<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________ .
COMMISSION FILE NUMBER:
UNITREND, INC.
(Exact name of registrant as specified in its charter)
Nevada 34-1904923
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
4665 West Bancroft St.
Toledo, Ohio 43615
(Address of principal executive offices, including zip code)
(419) 536-2090
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ ] NO [X]
Number of shares of registrant's common stock outstanding as of June 30, 2000:
69,383,580
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UNITREND, INC. AND SUBSIDIARY
FORM 10-Q
QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999.............................................. 3
Condensed Consolidated Statements of Operations for the three
and six months ended June 30, 2000 and 1999.................... 4
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999............................ 5
Consolidated Statements of Stockholders' Equity (Deficit) for
the years ended December 31, 1999, 1998 and for the six months
ended June 30, 2000............................................ 6
Notes to Condensed Consolidated Financial Statements........... 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 11
Item 2. Changes In Securities And Use Of Proceeds...................... 11
Item 3. Defaults Upon Senior Securities................................ 11
Item 4. Submission Of Matters To A Vote Of Security Holders............ 11
Item 5. Other Information.............................................. 11-14
Item 6. Exhibit........................................................ 15
Signatures..................................................... 16
This Quarterly Report on Form 10-Q is for the three months ended June 30, 2000.
This Quarterly Report modifies and supersedes documents filed prior to this
Quarterly Report. The SEC allows us to "incorporate by reference" information
that we file with them, which means that we can disclose important information
to you by referring you directly to those documents. Information incorporated by
reference is considered to be part of this Quarterly Report. In addition,
information that we file with the SEC in the future will automatically update
and supersede information contained in this Quarterly Report. In this Quarterly
Report, "Unitrend," "we," "us" and "our" refer to Unitrend, Inc. and its
subsidiaries.
You should carefully review the information contained in this Quarterly Report
and in other reports or documents that we file from time to time with the SEC.
In this Quarterly Report, we state our beliefs of future events and of our
future financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
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Part I. Financial Information
Item I. Condensed Consolidated Financial Statements
<TABLE>
<CAPTION>
UNITREND, INC AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED BALANCE SHEETS
ASSETS Unaudited Audited
June 30, 2000 December 31, 1999
-------------- -----------------
CURRENT ASSETS
<S> <C> <C>
Cash $ 1,563 $ 8,779
Current portion of notes receivable 22,458 22,458
Prepaid Expenses -- 19,830
------------ ------------
Total current assets 24,021 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 1,449,429 1,429,429
------------ ------------
2,189,412 2,131,913
Less accumulated depreciation (217,883) (198,879)
------------ ------------
Net property and equipment 1,971,529 1,933,034
------------ ------------
OTHER ASSETS
Patent licensing costs, net of accumulated amortization 29,857 30,790
Loan costs, net of accumulated amortization 3,269 3,813
Notes Receivable 11,956 11,550
------------ ------------
Total other assets 45,082 46,153
------------ ------------
TOTAL ASSETS $ 2,040,632 $ 2,030,254
============ ============
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 280,679 $ 292,143
Current portion of long-term debt 19,332 19,332
Accrued expenses 198,841 14,922
------------ ------------
Total current liabilities 498,852 326,397
------------ ------------
LONG-TERM LIABILITIES
Note payable - bank 233,615 244,892
Note payable - stockholder 69,800 1,703,854
Accrued interest -- 72,215
------------ ------------
Total long-term liabilities 303,415 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 (10,086,833) (9,388,662)
------------ ------------
Total stockholders equity (deficit) 1,238,365 (317,104)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) $ 2,040,632 $ 2,030,254
============ ============
</TABLE>
3
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UNITREND, INC AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Sales $ -- $ -- $ -- $ --
Research and development expenses -- -- (16,680) --
Selling, general and administrative expenses (310,245) (222,510) (664,562) (442,888)
------------ ------------ ------------ ------------
Operating loss (310,245) (222,510) (681,242) (442,888)
Interest income -- -- 406 --
Interest expense (10,384) (7,914) (17,335) (14,062)
------------ ------------ ------------ ------------
Net loss $ (320,629) $ (230,424) $ (698,171) $ (456,950)
============ ============ ============ ============
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 68,014,229 69,383,580 68,014,229
============ ============ ============ ============
</TABLE>
4
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UNITREND, INC AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited Unaudited
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(698,171) $(456,950)
--------- ---------
Adjustments to reconcile net loss to net
cash used in operating activities
Options issued for services 11,844 2,561
Depreciation & amortization 20,481 13,335
Accrued interest income (406) --
Decrease in operating assets
Prepaid expenses 19,830 --
Increase (decrease) in operating liabilities:
Accounts payable (11,464) (206,349)
Accrued expenses 181,646 (25,789)
--------- ---------
Total adjustments 221,931 (216,242)
--------- ---------
Net cash used in operating activities (476,240) (673,192)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (57,499) (93,182)
Repayment from other entities -- 5,001
--------- ---------
Net cash used in investing activities (57,499) (88,181)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on notes (11,277) (6,444)
Loans from shareholder 537,800 522,554
Proceeds from sale of common stock -- 292,910
--------- ---------
Net cash provided by financing activities 526,523 809,020
--------- ---------
Net increase (decrease) in cash (7,216) 47,647
Cash - beginning of period 8,779 1,891
--------- ---------
Cash - end of period $ 1,563 $ 49,538
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 16,641 $ 13,158
Cash paid during the period for income taxes $ -- $ --
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
During the period ended June 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.
