounting principles require the merger of the entities
under common control to be accounted for in a manner similar to pooling of
interest accounting. SSTI's assets, liabilities and stockholders' equity were
recorded at historical cost as of the effective date of the transaction. At the
time of the merger, SSTI's recorded assets were not material and there were no
liabilities. Additionally, it had ceased its development stage operations upon
the commencement of activities by the Company. The patents held by SSTI were
deemed to have approximately a $10,000,000 market value and, therefore,
17,500,000 shares of the Company were issued to stockholders of SSTI at the time
of the merger.
The financial statements prior to December 31, 1999, have been restated to
reflect the assets acquired and the issuance of stock to the stockholders of
SSTI. Additionally, the statement of operations has been restated to reflect
$449,625 of selling, general and administrative expenses that were incurred by
SSTI from September 27, 1994 to April 11, 1996. As noted previously, SSTI had
ceased operations in April 1996. This restatement increased the basic and fully
diluted loss per share by $.01 for the period prior to April 1996.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF 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 and liabilities,
F-9
<PAGE> 46
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements are on the accrual basis of
accounting and include the financial statements of the Parent for 1999 and 1998,
in entirety, and include the financial statements of its 60% owned Subsidiary
from its inception date of April 16, 1998. All material intercompany balances
and transactions are eliminated in consolidation.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, less accumulated depreciation
computed using the straight-line method over the estimated useful lives of the
related assets. Furniture, fixtures, computer software, automobiles, and
computer equipment are depreciated over lives ranging from three to ten years.
Building and improvements are depreciated over lives of 40 years. Major renewals
and betterments are capitalized and depreciated; maintenance and repairs that
neither improve nor extend the life of the respective assets are charged to
expense as incurred. Property and equipment is reviewed for impairment whenever
circumstances change and there is an indication that the carrying amount of any
given asset or group of assets is not recoverable.
Recoverability is assessed based on criteria that includes a significant
decrease in the market value of the asset, its use has changed, legal or
business factors adversely affect the asset's value, a history of cash flow
losses and continued asset losses are forecasted as well as other factors that
may give rise to a potential decrease in an asset's value. Upon disposal of
assets, the cost and related accumulated depreciation are removed from the
accounts and any gain or loss is included in income. The Company has capitalized
certain costs related to the construction of tooling and dies to be used in the
manufacturing process. These costs consist of amounts paid to outside vendors
for the actual manufacturing of the tools and dies. The cost of the tooling and
dies is not being depreciated until such time as the Company commences
manufacturing.
PATENT COSTS
Patent costs, which consist of the costs to obtain certain patents, are
being amortized over the 20-year life of such patents. Amortization expense
amounted to $933 for 1999. The Company did not have amortization expense in
1998, 1997, or for the period from the inception date to December 31, 1996. The
Company's existing patents begin to expire in April 2016.
LOAN COSTS
Loan costs are being amortized over the life of the loan and are shown net
of amortization. Accumulated amortization was $1,635 and $545 at December 31,
1999 and 1998, respectively.
RESEARCH AND DEVELOPMENT
All research and development costs are expensed as incurred. Research and
development costs for the years ended December 31, 1999, 1998, 1997, and for the
period from the date of inception on April 11, 1996 to December 31, 1999
amounted to $6,523, $206,956, $213,898, and $508908, respectively.
STATEMENT OF CASH FLOWS
For the purpose of reporting cash flows, cash includes cash on hand and
demand deposits held by banks.
F-10
<PAGE> 47
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
On January 1, 1998 the Company adopted Statement of Position 98-5
"Reporting on the Costs of Start-Up Activities" that requires all start-up costs
previously capitalized by the Company to be expensed. The cumulative effect of
the change in accounting principles is reflected in the statements of operation.
All start-up costs incurred after adoption of the statement will be expensed as
incurred.
NOTES RECEIVABLE
Notes receivable consisted of the following at December 31:
<TABLE>
<CAPTION>
1998
1999 (AS RESTATED)
-------- -------------
<S> <C> <C>
Note receivable from an unrelated party, due December 31,
2000, including interest at 5.0%, unsecured............... $ 22,458 $ 21,438
Note receivable from an unrelated party, due July 31, 2001,
including interest at 5.0%, unsecured..................... 11,550 11,025
Note receivable from an unrelated party, due on demand,
non-interest bearing, unsecured........................... -- 7,000
Note receivable from employee............................... -- 8,149
-------- --------
Total....................................................... 34,008 47,612
Less current maturities..................................... (22,458) (7,000)
-------- --------
Long-term note receivable................................... $ 11,550 $ 40,612
======== ========
</TABLE>
Based on the borrowing rates currently available to the Company and to the
other parties for loans with similar terms and average maturities, the fair
value of the notes receivable agreements approximate recorded values.
RELATED PARTY PAYABLE
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Unsecured notes payable to the President and majority
stockholder, including interest at prime on the first
business day of the year, payable in ten equal annual
installments after the Company is profitable for one
year...................................................... $1,703,854 $158,531
========== ========
</TABLE>
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair values of the related party
payable approximates the recorded value.
NOTE PAYABLE
The Company has a note payable with a bank that was used to finance the
acquisition of the building. The note is payable in monthly installments of
$1,611 plus interest which is charged at the prime rate plus 1 1/2% (9.75% and
9.25% at December 31, 1999 and 1998, respectively).
The note matures on August 1, 2003 at which time the remaining principal is
due. The note is secured by the building and the personal guarantee of the
majority stockholder. The annual maturities of long-term debt at
F-11
<PAGE> 48
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE PAYABLE (continued)
December 31, 1999 are as follows: 2000 - $19,332; 2001 - $19,332; 2002 -
$19,332; 2003 - $206,228. Based on the borrowing rates currently available to
the Company for loans with similar terms and average maturities, the fair value
of the note payable with a bank approximates the recorded value.
EMPLOYEE BENEFIT PLAN
The Company maintains a simplified employee pension salary reduction plan.
The plan allows employees to make contributions up to the maximum amount
permitted by the Internal Revenue Code. All full-time employees are eligible to
participate in the plan. The Company may make contributions at the discretion of
management. The Company has made no discretionary contributions to date.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of the temporary differences between the financial reporting and tax bases
of assets and liabilities at each year-end based on enacted tax laws and
statutory tax rates. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. An income tax
expense represents the taxes currently payable and the net change during the
period in deferred tax assets and liabilities.
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Assets:
Net operating loss........................................ $1,557,000 $1,042,000
Organizational costs...................................... 5,000 7,000
Other..................................................... 1,000 8,000
---------- ----------
Gross deferred tax assets.............................. 1,563,000 1,057,000
---------- ----------
Liabilities:
Depreciation.............................................. 5,000 3,000
---------- ----------
Net deferred tax asset................................. 1,558,000 1,054,000
Less valuation allowance............................... (1,558,000) (1,054,000)
---------- ----------
............................................................ $ -- $ --
========== ==========
</TABLE>
A reconciliation of the Company's effective tax values is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 27, 1994
(DATE OF INCEPTION) TO
1999 1998 1997 DECEMBER 31, 1999
--------- --------- --------- ----------------------
<S> <C> <C> <C> <C>
Income tax at statutory
rates....................... $(507,142) $(417,670) $(491,244) $(3,567,692)
Surtax and other rate
differences................. 1,005 1,091 (766) 336
Permanent differences......... 2,137 579 10,206 2,009,356
Change in valuation
allowance................... 504,000 416,000 481,804 1,558,000
--------- --------- --------- -----------
$ -- $ -- $ -- $ --
========= ========= ========= ===========
</TABLE>
A valuation allowance has been recorded against the net deferred tax
assets, as it is not known if the benefits will be realized by the Company and
OMI.
