Form 10-Q
Securities and Exchange Commission
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTON 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
-------------------------.
Commission file number 0-17080
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UNITRONIX CORPORATION
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(Exact name of registrant as specified in its charter)
New Jersey 22-2086851
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Newbury Street, Peabody, MA 01960
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(Address of principal executive offices)
(Zip Code)
(978) 535-3912
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(Registrant's telephone number, including area code)
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Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the
securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
----- -----
1
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
9,456,932 shares of common stock, no par value, as of November 6, 1997
2
UNITRONIX CORPORATION
INDEX
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Page Number
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Part I. Financial Information (Unaudited)
Item 1:
Balance Sheets-
September 30, 1997 and June 30, 1997 4
Statements of Income -
Three Months Ended September 30, 1997 and 1996 5
Statement of Changes in Stockholders' Deficit-
Three Months Ended September 30, 1997 6
Statements of Cash Flows -
Three Months Ended September 30, 1997 and 1996 7
Notes to Financial Statements 8
Item 2:
Management's Discussion and Analysis of Results of 10
Operations and Financial Condition for the Three Months
Ended September 30, 1997
Part II. Other Information 12
3
UNITRONIX CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
September 30,
1997 June 30,
(Unaudited) 1997 (1)
ASSETS ----------- --------
CURRENT ASSETS
Cash $12,603 $34,028
Accounts receivable, net 94,291 83,312
Prepaid expenses and other current assets 326,512 23,050
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TOTAL CURRENT ASSETS 433,406 140,390
--------- ---------
Property, plant and equipment, net 67,635 79,142
---------- ---------
Other assets 2,033 2,266
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TOTAL ASSETS $503,074 $221,798
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Loan payable - bank $200,000 ---
Notes payable - related party 993,924 $882,424
Note payable 6,323 6,323
Accounts payable 317,703 301,874
Accounts payable - related party 1,769 2,550
Accrued expenses 84,843 128,913
Accrued interest - related party 116,439 95,693
Deferred revenue 109,815 91,294
-------- -------
TOTAL CURRENT LIABILITIES 1,830,816 1,509,071
Note Payable 5,260 6,850
STOCKHOLDERS' DEFICIT
Common stock, no par value, 12,000,000 shares
authorized, 9,456,932 shares issued and
outstanding 3,485,412 3,485,412
Undesignated capital shares, 3,000,000 shares
authorized, none outstanding ---- ----
Accumulated deficit (4,818,414) (4,779,535)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT (1,333,002) (1,294,123)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $503,074 $221,798
========= ========
(1) Derived from audited financial statements.
See notes to financial statements.
4
UNITRONIX CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
September 30,
1997 1996
------ ------
REVENUES:
Computer systems and
software licenses $37,500 $143,029
Services 147,105 174,587
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TOTAL REVENUES 184,605 317,616
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COSTS AND EXPENSES:
Cost of computer systems
and software licenses 1,026 13,796
Cost of services 54,596 78,235
Product development costs 47,355 148,625
Selling expenses 36,272 71,762
General and administrative
expense 60,515 46,557
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TOTAL COSTS AND EXPENSES: 199,764 358,975
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LOSS FROM OPERATIONS (15,159) (41,359)
INTEREST INCOME (EXPENSE),NET (23,720) (10,718)
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LOSS BEFORE INCOME TAXES (38,879) (52,077)
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PROVISION FOR INCOME TAXES 0 0
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NET LOSS $(38,879) $(52,077)
======= =======
LOSS PER COMMON SHARE $(0.00) $(0.01)
======= =======
Weighted average number of common
shares outstanding 9,456,932 9,456,932
See notes to financial statements.
5
UNITRONIX CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(Unaudited)
For the Three Months Ended September 30, 1997
Common Stock
------------------
Shares Accumulated Stockholders'
Issued Amount Deficit Deficit
------ ------ ------- -------
Balance, June 30, 1997 9,456,932 $3,485,412 $(4,779,535) $(1,294,123)
Net loss for the period ---- ---- (38,879) (38,879)
--------- --------- ---------- ----------
Balance,
September 30, 1997 9,456,932 $3,485,412 $(4,818,414) $(1,333,002)
========= ========= =========== ===========
See notes to financial statements.