</TABLE>
5
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<TABLE>
<CAPTION>
UNITREND, INC AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1999, 1998 and for the six months
Ended June 30, 2000
Deficit
Accumulated
Common Stock Additional During the
----------------------------- Paid-In Development
Shares Amount Capital Stage Total
------------ ------------ ------------ ------------ ------------
BALANCE -
<S> <C> <C> <C> <C> <C>
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 770,320 385,160 -- -- 385,160
June 30, 1999
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,
1999 -- -- 5,029 -- 5,029
Majority shareholder 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 June 30, 2000 -- -- -- (698,171) (698,171)
------------ ------------ ------------ ------------ ------------
BALANCE -
JUNE 30, 2000 69,383,580 $ 3,301,503 $ 8,023,695 $(10,086,833) $ 1,238,365
============ ============ ============ ============ ============
</TABLE>
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UNITREND, INC. AND SUBSIDIARY
FORM 10-Q
QUARTER ENDED JUNE 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 June 30, 2000. The results for the three month period
ended June 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 June 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 $10,100,000.
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 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 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 June 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.
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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 June
30, 2000 and December 31, 1999, the outstanding balance of the note payable to
the President/majority stockholder was $69,800 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 August 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 139, "Rescission of FASB Statement
No. 53 and amendments to FASB Statements 63, 89, and 121," which was necessary
due to the extensive changes in the film industry since the issuance of the
Statements. We do not expect the adoption of SFAS No. 139 to have an impact on
our financial condition or results of operations.
No other accounting pronouncements have been issued that have any effect on the
Company.
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Unitrend, Inc. and Subsidiary
Toledo, Ohio
We have reviewed the accompanying consolidated balance sheets of Unitrend, Inc.
and Subsidiary (Development Stage Companies) as of June 30, 2000 and December
31, 1999, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the quarters and six months ended June 30,
2000 and 1999. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists of principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the aforementioned financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ Groner, Boyle & Quillin, LLP
Columbus, Ohio
September 5, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS - SECOND QUARTER OF 2000 COMPARED TO SECOND QUARTER OF
1999
We had no net revenues during the quarter ended June 30, 2000 or the quarter
ended June 30, 1999. We expect to begin selling the VersaCase in the second or
third quarter in 2001.
We had an operating loss of $310,245 during the quarter ended June 30, 2000 as
compared to a loss of $222,510 during the quarter ended June 30, 1999, an
increase of 39%. As discussed below, this loss grew due to an increase in
selling, general and administrative expenses.
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<PAGE> 9
Selling, general and administrative expenses increased to $310,245 during the
quarter ended June 30, 2000 as compared to $222,510 for the quarter ended June
30, 1999, an increase of 39%. This change was due primarily to an increase in
payroll and related employee benefit costs of $78,573 during the quarter ended
June 30, 2000 as compared to the quarter ended June 30, 1999. These costs
increased due to the hiring of additional employees subsequent to the quarter
ended June 30, 1999. The additional employees filled accounting, bookkeeping,
receptionist and marketing communication positions.
During the quarter ended June 30, 2000, 13,630 stock options were granted to a
non-employee at an exercise price of $0.50 each, under our 1999 Stock Option
Plan. Options to the non-employee consultant were recorded for $6,815 in
consulting expenses based on the fair market value of the computer networking
and technical services rendered.
RESULTS OF OPERATIONS - FIRST SIX MONTHS OF 2000 COMPARED TO FIRST SIX MONTHS OF
1999
We had no net revenues during the six months ended June 30, 2000 or the six
months ended June 30, 1999. We expect to begin selling the VersaCase in the
second or third quarter in 2001.