F-12
<PAGE> 49
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES (continued)
As of December 31, 1999, the Company and OMI have approximately $4,100,000
of tax net operating loss carryforwards remaining to be utilized. The tax net
loss carryforwards begin to expire in 2011 through 2019.
COMMON STOCK SUBJECT TO RESCISSION
The Company issued shares of stock in 1996 and 1997, which were subject to
a rescission offer, which could have been exercised at the option of the
stockholder and accordingly were not included in equity. The Company sold
1,559,020 shares for $779,510 in 1997 and 963,020 shares for $481,510 in 1996.
During 1997 and 1996, a total of 60,000 and 500 shares for $30,000 and $250,
respectively, were rescinded.
During 1998, the Company issued 5,812,260 shares of common stock under an
offering. As part of this offering, significantly all holders of common stock
subject to rescission agreed to convert their stock subscription receipts under
a one for one trade for the new stock or to rescind their stock subscription in
full. During 1998, four states had not given their approval for the offering as
of December 31, 1998. A total of 2,081,200 shares were issued in exchange for
common stock. Stock subscription rescissions totaled 195,840 for $97,920 along
with interest costs of $3,039 as of December 31, 1998. The total number of
shares left to be exchanged or rescinded was 184,500 at December 31, 1998. These
shares were exchanged for the new stock during 1999. There were no stock
rescissions during 1999.
Accordingly, the Company was precluded from classifying the securities as
capital until such time as the rescission offer was completed. At the completion
of the rescission offer, the Company classified as capital, such securities
proceeds to the extent the security holders elected to retain their ownership in
the Company.
As of December 31, 1998, stock proceeds of $92,250 representing 184,500
shares was reflected as a liability since the security holders had not agreed to
convert to the stock offered or to rescind. During 1999, the security holders
elected to convert to the stock under the 1998 offering.
EARNINGS PER SHARE
Earnings per share is computed on the weighted average number of common
shares outstanding, including any dilutive options and warrants. Per share
amounts have been restated for the effects of the four-for-one and five-for-one
stock splits that were effective July 9, 1999 and August 9, 1999 for
stockholders of record as of the same dates, respectively.
Options to purchase 6,885,970, 6,742,700, 4,684,680, and 6,885,970 shares
for the years ended December 31, 1999, 1998, 1997, and the period from the
inception date of September 27, 1994 to December 31, 1999, respectively were not
included in the computation of diluted EPS because the Company had a net loss
during the periods and therefore the options are assumed to be anti-dilutive.
STOCKHOLDERS' EQUITY (DEFICIT)
In July 1999, the Company reincorporated as a Nevada corporation. At
December 31, 1999 and 1998, the Company had 200,000,000 and 5,000,000 authorized
common shares, no par value, respectively. In July 1999, the Company had a four
for one stock split, except for the shares issued to the president/major
stockholder related to the SSTI merger that were split at three to one. In
August 1999, the Company split its common stock issuing, five shares for every
one share outstanding at the time. The Company issued 5,000 shares of common
stock for consulting expense during August 1999. The service had a value of
$10,000, which was recorded for the exchange of the common stock.
The Company provides for the granting of stock options to certain
employees. Payment upon the exercise of a stock appreciation right may be made
at the discretion of the Board of Directors in cash, shares of the
F-13
<PAGE> 50
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCKHOLDERS' EQUITY (DEFICIT) (continued)
Company's stock or any combination thereof. All options granted during 1999 and
1998 include stock appreciation rights for the same number of shares.
The Company applies Accounting Principles Board Opinion (APB) No. 25 and
related interpretations in accounting for its employee stock option plan.
Accordingly, no compensation cost has been recognized in the accompanying
financial statements for options issued under the plan, as the option price
equaled the market price on the date of grant. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the grant
dates for awards under the plan consistent with the methodology of Financial
Accounting Standards Board Statement No. 123 "Accounting for Stock-Based
Compensation," the Company's net loss and net loss per share would change as
indicated below:
<TABLE>
<CAPTION>
INCEPTION
DATE TO
DECEMBER 31,
1999 1998 1997 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net loss:
As reported.................. $(1,123,139) $(1,099,131) $(1,292,747) $(9,388,662)
Pro forma.................... (1,157,344) (1,239,134) (1,331,700) (9,614,250)
Basic and diluted loss per
share:
As reported.................. $ (0.02) $ (0.02) $ (0.02) $ (0.14)
Pro forma.................... (0.02) (0.02) $ (0.02) (0.15)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, 1997, and the period from the
inception date of September 27, 1994 to December 31, 1999.
<TABLE>
<CAPTION>
INCEPTION
DATE TO
DECEMBER 31,
1999 1998 1997 1999
-------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Dividend yield......... 0 0 0 0
Expected volatility.... 0% 0% 0% 0%
Risk-free interest
rates................ 4.55%, 4.57%, 5.39%, 5.06%, & 6.25%, 6.62%, 4.55%, 4.57%,
4.60%, 5.13%, 5.61% 6.36%, & 6.11% 4.60%, 5.01%,
5.01% & 5.67% 5.06%, 5.13%,
5.39%, 5.61%,
5.67%, 6.11%,
6.25%, 6.36%,
& 6.62%
Expected lives......... 3 YEARS 3 years 3 years 3 years
</TABLE>
F-14
<PAGE> 51
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCKHOLDERS' EQUITY (DEFICIT) (continued)
A summary of the status of the Company's employee stock option plan as of
December 31, 1999, 1998 and 1997 and changes for the years then ended is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ----------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
January 1.............. 2,896,700 $0.50 1,596,680 $0.50 1,320,000 $0.50
Granted.............. 45,000 0.50 1,500,000 0.50 410,000 0.50
Canceled............. -- 0.50 (199,980) 0.50 (133,320) 0.50
--------- ---------- ----------
December 31.......... 2,941,700 0.50 2,896,700 0.50 1,596,680 0.50
========= ========== ==========
Options exercisable
at year-end....... 2,726,700 2,250,407 440,010
Weighted-average fair
value of options
granted during the
year.............. $ 0.06 $ 0.07 $ 0.17
</TABLE>
The following summarizes information about employee stock options at
December 31, 1999.
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
RANGE OF REMAINING
EXERCISE NUMBER OUTSTANDING CONTRACTUAL LIFE WEIGHTED-AVERAGE NUMBER EXERCISABLE WEIGHTED-AVERAGE
PRICES DECEMBER 31, 1999 (IN YEARS) EXERCISE PRICE DECEMBER 31, 1998 EXERCISE PRICE
-------- ------------------ ---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$0.50 2,941,700 3.00 $0.50 2,250,407 $0.50
</TABLE>
The Company applies Financial Accounting Standards Board Statement No. 123
"Accounting for Stock-Based Compensation" and related interpretations in
accounting for stock options issued to non-employees for services. Accordingly,
consulting expense totaling $7,868, $55,316, $252,011, and $5,315,145 (which
includes the $4,999,950 in consulting expense to Eric V. Jelinger) was recorded
during 1999, 1998, 1997, and the period from the inception date of September 27,
1994 to December 31, 1999, respectively, using the fair market value of the
consulting services or the options on the grant dates of the options issued. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, 1997, and the period from the
inception date of September 27, 1994 to December 31, 1999.
