Form 10-K
Securities and Exchange Commission
Washington, DC 20549
ANNUAL REPORT PURSUANT TO SECTON 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
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Commission file number 0-17080
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 (IRS Employer
incorporation or organization) Identification No.)
One Newbury Street, Peabody, MA 01960
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(Address of principal executive offices)
(Zip Code)
(Registrant's telephone number, including area code)
(508) 535-3912
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.[X]
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State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
(See definition of affiliate in Rule 405.)
Based upon the last sale price of the stock on October 7, 1997, of $0.1875
per share, the aggregate market value, as of October 8, 1997 of the shares of
common stock held by non-affiliates was $387,486. "Non-affiliates" includes
all share owners of the registrant other than its officers, directors and
owners of more than ten percent of its outstanding stock.
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
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APPLICABLE ONLY TO CORPORATE REGISTRANTS:
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 October 8, 1997
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
Item 1. BUSINESS
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This report contains statements of a forward-looking nature relating to future
events or future financial results of the Company. Investors are cautioned
that such statements are only predictions and that actual events or results may
differ materially. In evaluating such statements, investors should specifically
consider the various factors identified in this report which could cause actual
events or results to differ from those indicated by such forward-looking
statements.
GENERAL
Unitronix Corporation was founded and incorporated in 1975 in the State of New
Jersey, and operated as a distributor of products manufactured by Digital
Equipment Corporation until 1986. In 1986 the Company purchased the PRAXA
software package from Xerox Corporation and since that time has been in the
business of marketing, installing and supporting turnkey computer systems
incorporating PRAXA and equipment manufactured by Digital. The Company also
separately licenses PRAXA software to existing Digital customers and to
purchasers from other vendors of Digital computer equipment. PRAXA is a
Manufacturing Resource Planning (MRPII) system which integrates manufacturing,
distribution and financial applications into one system that monitors and
supports material requirements planning, capacity planning, factory order and
cost control, inventory control, product sales and distribution and financial
accounting.
MRPII systems were well accepted by manufacturing industries by the mid-1980's
and were widely adopted by large and medium sized firms. Sub-sets of MRPII
systems are employed by non-manufacturing firms to help manage specific
segments of their businesses, e.g., wholesale distributors employ the sales,
distribution and financial modules of MRPII systems in their firms, while some
service companies use only the financial modules.
The successor to MRPII, Enterprise Resource Planning (ERP), was introduced
in the early 1990's. Until recently, most of the revenue derived from ERP has
been from sales to large corporations that have multiple locations to manage and
control. Three software suppliers have accounted for the majority of the total
dollar volume of ERP sales to date. The ERP systems designed for large
enterprises have not been widely accepted by small and mid-sized firms because
they are generally too complex, too costly and take too long and cost too much
to implement.
NEW PRESIDENT
A Memorandum of Understanding, dated September 15, 1997, and amendment thereto
dated October 6, 1997, has been entered into by the Company with an individual
for the position of President. It is anticipated that an employment contract
will be signed by October 31, 1997, but no assurances can be given that the
contract will be executed.
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PRODUCTS
The Company's original software product, PRAXA, is a third generation MRPII
system that was well accepted by the marketplace from the mid 1980's to the
early 1990's. PRAXA consists of 29 modules that help manufacturing and
distribution firms manage their sales, distribution, manufacturing and
accounting functions. PRAXA is written in COBOL and operates exclusively on
Digital's VAX and Alpha computer systems with the VMS operating system. PRAXA
was licensed and installed by approximately 200 companies at 450 sites,
including locations in Mexico and Canada. PRAXA succeeded in the marketplace
because of its rich functionality and adaptability to the customers unique
needs. The Company continually enhanced the product by incorporating new
features and functions, such as the ability to schedule and control continuous
manufacturing operations. Upgrades to the software were released annually.
Beginning in the early 1990's the users of commercial computer software began
to demand products that were easier to use, more readily adaptable to their
needs and less expensive to operate and maintain. Systems built around the
client-server paradigm were thought to fulfill those needs, and many existing
and new suppliers of manufacturing software mounted major development projects
to bring client-server ERP systems to market. The demand for conventional
MRPII systems fell dramatically to the point where sales of PRAXA to new
customers amounted to only three systems from 1992 to 1996. The Company's
revenues have been generated primarily from the sale of hardware and PRAXA
license upgrades, software support, and additional PRAXA modules to existing
customers, since 1991.
COMPUTER EQUIPMENT
The Company is a reseller of computer systems and operating system software
manufactured by Digital Equipment Corporation. All of the sales of such
equipment and software made since 1992 have been to users of the PRAXA MRPII
system. The Company purchases the equipment and software from one of the
major national distributors of DEC equipment. The Company doesn't inventory
any equipment since it is drop-shipped directly to the Company's customer by
the distributor.
CUSTOMER SUPPORT
The Company provides "hot-line" support to PRAXA users from its office in
Mt Laurel, New Jersey. This support is in the nature of resolving specific
problems that users encounter in using the PRAXA software. The customer
support group also develops enhanced versions of PRAXA that are released
periodically. The newest version, release 11.0, completed Beta testing in
July, 1997, and has been released to several support customers for production
installations. This release contains the changes needed to solve the year 2000
problem.
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PROFESSIONAL SERVICES
The Company provides consulting and training services to PRAXA users. Since
the Company no longer employs any pre-sales or post-sales consultants all
consulting and training services are being provided by the customer support
group. This group also provides custom programming for PRAXA users.
SALES AND MARKETING
The National Director of Sales is currently the only full-time sales person
employed by the Company. Located in the Chicago area, this individual is
responsible for all sales activity for the Company, including liaison with
a value added reseller that has resold two PRAXA systems over the past three
years. The primary focus of the Director of Sales during the past three years
has been to sell PRAXA software upgrades and add-ons and computer system
upgrades to existing PRAXA customers. At present, PRAXA users that are not
eligible to receive the latest version of PRAXA because they are not covered
by support agreements are being targeted because of the approach of the year
2000.
PRODUCT DEVELOPMENT
The Company has historically sold PRAXA to companies that achieve annual sales
of $25 million to $500 million ("the midmarket") and to divisions of larger
corporations. Because of the large number of prospective users of ERP systems
that fall into the midmarket, and the lack of penetration of the midmarket by
the major suppliers of large ERP systems, the Company intends to continue
to direct its product development and marketing efforts towards this segment of
the market.
Midmarket firms typically have less information systems resources than larger
companies. Consequently midmarket firms are attracted by systems that are
cost effective, are easy to customize to their unique needs, are easy to learn
and that can be implemented quickly with minimal disruption to the ongoing
business. These firms also require the assurance of quick response to
questions and problems that arise during their use of a system. Another key
feature that midmarket firms look for in systems is the scalability of the
system, that is, the ability of the system to handle larger numbers of users
and to operate on more powerful hardware platforms as the firm grows.
Unitronix started a project in 1993 to create a client-server Enterprise
Resource Planning system to sell into the midmarket. A small staff of software
developers and testers was hired, and information systems contractors were
employed to develop some portions of the new system. From mid 1993 through
early 1997, the Company spent approximately $1.6 million on the development of
the new system that resulted in approximately one-half of the software that was
needed for the initial release of the product being written.
By early 1997 it was evident that new technologies were gaining momentum in the
information systems field. Information systems developed with languages and
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tools that were used for developing internet applications held out the promise
to the user of the system of lower development costs, lower deployment and
operating expenses and easier adaptability to the users particular needs.
Faced with the prospect of spending another year and significantly more funds
to complete the development of the client-server system that the Company was
working on, management elected during the last quarter of fiscal 1997 to curtail
the current client-server development effort and embark upon a project to
convert what had been accomplished to date into an internet/intranet-based
product.
The product is being designed to have the same functionality and the same screen
appearances as the client-server system that was curtailed. Current plans call
for the system to be developed as a multi-tier system that will operate with
work-stations that use the Windows 95, Windows NT or Macintosh operating
systems. It will interface with servers that run with UNIX or Microsoft
Windows NT operating systems, and with the Microsoft SQL Server, Oracle or
Sybase relational data base management systems.
The software development work has been outsourced to a software development firm
that is utilizing proprietary tools to develop the new product. These tools are
expected to save considerable time and expense, and the Company expects to
benefit from these savings. A contract that was executed in September, 1997,
with the development firm calls for delivery of a finished product before the
end of calendar year 1998. In addition to making cash payments as certain
milestones are reached, the Company will issue stock to the development firm
upon reaching each of four major milestones. A total of 300,000 shares of
common stock will be issued to the development firm during the life of the
contract. The contract with the development firm is included as an exhibit
to this form 10-K. The Company is responsible for defining the functional
requirements of the system and for testing the final product prior to
installing it at customer sites.
The new ERP product will be marketed domestically through a combination of
distributors and a small direct sales force. It is envisioned that sales
offices will be established in three or four cities during the first two
years of selling the new product; future offices will be opened as demand
dictates. Sales specialists will also be added to recruit and work with
resellers of the ERP product in those locations where the Company doesn't
provide direct sales coverage.
The ERP product will also be marketed in foreign markets by distributors
that are resident in the particular markets that they will serve. The
Company is currently carrying on exploratory discussions with a firm that
has expressed interest in marketing the product in several Eastern European
countries. The planned design of the product is such that it should be
easily localized for the native language and currency of any particular
country.
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PRODUCT PROTECTION : TRADEMARKS
As is typical in the software industry, in order to protect its right in the
software, the Company does not "sell" its PRAXA software products, but instead
provides customers with perpetual, fully-paid licenses to use one or more copies
of the software on specifically identified computer systems. The Company also
seeks to protect its proprietary interest in PRAXA through a combination of
copyright laws, trade secret laws, and contractual agreements (including
nondisclosure obligations) with customers, consultants, employees and others.