We had an operating loss of $664,562 during the six months ended June 30, 2000
as compared to a loss of $442,888 during the six months ended June 30, 1999, an
increase of 50%. As discussed below, this loss grew due to an increase in
selling, general and administrative expenses.
Research and development expenses increased to $16,680 during the six months
ended June 30, 2000. The Company did not incur research and development expenses
during the six month ended June 30, 1999. This increase was due to a consulting
fee paid during the 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 $664,562 during the
six months ended June 30, 2000 as compared to $442,888 during the six months
ended June 30, 1999, an increase of 50%. This change was due primarily to an
increase in payroll and related employee benefit costs of $164,076 during the
six months ended June 30, 2000 as compared to the six months ended June 30,
1999. These costs increased due to the hiring of additional employees subsequent
to the six months ended June 30, 1999. Other significant increases in officers'
insurance, professional fees and rent expense were $15,255, $31,022 and $13,992,
respectively.
During the six months ended June 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.
During the six months ended June 30, 2000, prepaid expenses decreased by
$19,830. We had an increase in plant, property and equipment of $57,499. This
increase is due to the purchase of furniture, fixtures, computer equipment and
software as well as additional tooling and dies under construction. Accrued
expenses increased to $198,841 for the six months ended June 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
$69,800 during the six months ended June 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 June 30, 2000, the
Company's cash totaled $1,563. Loans from the Mr. Jelinger during the six
9
<PAGE> 10
months ended June 30, 2000 totaled $537,800. 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 six months ended June 30, 2000
included $476,240 for the Company's operations and working capital requirements,
payments on notes payable of $11,277, and purchases of equipment and tooling and
dies under construction of $57,499.
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 June 30, 2000 and may seek additional funding after such time.
Currently, the Company is awaiting approval of its Form 10-12B/A registration
statement with the Securities and Exchange Commission filed on August 30, 2000.
Upon approval, the Company will file an S-8 to register stock options. 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. 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 dilutive or otherwise
disadvantageous to current shareholders. The Company may in the future
experience operational 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 six months ended June 30, 2000. Therefore, the
Company had no costs relating to this issue during this period.
OUTLOOK
The outlook section contains a number of forward-looking statements, all of
which are based on current expectation. Actual results may differ materially.
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. The VersaCase is unparalleled 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.
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<PAGE> 11
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.
Part II. Other Information
Item 1. 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.
Item 2. Changes In Securities And Use Of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission Of Matters To A Vote Of Security Holders
Not Applicable
Item 5. Other Information
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
The Company operates in a rapidly changing environment that involves numerous
risks, some of which are beyond the Company's control. The following discussion
highlights some of these risks.
LIMITED OPERATING HISTORY. We have only a limited operating history upon which
an evaluation of our Company and our operations 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 its products and
services. There can be no assurance that we will be successful in addressing
such risks. There can be no assurance that Unitrend will achieve or sustain
profitability.
MANAGEMENT OF GROWTH. We have significantly expanded our development activities
since our inception. Our future operating results will depend on our
management's ability to manage growth, continuously hire and retain significant
numbers of qualified employees, forecast revenues and control expenses. This
growth has placed, and we expect that any future growth we experience will
continue to place, a significant strain on our management, systems and
resources. To manage the anticipated growth as we commence operations, we may be
required to: (i) improve existing and implement new operational, financial and
management information controls, reporting systems and procedures; (ii) hire,
train and manage additional qualified personnel; and (iii) establish
relationships with additional suppliers and
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<PAGE> 12
partners while maintaining our existing relationships. An unexpected decline in
the growth rate of revenues without a corresponding and timely slowdown in
expense growth could have a material adverse effect on the Company's business,
results of operations or financial condition.
COMPETITIVE ENVIRONMENT. The computer hardware industry is an intensely
competitive industry subject to rapid technological change. Certain competitors
of the Company have significantly more financial and technical resources than we
possess. Due to this rapidly changing environment, the utility of our initial
product, the VersaCase, may become enhanced, thereby attracting additional
competition to our industry segment. Such a rapidly changing environment could
also affect the utility of our products in the market. The introduction of new
competitive products into one or more of our various markets could have a
material adverse effect on our business, results of operations or financial
condition. We expect to face increasing competition from such companies in the
various markets in which we compete.