6
UNITRONIX CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended September 30,
--------------------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(38,879) $(52,077)
Adjustments to reconcile net loss to
net cash used by operating activities
Depreciation and amortization 11,507 14,736
(Increase) decrease in:
Accounts receivable (10,979) (64,595)
Prepaid expenses and other current assets (303,462) 8,766
Other assets 233 329
Increase (Decrease) in:
Accounts payable 15,048 (37,302)
Accrued expenses (23,324) (22,074)
Deferred revenues 18,521 27,037
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Net cash used by operating activities (331,335) (125,180)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (Purchase) of Equipment, net (8,439)
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Net cash used by investing activities (8,439)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 506,500 158,500
Payments on debt (196,590) (1,581)
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Net cash provided by financing activities 309,910 156,919
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Net increase (decrease) in cash (21,425) 23,300
Cash at beginning of period 34,028 13,382
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Cash at end of period $12,603 $36,682
======= =======
See notes to financial statements.
7
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies:
------------------------------------------
Basis of Presentation
- ---------------------
The accompanying financial statements are unaudited. In the opinion of manage-
ment, all adjustments, which include only normal recurring adjustments necessary
to present fairly the financial position, results of operations, and cash flows
for all periods presented, have been made. The result of operations for interim
periods are not necessarily indicative of the operating results for the full
year.
Footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles has been omitted in
accordance with the published rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's June
30, 1997 Annual Report on Form 10-K.
2. Related Party Transactions:
--------------------------
During the three month period ended September 30, 1997, the Company's
principal shareholder loaned the Company $306,500 in the form of unsecured
demand notes that bear interest at the rate of 10% per annum. $300,000 of this
amount was used as an initial payment for a new software product that is being
developed by an outside software development firm, and is included in prepaid
expenses and other current assets on the balance sheet for the period ended
September 30, 1997. The remainder of this loan was used to fund current oper-
ations. Also during the three month period the Carolina First Bank loaned the
Company $200,000 in the form of a demand note that was secured by all of the
tangible assets of the Company. In addition to the pledge of assets, the
Company's principal shareholder personally guaranteed this note, which bears
interest at the rate of 9% per annum. Interest expense on these loans and prior
borrowings from shareholders amounted to $23,487 in the three month period ended
September 30, 1997. Although no assurances can be given, management believes
that the shareholders and the bank do not intend to demand repayment of the
amounts owed in the foreseeable future. The Company is attempting to secure
additional sources of funding.
During fiscal 1993 and 1992, the Company had a consulting management
agreement with a related entity controlled by its principal shareholder.
Effective July 1, 1993 a new agreement became effective in which substantially
all of the employees of the related entity became employees of the Company.
Under the new agreement, the Company charges the related entity for services it
provides as well as fifteen percent of the company's rent expense for space
8
occupied by the related entity. The amount owed to the related entity as a
result of these agreements was $1,769, at September 30, 1997,and is included in
accounts payable-related party in the accompanying financial statements.
3. Supplemental Disclosures of Cash Flow Information:
-------------------------------------------------
Cash paid for interest and income taxes for the periods indicated were
as follows:
Three Months Ended
September 30,
----------------
1997 1996
-------- --------
Interest, net $233 $326
Taxes $1,831 $1,706
4. Loss per Common Share:
---------------------
Effective December 31, 1997, the Company will adopt Statement of Financial
Accounting Standards No. 128 (SFAS 128) "Earnings per Share", which will
require the disclosure of Basic Earnings per Common Share and Diluted Basic
Earnings per Common Share for all periods presented. Adoption of SFAS 128
will not impact the earnings per share data presented for the three month
periods ended September 30, 1997 and September 30, 1996.
9
UNITRONIX CORPORATION
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
The analysis of the Company's financial condition, capital resources
and operating results should be viewed in conjunction with the accompanying
financial statements, including the notes thereto.
