Form 10-Q
Securities and Exchange Commission
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTON 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
-------------------------.
Commission file number 0-17080
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UNITRONIX CORPORATION
---------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2086851
- --------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Newbury Street, Peabody, MA 01960
---------------------------------------
(Address of principal executive offices)
(Zip Code)
(978) 535-3912
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(Registrant's telephone number, including area code)
- -----------------------------------------------------------------------
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
9,456,932 shares of common stock, no par value, as of November 13, 1998
1
UNITRONIX CORPORATION
INDEX
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Page Number
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Part I. Financial Information (Unaudited)
Item 1:
Balance Sheets-
September 30, 1998 and June 30, 1998 3
Statements of Income -
Three Months Ended September 30, 1998 and 1997 4
Statement of Changes in Stockholders' Deficit-
Three Months Ended September 30, 1998 5
Statements of Cash Flows -
Three Months Ended September 30, 1998 and 1997 6
Notes to Financial Statements 7
Item 2:
Management's Discussion and Analysis of Results of 9
Operations and Financial Condition for the Three Months
Ended September 30, 1998
Part II. Other Information 11
2
UNITRONIX CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
September 30,
1998 June 30,
(Unaudited) 1998 (1)
ASSETS ----------- --------
CURRENT ASSETS:
Cash $97,395 $75,466
Accounts receivable, net 92,361 78,941
Prepaid expenses and other current assets 25,513 21,379
--------- ---------
TOTAL CURRENT ASSETS 215,269 175,786
--------- ---------
Property, plant and equipment, net 27,084 33,894
---------- ---------
Other assets 3,081 3,201
---------- -------
TOTAL ASSETS $245,434 $212,881
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable - related party $300,000 $300,000
Notes payable 224,874 245,455
Accounts payable 25,646 50,367
Accrued expenses 75,450 93,888
Accrued interest 740 14,250
Deferred revenue 118,543 100,703
-------- -------
TOTAL CURRENT LIABILITIES 745,253 804,663
Note Payable --- 490
Series A preferred stock, $1 par value, 6% cumulative
convertible nonvoting; authorized 1,000,000 shares;
956,728 issued and outstanding at September 30 and
June 30, 1998, net of unamortized issuance costs of
$4,125 at September 30, 1998 and $4,400 at June 30,
1998, plus undeclared accumulated dividends of $14,351
at September 30, 1998 and $0 at June 30, 1998 966,954 952,328
STOCKHOLDERS' DEFICIT:
Undesignated capital shares; authorized 2,000,000 shares at
September 30 and June 30, 1998; none outstanding --- ---
Common stock, no par value; authorized 12,000,000 shares;
9,456,932 shares issued and outstanding at
September 30 and June 30, 1998 3,485,412 3,485,412
Additional paid-in capital 4,405 1,170
Accumulated deficit (4,956,590) (5,031,182)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT (1,466,773) (1,544,600)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $245,434 $212,881
========= ========
(1) Derived from audited financial statements.
See notes to financial statements.
3
UNITRONIX CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
September 30,
1998 1997
------ ------
REVENUE:
Computer systems and
software licenses $166,750 $37,500
Services 151,312 147,105
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TOTAL REVENUE 318,062 184,605
------- -------
COSTS AND EXPENSES:
Cost of computer systems
and software licenses 11,599 1,026
Cost of services 52,676 54,596
Product development 0 47,355
Selling and marketing 45,578 36,272
General and administrative 122,209 60,515
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TOTAL COSTS AND EXPENSES 232,062 199,764
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PROFIT (LOSS) FROM OPERATIONS 86,000 (15,159)
INTEREST INCOME (EXPENSE), NET (12,060) (23,720)
OTHER INCOME (EXPENSE), NET 15,003 ---
------- -------
PROFIT (LOSS) BEFORE INCOME TAXES 88,943 (38,879)
------- -------
PROVISION FOR INCOME TAXES 0 0
------- -------
NET PROFIT (LOSS) $88,943 $(38,879)
======= =======
BASIC AND DILUTED NET PROFIT (LOSS)
PER COMMON SHARE $0.01 $(0.00)
======= =======
Weighted average number of common
shares outstanding 9,456,932 9,456,932
See notes to financial statements.