Existing United States copyright laws provide only limited protection and even
less protection may be available under foreign laws. While the enforceability
of contractual provisions governing confidentiality cannot be assured in all
cases, the Company believes that they tend to deter unauthorized use of the
Company's proprietary information. "PRAXA" and "Unitronix" are registered
federal trademarks of the Company which will expire, unless renewed, on January
14, 2005 and September 20, 2002, respectively.
EQUIPMENT RESALE
The Company was named a Distributor Affiliated Value Added Reseller (DVAR) for
Pioneer-Standard Electronics, Inc. in May, 1996. This relationship provided
the Company with a source of computer equipment manufactured by Digital
Equipment Corporation for resale to its customers. This relationship, which
Was for a one year period, was not renewed by Pioneer-Standard in May, 1997,
Due to the low volume of equipment sales that had been achieved by the Company
during the one year period of the agreement. The Company currently has no
reseller relationships with providers of computer equipment.
CUSTOMER DEPENDENCE
One customer accounted for $133,500 or 14.2% of the Company's total revenue in
the year ended June 30, 1997. Since the revenue derived from this customer was
for a new PRAXA software license and one year of software support, the Company
does not anticipate sales to this customer at comparable levels in future years.
No other single customer accounted for more than 10% of total revenue for the
year.
HISTORY OF LOSSES
The Company incurred net losses of $241,849 in fiscal 1995, $463,817 in fiscal
1996 and $802,947 in fiscal 1997. As of June 30, 1997, the Company had an
accumulated deficit of $4,779,535. There can be no assurance that the Company
will be profitable in the future.
RISKS ASSOCIATED WITH NEW PRODUCT DEVELOPMENT
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TECHNOLOGICAL RISKS
Some of the technologies that are embodied in the new product, such as JAVA,
have not been widely used to develop major, mission-critical business
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application software. Management recognizes that there is the risk of lack of
market acceptance of the product because of the use of leading edge tools and
techniques to develop the product. However, it feels that the advantages of
these tools and techniques outweigh the potential risks. The technologies
being used for the new product are expected not only to permit faster
development, but also to make the product easier to modify, install and
maintain
INCOMPLETE THIRD-PARTY RELATIONSHIPS
The Company intends to integrate its new product with software that has been
developed by other firms, including software for financial applications,
advanced planning and scheduling, work flow, electronic data interchange and
data collection. Currently the software packages that the Company's product
will integrate with are being identified, but there can be no assurance that
the Company will be able to establish beneficial relationships with suppliers
of these products.
LACK OF SALES CHANNELS
The Company intends to market its new product domestically with its own sales
force in some areas where there is a concentration of users of the PRAXA system,
and through reseller organizations in geographic areas where the Company does
not want to establish sales offices. At the present time the Company has only
one sales employee, its Director of Sales, and no reseller relationships. In
foreign markets, the Company plans to market its product strictly through
resellers that are resident in the market that they will serve. The Company
currently has no relationships with foreign distributors. Two of the leading
ERP vendors that have been marketing primarily to large companies through their
own sales force have recently begun to recruit resellers to sell their products
to mid-size manufacturers, which is the Company's target market. There can be
no assurance that the Company will be able to recruit qualified sales personnel
or resellers domestically or in foreign markets.
COMPETITION
The world-wide ERP software market was estimated by Advanced Manufacturing
Resources , a Boston-based market research firm, to have generated $5.2 billion
in revenues in 1995, and that it will generate $19 billion by 2001. The size
and rapid growth of the market has attracted a multitude of suppliers of all
sizes, resulting in intense competition and rapid innovation within the ERP
industry. It is estimated that there are more than three hundred ERP and MRP II
software packages of varying degrees of capability currently being marketed in
the United States.
A number of suppliers of ERP and MRP II software packages, including the
Company, have been selling to midmarket companies for several years. Many of
these vendors have been selling and installing client-server products for
several years. The vendors that have been selling almost exclusively to
large companies, such as SAP, Baan and Oracle, have begun efforts to sell their
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products to midmarket companies. The features and functionality of the products
of these suppliers are well developed since they have been enhancing their
original products for a number of years. Although the Company believes that
its new product will have features that will enable it to compete successfully
in the marketplace, there can be no assurance that this will be the case.
CONTROL BY EXISTING STOCKHOLDERS
The Company's directors and their families together own approximately 78.1% of
the outstanding shares of the common stock of the Company. As a result, these
stockholders are able to exercise control over matters requiring stockholder
approval, including the election of directors, and mergers, consolidations and
sales of the assets of the Company.
EMPLOYEES
At October 8, 1997, the Company employed 7 persons, including 1 in sales,
3 in customer support, 1 in product management and 2 in finance and
administration. Management believes that the Company's employee relations
are satisfactory.
ITEM 2 PROPERTIES
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The Company's executive offices occupy 1600 square feet of rented office space
in Peabody, Massachusetts, at a rental rate of $1,735 per month. The Company is
a tenant at will in this space. Piedmont Software, Inc. reimburses the Company
15% of the rent for its use of a portion of the office space.
The Company has a two year lease for 2,125 square feet of office space in Mt
Laurel, New Jersey, for the use of its customer support and technical services
operation. The monthly rent for this facility is $2,827 through April 30, 1998,
at which time the lease expires.
ITEM 3 LEGAL PROCEEDINGS
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The Company filed suit against Computer Management Sciences, Inc. (CMSI) in
the United States District Court for the District of Massachusetts in Boston,
Massachusetts on October 25, 1996. The suit seeks damages resulting from the
breach of three contracts by CMSI to develop portions of the client-server ERP
software, which contracts having been entered into in 1995 and 1996. The
Company is seeking an amount in excess of $150,503, which is the amount that
the Company paid to CMSI during the course of the contracts, plus costs,
interest and such other relief that the Court deems just and equitable. On
January, 17, 1997, CMSI filed a counterclaim in the same Court alleging that
the Company is liable to CMSI in an amount exceeding $200,000 on account of
the Company's alleged breaches of the same contracts. Management believes that
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the CMSI counterclaim is without merit and is defending this counterclaim
vigorously. There can be no assurance that an adverse outcome will not result
in an adverse effect on the company's financial position or results of its
operations.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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The Company did not submit any matters to a vote of the shareholders during the
last quarter of fiscal year 1997.
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PART II
Item 5 MARKET FOR THE COMPANY'S COMMON STOCK AND
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RELATED SECURITY HOLDER MATTERS
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The Company's Common Stock is currently listed on the over the counter
"pink sheets".
The following table sets forth, for the calendar quarters indicated, the high
and low bid prices reported for the Company's Common Stock, by the indicated
source. There were 136 record holders of the Company's Common Stock (including
brokerage firms and other nominees) on October 3, 1997. Based upon the
number of requests for Proxy materials at the time of the last annual meeting
of the shareholders, the Company believes that there are approximately 450
beneficial shareholders.
Calendar Year Ended December 31, NASDAQ OTC Bulletin Board
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Bid Prices
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High Low
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1995
Third Quarter No Bid No Bid
Fourth Quarter No Bid No Bid
1996
First Quarter No Bid No Bid
Second Quarter No Bid No Bid
Third Quarter No Bid No Bid
Fourth Quarter 0.0625 0.0625
1997
First Quarter 0.0625 0.0625
Second Quarter 0.0625 0.0300
DIVIDEND POLICY
No dividends have been declared by the Board of Directors. The Board of
Directors currently plans to retain any future earnings for use in the Company's
business.
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Item 6 SELECTED FINANCIAL DATA
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Summary Consolidated Financial Information
(in thousands, except per share data)
For fiscal year ending June 30,
-------------------------------
CONSOLIDATED INCOME 1997 1996 1995 1994 1993
STATEMENT DATA: ---- ---- ---- ---- ----
Revenue from Operations $940 $1,353 $1,496 $2,081 $1,612
(Loss) from Operations (737) (451) (227) (201) (411)
Net (Loss) Before
Extraordinary Item (803) (464) (242) (209) (426)
Extraordinary Item:
Forgiveness of Debt - - - - 1,746
Net Income (Loss) (803) (464) (242) (209) 1,320
Per Share Data:
Profit (Loss) From
Operations (.08) (.05) (.03) (.03) (.14)
Extraordinary Item - - - - .60
Income (Loss) Per Share (.08) (.05) (.03) (.03) .46
Shares Used in Computing
Per Share Data 9,456,932 9,456,932 9,456,932 6,028,149 2,893,529
CONSOLIDATED BALANCE SHEET DATA:
Working Capital/(Deficit) $(1,369) $(600) $(318) $(325) $(426)
Total Assets 222 272 569 926 1,274
Short term debt, including
current maturities of
long-term debt 889 344 124 124 100
Long-term debt, less
current maturities 7 13 19 26 0
Shareholder's equity
(deficit) (1,294) (491) (27) 214 324
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Item 7.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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FISCAL YEAR ENDED JUNE 30, 1997 VS. FISCAL YEAR ENDED JUNE 30, 1996
Total revenue for the Company decreased by 30% from fiscal 1996 to fiscal 1997.
Revenue from the sale of computer systems and software licenses decreased by
45%, which is a direct reflection of the lack of market acceptance of the third
generation PRAXA MRP II software package. Revenue from services declined by
22% due to less demand for training and consulting services and fewer software
maintenance customers Management believes that revenue from PRAXA software
support will continue to decline.
The cost of computer systems and software licenses decreased by 88% from fiscal
1996 to fiscal 1997. The only purchases made during the year were for third
party software licenses. The amortization of capitalized software development
expenses declined from $161,596 in fiscal 1996 to $28,328 in fiscal 1997. All
of the PRAXA development expenses that were capitalized in prior years have now
been amortized.