<TABLE>
<CAPTION>
INCEPTION
DATE TO
DECEMBER 31,
1999 1998 1997 1999
--------------- -------------- ------- ---------------
<S> <C> <C> <C> <C>
Dividend yield............... 0 0 0 0
Expected volatility.......... 0% 0% 0% 0%
Risk-free interest rates..... 4.57%, 5.13%, & 5.39%, & 5.06% 6.25% 4.57%, 5.06%,
5.67% 5.13%, 5.39%,
5.67%, & 6.25%
Expected lives............... 3 - 5 YEARS 3 years 3 years 3 - 5 years
</TABLE>
F-15
<PAGE> 52
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCKHOLDERS' EQUITY (DEFICIT) (continued)
A summary of the status of the options granted by the Company as of
December 31, 1999, 1998, and 1997 and changes for the years then ended is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
January 1............ 3,846,000 $0.50 3,088,000 $0.50 10,000,000 $0.000005
Granted.............. 118,000 0.50 758,000 0.50 3,088,000 0.50
Canceled............. (20,000) 0.50 -- -- (10,000,000) 0.000005
---------- ---------- ------------
December 31.......... 3,944,270 0.50 3,846,000 0.50 3,088,000 0.50
========== ========== ============
Options exercisable
at year-end........ 2,342,733 1,040,426 33,333
Weighted-average fair
value of options
granted during the
year............... $ 0.08 $ 0.07 $ 0.17
</TABLE>
The following summarizes information about non-employee stock options at
December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
RANGE OF REMAINING
EXERCISE NUMBER OUTSTANDING CONTRACTUAL LIFE WEIGHTED-AVERAGE NUMBER EXERCISABLE WEIGHTED-AVERAGE
PRICES DECEMBER 31, 1999 (IN YEARS) EXERCISE PRICE DECEMBER 31, 1998 EXERCISE PRICE
-------- ------------------ ---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$0.50 3,944,270 3.02 $0.50 3,846,000 $0.50
</TABLE>
Options granted to non-employees begin to expire three years after the date
that a registration statement for a public offering of the Company's stock
becomes effective with the Securities and Exchange Commission.
In 1996, the Company granted stock purchase options to Eric V. Jelinger,
brother of the President. The option was granted for compensation of past
services to the Company. The options allowed Mr. Jelinger to acquire up to
10,000,000 shares of stock at a price of $0.000005 per share. Under Financial
Accounting Standards Board Statement No. 123 "Accounting for Stock-Based
Compensation," compensation expense was recorded in 1996 of $4,999,950. On
December 31, 1997, the options were canceled under an agreement of mutual
mistake entered into by Unitrend and Eric V. Jelinger.
OPERATING LEASE OBLIGATIONS
The Company leased office space and equipment. OMI leases facility space
under an agreement, which expires during 2003. The Company entered into a
vehicle lease during 1996 in which the whole lease expense of $12,080 was paid
in full at that time. The lease was treated as an operating lease and was
expensed over the life of the lease. Lease expense for the years ended December
31, 1999, 1998, and 1997 and for the period from the inception date of September
27, 1994 to December 31, 1997 was $53,750, $11,879, $20,261 and $90,710,
respectively. The Company and OMI have future minimum lease payments of $48,240
in 2000; $48,240 in 2001; $48,240 in 2002; and $20,100 in 2003.
F-16
<PAGE> 53
UNITREND, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMMITMENTS
The Company has entered into purchase commitments with outside vendors to
perform the tooling designs for the computer enclosures. The total commitments
as of December 31, 1999 totaled $1,834,724 with progress payments having been
made of $1,429,429. The total future commitments remaining as of December 31,
1999 totaled $405,295. As tooling is completed, the vendors' invoices are
submitted to the Company and paid in normal terms. A liability for the
commitments has not been recorded in the accompanying balance sheets.
GOING CONCERN
As shown in the accompanying consolidated financial statements, the Company
has incurred net losses of $1,334,584 and $1,099,131 during the years ended
December 31, 1999 and 1998, respectively. The Company has an accumulated net
loss of $9,388,662 from the date of inception to December 31, 1999. The
Company's current liabilities exceed its current assets by $275,330.
Management's plans are to continue to seek funding from the majority stockholder
and to proceed on the raising of additional equity to fund its pre-production
costs and commence production of its product. Management is proceeding with the
registration of its securities with the Securities and Exchange Commission and
will then begin to raise additional equity by the end of 2000, subject to
approval by the Securities and Exchange Commission. The ability of the Company
to continue as a going concern is dependent on its ability to obtain additional
capital and interim funding by the majority stockholder. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
Management's plans are to commence production soon after the raising of the
additional equity necessary to fund the costs of commencing production, which
will most likely be within 12 to 18 months. Management expects to commence sales
of the VersaCase following production during 2001. Management projects that it
will be able to achieve profitability within 12 months of commencing production.
These objectives are based on many factors, including market changes, changes by
new or existing competition, new or different technology and the ability to
obtain the necessary equity. Based on these factors and the possibility of other
factors, it is not certain that management can achieve these plans.
F-17
<PAGE> 54
UNITREND, INC AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
UNAUDITED AUDITED
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 1,231 $ 8,779
Current portion of notes receivable....................... 22,458 22,458
Prepaid expenses.......................................... - 19,830
------------ ----------
Total current assets.............................. 23,689 51,067
------------ ----------
PROPERTY AND EQUIPMENT, at cost
Land...................................................... 67,485 67,485
Building and improvements................................. 376,385 376,385
Furniture and fixtures.................................... 82,395 72,295
Computer equipment........................................ 151,062 125,054
Computer software......................................... 46,719 45,328
Automobiles............................................... 15,937 15,937
Tooling and dies under construction....................... 1,469,429 1,429,429
------------ ----------
2,209,412 2,131,913
Less accumulated depreciation............................. (226,565) (198,879)
------------ ----------
Net property and equipment........................ 1,982,847 1,933,034
------------ ----------
OTHER ASSETS
Patent licensing costs, net of accumulated amortization... 29,390 30,790
Loan costs, net of accumulated amortization............... 2,997 3,813
Notes receivable.......................................... 12,381 11,550
------------ ----------
Total other assets................................ 44,768 46,153
------------ ----------
TOTAL ASSETS...................................... $ 2,051,304 $2,030,254
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable.......................................... $ 303,803 $ 292,143
Current portion of long-term debt......................... 19,332 19,332
Accrued expenses.......................................... 360,709 14,922
------------ ----------
Total current liabilities......................... 683,844 326,397
------------ ----------
LONG-TERM LIABILITIES
Note payable -- bank...................................... 231,964 244,892
Note payable -- stockholder............................... 157,943 1,703,854
Accrued interest.......................................... 5,607 72,215
------------ ----------
Total long-term liabilities....................... 395,514 2,020,961
------------ ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value................................ 3,301,503 3,301,503
Additional paid-in-capital................................ 8,023,695 5,770,055
Deficit accumulated in the development stage.............. (10,353,252) (9,388,662)
------------ ----------
Total stockholders' equity (deficit).............. 971,946 (317,104)
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)...................................... $ 2,051,304 $2,030,254
============ ==========
</TABLE>
F-18
<PAGE> 55
UNITREND, INC AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales.................................... $ -- $ -- $ -- $ --
Research and development expenses........ -- (6,523) (16,680) (6,523)
Selling, general and administrative
expenses............................... (254,213) (263,044) (918,775) (705,932)
----------- ----------- ----------- -----------
Operating loss........................... (254,213) (269,567) (935,455) (712,455)
Interest income.......................... 425 -- 831 --
Interest expense......................... (12,631) (54,946) (29,966) (69,008)
----------- ----------- ----------- -----------
Net loss................................. $ (266,419) $ (324,513) $ (964,590) $ (781,463)
=========== =========== =========== ===========
Basic and diluted loss per share:
Net loss.......................... $ -- $ -- $ (0.01) $ (0.01)
=========== =========== =========== ===========
Weighted average shares outstanding used
to compute basic and diluted loss per
share.................................. 69,383,580 69,380,265 69,383,580 69,368,370
=========== =========== =========== ===========
</TABLE>
F-19
<PAGE> 56
UNITREND, INC AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
UNAUDITED
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $ (964,590) $ (781,463)
---------- ----------
Adjustments to reconcile net loss to net cash used in
operating activities Options issued for services....... 11,844 7,477
Depreciation & amortization....................... 29,902 19,928
Common stock issued for services....................... -- 10,000
Decrease in operating assets
Prepaid expenses.................................. 19,830 --
Accrued interest income........................... (831) --
Increase (decrease) in operating liabilities:
Accounts payable....................................... 11,660 (508,144)
Accrued expenses....................................... 349,121 1,045
---------- ----------
Total adjustments................................. 421,526 (469,694)
---------- ----------
Net cash used in operating activities.................. (543,064) (1,251,157)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for patent licensing costs........................ -- (31,723)
Purchase of property and equipment........................ (77,499) (89,555)
Repayment from other entities............................. -- 5,455
---------- ----------
Net cash used in investing activities................ (77,499) (115,823)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on notes....................................... (12,928) (12,888)
Loans from shareholder................................. 625,943 1,107,341
Proceeds from sale of common stock..................... -- 292,910
---------- ----------
Net cash provided by financing activities......... 613,015 1,387,363
---------- ----------
Net increase (decrease) in cash........................ (7,548) 20,383
Cash -- beginning of period................................. 8,779 1,891
---------- ----------
Cash -- end of period....................................... $ 1,231 $ 22,274
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest.......... $ 26,632 $ 21,869
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
</TABLE>
During the nine months ended September 30, 2000 the President/majority
stockholder forgave loans to the company of $2,171,854, and accrued interest of
$69,942. The forgiveness of the loans was accounted for as an addition to
contributed capital.