4
UNITRONIX CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(Unaudited)
For the Three Months Ended September 30, 1998
Common Stock
-------------- Additional
Shares Paid-in Accumulated Stockholders'
Issued Amount Capital Deficit Deficit
------ ------ ------- ------- -------
Balance,
June 30, 1998 9,456,932 $3,485,412 $1,170 $(5,031,182) $(1,544,600)
Net profit 88,943 88,943
Unpaid accumulated
preferred dividends (14,351) (14,351)
Expense of
issuance of
stock options
to consultant 3,510 3,510
Amortization of
preferred stock
issuance costs (275) (275)
--------- --------- ------ ---------- -----------
Balance,
September 30, 1998 9,456,932 $3,485,412 $4,405 $(4,956,590) $(1,466,773)
========= ========= ====== =========== ===========
See notes to financial statements.
5
UNITRONIX CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended September 30,
--------------------------------
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Profit (Loss) $88,943 $(38,879)
Adjustments to reconcile net profit (loss)
to net cash used by operating activities
Depreciation and amortization 6,810 11,507
Non cash expense on issuance of stock
options to consultant 3,510 ---
Decreases (increases) in operating assets:
Accounts receivable (13,420) (10,979)
Prepaid expenses and other current assets (4,134) (303,462)
Other assets 120 233
Increases (decreases) in operating liabilities:
Accounts payable (24,721) 15,048
Accrued expenses (18,438) (44,070)
Accrued interest (13,510) 20,746
Deferred revenues 17,840 18,521
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Net cash provided (used) by operating activities 43,000 (331,335)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 0 506,500
Repayments of borrowings (21,071) (196,590)
------- -------
Net cash provided by financing activities (21,071) 309,910
------- -------
Net increase (decrease) in cash 21,929 (21,425)
Cash at beginning of period 75,466 34,028
------- -------
Cash at end of period $97,395 $12,603
======= =======
See notes to financial statements.
6
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies:
------------------------------------------
Basis of Presentation
- ---------------------
The accompanying financial statements are unaudited. In the opinion of manage-
ment, all adjustments, which include only normal recurring adjustments necessary
to present fairly the financial position, results of operations, and cash flows
for all periods presented, have been made. The result of operations for interim
periods are not necessarily indicative of the operating results for the full
year.
Footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles has been omitted in
accordance with the published rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's June
30, 1998 Annual Report on Form 10-K.
2. Supplemental Disclosures of Cash Flow Information:
-------------------------------------------------
Cash paid for interest and income taxes for the periods indicated were
as follows:
Three Months Ended
September 30,
----------------
1998 1997
-------- --------
Interest, net $25,570 $233
Taxes $2,631 $1,831
3. Profit (loss) per Common Share:
---------------------
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128") Earnings per Share, which requires
disclosure of basic earnings per common share and diluted earnings per
common share for all periods presented. Adoption of SFAS 128 has not
affected the amounts presented in any period. The computation of basic and
diluted earnings per share is presented below.
7
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
continued
Basic and diluted net loss per share:
- ------------------------------------
For the Three Months Ended September 30,
----------------------------------------
1998 1997
---- ----
Numerator:
Net profit (loss) $88,943 $(38,879)
Preferred dividends (14,351) ---
Amortization of preferred
stock issuance cost (275) ---
-------- ---------
Income available to common shareholders $74,317 $(38,879)
======= =========
Denominator:
Weighted average number of shares
issued and outstanding 9,456,932 9,456,932
Assumed exercise of options reduced
by the number of shares which could
have been purchased with the
proceeds of those options --- ---
Assumed conversion of preferred stock --- ---
--------- ---------
Total shares 9,456,932 9,456,932
--------- ---------
Basic and diluted net profit (loss)
per share $0.01 $(.00)
The number of stock options outstanding was 465,000 as of September 30, 1998,
and 255,000 as of September 30, 1997. The number of potential shares convert-
ible into common stock from the exercise of convertible preferred stock was
956,728 as of September 30, 1998, and 0 as of September 30, 1997. Neither of
these situations qualify as common stock equivalents as they would have an
antidilutive effect on diluted earnings per share.
8
UNITRONIX CORPORATION
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
The analysis of the Company's financial condition, capital resources
and operating results should be viewed in conjunction with the accompanying
financial statements, including the notes thereto.