Product development expenses increased by 46% from 1996 to 1997 as the Company
increased the use of consultants and increased the size of its development staff
in an effort to complete the development of the client-server version of PRAXA.
The Company is attempting to recover the funds paid to a consulting firm for
progress billings on three software development contracts because the consulting
firm did not complete the projects. This subject is discussed in Item 3 of Part
I of this document. The Company has outsourced a significant portion of its
future software development activity.
All other areas of expense declined from 1996 to 1997 due to further reductions
in staffing. Four people, including two in finance and administration, one in
sales and marketing and one in customer support resigned during the year and
were not replaced. Further expense reductions were made late in the fiscal year
including elimination of the product development staff and a reduction in the
office space rented for the Peabody headquarters. Even with these reductions,
the increased development costs caused total expenses, exclusive of the cost of
computer systems and software licenses, to increase by 13% from 1996 to 1997.
The net loss for the Company increased by approximately $339,000 from 1996 to
1997. $188,000 of the increase is attributable to higher expenses, exclusive of
the cost of computer systems and software licenses; the remainder is due to
decreased revenues.
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FISCAL YEAR ENDED JUNE 30, 1996 VS. FISCAL YEAR ENDED JUNE 30, 1995
Total revenue decreased by 10% from $1,496,000 in fiscal 1995 to $1,353,000 in
fiscal 1996. Revenue from the sale of computer systems and software licenses
decreased by 4% while revenue from services declined by 12%. The decline in
revenue from services was due to lower software maintenance revenue, which was
anticipated by management. More PRAXA users determined that they did not want
new releases of the software and did not require hotline technical support.
The decreased support revenue was partially offset by higher consulting and
training revenue.
The 23% decrease in the cost of computer systems and software licenses from
1995 to 1996 was due to lower amortization expense for capitalized software
development costs.
Product development expenses increased by 30% from 1995 to 1996 as the Company
continued to devote resources to the development of a client-server version
of PRAXA. In addition to hiring additional development personnel, the Company
employed the services of a software consulting firm to assist in writing the
new software.
Selling and marketing expenses increased by 21% due to higher incentive
compensation costs and the costs associated with participating in three trade
shows. Administrative costs declined by 13% as certain administrative staff
devoted significant amounts of time to development of the client-server
product. The expenses associated with this time are included in product
development expense. Total costs and expenses increased by 5% from 1995 to
1996.
The net loss for the Company increased by approximately $222,000 from 1995 to
1996. Approximately $143,000 of the increase is attributable to lower revenue;
the remainder is due to higher costs and expenses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the working capital deficit was $1,369,000 as compared to
deficits of $600,000 and $318,000 at June 30, 1996 and 1995, respectively.
During the year the Company was at times unable to make timely payment to its
creditors. As of year-end the Company had past due payables of approximately
$298,000. Plans for giving Company stock in exchange for forgiveness of debt
and for deferring payments are currently being discussed with four suppliers
that account for $207,000 of the overdue payables. There can be no assurances
that one or more of the Company's creditors will not seek legal remedies in
their attempts to collect the monies that they are owed by the Company.
The Company borrowed $545,000 from certain shareholders during the year ended
June 30, 1997, and as of that date owed $882,424 in short term notes payable
plus accrued interest of $95,693 to those shareholders. In August, 1997, the
Carolina First Bank loaned $200,000 to the Company, $195,000 of which was used
to repay funds that had been advanced to the Company by it's major shareholder
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that were beyond the terms of an existing lending agreement and which the
Company could not repay from operating revenue in the foreseeable future. In
addition to pledging all of the tangible and intangible assets of the Company as
collateral for the loan, the Company's major shareholder personally guaranteed
repayment of the loan.
In September, 1997, the Company's major shareholder loaned the Company $300,000
that was used as an initial payment to the firm that is developing the new ERP
product for the Company. This loan carries an interest rate of prime + 0.5% per
annum and will be repaid when funds are available to do so. The major share-
holder will be given 200,000 shares of Company stock as compensation for the
risk taken in guaranteeing the $200,000 loan and for advancing the $300,000 for
the development project.
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 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 conversion
will take place.
Management projects that capital from sources other than operations will be
needed if the Company is to continue to operate. The Company is attempting to
raise a minimum of $2.5 million through the private placement of stock in the
Company. This plan will require that new shares be authorized by the
shareholders, as there is not sufficient stock available to execute the plan.
The shares held by existing shareholders will be diluted to the extent that new
stock is authorized and issued. There can be no assurance that the Company will
be able to raise these additional funds and failure to do so may have a material
adverse impact on the Companys business and operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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The information required by this Item is submitted as a separate section of this
report commencing on page 1 attached hereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------- ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
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PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The executive officers and directors of Unitronix are as follows:
NAME AGE CURRENT POSITION
- ---- --- ----------------
Jack E. Shaw 63 Chairman of the Board, Chief
Executive Officer, Director
Robert C. Crawford 70 Treasurer, Secretary, Director
Dr. Howard L. Morgan 51 Director
Robert G. Sable 57 Director
William C. Wimer 60 Chief Financial Officer,
Vice President of Operations
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
JACK E. SHAW, Chairman of the Board and Chief Executive Officer of the Company.
He is also Chairman and CEO of Shaw Resources, Inc., a Greenville, South
Carolina based investment company and real estate developer. Mr. Shaw is also
Chairman of Piedmont Software, Inc., President of Carolina Rentals, Inc., and
owner of Resort Golf, who operate premier miniature golf courses in Myrtle
Beach, South Carolina. Mr. Shaw is also the largest shareholder of Unitronix
Corporation, holding approximately 52% of the outstanding common shares.
ROBERT C. CRAWFORD was elected to the Board of Directors in January, 1993. He
was appointed Treasurer and Secretary on July 1, 1993. Mr. Crawford was
formerly President, Chief Executive Officer and a Director of Dan River, Inc.,
Floor Coverings Division. He is presently Chairman of the Board of Greenville
Technical College in Greenville, South Carolina.
DR. HOWARD L. MORGAN was named a Director in January, 1993. Dr. Morgan is
President of the Arca Group, Inc., a consulting, publishing and venture capital
firm. He previously directed Renaissance Technologies Corporation's venture
capital activities. He also serves as a Director of Cylink Corporation,
Franklin Electronic Publishers, Infonautics Corporation, Neoware Systems, Kentek
Information Systems, MetaCreations, Inc., Quarterdeck, Inc.,and Segue Software,
Inc.
ROBERT G. SABLE, ESQ. has been a Director of the Company since February, 1994.
For more than the past five years he has been Chief Executive Officer of Sable,
Makaroff & Gusky, P.C., a law firm located in Pittsburgh that specializes in
commercial law.
16
<PAGE>
WILLIAM C. WIMER was named Vice President of Operations in March, 1992, with
responsibility for Customer Support and Professional Services activities. He
assumed responsibility for all accounting activities in 1993, was named
Assistant Treasurer in July, 1994, and Chief Financial Officer in June, 1997.
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
During the 1997 fiscal year none of the directors, officers or beneficial owners
of more than 10 percent of the Company's common stock failed to file on a timely
basis reports required by Section 16 (a) of the Exchange Act.
Item 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The following table sets forth all compensation awarded to, earned by, or paid
by the Company to the following persons for services rendered in all capacities
to the Company during each of the fiscal years ended June 30, 1997, 1996 and
1995 to: (1)the Company's Chief Executive Officer, and (2) each of the other
officers whose total compensation for the fiscal year ended June 30, 1997,
required to be disclosed in column (c) below exceeded $100,000.
SUMMARY COMPENSATION TABLE
--------------------------
(a) (b) (c) (d) (e) (f)
Name and Other Annual All Other
Principal Position Year Salary Compensation Options Compensation
- ------------------ ---- ----- ------------ ------- ------------
Jack E. Shaw 1997 (1) - - -
Chief Executive 1996 (1) - - -
Officer 1995 (1) - - -
(1) The Company has not paid Mr. Shaw any compensation for his services to
date.
COMPENSATION OF DIRECTORS
The Company currently does not compensate directors for their services; it does
reimburse them for reasonable expenses incurred in performing their duties as
directors.
1993 STOCK OPTION PLAN
At June 30, 1997, 1,000,000 shares of common stock were reserved for issuance
or grant under the Unitronix Corporation 1993 Stock Option Plan. The options
are granted to employees, officers, directors and consultants to the Company.
The exercise price for incentive options must be at least 100% of the fair
market value of the common stock as determined by the Option Committee of the
Board of Directors on the date of the grant, as are the rate of exercisability
and the expiration date of the grant. There were no options granted during
17
<PAGE>
the year ended June 30, 1997, and options for 155,000 shares expired because
the option holders resigned from the Company.
At June 30, 1997, there were options for 258,000 shares of common stock
outstanding.
SAVINGS AND PROFIT SHARING PLAN
The Company has in effect the Unitronix Corporation Savings and Profit Sharing
Plan (the "Savings Plan"). All employees of the Company who complete one year
of service in which they are credited with at least 1,000 hours of service, and
who have attained the age of 21, are eligible to participate in the profit
sharing portion of the Savings Plan. Any employee who completes one month of
service with the Company and is at least 21 is eligible to contribute under the
401(k) feature of the Plan. If any employee elects to reduce his salary to
contribute to the Plan, the Company may elect to make a matching contribution
to the Savings Plan equal to fifty percent of the amount of such employee's
salary reduction contribution up to six percent of an employee's salary,
resulting in a maximum Company matching contribution of three percent.
On February 1, 1991, the Savings Plan was amended to make the Company's matching
contribution discretionary. Since February 1, 1991 the Company has made no
matching contributions.