F-20
<PAGE> 57
UNITREND, INC AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
AND FOR THE YEARS ENDED DECEMBER 31, 1999, AND 1998
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
----------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
---------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE--
DECEMBER 31, 1998........... 68,608,260 $2,906,343 $5,762,187 $ (8,054,078) $ 614,452
Sale of common stock for cash
at $0.50 per share from
January 1 to June 30,
1999........................ 770,320 385,160 -- -- 385,160
Stock options issued on
January 15, August 10,
August 15, and November 29,
1999........................ -- -- 7,868 -- 7,868
Common stock issued for
services at $2.00 per share
on August 30, 1999.......... 5,000 10,000 -- -- 10,000
Net loss -- 1999.............. -- -- -- (1,334,584) (1,334,584)
---------- ---------- ---------- ------------ -----------
BALANCE--
DECEMBER 31, 1999........... 69,383,580 $3,301,503 $5,770,055 $ (9,388,662) $ (317,104)
Stock options issued on
January 2, January 3,
February 3 and March 1,
2000........................ -- -- 5,029 -- 5,029
Majority stockholder forgave
loans to the Company on
March 31, 2000.............. -- -- 2,241,796 -- 2,241,796
Stock options issued on June
5, 2000..................... -- -- 6,815 -- 6,815
Net loss for the period ended
September 30, 2000.......... -- -- -- (964,590) (964,590)
---------- ---------- ---------- ------------ -----------
BALANCE--
SEPTEMBER 30, 2000............ 69,383,580 $3,301,503 $8,023,695 $(10,353,252) $ 971,946
========== ========== ========== ============ ===========
</TABLE>
F-21
<PAGE> 58
UNITREND, INC. AND SUBSIDIARY
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments) that
are, in the opinion of management, necessary to state fairly the results for the
three month period ended September 30, 2000. The results for the three month
period ended September 30, 2000 are not necessarily indicative of the results
expected for the full fiscal year.
NATURE AND SCOPE OF BUSINESS
Unitrend, Inc. (the Company) a Nevada corporation as of January, 1999, formerly
an Ohio corporation, is a development stage company formed to produce computer
enclosures for a national market. The Company was incorporated on April 11, 1996
as Versa Case, Inc. On May 15, 1996, the Company changed its name to Unitrend,
Inc. The Company's operations to date have consisted primarily of incidental
sales of computer components while the company personnel have concentrated on
the development of the enclosures. As of September 30, 2000, expenses incurred
have been primarily for administrative support, tooling and product development
of the enclosures that will ultimately be sold, which has resulted in an
accumulated deficit in the development stage of approximately $10,350,000.
On April 16, 1998, the Company formed another entity called Osborne
Manufacturing, Inc. (OMI). The Company owns sixty percent of OMI and a current
employee of OMI owns the remaining forty percent. The Company's ownership will
be reduced to forty percent, three years after the commencement of OMI's
production of the "VersaCase(R)" units for the Company and upon OMI obtaining
profitability. OMI was organized to do all of the production of "VersaCase(R)"
units as well as manufacturing for other entities. OMI is located in a single
leased facility in Wauseon, Ohio.
The Company merged with Server Systems Technology, Inc. (SSTI) effective
December 15, 1998. SSTI was the predecessor to the Company and was formed
September 27, 1994. It owns several patents that are key to the Company's
products, but otherwise has ceased its development stage operations when the
Company was formed in April, 1996. SSTI is a related party to the Company since
the two entities have common stockholders.
USE OF 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 and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from these estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements are on the accrual basis of accounting and
include the financial statements of the Parent for the period ended September
30, 2000 (unaudited) and 1999, in entirety, and include the financial statements
of its 60% owned Subsidiary. All material intercompany balances and transactions
are eliminated in consolidation.
F-22
<PAGE> 59
UNITREND, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RELATED PARTY PAYABLE
There were unsecured notes payable to the President/majority stockholder,
including interest at prime on the first business day of the year, payable in
ten equal installments after the Company is profitable for one year. As of
September 30, 2000 and December 31, 1999, the outstanding balance of the note
payable to the President/majority stockholder was $157,943 and $1,703,854,
respectively. On March 31, 2000, our President/majority stockholder forgave
loans to the Company of $2,171,854 and accrued interest of $69,942. This was
accounted for as contributed capital.
NEW ACCOUNTING PRONOUNCEMENT
In June 2000, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101B, which delayed the implementation of SAB No. 101
"Revenue Recognition in Financial Statements" until the fourth quarter of fiscal
years beginning after December 15, 1999. We do not expect the adoption of SAB
No. 101 to have an impact on our financial conditions or results of operations.
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities -- an Amendment of SFAS
133." We do not expect the adoption of SFAS No. 138 or 133 to have an impact on
our financial conditions or results of operations.
In September 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities -- a
Replacement of FASB Statement No. 125." We do not expect the adoption of SFAS
No. 140 to have an impact on our financial conditions or results of operations.
In October 2000, the Securities and Exchange Commission adopted the rule
"Selective Disclosure and Insider Trading." These new rules were adopted to
address three issues: the selective disclosure by issuers of material nonpublic
information; when insider trading liability arises in connection with a trader's
"use" or "knowing possession" of material nonpublic information; and when the
breach of a family or other non-business relationship may give rise to liability
under the misappropriation theory of insider trading. The rules are designed to
promote the full and fair disclosure of information by issuers, and to clarify
and enhance existing prohibitions against insider trading. We maintain the
Company is in compliance with these rules and these rules will not have an
impact on our financial conditions or results of operations.
No other accounting pronouncements have been issued that have any effect on the
Company.
F-23
<PAGE> 60
INSTRUCTIONS TO PURCHASERS
There are some unique characteristics about the Company's Web site and its
initial public offering. Our offering is self-underwritten, which means the
Company's securities are being sold directly by the Company and not by or
through any underwriter or broker-dealer. We are also making our common stock
available to a broader segment of the public than most other initial public
offerings. Before you make any investment decision remember: THE SECURITIES
OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION
FROM THE OFFERING PRICE. SEE "RISK FACTORS" AND "DILUTION" IN THE PROSPECTUS
AVAILABLE ON THIS WEB SITE OR BY CALLING 1-800-807-6889 FOR A PRINTED COPY OF
THE PROSPECTUS.