PRICING. Intense competition in the various markets in which we will compete may
put pressure on us to reduce prices on certain products. Any such price
reductions could have a material adverse effect on our business, results of
operations or financial condition if we cannot offset these price reductions
with a corresponding increase in sales volumes.
INDUSTRY GROWTH AND ECONOMIC CONDITIONS. The strength and profitability of our
business depends on the overall demand for computer hardware and growth in the
computer industry. Because our initial anticipated sales efforts will be
primarily directed to major corporate, government, education and other business
customers, our business also partly depends on general economic and business
conditions. A softening of demand for computer hardware, caused by a weakening
of the economy or otherwise, may result in decreased revenues or declining
revenue growth rates for our business.
NEW PRODUCTS. Rapid technological advances in hardware and software development,
evolving standards in computer hardware and software technology and frequent new
product introductions and enhancements characterize the markets for our
products. Product introductions and short product life cycles necessitate high
levels of expenditures for research and development. To maintain our competitive
position, we must enhance and improve our existing products and continue to
introduce new products that keep pace with technological developments, satisfy
increasingly sophisticated customer requirements and achieve market acceptance.
If we fail to successfully improve, position and/or price our products, our
business, results of operations and/or financial condition may be adversely
affected in a material way.
Our ability to sell our products depends on the compatibility of our products
with other vendors' hardware products, for example motherboards and video cards.
Developers of these products may change their products so that they will no
longer be compatible with our product without modification. These vendors may
also decide to bundle their products with other server appliances for
promotional purposes and discount the sales price of the bundle. If that were to
happen, our business and future operating results could suffer if we were no
longer able to offer commercially viable products.
Products as complex as those offered by our company, at times, contain
undetected errors when first introduced or as new versions are released, despite
extensive testing. Significant undetected errors or delays in new products or
new versions of a product may affect market acceptance of our products and could
have a material adverse effect on our business, results of operations and/or
financial condition. If we were to experience delays in the commercialization
and introduction of new or enhanced products, if customers were to experience
significant problems with the implementation and installation of products or if
customers were dissatisfied with product functionality or performance, these
could have a material adverse effect on our business, results of operations
and/or financial condition.
There can be no assurance that our new products will achieve significant market
acceptance or will generate significant revenue. Additional products that we
plan to directly or indirectly market in the future are in various stages of
development. Some of these products are in business areas that are relatively
new to our product development, sales and product marketing personnel.
UNEVEN PATTERNS OF QUARTERLY OPERATING RESULTS. Our revenues are relatively
difficult to forecast because we have not yet entered into production or sales
of our initial products. Upon
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commencement of production and sales we anticipate variations in our quarterly
operating results from quarter to quarter due to various factors, including (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) the timing of the introduction of new products or product
enhancements by us or our competitors, (vi) our success in developing,
introducing, and shipping product enhancements and new products, (vii) pricing
actions by us or our competitors, (viii) changes in material costs, (ix) the
potential for delay or deferral of customer implementations of our hardware, (x)
changes in customer budgets and (xi) seasonality of technology purchases and
other general economic conditions. Accordingly, our quarterly results are
difficult to predict until the end of the quarter, and delays in product
delivery or closing of sales near the end of a quarter can cause quarterly
revenues and net income to fall significantly short of anticipated levels. As a
result of all of the foregoing, there can be no assurance that Unitrend will be
able to achieve or sustain profitability on a quarterly or annual basis.
SALES FORCE AND ALTERNATE DISTRIBUTION CHANNELS. We intend to rely heavily on
our direct sales force. However, we are investigating other alternate
distribution channels to meet competitive demands. There can be no assurance
that we will be successful in increasing direct sales or sales within these
alternate distribution channels. If we are not successful, we may lose
significant sales opportunities.
UNCERTAINTY OF EMERGING AREAS. The impact on us of emerging hardware development
is uncertain. There can be no assurance that we will be able to provide a
product offering that will satisfy new customer demands in developing areas. In
addition, certain industry-adopted and de facto standards for computer hardware
are evolving rapidly. There can be no assurance that standards chosen by us will
position our products to compete effectively for business opportunities as they
arise on the Internet and other emerging areas.
HIRING AND RETENTION OF EMPLOYEES. Our continued growth and success depend to a
significant extent on the continued service of our senior management and other
key employees and the hiring of new qualified employees. Competition for highly
skilled business, product development, technical and other personnel is intense.
There can be no assurance that we will be successful in continuously recruiting
new personnel and in retaining existing personnel. The loss of one or more key
employees or our ability to attract additional qualified employees could have a
material adverse effect on our continued growth, business, operating results,
and/or financial condition. In addition, we may experience increased
compensation costs in order to attract and retain skilled employees.