Item 12. SECURITY OWNERSHIP OF CERTAIN
-----------------------------
BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------
The following table sets forth information regarding the beneficial ownership of
the Company's common stock as of September 15, 1997, by those persons owning
beneficially 5% or more of such shares, by each director, and by all executive
officers and directors as a group. The persons named in the table have sole
voting and investment power with respect to all shares of common stock which
they own of record.
NAME AND ADDRESS OF SHARES OF PERCENTAGE OF
BENEFICIAL OWNER(1) COMMON STOCK COMMON STOCK
- ------------------ ------------ ------------
Jack E. Shaw (2) 4,873,673 51.5%
Robert C. Crawford 199.391 2.1%
Howard L. Morgan 1,350,000 14.3%
All Directors and Officers
as a Group (5 persons) 6,423,064 67.9%
Samuel H. Jones, Jr. 500,000 5.3%
US Route 40
Woodstown, NJ 08098
18
<PAGE>
Jane Shaw (3) 500,000 5.3%
2320 E. North Street
Greenville, SC 29607
(1)The address of each officer and director of the Company listed in the table
is in care of the Company, One Newbury Street, Peabody, MA 01960
(2)Does not include 500,000 shares owned by Jane Shaw, his wife, and a total
of 500,000 shares owned by Ronald Shaw and Donald Shaw, his and her adult
children.
(3)Does not include 4,873,673 shares owned by Jack E. Shaw, her husband, and a
total of 500,000 shares owned by Ronald Shaw and Donald Shaw, his and her adult
children.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The information required by this Item is set forth under Notes to Consolidated
Financial Statements "Related Party Transactions", pages 8 and 9 attached
hereto.
19
<PAGE>
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
- -------- ---------------------------------------------------------------
A. The following documents are filed as a part of this report:
1.Financial Statements
-------------------- PAGE
----
Report of Independent Accountants 1
Balance Sheets at June 30, 1997 and 1996 2
Statements of Operations - Years ended June 30, 1997, 1996 and 1995 3
Statements of Changes in Stockholders' Deficit- 4
Years ended June 30, 1997, 1996 and 1995
Statements of Cash Flows - Years ended June 30, 1997, 1996 and 1995 5
Notes to Financial Statements 6
2.Schedules
---------
SCHEDULE II - Valuation and Qualifying Accounts 14
Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the Financial Statements or notes thereto.
3.EXHIBITS (numbers below reference the Exhibit Table of Item 601 of
Regulation S-K)
(3)Articles of Incorporation and By-Laws *
(4)Specimen Common Stock Certificates *
(10)Material Contracts:
10.1 Lending Agreement **
10.2 1993 Stock Option Plan ***
10.3 Software Development Agreement ****
*Previously filed with the Securities and Exchange Commission on August 12,
1988, as an exhibit to the Company's S-18 registration statement (File Number
33-22494-NY), such previously filed exhibits incorporated herein by reference.
**Previously filed with the Securities and Exchange Commission on November 5,
1993 as an exhibit to the Company's 8-K report, such previously filed exhibits
incorporated herein by reference.
***Previously filed with the Securities and Exchange Commission on August 29,
1994 as an exhibit to the Company's S-8 registration statement, such previously
filed exhibits incorporated herein by reference.
20
<PAGE>
**** Portions of this Exhibit have been omitted and filed separately with
the Securities and Exchange Commission pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities Exchange
Act of 1934.
B. Reports on Form 8-K
The Company did not file any reports on form 8-K during the last quarter of
fiscal year 1997.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
BY:/s/William C. Wimer
----------------------------
William C. Wimer
Chief Financial Officer and
Vice President, Operations
DATED:October 9, 1997
-----------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE POSITION DATE
- --------- -------- ----
/s/Jack E. Shaw
- --------------- Chairman of the Board and October 7, 1997
Jack E. Shaw Chief Executive Officer
/s/Robert C. Crawford
- --------------------- Secretary/Treasurer and October 7, 1997
Robert C. Crawford Director
/s/Howard L. Morgan
- ------------------- Director October 8, 1997
Howard L. Morgan
/s/Robert G. Sable
- --------------------- Director October 9, 1997
Robert G. Sable, Esq.
22
<PAGE>
UNITRONIX CORPORATION
INDEX TO FINANCIAL STATEMENTS
for the years ended June 30, 1997, 1996 and 1995
Report of Independent Accountants 1
Balance Sheets as of June 30, 1997 and 1996 2
Statements of Operations for the years ended June 30, 1997,
1996 and 1995 3
Statements of Changes in Stockholders' Deficit for the years
ended June 30, 1997, 1996 and 1995 4
Statements of Cash Flows for the years ended June 30, 1997,
1996 and 1995 5
Notes to Financial Statements 6-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Unitronix Corporation:
We have audited the accompanying financial statements and the financial
statement schedules of Unitronix Corporation listed in Item 14 of this
Form 10-K. These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and financial statement
schedules 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 financial statements referred to above present fairly, in
all material respects, the financial position of Unitronix Corporation as of
June 30, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended June 30, 1997 in conformity
with generally accepted accounting principles. In addition, in our opinion,
the financial statement schedule referred to above when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
August 18, 1997, except for Note 9,
as to which the date is September 4, 1997.
1.
<PAGE>
UNITRONIX CORPORATION
---------------------
BALANCE SHEETS
--------------
June 30, 1997 and 1996
----------------------
ASSETS 1997 1996
Current assets: ------ ---- ----
Cash $ 34,028 $ 13,382
Accounts receivable, net of allowance for
doubtful accounts of $4,996 and $10,401 at June 30,
1997 and 1996,respectively 83,312 84,648
Prepaid expenses and other current assets 23,050 52,639
------ ------
Total current assets 140,390 150,669
------- -------
Property and equipment, at cost less accumulated
depreciation of $601,384 and $670,686 at June 30,
1997 and 1996, respectively 79,142 88,013
Capitalized software costs - 28,328
Other assets 2,266 4,850
----- -----
Total assets $221,798 $271,860
-------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable - related party 882,424 337,424
Note payable 6,323 6,323
Accounts payable 301,874 116,595
Accounts payable - related party 2,550 11,295
Accrued expenses 128,913 127,767
Accrued interest - related party 95,693 33,355
Deferred revenue 91,294 117,631
------ -------
Total current liabilities 1,509,071 750,390
--------- -------
Note payable 6,850 12,646
Commitments and contingencies (Note 7)
Stockholders' deficit:
Undesignated capital shares; authorized
3,000,000 shares none outstanding - -
Common stock, no par value; authorized 12,000,000
shares; 9,456,932 issued and outstanding 3,485,412 3,485,412
Accumulated deficit (4,779,535) (3,976,588)
---------- -----------
Total stockholders' deficit (1,294,123) (491,176)
---------- ---------
Total liabilities and stockholders'deficit $221,798 $271,860
---------- --------
The accompanying notes are an integral part of the financial statements.
2.
<PAGE>
UNITRONIX CORPORATION
---------------------
STATEMENTS OF OPERATIONS
------------------------
for the years ended June 30, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Revenue:
Computer systems and software licenses $272,173 $498,664 $519,933
Services 667,484 854,207 976,036
-------- -------- --------
Total revenue 939,657 1,352,871 1,495,969
-------- --------- ---------
Costs and expenses:
Cost of computer systems and software
licenses 41,548 356,919 464,383
Cost of services 304,502 342,280 303,489
Product development 918,603 630,411 485,976
Selling and marketing 194,414 238,837 197,027
General and administrative 217,771 235,396 271,620
------- ------- -------
Total expenses 1,676,838 1,803,843 1,722,495
--------- --------- ---------
Loss from operations (737,181) (450,972) (226,526)
Interest income (expense), net (63,412) (20,005) (14,180)
Other income (expense), net (2,354) 7,160 (1,143)
------ ----- ------
Net loss $(802,947) $(463,817) $(241,849)
---------- ---------- ----------
Net loss per common share $(0.08) $(.05) $(.03)
------- ------ ------
Weighted average number of common shares
outstanding 9,456,932 9,456,932 9,456,932
--------- --------- ---------
The accompanying notes are an integral part of the financial statements.
3.
<PAGE>
UNITRONIX CORPORATION
---------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
----------------------------------------------
for the years ended June 30, 1997, 1996 and 1995
Common Stock
------------
Shares Accumulated Stockholders'
Issued Amount Deficit Deficit
------ ------ ----------- ------------
Balance, June 30, 1994 9,456,932 $3,485,412 $(3,270,922) $214,490
Net loss - - (241,849) (241,849)
--------- ---------- ------------ ---------
Balance, June 30, 1995 9,456,932 3,485,412 (3,512,771) (27,359)
Net loss - - (463,817) (463,817)
--------- --------- ----------- ---------
Balance, June 30, 1996 9,456,932 3,485,412 (3,976,588) (491,176)
Net loss - - (802,947) (802,947)
-------- --------- ---------- ---------
Balance at June 30, 1997 9,456,932 $3,485,412 $(4,779,535) $(1,294,123)
--------- ---------- ------------ ------------
The accompanying notes are an integral part of the financial statements.
4.