The Company has set up several methods of payment. These include Mailed
Check, Money Order, Electronic Check and Wire Transfer. The Company's Web site
will provide electronic forms to accomplish whichever of these methods you
choose. If you do not have access to the Internet, you may purchase the
Company's common stock by mail or by phone. Call 1-800-807-6889 and the Company
will send you a prospectus containing the directions and the forms necessary for
mail or phone orders.
STOCK PURCHASE AGREEMENT FORM
All stock purchasers must fill out AND SIGN the Stock Purchase Agreement
included with the Prospectus or available to print from the Web site. The
Company will not process your payment nor will it issue your stock certificate
unless and until it receives this completed and signed Stock Purchase Agreement.
If you do not have a printer or cannot download the Stock Purchase Agreement
form from the Company's Web site, call 1-800-807-6889 and the Company will send
you a Prospectus containing the Stock Purchase Agreement. If you have a hard
copy of the Prospectus, use the Stock Purchase Agreement form included as page
A-4 in the Prospectus. To speed the process, it is suggested that you fax a copy
of the signed Stock Purchase Agreement to the Company at (419) 536-0087 prior to
mailing. This is especially true if you choose an electronic method of payment
which can be accomplished in minutes. Once the payment and signature are
received, your stock purchase will be processed promptly.
SUITABILITY QUESTIONNAIRE
Some States require the Company to obtain a completed Suitability
Questionnaire from the residents of those States who intend to purchase the
Company's common stock. The completed form is maintained in the Company's
offices. Before you invest in the Company we ask that you please fill out the
Suitability Questionnaire either on-line on our Web site or on the hard copy
sent to you as pages A-5 through A-8 of the hard copy of the Prospectus. The
Suitability Questionnaire must be returned to the Company along with the
completed and signed Stock Purchase Agreement. To speed the process, it is
suggested that you fax a copy of the signed and completed Suitability
Questionnaire to (419) 536-0087 prior to mailing. This is especially true if you
choose an electronic method of payment which can be accomplished in minutes.
Once the payment and signed documents are received, your stock purchase will be
processed promptly. If you do not have a printer or cannot download from the
Company's Web site, then call the Company at 1-800-807-6889 and you will be sent
a hard copy of the Prospectus containing the Suitability Questionnaire.
A-1
<PAGE> 61
UNITREND, INC.
4665 WEST BANCROFT
TOLEDO, OHIO 43615
STOCK PURCHASE AGREEMENT AND SIGNATURE PAGE
(ALL INVESTORS MUST SIGN THIS STOCK PURCHASE AGREEMENT)
NO. OF SHARES BEING PURCHASED: X $10.00 PER SHARE = TOTAL PURCHASE PRICE
FOR SHARES $
PURCHASER DATA (MUST BE COMPLETED IN FULL):
Full Name of Purchaser (do not use initials): __________________________________
First Full Name (do not use initials): ________ Middle Initial: __ Last Name: __
Residence Address, including Zip Code (Do not use P.O. box): ___________________
Residence Telephone Number: ___________ -or- Business Telephone Number: ________
Social Security Number (Individual): ____________ -or- Tax I.D. Number: ________
SIGNIFICANT DISCLOSURE
THIS STOCK PURCHASE IS MADE PURSUANT TO, AND IS SUBJECT TO, THE TERMS AND
CONDITIONS OF THE QUALIFICATION APPROVED BY THE SECURITIES COMMISSIONS OF THE
STATES IN WHICH THE SHARES ARE BEING OFFERED.
SIGNATURE MUST BE IDENTICAL TO NAME OF REGISTERED OWNER.
Printed Name of Purchaser: _____________________________________________________
Signature of Purchaser: ________________________________________ Date: _________
Printed Name of Purchaser (if more than one): __________________________________
Signature of Purchaser (if more than one): _____________________ Date: _________
STOCK CERTIFICATE INFORMATION
The name you wish to appear on the stock certificate: __________________________
The address where you would like the stock certificate sent (if same as address
above, enter "SAME"):
Address: _______________________________________________________________________
City: __________________________________________________________________________
State: _________________________________________________________________________
Zip: ___________________________________________________________________________
A-2
<PAGE> 62
FOR COMPLETION AND EXECUTION BY ARIZONA, ARKANSAS, CALIFORNIA, IDAHO, IOWA,
MAINE, MASSACHUSETTS, MISSOURI, NEBRASKA, NEW HAMPSHIRE, NEW MEXICO, NORTH
DAKOTA, OREGON, SOUTH DAKOTA, TENNESSEE AND TEXAS RESIDENTS ONLY.
SUITABILITY QUESTIONNAIRE
Unitrend, Inc.
4665 West Bancroft
Toledo, Ohio 43615
Re: Offering of Common Stock
Gentlemen:
The following information is furnished to you in order for you to determine
whether the undersigned is qualified to purchase any of the securities being
offered and sold by Unitrend, Inc., a Nevada corporation (the "Company") in
connection with the Company's public offering of up to 4,000,000 shares of its
Common Stock (the "Shares"), as more fully described in the Company's Prospectus
dated , 2001. I understand that you will rely upon the
information for purposes of such determination. I also understand that I may, in
your sole discretion, be required to supply such appropriate documentation to
you in order to permit you, as may be necessary, to verify and substantiate my
status as a resident of the states of who is qualified to
participate in the proposed public offering of the Shares.
ALL INFORMATION CONTAINED HEREIN WILL BE TREATED CONFIDENTIALLY. However, I
agree that you may present this questionnaire to such parties as you deem
appropriate if called upon to establish your belief that the proposed offer and
sale of Shares to me was appropriate.
I hereby provide you with the following representations and information:
1. Financial Information:
(a) My net worth or joint net worth with my spouse (exclusive of home, home
furnishings and personal automobiles) is $ .
(b) My net worth or joint net worth with my spouse including home, home
furnishings and personal automobiles is $ .
(c) During the last tax year, my gross income or joint gross income with my
spouse was $ .
(d) I estimate that during the current tax year I will have gross income or
joint gross income with my spouse of at least $ .
2. Based upon the information provided in Section 1 above, and based upon
other personal information concerning me, I am qualified to participate in the
proposed public offering of the Shares because I fall within one of the
following categories:
FOR CALIFORNIA, IOWA, MAINE, NORTH DAKOTA AND OREGON RESIDENTS ONLY
______________ I, either alone or with my spouse, have a minimum net worth
(excluding home, home furnishings and automobiles) of at least
$75,000 and had a minimum gross income of $50,000 during the last
tax year and will have (based on a good faith estimate) minimum
gross income of $50,000 during the current tax year, and an
investment in the Shares will not exceed ten percent (10%) of my
net worth.
______________ I, either alone or with my spouse, have a minimum net worth
(excluding home, home furnishings and automobiles) of $150,000,
and an investment in the Shares will not exceed ten percent (10%)
of my net worth.
A-3
<PAGE> 63
______________ I, either alone or with my spouse, have not previously purchased
any securities issued by the Company, and I, either alone or with
my spouse, will not purchase more than $2,500 of the Shares.
FOR ARIZONA, ARKANSAS, MASSACHUSETTS, MISSOURI, NEBRASKA, NEW MEXICO, SOUTH
DAKOTA, TENNESSEE AND TEXAS RESIDENTS ONLY
______________ I, either alone or with my spouse, have a minimum net worth
(excluding home, home furnishings and automobiles) of at least
$250,000 and had a minimum gross income of $65,000 during the
last tax year and will have (based on a good faith estimate)
minimum gross income of $65,000 during the current tax year.