DEPENDENCE ON CONTRACT MANUFACTURING AND LIMITED SOURCE SUPPLIERS. Our
operational strategy significantly relies on outsourcing of manufacturing.
Certain key components used in the manufacturing 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 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 the
company or adversely impact our relations with our customers in the future. 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.
No assurance can be provided that any new products or enhancements will be
introduced. The inability 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. This could have a material adverse effect
upon our business, operating results, and/or financial condition.
MINIMAL CUSTOMER SUPPORT STAFF. Our products are designed to require little or
no support from us and to be deployed quickly and easily by our customers. Many
of our competitors offer extensive consulting services in addition to server
appliance products. If we introduced a product that required consulting services
for installation and use or if our customers wanted to purchase from a single
vendor a menu of items that included extensive consulting services, we would be
required to change our business model. We would be required to hire and train
consultants, outsource the consulting services or enter into a joint venture
with another company that could provide those services. If these events were to
occur, our
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future profits would likely suffer because customers would choose another vendor
or we would incur the added expense of hiring and retaining consulting
personnel.
ENFORCEMENT OF THE COMPANY'S INTELLECTUAL PROPERTY RIGHTS. Despite our efforts
to protect our intellectual property rights, it may be possible for unauthorized
third parties to copy certain portions of our products or to reverse engineer or
obtain and use technology or other information that we regard as proprietary. In
addition, the laws of certain countries do not protect our proprietary rights to
the same extent, as do the laws of the United States. Accordingly, there can be
no assurance that we will be able to protect our proprietary technology against
unauthorized third party copying or use, which could adversely affect our
competitive position, business, operating results, and/or financial condition.
We are also subject to the risk of adverse claims and litigation alleging
infringement of intellectual property rights of others. Given that patent
applications in the United States are not publicly disclosed until the patent
issues, applications may have been filed, which if issued as patents, could
relate to our products. Although we believe that our technology does not
infringe on the proprietary rights of others and 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 our position and the position of 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 that could
effectively block our ability to sell its 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, our company, our customers and end-users may
be required to obtain one or more licenses from third parties. There can be no
assurance that our company or our customers could obtain necessary licenses from
third parties at a reasonable cost or 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 its products, any of
which could have a material adverse effect on our business, financial condition
and/or results of operations.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Common Stock may be
significantly affected by factors such as the announcement of new products or
product enhancements by the us or our competitors, technological innovation by
us or our competitors, quarterly variations in our or our competitors' results
of operations, changes in prices of our or our competitors' products and
services, changes in revenue and revenue growth rates for our Company as a whole
or for specific geographic areas, business units, products or product
categories, changes in earnings estimates by market analysts, speculation in the
press or analyst community and general market conditions or market conditions
specific to particular industries. The stock prices for many companies in the
technology sector have experienced wide fluctuations, which often have been
unrelated to their operating performance. Such fluctuations may adversely affect
the market price of our Common Stock. Additionally, our operating results could
be below the expectations of public market analysts and investors, and in
response the market price of our Common Stock could decrease significantly.
Investors may be unable to resell their shares of our Common Stock at or above
the offering price. In the past, companies that have experienced volatility in
the market price of their stock have been the objects of securities class action
litigation. If we were the object of securities class action litigation, it
could result in substantial costs and a diversion of management's attention and
resources.
LONG-TERM INVESTMENT CYCLE. Developing hardware for the technology industry is
expensive. The investment in product development often involves a long payback
cycle. The Company's plans for the current year include significant investments
in research and development and related product opportunities from which
significant revenues are not anticipated for several years.
SUBSEQUENT EVENTS. In the third quarter 2000 we parted ways with our Interim
Chief Financial Officer, Michael Wiegand, and our Vice President of Marketing,
Terence J. Langenderfer. We agreed with Mr. Wiegand that he would fill the Chief
Financial Officer position on a temporary basis. With that understanding, he
left us to pursue other interests shortly after his interim status ended. Mr.
Langenderfer's departure was precipitated on a difference in business philosophy
between himself and our upper management. We do not anticipate that the
departure of these individuals will negatively impact our business performance
in a material way.
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Item 6. Exhibit
27.1 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Unitrend,
Inc. has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNITREND, INC.
Dated: September 6, 2000 By: /s/ CONRAD A.H. JELINGER
--------------------------------------
Conrad A.H. Jelinger
Chief Executive Officer, Interim Chief
Financial Officer and President
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