<PAGE>
UNITRONIX CORPORATION
---------------------
STATEMENTS OF CASH FLOWS
------------------------
for the years ended June 30, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net loss $(802,947) $(463,817) $(241,849)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 73,462 216,495 336,442
Loss on sale of fixed assets - - 384
Provision for bad debts 4,740 10,087 3,294
Decreases (increases) in operating assets:
Accounts receivable (3,404) 42,613 84,837
Prepaid expenses and other current assets 29,589 (6,158) (9,481)
Increases (decreases) in operating liabilities:
Accounts payable 185,279 (19,394) 32,442
Accounts payable - related party (8,745) (14,455) (12,550)
Accrued expenses 1,146 42,705 (39,074)
Accrued interest 62,338 11,321 16,870
Deferred revenue (26,337) (35,769) (118,652)
-------- -------- ---------
Net cash provided (used) by operating
activities (484,879) (216,372) 52,663
--------- --------- ------
Cash flows from investing activities:
Purchase of equipment (36,263) (31,177) (10,332)
Additions to capitalized software costs - - (30,184)
Other assets 2,584 2,803 1,846
----- ----- -----
Net cash used by investing activities (33,679) (28,374) (38,670)
-------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings 545,000 220,000 -
Repayments of borrowings (5,796) (6,322) (6,850)
------- ------- -------
Net cash provided (used) by financing
activities 539,204 213,678 (6,850)
------- ------- -------
Net increase (decrease) in cash 20,646 (31,068) 7,143
Cash at beginning of year 13,382 44,450 37,307
------ ------ ------
Cash at end of year $34,028 $13,382 $44,450
------- ------- -------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $1,078 $1,475 $2,111
Taxes 1,706 3,842 1,124
The accompanying notes are an integral part of the financial statements.
5.
<PAGE>
Unitronix Corporation
---------------------
Notes To Financial Statement
----------------------------
1. Summary of Significant Accounting Policies:
------------------------------------------
Basis of Presentation and Business
- ----------------------------------
Unitronix Corporation (the "Company") operates in one business segment and
licenses PRAXA software which operates on Digital Equipment Corporation
("Digital") computer equipment.
The Company's ongoing business is the sale and maintenance of PRAXA software
and associated computer equipment and the design and development of software
compatible with client/server platforms.
The Company has continued to incur losses from operations and has a working
capital deficit as of June 30, 1997 of approximately $1,369,000, including
notes payable to its principal and other shareholders of approximately $882,000.
As a result, management anticipates that additional financing will be required
in the foreseeable future to fund the Company's operations and to repay the
notes. Management's plans to continue their operations and to repay the notes
include raising a minimum of $2,500,000 through a private placement of stock and
generating revenues from product sales. There can be no assurance that the
Company will obtain the financing or product revenues to provide the resources
necessary for the Company to continue its operations and to repay the notes.
The financial statements do not include any adjustments that might result from
these uncertanties.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Risks and Uncertainties
- -----------------------
The Company is subject to risks common to companies in the high technology
industry including, but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
and protection of proprietary technology.
6.
<PAGE>
Economic Dependence
- -------------------
The Company's PRAXA software runs exclusively on computers manufactured by
Digital. Therefore, the Company's PRAXA System business is dependent upon
a continuing relationship with Digital and the continued competitiveness and
market acceptance of Digital computer products.
In the fiscal year ended June 30, 1997, one customer accounted for approximately
14% of total revenue. In the fiscal year ended June 30, 1996, two customers
accounted for approximately 11% and 10% of total revenue, and in the fiscal year
ended June 30, 1995 one customer accounted for approximately 11% of total
revenue.
Revenue Recognition
- --------------------
Software revenue and computer system revenue are recognized upon product
shipment, provided that no significant vendor obligation exists and collection
of the related receivable is deemed probable by management. Revenue from
software maintenance contracts is recognized ratably over the contractual
period, and other service revenue is generally recognized as the services are
provided.
Software Costs
- --------------
The Company capitalizes certain software costs after technological feasibility
of the product has been established and ceases capitalization when the product
is available for general release to customers. For the years ended June 30,
1997, 1996 and 1995, the Company capitalized software costs of $0, $0, and
$30,184, respectively. Such costs are amortized on a straight-line basis over
the estimated useful life of three years or the ratio of current revenue to the
total of current and anticipated future revenue, whichever is greater.
Amortization of these costs amounted to $28,328, $161,596, and $266,104 for
fiscal years ended June 30, 1997, 1996, and 1995, respectively and is included
in the cost of computer systems and software licenses. Costs incurred prior to
the establishment of technological feasibility are charged to product
development costs.
Income Taxes
- ------------
The Company follows the liability method for accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized based on
temporary differences between the financial statement and tax bases of assets
and liabilities using current statutory tax rates. A valuation allowance is
required to offset any net deferred assets if, based upon weighted available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
Loss per Common Share
- ---------------------
Loss per common share is based on the weighted average number of common shares
outstanding. Common equivalent shares are included only when they are dilutive
7.
<PAGE>
and consist of stock options (calculated using the treasury stock method). For
the years ended June 30, 1997, 1996 and 1995 common equivalent shares are
excluded as they are antidilutive.
The Financial Accounting Standards Board issued Statement No. 128 ("SFAS 128"),
"Earnings per Share", which requires the presentation of basic and diluted
earning per share ("EPS"). Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Basic EPS replaces
primary EPS. Diluted EPS is computed similarly to fully diluted EPS under the
existing rules. The Company will adopt SFAS 128 as of December 31, 1997.
Adoption of SFAS 128 will not impact EPS data presented for each of the three
years ended June 30, 1997.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
three to five years, for financial reporting and accelerated methods for income
taxes. Expenditures for repairs and maintenance which do not increase the
useful life of the related assets are expensed as incurred. Upon retirement or
sale, the cost of the assets disposed of and the related accumulated
depreciation are removed from the accounts; any resulting gain or loss is
credited or charged to income.
Reclassification of Prior Year Balances
- ---------------------------------------
Certain reclassifications have been made to prior years' financial statements to
conform to the current presentation.
2. Related Party Transactions:
--------------------------
During fiscal 1997, 1996 and 1995, the Company's principal shareholder loaned
the Company $63,000, $220,000, and $0, respectively, under a $400,000 line of
credit agreement which bears interest at the time the funds are loaned at the
greater of either 10% or the bank's prime interest rate plus 2%. The line of
credit has been fully drawn down and was not renewed by the principal
shareholder on September 1, 1996. In addition, the Company's principal
shareholder and two other shareholders loaned the Company $232,000 and $250,000,
respectively, during 1997 in the form of demand notes. These notes bear
interest at the rate of 10% per annum and interest expense amounted to
$62,220, $18,656, and $11,742 in fiscal years 1997, 1996 and 1995,
respectively. Although no assurances can be given, management believes that
these shareholders do not intend to demand repayment of the notes or interest in
the foreseeable future.
During fiscal 1993 the Company had a consulting and management agreement with a
related entity controlled by its principal shareholder. The terms of this
agreement, which began in May 1992 and terminated on June 30, 1993, provided for
8.
<PAGE>
fees and expenses not to exceed $25,000 per month to be paid by the Company for
such consulting and management services. The amount owed to this related entity
was $57,100 at June 30, 1997 and 1996. 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 occupied by the remaining employees of
the related entity. Under this new agreement, approximately $54,550 and $45,805
were owed to the Company as of June 30, 1997 and 1996, respectively. The
receivable amounts have been offset against the payable amounts resulting in a
net payable of $2,550 and $11,295 as of June 30, 1997 and 1996, respectively.
3. Property and Equipment:
----------------------
The major classes of property and equipment are as follows:
June 30,
1997 1996
---- ----
Computer equipment $601,195 $627,131
Office furniture and fixtures 79,331 131,568
------- --------
680,526 758,699
Less: accumulated depreciation (601,384) (670,686)
------- ---------
$ 79,142 $ 88,013
--------- ---------
Depreciation expense for the years ended June 30, 1997, 1996 and 1995 was
$45,134, $54,899 and $70,338, respectively.
4. Income Taxes:
------------
The components of the deferred tax assets and liabilities as of
June 30, 1997 and 1996 were as follows:
1997 1996
---- ----
Deferred tax assets:
Net operating loss carryforwards $2,623,453 $2,223,617
Tax credits 193,404 154,204
Other 22,642 16,679
Subtotal 2,839,499 2,394,500
--------- ---------
Deferred tax liabilities:
Capitalized software costs - 11,408
----- ------
Subtotal - 11,408
----- ------
Valuation allowance (2,839,499) (2,383,092)
----------- -----------
Net deferred tax assets - -
----------- -----------
9.
<PAGE>
The Company has established a valuation allowance for its net deferred tax
assets due to the uncertainty surrounding their realization.
As of June 30, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $6,140,000 which expire from
the years 2005 through 2012. The Company also has research and development
credits for federal income tax purposes in the amount of $166,568 available
to offset future income taxes. These credits expire from the years 2005
through 2012. Changes in the Company's ownership could limit the net operating
loss carryforwards which can be utilized by the Company under Section 382 of
the Internal Revenue Code.
A reconciliation of the provision for income taxes at the federal statutory
income tax rate of 34% for the years ended June 30, 1997, 1996 and 1995, with
the provision reflected in the financial statements is as follows:
1997 1996 1995
---- ---- ----
Tax expense (benefit) at federal
statutory income tax rate $(273,002) $(157,664) $(147,048)
State income taxes, net of federal
benefit (50,345) (27,550) (32,460)
Nondeductible business expenses 647 1,365 -
Other (94,507) - -
Credits (39,200) -
Change in valuation allowance 456,407 183,849 179,508
------- ------- -------
Total tax provision in accompanying
financial statements - - -
------- ------- --------
5. Profit Sharing Plan:
-------------------
The Company has a qualified profit-sharing plan covering substantially all
full-time Company employees. The plan was amended effective July 1, 1986 to
incorporate a "savings" feature under Section 401(k) of the Internal Revenue
Code, which allows participants to make contributions by salary reduction.