______________ I, either alone or with my spouse, have a minimum net worth
(excluding home, home furnishings and automobiles) of at least
$500,000.
______________ I, either alone or with my spouse, will purchase $100,000 or more
of the Shares.
______________ I, either alone or with my spouse, had a minimum gross income of
$200,000 during the last tax year and will have (based on a good
faith estimate) minimum gross income of $200,000 during the
current tax year.
______________ I, either alone or with my spouse, have a minimum net worth
(excluding home, home furnishings and automobiles) of $1,000,000.
FOR NEW HAMPSHIRE RESIDENTS ONLY
______________ I, either alone or with my spouse, have a minium net worth
(excluding home, home furnishings and automobiles) of at least
$250,000.
______________ I, either alone or with my spouse, have a minimum net worth
(excluding home, home furnishings and automobiles) of at least
$125,000 and had minimum gross income of $50,000 during the last
tax year and will have (based on a good faith estimate) minimum
gross income of $50,000 during the current tax year.
FOR ALL OTHER STATE RESIDENTS
I am an "Accredited Investor" because I fall within one of the following
categories:
______________ A bank as defined in Section 3(a)(2) of the Securities Act, or
any savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity, any broker or dealer registered
pursuant to Section 15 of the Exchange Act; any insurance company
as defined in Section 2(13) of the Securities Act; any investment
company registered under the Investment Company Act of 1940 or a
business development company s defined in Section 2(a)(48) of
that Act; any Small Business Investment Company licensed by the
United States Small Business Administration under Section 301(C)
or (d) of the Small Business Investment Act of 1958; any plan
established and maintained by a state, its political subdivisions
or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has
total assets in excess of $5,000,000; any employee benefit plan
within the meaning of the Employee Retirement Income Security Act
of 1974 if the investment decision is made by a plan fiduciary,
as defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total
assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made sole by persons that are accredited
investors.
______________ A private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940.
A-4
<PAGE> 64
______________ An organization described in section 501(C)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess of
$5,000,000.
______________ A director, executive officer, or general partner of the issuer
of the securities being offered or sold, or any director,
executive officer, or general partner of that issuer.
______________ A natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of this purchase exceeds
$1,000,000.
______________ A natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching the same
income level in the current year.
______________ A trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered,
whose purchase directed by a sophisticated person who has
knowledge and experience in financial and business matters that
he is capable of evaluating the merits and risks of the
prospective investment.
______________ An entity in which all of the equity owners are any of the
persons referenced above.
I represent to you that the information contained herein is complete and
accurate and may be relied upon by you and that I will notify you immediately of
any material change in any of such information occurring prior to the closing of
the purchase of the Shares, if any, by me.
IN WITNESS WHEREOF, the undersigned has executed this Suitability
Questionnaire as of the date hereinbelow stated.
<TABLE>
<S> <C>
Date: ___________________________ Signature: ____________________________
Name: _________________________________
(Please print)
</TABLE>
NOTE: THIS DOCUMENT MUST BE EXECUTED BY THE INVESTOR AND MUST BE RETURNED
ALONG WITH THE SUBSCRIPTION AGREEMENT AND SIGNATURE PAGE. THIS DOCUMENT CANNOT
BE EXECUTED BY ANOTHER PERSON ON BEHALF OF THE INVESTOR.
A-5
<PAGE> 65
PAYMENT ALTERNATIVES
Mailed check -- Money order -- Electronic check -- Wire Transfer
1. MAILED CHECK
Make your check payable to "Unitrend, Inc.," and, along with the completed
Stock Purchase Agreement, and if necessary, the Suitability Questionnaire, mail
to: Unitrend, Inc., 4665 West Bancroft, Toledo, Ohio 43615.
2. MONEY ORDER
Make your money order payable to "Unitrend, Inc.," and, along with the
completed Stock Purchase Agreement, and if necessary, the Suitability
Questionnaire, mail to: Unitrend, Inc., 4665 West Bancroft, Toledo, Ohio 43615.
You must also complete the Stock Purchase Agreement, and, if necessary, the
Suitability Questionnaire. To speed up your purchase, fax a copy of the Stock
Purchase Agreement and, if necessary, the Suitability Questionnaire, to: (419)
536-0087. Your signature will allow the Company to process your purchase
immediately.
3. ELECTRONIC CHECK
You may fill out the payment information on-line and when completed it will
be transferred immediately to the Company's corporate offices. You may also
either fill out the information on the form supplied with the hard copy of the
Prospectus and mail it to the Company or fax to the Company a copy of your blank
check. You will need to provide the Company with the important numbers found at
the bottom of your check from the account you designate for payment. With this
information, we will produce a hard copy check and deposit it in the escrow
account just as if you had mailed the check to the Company. You must also
complete the Stock Purchase Agreement, and, if necessary, the Suitability
Questionnaire. To speed up your purchase, prior to mailing, fax a copy of the
Stock Purchase Agreement and, if necessary, the Suitability Questionnaire, to:
(419) 536-0087. Your faxed signature will allow the Company to process your
purchase immediately.
4. WIRE TRANSFER
You may have your local financial institution wire the funds to
with the appropriate wire transfer instructions. You must first complete the
Stock Purchase Agreement and, if necessary, the Suitability Questionnaire. To
speed up your purchase, fax a copy of the Stock Purchase Agreement and, if
necessary, the Suitability Questionnaire, to (419) 536-0087. Your signature will
allow us to process your purchase immediately. Once we have received the
necessary forms, we will contact you and provide the wire transfer instructions.
A-6
<PAGE> 66
STOCK PAYMENT INFORMATION
1. ELECTRONIC CHECK PAYMENT DATA
(FAX TO THE COMPANY A COPY OF YOUR BLANK CHECK OR FILL OUT THE INFORMATION
BELOW.)
Name on the bank account:
Bank routing number (9 digits at the bottom left of your check enclosed by
OCR marks I: and I:): ______________________________________________________
Account Number (digits at the bottom of your check to the right of the bank
routing number. Include spaces and special characters where appropriate.):
____________________________________________________________________________
Check number (usually found on the upper right corner of your check): _____
Transit/routing number (usually appears as a fraction at the upper right or
separated by a slash. Example: 90-3300/1211):
____________________________________________________________________________
Bank information (printed on your check): _________________________________
Name of bank: __________________________________________________________
Address: _______________________________________________________________
City, State, Zip: ______________________________________________________
Branch Number: _________________________________________________________
Phone Number: __________________________________________________________
2. WIRE TRANSFER PAYMENT DATA
Fill out the Stock Purchase Agreement and, if necessary, the Suitability
Questionnaire, and fax them, if possible, to (419) 536-0087. As soon as the
Company receives these documents, it will contact you with the appropriate wire
transfer instructions. You may also mail these documents to the Company and,
upon receipt, an authorized officer of the Company will contact you with the
wire transfer instructions.
3. CHECK OR MONEY ORDER PAYMENT DATA
Make your check or money order payable to "Unitrend, Inc." Complete, sign
and submit the Stock Purchase Agreement and, if necessary, the Suitability
Questionnaire, and mail to: Unitrend, Inc., 4665 West Bancroft Street, Toledo,
Ohio 43615.
A-7
<PAGE> 67
NORTH AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION
A CONSUMER'S GUIDE TO SMALL BUSINESS INVESTMENTS
State laws have been relaxed to make it easier for small businesses to
raise start-up and growth financing from the public. Many investors view this as
an opportunity to "get in on the ground floor" of emerging businesses and to
"hit it big" as these small businesses grow into large ones.
Statistically, most small businesses fail within a few years. Small
business investments are among the most risky that investors can make. This
guide suggests items to consider for determining whether you should make a small
business investment.