RESULTS OF OPERATIONS
- ---------------------
First Quarter Ended September 30, 1997, Compared to the First Quarter
- ---------------------------------------------------------------------
Ended September 30, 1996
- ------------------------
Revenue for the three month period ended September 30, 1997, declined by 42%
from the period ended September 30, 1996. Revenue from the sale of computer
systems and software licenses declined by 74%, while revenue from services
decreased by 16%. The decline in revenue from computer systems and software
licenses was due to the lack of market acceptance of the Company's mini-computer
based PRAXA software product and the inability of the Company to complete the
development of it's client-server Enterprise Resource Planning product so that
it could be brought to market. The decline in service revenue was due to a
10% decrease in software maintenance sales and a 53% decrease in sales of train-
ing and consulting services.
The total cost of sales decreased by 40% from the three month period ended
September 30, 1996 to the like period in 1997, in concert with the 42% decline
in revenue. Total operating expenses decreased by 46% for the period, due
primarily to a 68% decrease in product development costs. The lower develop-
ment costs are attributable to the curtailment of most of the Company's internal
product development activities in June, 1997, at which time a decision was made
to out-source substantially all product development activities for the immed-
iate future. The operating loss for the period ended September 30, 1997, was
63% lower than the operating loss for the same period in fiscal 1997 due to the
lower operating expenses. Interest expense increased by 121% for the period
because of additional borrowings that were made during the fiscal year ended
June 30, 1997 and the three month period ended September 30, 1997.
Effective December 31, 1997, the Company will adopt Statement of Financial
Accounting Standards No. 128 (SFAS 128) "Earnings per Share", which will
require the disclosure of Basic Earnings per Common Share and Diluted Basic
Earnings per Common Share for all periods presented. Adoption of SFAS 128
will not impact the earnings per share data presented for the three month
periods ended September 30, 1997 and September 30, 1996.
10
Liquidity and Capital Resources
- -------------------------------
At September 30, 1997, the working capital deficit was $1,397,410 as compared
to a deficit of $1,368,681 at June 30, 1997. During the period ended September
30, 1997, the Company at times was unable to make timely payments to its cred-
itors, and as of November 6, 1997, two of the Company's creditors had initiated
legal action to attempt to obtain payment of their outstanding invoices. The
Company currently has agreed upon terms with one creditor that is owed in excess
of $100,000 to discharge the debt with a payment of $10,000 and the issuance of
preferred stock for the remainder of the debt. The Company is discussing
similar arrangements, as well as deferred payment arrangements, with other
creditors. There can be no assurances that more of the Company's creditors will
not seek legal remedies in their attempts to collect the moneys that they are
owed by the Company.
During the period ended September 30, 1997, the Company borrowed $200,000 from
the Carolina First Bank, $195,000 of which was used to repay funds that had
been advanced to the Company by it's major shareholder that were beyond the
terms of an existing lending agreement. The Company also borrowed $306,500
from it's major shareholder, $300,000 of which was used as an initial payment to
a software development firm that was contracted to develop a new Enterprise
Resource Planning software product for the Company. The remainder of this
amount was used to fund operating expenses. As of November 6, 1997, the Company
had borrowed an additional $24,000 from it's major shareholder to fund current
operations. All of these borrowings bear interest at the rate of 10% per annum.
Prepaid expenses increased by approximately $303,000 from June 30, 1997 to
September 30, 1997, due to the deposit of $300,000 that was given to the
software development firm for the ERP software development project. An increase
in current liabilities of approximately $322,000 was mainly due to additional
borrowings from stockholders and the $200,000 bank loan that was consummated
during the three month period.
At November 6, 1997, the Company owed $1,018,000 to shareholders in outstanding
notes, and $125,000 in accrued interest on those notes. Although no assurances
can be given, management believes that the shareholders do not intend to demand
repayment of the amounts owed in the foreseeable future. Discussions with the
lending shareholders are currently being conducted towards converting the notes
and the accrued interest to preferred or common stock in the Company. There can
be no assurances that such debt-to-equity conversions will take place.
Management believes that capital from sources other than operations will be
needed to fund future operations. The Company is attempting to raise substant-
ial funds through the private placement of Company stock. There can be no
assurances that the Company will be able to raise these additional funds and
failure to do so may have a material adverse impact on the Company's business
and operations.
11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 27. Financial Data Schedule
B. Reports on Form 8-K
The Company did not file any reports on Form 8-K during this quarter.
12
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Unitronix Corporation
Date: November 14, 1997
By: /s/William C. Wimer
---------------
William C. Wimer
Vice President, Operations and
Chief Financial Officer
13
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