The amendment provided for a matching contribution by the Company of 50% up to
a maximum of 6% of an employee's salary. On February 1, 1991, the Company
amended this provision by eliminating the 50% match up to 6% of an employee's
salary and instead provided for a discretionary percentage to be determined
by the Company. Effective January 1, 1993, the plan was amended to allow
certain distributions to be rolled over to a retirement account. Effective
December 28, 1994 the plan was further amended to incorporate annual
compensation limits as defined in the Internal Revenue Code. Employees vest
immediately in their contributions and vest in the Company contributions over a
seven-year period of service. Contributions under the profitsharing feature
of the plan are discretionary and determined annually by management. There
were no contributions made to the plan for the years ending June 30, 1997,
1996 and 1995.
10.
<PAGE>
6. Note Payable:
------------
As of August 1, 1993, the Company entered into a $37,937 note payable bearing
interest at 8% due to the Illinois Department of Revenue for settlement of
revenue taxes owed to the State of Illinois. The note is payable in monthly
installments of $527 and will expire on July 1, 1999. The note payable balance
as of June 30, 1997 and 1996 is $13,173 and $18,969, respectively.
7. Commitments and Contingencies:
-----------------------------
Lease Agreements
----------------
As of March 1, 1996 the Company amended the lease agreement for its facility
in Peabody, Massachusetts by extending the agreement for a period of two years.
Rent is payable in monthly installments of $4,637 during the first twelve months
of the lease and $4,711 for the remainder of the lease. This agreement was
renegotiated to a month-to-month lease effective June 1, 1997 for a rental rate
of $1,735 per month.
As of May 1, 1996 the Company amended the lease agreement for its Mount Laurel,
New Jersey location by extending the agreement for a period of two years. Rent
is payable in monthly installments of $2,568 during the first year of the lease
and $2,827 during the second year of the lease. At June 30, 1997, the Company's
future minimum payments under noncancelable leases were as follows:
Fiscal year 1998 $ 28,266
Total rental expense was $79,989, $72,868 and $75,514 for the years ended
June 30, 1997, 1996 and 1995, respectively.
Legal Proceedings:
- -----------------
The Company filed suit against Computer Management Sciences, Inc. (CMSI) in
the United States District Court for the District of Massachusetts in Boston,
Massachusetts on October 25, 1996. The suit seeks damages resulting from the
breach of three contracts by CMSI to develop portions of the client-server
Enterprise Resource Planning software, which contracts having been entered into
in 1995 and 1996. The Company is seeking an amount in excess of $150,503, which
is the amount that the Company paid to CMSI during the course of the contracts,
plus costs, interest and such other relief that the Court deems just and
equitable. On January, 17, 1997, CMSI filed a counterclaim in the same Court
alleging that the Company is liable to CMSI in an amount exceeding $200,000 on
account of the Company's alleged breaches of the same contracts. Management
believes that the CMSI counterclaim is without merit and is defending this
counterclaim vigorously. There can be no assurance that an adverse outcome will
not result in an adverse effect on the Company's financial position or results
of its operations.
8. Stock Option Plan:
-----------------
On October 28, 1993 and February 7, 1994 the Board of Directors and the
shareholders, respectively, adopted the Company's 1993 Stock Option Plan
11.
<PAGE>
(the "Plan"), and reserved 1,000,000 shares of common stock for issuance
under the Plan. Under the Company's incentive and nonqualified stock
option plan, incentive stock options can be granted to employees entitling
them to purchase shares of common stock within one to ten years from the date
of grant at option prices equal to or above the fair market value at the date
of grant. Nonqualified stock options are generally granted under the same
terms. The exercise price for incentive stock options may not be less than
the fair market value of the common stock on the date of the grant (or 110% of
fair market value in the case of employees or officers holding 10% or more
of the total combined voting power of all classes of stock ofthe Company). The
vesting period for the options is determined by the Stock Option Committee at
the time of the grant.
In September 1994 the Stock Option Committee of the Board of Directors of the
Company granted 475,000 options retroactive to June 21, 1994. These options
were granted at or above market value as determined by the Board of Directors on
the grant date.
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation." SFAS 123 is effective for periods beginning after December 15,
1995. SFAS 123 requires that companies either recognize compensation expense
for grants of stock, stock options, and other equity instruments based on fair
value, or provide pro forma disclosure of net income and earnings per share in
the notes to the financial statements. The Company adopted the disclosure
provisions of SFAS 123 in 1996 and has applied APB Opinion 25 and related
interpretations in accounting for its plans. Had compensation costs for the
Company's stock-based compensation plan been determined based on the fair value
of the stock awards at the grant dates as calculated in accordance with SFAS
123, the Company's net loss and loss per share for the years ended June 30, 1997
and 1996 would not have been materially affected.
The fair value of each stock option was estimated on the date of grant using
Black-Scholes option- pricing model with the following weighted-average
assumptions: an expected life of six (6) years, expected volatility of 200%,
a dividend yield of 0% and a risk-free interest rate of 6.49%.
A summary of the status of the Company's stock option plan as of June 30, 1997,
1996, 1995, and changes during each of the years then ended, is presented below:
12.
<PAGE>
Weighted
Average
Exercise
Number of Price per
Shares Share
Options outstanding June 30, 1994 - -
Options granted 475,000 $ . 125
Options exercised - $ . 125
Options canceled 65,000 $ . 125
------ -------
Options outstanding at June 30, 1995 410,000 $ . 125
Options granted 3,000 $ . 125
Options exercised - $ . 125
Options canceled - $ . 125
----- -------
Options outstanding at June 30, 1996 413,000 $ . 125
Options granted - $ . 125
Options exercised - $ . 125
Options canceled (155,000) $ . 125
-------- -------
Options outstanding at June 30, 1997 258,000 $ . 125
------- -------
There were 258,000, 413,000 and 410,000 options exercisable as of June 30,
1997, 1996 and 1995, respectively.
12.
<PAGE>
The weighted average grant date fair value per share of the options granted
during 1996 was $0.124
The following table summarizes information about stock options outstanding at
June 30, 1997:
Options Outstanding Options Exercisable
- -------------------------------------------- ------------------------------
Weighted- Weighted-
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Outstanding Life Price Exercisable Price
Price
$.125 258,000 7.02 years $.125 258,000 $.125
There are 742,000 options available for grant as of June 30, 1997.
The effects of applying SFAS 123 in this disclosure are not indicative of future
amounts. SFAS 123 does not apply to awards made prior to 1996. Additional
awards in future years are anticipated.
13.
<PAGE>
9. Subsequent Event:
----------------
A significant portion of the company's software development work has been
outsourced to a software development firm that is utilizing proprietary
tools to develop a new product. The Company has made an initial payment of
$300,000 under a contract that was signed on September 4, 1997. In addition
to making certain cash payments, the Company will issue common stock to the
development firm upon reaching each of four major milestones in the
development process. A total of 300,000 shares of common stock of the Company
will be issued to the development firm over the life of the contract.
The Company is responsible for defining the functional requirements of the
system and for testing the final product prior to installation at customer
sites.
14.
<PAGE>
UNITRONIX CORPORATION
---------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Description Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions* Period
---------- ---------- ---------- ---------
Year ended June 30, 1997:
Allowance for doubtful
accounts $10,401 $4,740 $10,145 $4,996
Year ended June 30, 1996:
Allowance for doubtful
accounts 5,925 10,087 5,611 10,401
Year ended June 30, 1995:
Allowance for doubtful
Account 5,245 3,294 2,614 5,925
*Write-off of bad debts
15.
<PAGE>
SOFTWARE DEVELOPMENT AGREEMENT
------------------------------
** Indicates confidential material omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities Exchange
Act of 1934.
<PAGE>
SOFTWARE DEVELOPMENT AGREEMENT
------------------------------
This Agreement is entered into as of September 4, 1997, by and between
UNITRONIX CORPORATION ("Unitronix"), a New Jersey corporation, having its
principal place of business at Peabody Office Building, One Newbury Street,
Peabody, MA 01960, and ** (" ** "), a ** , with its principal place
of business at **
Whereas, ** has made a proposal to Unitronix, dated May 13, 1997
(the " ** Proposal," a copy of which is Exhibit A hereto and
incorporated herein by reference), to complete the ERP program currently
under development by Unitronix, formerly known as Praxa/OMS System for the
purposes of this contract, and;
Whereas, Unitronix has accepted the ** Proposal with the modifications set
forth below.
Now, therefore, for and in consideration of the mutual covenants and
conditions contained this Agreement, Unitronix and ** agree as
follows:
1. ** agrees to complete the development of the Praxa/OMS System
and to deliver to Unitronix a new Praxa/OMS System (the "New Praxa/OMS
System", also referred to herein as the "Product") on the terms set forth
in the ** Proposal as modified by this Agreement (excluding
Exhibit A hereto), and in accordance with the schedule set forth in
paragraph 3.
2. Unitronix agrees to provide ** with such materials, direction
and assistance as required in Section 5 of the ** Proposal.
3. a.)Unitronix agrees to pay ** a total of ** (the
"Contract Price") for the New Praxa/OMS System in accordance with the
** Proposal modified as follows:
i.Unitronix shall pay ** upon execution of this agreement by both
parties ("Execution");
ii.Unitronix shall pay ** upon completion of the design and review
phase of the development process. ** deadline for completion of
the design and review phase is ** ;
iii.Unitronix shall pay ** seven days after Unitronix's receipt of
Phase 1 of the Product, as defined in Exhibit B. ** deadline for
completion of Phase 1 is ** ;
iv.Unitronix shall pay ** seven days after Unitronix's receipt of
Phase 2 of the Product, as defined in Exhibit B. ** deadline for
completion of Phase 2 is ** ;
1.