RISKS AND INVESTMENT STRATEGY
A basic principle of investing in a small business is: NEVER MAKE A SMALL
BUSINESS INVESTMENT THAT YOU CANNOT AFFORD TO LOSE ENTIRELY. Never use funds
that might be needed for other purposes, such as college education, retirement,
loan repayment or medical expenses. Instead, use funds that would otherwise be
used for a consumer purchase, such as a vacation or a down-payment on a boat or
RV.
Above all, never let a commissioned securities salesperson or an officer or
director of a company convince you that the investment is not risky. Any such
assurance is almost always inaccurate. Small business investments are generally
highly illiquid even though the securities may technically be freely
transferable. Thus, you will usually be unable to sell your securities if the
company takes a turn for the worse.
Also, just because your state has registered the offering does not mean the
particular investment will be successful. The states does not evaluate or
endorse the investment (If anyone suggests otherwise to you, it is unlawful.)
If you plan to invest a large amount of money in a small business, you
should consider investing smaller amounts in several small businesses. A few
highly successful investments can offset the unsuccessful ones. Even when using
this strategy, DO NOT INVEST FUNDS YOU CANNOT AFFORD TO LOSE ENTIRELY.
ANALYZING THE INVESTMENT
Although there is no magic formula for making successful investment
decisions, certain factors are often considered particularly important by
professional venture investors. Some questions to consider are as follows:
1. How long has the company been in business? If it is a start-up or has
only a brief operating history, are you being asked to pay more than
the shares are worth?
2. Consider whether management is dealing unfairly with investors by
taking salaries or other benefits that are too large in view of the
company's stage of development or by retaining an inordinate amount of
the equity of the company compared with the amount investors will
receive. For example, is the public putting up 80% of the money but
only receiving 10% of the company shares?
3. How much experience does management have in the industry and in a small
business? How successful were the managers in previous businesses?
4. Do you know enough about the industry to be able to evaluate the
company and make a wise investment?
5. Does the company have a realistic marketing plan, and do they have the
resources to market the product or service successfully?
There are many other questions to be answered, but you should be able to
answer these before you consider investing.
B-1
<PAGE> 68
MAKING MONEY ON YOUR INVESTMENT
The two classic methods for making money on an investment in a small
business are resale in the public securities markets following a public offering
and receiving cash or marketable securities in a merger or other acquisition of
the company.
If the company is the type that is not likely to go public or be sold
within a reasonable time (i.e., a family-owned or closely-held corporation), it
may not be a good investment for you, irrespective of its prospects of success,
because of the lack of opportunity to cash in on the investment. Management of a
successful private company may receive a good return indefinitely through
salaries and bonuses, but it is unlikely that there will be profits sufficient
to pay dividends commensurate with the risk of the investment.
OTHER SUGGESTIONS
The Disclosure Document usually used in public venture offering is the
"Form U-7," which has a question and answer format. The questions are designed
to bring out particular factors that may be crucial to the proper assessment of
the offering. Read each question and answer carefully. If an answer does not
adequately address the issues raised by the question, reflect on the importance
of the issue in the context of the particular company.
Even the best venture offerings are highly risky. If you have a nagging
sense of doubt, there is probably a good reason for it. Good investments are
based on sound business criteria and not emotions. If you are not entirely
comfortable, the best approach is usually not to invest. There will be many
other opportunities. Do not let a securities salesperson pressure you into
making a premature decision.
It is generally a good idea to see management of the company face-to-face
to size them up. Focus on experience and track record rather than a smooth sales
presentation. If at all possible, take a sophisticated business person with you
to help in your analysis.
Beware of information that is different from that in the Disclosure
Document or not contained in the Disclosure Document. If it is significant, it
must be in the Disclosure Document or the offering will be illegal.
CONCLUSION
Greater numbers of public investors are "getting in on the ground floor" by
investing in small businesses. When successful, these enterprises enhance the
economy and provide jobs for its citizens. They can also provide new investment
opportunities, but that must be balanced against the inherently risky nature of
small business investments.
In considering a small business investment, you should proceed with
caution, and, above all, never invest more than you can lose.
B-2
<PAGE> 69
No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities to any person in any jurisdiction
in which such offer or solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such an offer or solicitation.
TABLE OF CONTENTS
Available Information............................................ 2
Subscription Information......................................... 2
Electronic Format of Prospectus.................................. 2
Prospectus Summary............................................... 3
Risk Factors..................................................... 5
Use of Proceeds..................................................10
Dividend Policy..................................................10
Capitalization...................................................11
Dilution.........................................................12
Selected Financial Data..........................................13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................................15
Business.........................................................20
Properties.......................................................29
Employees........................................................29
Legal Proceedings................................................29
Management.......................................................30
Certain Relationships and Related
Transactions..................................................33
Principal Stockholders...........................................34
Description of Capital Stock.....................................35
Plan of Distribution.............................................35
Experts..........................................................36
Additional Information...........................................36
Financial Statements............................................F-1
4,000,000 Shares
[Unitrend LOGO]
Unitrend, Inc.
Common Stock
---------------
PROSPECTUS
---------------
December 26, 2000
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
A director of the Company may not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability in which he or she did not reasonably act in good
faith and in a manner that he or she reasonably believed to be not opposed to
the best interest of the corporation and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The provisions of the Corporation's Bylaws eliminating the liability of
directors for monetary damages do not affect the standard of conduct to which
directors must adhere, nor do such provisions affect the availability of
equitable relief. In addition, such limitations on personal liability do not
affect the availability of monetary damages under causes of action based on
federal law.
Article Ten of the Corporation's Bylaws provides for indemnification of its
officers and directors. In addition, the Company provides director and officer
insurance coverage for the benefit of its directors and officers.
Without limiting the application of the foregoing, the Board of Directors
may adopt Bylaws from time to time, without respect to indemnification, to
provide at all times the fullest indemnification permitted by the laws of the
State of Nevada, and may cause the corporation to purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as director
or officer of another corporation, or as its representative in a partnership,
joint venture, trust, or other enterprises against any liability asserted
against such person and incurred in any such capacity or arising out of such
status, whether or not the corporation would have the power to indemnify such
person.
The indemnification provided in this Article shall continue as to a person
who has ceased to be a director, officer, employee or agent, and shall inure to
the benefit of the heirs, executors and administrators of such person.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of this offering are estimated as follows:*
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 10,560
Blue Sky fees and expenses.................................. $ 50,000
Transfer Agent and Registrar fees........................... $ 5,000
Printing and engraving expenses............................. $ 25,000
Legal fees and expenses..................................... $ 30,000
Accounting fees and expenses................................ $ 5,000
Miscellaneous............................................... $ 24,440
--------
Total............................................. $150,000
========
</TABLE>
* all amounts other than the SEC registration fee are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
From March 31, 1997, to December 31, 1997, the Company rescinded 43,100
shares of common stock with a total value of $21,550 through a private placement
exemption. Those transactions were conducted without an underwriter in which the
Company dealt directly with seven individuals. Also during this period, the
Company issue 100,000 options at a strike price of $0.50 per share to a single
non-employee individual who provided various financial consulting services to
the Company. Pursuant to the option plan, the options granted expire on the
date(s) specified in the option agreement(s), but in no event shall the term of
the options exceed ten years from the date of grant.
From January 1, 1998, to December 31, 1998, the Company sold 3,731,060
shares of common stock with a total value of $1,865,530 through a Regulation A
offering. During that same time period, and pursuant to the
II-1
<PAGE> 71
same Regulation A offering, the Company conducted an exchange and rescission
offering to all then-existing shareholders of Company stock. Pursuant to that
offering, the company exchanged 2,081,200 Regulation A shares for Unitrend, Inc.
private placement stock on a one-for-one basis, for a total value of $1,040,600.