<PAGE>
v.Unitronix shall pay ** seven days after Unitronix's receipt of
Phase 3 of the Product, as defined in Exhibit B. ** ' deadline for
completion of Phase 3 is ** ; and
vi.Unitronix shall pay ** once ** has delivered the
completed New Praxa/OMS System to Unitronix, and Unitronix has accepted
the system and begun licensing same to customers generally. ** '
deadline for delivery of the completed New Praxa/OMS System to Unitronix
is ** . Unitronix may accept the system and withhold ** of the final
payment until ** has corrected nonconformities ("bugs") and any
performance issues.
b.)Unitronix shall issue to ** in writing within thirty business
days following receipt of the completed New Praxa/OMS System a Notice of
Acceptance or a Notice of Non-Acceptance. If Unitronix issues a Notice of
Non-Acceptance, such Notice shall specify in detail the reason(s) why the
delivered Product fails to conform to the specifications contained in
Exhibit B. If ** has not received a Notice of Non-Acceptance
within thirty business days of the date that ** delivered the
complete Product, the completed Product shall be deemed to have been
accepted by Unitronix as delivered by ** .
c )In the event payment is not delivered to ** as specified in
this Section 3, ** may suspend its efforts until such payment is
delivered and all subsequent project deadlines will be lengthened by the
period of any such delay.
4. Stock Incentive. In addition to the payments called for above,
** shall receive 300,000 shares of Unitronix common stock in
accordance with the following terms:
a) ** shall receive 75,000 shares of common stock upon the
commencement of Beta 1 testing (beta testing for Phase 1).
b) ** shall receive 75,000 shares of common stock upon the
commencement of Beta 2 testing (beta testing for Phase 2).
c) ** shall receive 75,000 shares of common stock upon the
commencement of Beta 3 testing (beta testing for Phase 3);
d) ** shall receive 75,000 shares of common stock upon Unitronix's
acceptance of the completed New Praxa/OMS System.
e) In addition, ** shall also receive an additional 1,000 shares
of Unitronix common stock for each business day that it is early in
delivering the Product for Beta 1 testing, the deadline for delivery of
Phase 1 is ** 1998, and each business day that it is early in
delivering the Product for Beta 2 testing, the deadline for delivery of
Phase 2 is ** , and for each business day that it is early in
delivering the Product for Beta 3 testing, the deadline for delivery of
2.
<PAGE>
Phase 3 is ** , and each business day that it is early in
delivering the completed Product to Unitronix. The number of shares of
stock ** shall receive pursuant to this Agreement shall be
reduced by 1,000 shares for each business day that it is late in delivering
the Product for Beta 1 testing, the deadline for delivery of Phase 1 is
** , and each business day that it is late in delivering the
Product for Beta 2 testing, the deadline for delivery of Phase 2 is ** ,
and for each business day that it is late in delivering the Product
for Beta 3 testing, the deadline for delivery of Phase 3 is ** ,
and each business day that it is late in delivering the completed Product
to Unitronix, the deadline for delivery of the completed product is ** .
For purposes of this paragraph, ** represents and
warrants that it will not deliver the Product for any phase of beta testing
until ** believes in good faith that the Product is ready for
such beta testing.
f) Any stock to which ** may become entitled pursuant to the terms
of this Agreement shall be held in escrow by Unitronix, as escrow agent,
until one hundred twenty days after Unitronix shall have accepted the
completed New Praxa/OMS System; provided, however, that if Unitronix
refuses to accept such System through no fault of ** , such stock
shall be delivered to ** within one hundred twenty days after the
deadline for the delivery of the completed New Praxa/OMS System (which
deadline shall be ** , unless extended in writing pursuant to
the terms of this Agreement by mutual agreement of the parties). In the
event that ** is not entitled to receive such stock pursuant to
the terms of this Agreement within the foregoing time period, all of its
rights in and to such stock shall cease. During the time of such escrow,
** grants to Unitronix its proxy over such stock with respect to
all matters, and any dividends, stock splits or other rights with respect
to such stock shall also be held in escrow pursuant to the terms of this
Agreement and shall be delivered or cancelled, pursuant to the terms of
this Agreement, along with the underlying stock.
5. Change Orders. It is agreed, as set forth in the ** Proposal
(section 2.1), that the functionality of New Praxa/OMS System is to be as
set forth in Exhibit B. Changes to the functionality set forth in Exhibit B
may be made only as set forth in this section.
a) Unitronix shall submit to ** in writing a statement ("Request
for Change") setting forth with particularity the requested change in the
functionality of the New Praxa/OMS System. The statement shall be signed by
an authorized employee of Unitronix.
b) ** shall within seven business days of receipt of the Request
for Change, submit a "Response to Request for Change" to Unitronix in
writing setting forth the affect of the Request for Change (if executed) on
the project schedule (whether the milestones would change and the overall
project schedule shortened or lengthened) and the Contract Price (whether
the amount of the Contract Price would increase or decrease and any changes
3.
<PAGE>
in the number/amount of the progress payments set forth in Section 3
above).
c) Unitronix shall notify ** in writing within seven business days
of receipt of ** Response to Request for Change as to whether
** is to execute the requested change. If Unitronix does not
notify ** within the stated period, the requested change shall be
deemed rejected. If Unitronix does notify ** within the stated
period that the requested change is to be executed, this Agreement,
including the project schedule and the Contract Price, shall be deemed
amended as per ** Response to Request for Change.
d) Unitronix shall have no obligation with respect to any change made by
** without written authorization from Unitronix as set forth
above.
6. Ownership/License.
a) As provided in the ** Proposal, Unitronix exclusively shall
own the New Praxa/OMS System, including the source and object code, all the
files, screens, databases, and communications software that are part of or
are related to the New Praxa/OMS System, along with any other software,
source code, and other deliverables to be produced for it pursuant to this
Agreement and the ** Proposal, all of which shall be deemed works
made for hire, except that ownership of each phase of the Product, and the
final completed Product, shall not convey to Unitronix until the payment
for each phase and the completed Product are made to ** as set
forth in Section 3 above. Ownership of each phase of the Product shall
convey to Unitronix upon payment for that particular phase. (Nothing in
this paragraph shall be interpreted to convey ownership to ** of
any of the work product or materials of Unitronix provided to **
pursuant to this contract or otherwise included in the Product or any
portion or phase of the Product. Further, ** agrees that it may
not and shall sell, transfer, or license the Product, or any phase or
portion thereof, to any other person or entity except Unitronix as per this
Agreement and may not itself utilize the Product, or any phase or portion
thereof, for any purpose for itself or for any other person or entity
except for Unitronix as per this Agreement.) To the extent to the contrary,
** shall assign to Unitronix the ownership of all rights, titles
and interests in such materials upon receipt of payment as set forth above.
** agrees to give Unitronix, its designees or assignees all
assistance reasonably required to perfect such rights, titles, and
interests. ** shall have no ownership or other rights as to the
New Praxa/OMS System.
b) Notwithstanding the foregoing, ** shall retain ownership of the
tools listed in Part 1 of Exhibit C hereto and of any components used in
the New Praxa/OMS System that have been previously developed by
** for purposes other than for the New Praxa/OMS System.
4.
<PAGE>
(i) ** represents and warrants that the ** Proposal is
not based upon inclusion of any such previously developed components in
the New Praxa/OMS System except those listed in Part 2 of Exhibit C and
agrees that it may not include any additional such previously developed
components in the New Praxa/OMS System without the express written
consent of Unitronix.
(ii) ** hereby grants Unitronix a perpetual non-exclusive and
royalty-free license to use the components listed in Part 2 of Exhibit C
in connection with the New Praxa/OMS System, including the distribution
of these components to Unitronix's distributors, customers, and other
third parties with royalty free run time licenses. If Unitronix agrees
to allow ** to include other previously developed components
in the New Praxa/OMS System, Part 2 of Exhibit C will automatically be
deemed amended to include those other components, and they shall be
included in this license granted to Unitronix. ** will grant
Unitronix access to the source codes for all components in Part 2 of
Exhibit C, and will provide training and documentation necessary for
Unitronix's use of these components.
(iii) ** hereby grants Unitronix a perpetual, non-exclusive, and
royalty-free license to use the tools listed in Part 1 of Exhibit C in
connection with the New Praxa/OMS System; however, this license will
not include the resale of these tools to Unitronix's distributors,
customers, and other third parties. In order to provide the resale of
these tools to Unitronix's distributors, customers, and other third
parties, ** and Unitronix will enter into a distribution
agreement, to be negotiated at a later date in good faith, appointing
Unitronix as a non-exclusive worldwide reseller of these tools. The
terms of said agreement will be consistent with similar agreements
customary in the industry. This distribution agreement will further set
the price at which Unitronix will purchase these tools for resale from
** , which price shall be no higher than the market price
charged to resellers for similar products, which similar products shall
include ** and ** , and in no case higher than
** for the first three years following the date set forth in
paragraph 3.a.vi. In addition, ** will provide training and
documentation necessary for Unitronix's use of these tools.
c) In order to provide assurance to Unitronix of access and right of
use of the source codes in the event that ** fails to
provide support ordevelopment for the tools listed in Part 1 of
Exhibit C, Unitronix and ** will enter into an escrow
agreement, to be negotiated at a later date in good faith,
providing for the escrow of the source codes of the tools listed in
Exhibit C. The terms of said agreement will be consistent with
similar agreements customary in the industry, however, this escrow
agreement will provide for the following:
5.
<PAGE>
(i) the source codes will be placed in escrow with an independent
third party approved by Unitronix and ** ;
(ii) ** will retain ownership of the source codes at all times;
(iii)Unitronix will have the right to access and use of the source codes for
only purposes related to the New Praxa/OMS System if **
should cease or be unable to provide development and/or support for and
of the tools listed in Exhibit C.
d) In the event the parties do not enter into mutually acceptable
distribution and escrow agreements as required above within one hundred
twenty days of the date of this Agreement, unless extended by the
parties in writing, Unitronix shall have the option to cancel this
Agreement. In such case, ** shall, within ten business days,
refund to Unitronix all amounts received pursuant to this Agreement.