The total number of shares of common stock rescinded in that offering amounted
to 195,840, with a total value of $97,920. The 1998 Regulation A offering
transactions were conducted without the aid of an underwriter, and with the
exception of approximately one corporation and seven trusts, all dealt with
individuals. The proceeds of that Regulation A offering were used in the
following manner: $1,040,600 was applied directly to the exchange of Regulation
A stock for previously-sold private placement securities, as show above; from
the cash proceeds of $1,865,530, approximately 32% was used for manufacturing
expenses, 24% was used for general and administrative expenses, and 44% was used
for the purchase of assets. During this 1998 period, the Company issued 758,000
options at a strike price of $0.50 per share to seven non-employee individuals
who provided various business, financial, strategic and technological consulting
services to the Company. Pursuant to the option plan, the options granted expire
on the date(s) specified in the option agreement(s), but in no event shall the
term of the options exceed ten years from the date of grant.
Through the aforementioned Regulation A offering and a private placement
exemption from January 1, 1999, to December 31, 1999, the Company exchanged
184,500 shares of common stock with a total value of $92,250. During the same
period, the Company booked sales of 585,820 shares of stock purchased by Mr.
Conrad A.H. Jelinger on behalf of others through a private placement exemption.
The Company's note payable to Mr. Jelinger was used for the purchase of said
stock via a reduction of the payable to Mr. Jelinger by the same amount sold.
Also during the period, the Company sold 5,000 shares of common stock with a
total value of $10,000 also through a private placement exemption.
Those 1999 transactions were conducted without the aid of an underwriter,
and with the exception of approximately two corporations and one trust, all
dealt with individuals. The sale of 5,000 shares of stock was a non-cash
transaction in which the sale relieved the Company from paying in cash a
significant portion of the retainer associated with a contract to engage the
purchaser to provide services for Unitrend, Inc. During this 1999 period, the
Company issued 118,270 options at a strike price of $0.50 per share to six
non-employee individuals who provided various business, financial, strategic,
technological and public relations consulting services to the Company. Pursuant
to the option plan, the options granted expire on the date(s) specified in the
option agreement(s), but in no event shall the term of the options exceed ten
years from the date of grant.
ITEM 27. EXHIBITS.
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1.1 Participating Dealer Agreement
2.1 Articles of Merger for the Merger of Unitrend, Inc., and
Server Systems Technologies, Inc. (incorporated by reference
from the Company's Form 10-12B filed March 30, 2000)
2.2 Articles of Merger for the Merger of Unitrend, Inc., an Ohio
corporation, and Unitrend, Inc., a Nevada corporation
(incorporated by reference from the Company's Form 10-12B
filed March 30, 2000)
3.1 Articles of Incorporation of Unitrend, Inc. and Amendments
(incorporated by reference from the Company's Form 10-12B
filed March 30, 2000)
3.2 Bylaws of Unitrend, Inc. (incorporated by reference from the
Company's Form 10-12B filed March 30, 2000)
4.0 Specimen Stock Certificate
4.1 Lock-up Agreement between Unitrend, Inc. and Eric Jelinger
(incorporated by reference from the Company's Form 10-12B
filed March 30, 2000)
*5.0 Opinion of Carlile Patchen & Murphy LLP as to legality
10.1 1999 Equity Incentive Plan (incorporated by reference from
the Company's Form 10-12B filed March 30, 2000)
10.2 Form Stock Option Agreement (Employee) (incorporated by
reference from the Company's Form 10-12B filed March 30,
2000)
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10.3 Form Stock Option Agreement (Non-Employee/Non-Qualified)
(incorporated by reference from the Company's Form 10-12B
filed March 30, 2000)
10.4 Cash Incentive Plan (incorporated by reference from the
Company's Form 10-12B filed March 30, 2000)
10.5 Employment Agreement, Non-compete Agreement and Trade Secret
Agreement between the Company and Conrad Jelinger
(incorporated by reference from the Company's Form 10-12B
filed March 30, 2000)
10.6 Employment Agreement, Non-compete Agreement and Trade Secret
Agreement between the Company and Kathleen M. Novak
(incorporated by reference from the Company's Form 10-12B
filed March 30, 2000)
10.7 Employment Agreement, Non-compete Agreement and Trade Secret
Agreement between the Company and Douglas E. Stallings
(incorporated by reference from the Company's Form 10-12B
filed March 30, 2000)
10.8 Option Agreements between the Company and Kathleen M. Novak
(incorporated by reference from the Company's Form 10-12B
filed March 30, 2000)
10.9 Option Agreements between the Company and Douglas E.
Stallings (incorporated by reference from the Company's Form
10-12B filed March 30, 2000)
10.10 Option Agreements between the Company and Martha Moloney
(incorporated by reference from the Company's Form 10-12B
filed March 30, 2000)
10.11 Promissory Note for the purchase of the property located at
4665 W. Bancroft, Toledo, Ohio (incorporated by reference
from the Company's Form 10-12B filed March 30, 2000)
10.12 Mortgage for the property located at 4665 W. Bancroft,
Toledo, Ohio (incorporated by reference from the Company's
Form 10-12B filed March 30, 2000)
10.13 Promissory Note from the Company given to Conrad Jelinger
for the year ending 1998 (incorporated by reference from the
Company's Form 10-12B filed March 30, 2000)
10.14 Promissory Note from the Company given to Conrad Jelinger
for the year ending 1999 (incorporated by reference from the
Company's Form 10-12B filed March 30, 2000)
10.15 Joint Venture Agreement between Unitrend, Inc., and Jon
Osborne (incorporated by reference from the Company's Form
10-12B filed March 30, 2000)
10.16 Promissory Note given to the Company from Osborne
Manufacturing, Inc., for the year ending 1998 (incorporated
by reference from the Company's Form 10-12B filed March 30,
2000)
10.17 Promissory Note given to the Company from Osborne
Manufacturing, Inc., for the year ending 1999 (incorporated
by reference from the Company's Form 10-12B filed March 30,
2000)
24.0 Consent of GBQ Partners, LLP
24.1 Consent of Carlile Patchen & Murphy LLP (included in Exhibit
5.0)
27.1 Financial Data Schedule (incorporated by reference from the
Company's Form 10-12B filed November 14, 2000)
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* Filed by this amendment.
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<PAGE> 73
ITEM 28. UNDERTAKINGS.
A. UNDERTAKING PURSUANT TO RULE 415.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof), which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement; and
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment will be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration, by means of a post-effective amendment,
any of the securities being registered that remain unsold at the
termination of the offering.
B. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and other agents of the Company, the
Company has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
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SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF TOLEDO,
STATE OF OHIO ON THE 21ST DAY OF DECEMBER, 2000.
By: /s/ CONRAD A. H. JELINGER
------------------------------------
Conrad A. H. Jelinger
President and Chief Executive
Officer
By: /s/ CONRAD A. H. JELINGER
------------------------------------
Conrad A. H. Jelinger
(Interim Principal Accounting
Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSON IN THE CAPACITIES AND
ON THE DATES STATED.
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SIGNATURE TITLE DATE
--------- ----- ----
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/s/ CONRAD A. H. JELINGER President, Chief Executive Officer, December 21, 2000
------------------------------------ Chairman and Director
Conrad A. H. Jelinger
/s/ ERIC V. JELINGER Director December 21, 2000
------------------------------------
Eric V. Jelinger
/s/ DALE BOLEY Director December 21, 2000
------------------------------------
Dale Boley
/s/ MARTHA A. MOLONEY Director December 22, 2000
------------------------------------
Martha A. Moloney
/s/ DARRYL STOLPER Director December 21, 2000
------------------------------------
Darryl Stolper
Director December , 2000
------------------------------------
Robert J. Hayes
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