However, ** shall be entitled to deduct from the amount
refunded the amount that would be due ** for its work
through the date of cancellation if ** had been working
pursuant to its standard time and materials rates instead of pursuant
to this Agreement. Each party shall also promptly return to the other all
materials received from the other pursuant to this Agreement. Thereafter,
neither party shall have any further obligation to the other except the
obligation of confidentiality set forth below.
7. Warranties and Representations:
a) ** agrees, represents, and warrants that the New Praxa/OMS System
shall be free of all known errors, malfunctions, or defects, shall be free
of major programming errors (i.e., errors that cause serious disruption in a
customer's use of the sys tem and repeated periods of downtime), known or
unknown, and substantially free of other programming errors, known or
unknown.
b) ** agrees, represents, and warrants that the New Praxa/OMS System
shall comply in all material aspects with the provisions of and
representations
in Exhibit B.
c) ** specifically agrees, represents, and warrants that the New Praxa/OMS
System shall comply with performance criteria set forth in Exhibit D.
d) ** agrees, represents, and warrants that the New Praxa/OMS System
shall not infringe upon any patents, copyrights, trade secrets, or
other proprietary rights of any third party, including, but not limited to
the rights, if any, of ** previous clients or employers.
6.
<PAGE>
8. Confidentiality.
a) "Confidential Information" consists of the terms of this Agreement, the
parties' current and future business plans, and all other information
provided by one party to another under this Agreement or in the course of
the negotiations of this Agreement including, without limitation, technical
information not included in user documentation relating to the parties'
software, customer lists, marketing plans, inventions, processes, formulae,
data, computer programs(whether in source or object code form) and all
information relating to programs now existing or under development, computer
program listings, know-how, improvements, discoveries, developments,
designs, techniques, strategies, forecasts, new products, financial
statements, budgets, projections, licenses, prices, costs, customer and
supplier lists and compilations of information.
b) Each party acknowledges that in the course of the relationship contemplated
by this Agreement each party will receive Confidential Information from the
other party. Each party agrees not to use such information except in
performance of this Agreement an d not to disclose such information to third
parties. The foregoing restrictions do not apply to information that (1)
has been independently developed other than pursuant to this Agreement
without any use of Confidential Information, (2) has become publicly known
through no wrongful act of the party, (3) has been rightfully received from
a third party authorized to make such disclosure without restrictions, (4)
has been approved for release in writing by the party who claims it as
confidential, or (5) is required to be disclosed by law, provided that the
party from whom the information is sought shall be required to make
reasonable efforts, consistent with applicable law, to limit the scope and
nature of such required disclosure.
c) The parties hereby agree that, because of the nature of the information
which they desire to protect, there is no adequate remedy at law for a
breach of confidentiality, and that in the event of a breach or threatened
breach of confidentiality, and that in the event of a breach or threatened
breach of these confidential requirements, the party claiming such a breach
shall be entitled to a preliminary restraining order and an injunction
restraining and enjoining the other party from disclosing all or any part of
the Confidential Information. In addition to or in lieu of the above, the
party claiming such a breach may pursue all other remedies available to that
party for such breach or threatened breach, including the recovery of
damages from the other party.
9. Time of the Essence. Time is of the essence in this Agreement.
10. Notices. Any notice, demand or communication which under the terms of
this Agreement or otherwise must or may be given or made shall be in writing
and shall be given or made by personal delivery, or by registered mail,
return receipt requested, or by any other delivery service requiring
signature of receipt, addressed as follows:
7.
<PAGE>
For ** For Unitronix Corporation
- ---------------------- -------------------------
** William C. Wimer,
** Vice President of Operations
** One Newbury Street
Peabody, MA 01960
11. Severability. In the event that any provision hereof shall be held to
be invalid by a court or other tribunal of competent jurisdiction, this
Agreement shall be considered divisible as to such provision and the
remainder of this Agreement shall remain valid and binding as though such
provision were not included herein.
12. Entire Agreement/Merger/Modification. This Agreement, together with the
attached Exhibits, contains the entire agreement between the parties with
respect to the subject matter and supersedes any prior agreements between
them relating to its subject matter, whether oral or written. Any warranty,
representation, promise or condition not incorporated herein shall not be
binding upon either party. No modification, renewal, extension or waiver of
this Agreement or any of its provisions shall be binding unless made in
writing and signed by the parties hereto.
13. Independence of Parties. Nothing in this Agreement shall be construed as
creating a partnership or joint venture between the parties or making one
party an agent or employee of the other party. In all of its operations
hereunder each party shall be an independent contractor, shall conduct its
business at its own cost and expense and shall have no authority to make any
representation or warranty on behalf of the other party.
14. Governing Law/Jurisdiction/Legal Fees. This Agreement shall be construed
in accordance with and governed by the laws of the State of South Carolina,
without giving effect to the principles of conflicts of law thereof, except
as to copyright and trademark matters which shall be governed by the laws of
the United States of America and/or the laws of the Territory, and any
applicable international law or regulations. Any actions or proceedings with
respect to any matters, arising under or growing out of this Agreement or
the performance of this Agreement, may be instituted and prosecuted in state
or federal courts located in South Carolina. Each party specifically
consents to service of process by and the jurisdiction of and venue in these
courts. Each party further consents that any process, notice of motion or
other application to the court or any judge thereof may be served in the
manner provided for giving of notice under this Agreement provided a
reasonable time for appearance is allowed. In the event of legal proceedings
between the parties related to this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys' fees and costs.
15. Waiver. Failure or delay on the part of either party to enforce any
provision of this Agreement shall not be deemed a waiver of that or any
other provision of the Agreement, nor shall a single or partial exercise of
any right, power or privilege preclude any other or further exercise of any
right, power or privilege.
8.
<PAGE>
16. Assignment. This Agreement shall be binding upon the benefit of both
parties, their successors and assigns, however, this Agreement shall not be
assignable or transferable by either party unless prior written consent is
obtained from the other party.
17. Force Majeure. If the performance of any obligation of one of the parties
under this Agreement is prevented or delayed by acts of God or government,
war, acts of civil disorder, failure or delay of transportation, or other
similar causes beyond the party's reasonable control, then the party shall
be excused from such performance to the extent necessary provided that the
party shall use reasonable and diligent efforts to remove such causes of
non-performance and to resume performance of its obligations as soon as
possible.
18. Headings. The headings of the Sections of this Agreement are for
convenience only and will not be of any effect in construing the meanings of
the Sections.
19. Arbitration.
a) Any dispute, controversy, or claim under this Agreement which cannot be
resolved promptly by the parties shall be referred to non-binding
conciliation in accordance with the Conciliation Rules of the American
Arbitration Association.
b) If the conciliation is not successful in resolving the controversy, the
matter shall be finally resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then
enforced by a single arbitrator who shall be an attorney experienced in
software license and development agreements and selected by the parties. If
they are unable to agree upon an attorney, the attorney shall be appointed
by the American Arbitration Association in accordance with its rules.
b) The award of the arbitration shall be final and enforceable in any court
of competent jurisdiction and may include the cost of arbitration and
attorney's fees.
IN WITNESS WHEREOF, Unitronix Corporation and ** have caused
this Agreement to be executed as of the date first stated above.
UNITRONIX CORPORATION **
BY: Jack E. Shaw BY: **
---------------------- --------------------
TITLE: Chairman TITLE: **
------------------- ---------------------
DATE: September 11, 1997 DATE: September 4, 1997
-------------------- -----------------
9.
<PAGE>
SOFTWARE DEVELOPMENT AGREEMENT
EXHIBIT A
** PROPOSAL
The contents of this Exhibit A, consisting of 7 pages of
material, have been omitted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential
treatment under Rule 24b-2 of the Securities Exchange Act of 1934.
<PAGE>
SOFTWARE DEVELOPMENT AGREEMENT
EXHIBIT B
SPECIFICATIONS FOR FUNCTIONALITY
The contents of this Exhibit B, consisting of 8 pages of
material, have been omitted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential
treatment under Rule 24b-2 of the Securities Exchange Act of 1934.
<PAGE>
SOFTWARE DEVELOPMENT AGREEMENT
EXHIBIT C
The tools and components listed here are referenced in paragraph
6.b.ii of this contract
The contents of this Exhibit C, consisting of 1 page of
material, have been omitted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential
treatment under Rule 24b-2 of the Securities Exchange Act of 1934.
<PAGE>
EXHIBIT D
---------
PERFOMANCE CRITERIA
-------------------
i. Verification of log-in data and opening of the main program window will
take no longer than ten seconds;
ii. Unless otherwise noted in an individual specification accepted by
Unitronix, no program window will take longer than three seconds to open and
Be ready to accept data input;
iii.The number and size of network transmissions will be kept to a minimum.
iv. For functions which contain server processes whose time to complete
will be a function of the amount of data, specific time limits will be
determined based on what is considered to be "average" sized and data sets,
which limits will be part of the specification and clearly understood before
development begins.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 34,028
<SECURITIES> 0
<RECEIVABLES> 88,308
<ALLOWANCES> 4,996
<INVENTORY> 0
<CURRENT-ASSETS> 140,390
<PP&E> 680,526
<DEPRECIATION> 601,384
<TOTAL-ASSETS> 221,798
<CURRENT-LIABILITIES> 1,509,071
<BONDS> 0
<COMMON> 3,485,412
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 221,798
<SALES> 939,657
<TOTAL-REVENUES> 939,657
<CGS> 41,548
<TOTAL-COSTS> 41,548
<OTHER-EXPENSES> 1,635,290
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,412
<INCOME-PRETAX> (802,947)
<INCOME-TAX> 0
<INCOME-CONTINUING> (802,947)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (802,947)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