RESULTS OF OPERATIONS
- ---------------------
First Quarter Ended September 30, 1998, Compared to the First Quarter
- ---------------------------------------------------------------------
Ended September 30, 1997
- ------------------------
Total revenue for the period ended September 30, 1998 increased by 72% from
the period ended September 30, 1997, due to an increase of $129,250 in
revenue from the sale of computer systems and software licenses, and a $4,207
increase in revenue from services. The increased revenue from computer
systems and software licenses was largely attributable to a $109,000 sale of the
year 2000 compliant version of PRAXA to a customer that was not covered by a
software support agreement, and a $50,000 sale of a PRAXA license upgrade to a
customer that installed a more powerful computer system. Management anticipates
that the Company may make additional sales of the year 2000 compliant version of
PRAXA to other customers that are not covered by support agreements, but there
can be no assurances that such sales will occur.
The increase in services revenue was due to the sale of training and install-
ation services in conjunction with the year 2000 compliant version of PRAXA,
and the sale of other training and software customization services. The
revenue increases from these sales were partially offset by lower revenue
from software support agreements. Management anticipates that revenue from
software support services will continue to decline as PRAXA customers continue
to migrate to other software packages.
The cost of computer systems and software licenses increased by approximately
$10,600 from the period ended September 30, 1997 to the like period in 1998
because of the cost of two license upgrades for the Xentis software that were
sold in conjunction with the sale of the year 2000 compliant software and the
PRAXA license upgrade.
There were no product development expenses in the period ended September 30,
1998, since there was no product development activity underway. During the
prior fiscal year, the Company paid a software development firm $300,000 as a
down payment for developing a new Enterprise Resource Planning software product
for the Company. The Company is currently attempting to recover these funds
from the development firm through arbitration because of contractual nonperform-
ance. General and administrative expenses approximately doubled in the period
ended September 30, 1998 from the like period in 1997 because the salary and
expenses associated with the Company's product development manager were class-
ified as administrative expenses, as she is now focused on activities other
than product development. The Company also employed the full-time services of
9
a business consultant during the 1998 period to work with the product develop-
ment manager to develop opportunities for the Company to distribute software
produced by other organizations. Management believes that the Company must
acquire distribution rights for one or more products in order to remain in
business, but there can be no assurance that such product distribution rights
will be obtained.
Interest expense for the period ended September 30, 1998 decreased by 49% from
the period ended September 30, 1997, due to the conversion of several notes to
convertible preferred stock during the year ended June 30, 1998. Approximately
$15,000 in other income was realized in the quarter ended September 30, 1998,
when three accounts payable were written off.
The Company earned a net profit of approximately $89,000 in the period ended
September 30, 1998, as compared with a net loss of approximately $39,000 in
the like period in 1997. The profit is due to higher revenues, lower interest
expense and the one-time other income amount in the 1998 period. There can be
no assurances that the Company will operate profitably in future periods.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the working capital deficit was $(529,984) as compared
to a deficit of $(628,877) at June 30, 1998. The profitability of the Company
in the period ended September 30, 1998, was responsible for the reduction in
the working capital deficit.
Management projects that funds from sources other than the sale of existing
products and related services will be needed if the Company is to continue
to operate. The Company is searching for software products that will allow it
to continue in the business of software sales. There can be no assurance that
the needed products or other sources of funds can be obtained, in which case the
Company may be forced to cease operations.
Management projects that sufficient funds will be generated from the sale of
existing products and related services to allow the Company to operate through
the period ended December 31, 1998. There can be no assurances that manage-
ment's projections will be realized and that funds sufficient to operate through
December 31, 1998, will be generated, in which case the Company may be forced
to cease operations.
YEAR 2000 READINESS
During 1996 and 1997, the Company's PRAXA software product was revised to
accommodate dates beyond the turn of the century. Following thorough testing by
the Company's product support staff, the software was released to five customers
for Beta testing. At the conclusion of a six month Beta test period, the
software was deemed suitable for general release in December, 1997.
Based upon the Company's estimate of the number of PRAXA customers that are
using the software, approximately one-half of those users are covered by soft-
ware support agreements. Approximately 90% of the support customers have
requested, and have been shipped, the year 2000 compliant version of PRAXA.
The Company plans to ship the year 2000 compliant version of PRAXA to any of
the support customers that have not requested it, by the end of the current
fiscal year.
10
Based upon the same estimate of the number of PRAXA users, approximately 20%
of the users that are not covered by support agreements have purchased the
year 2000 compliant version of the software from the Company. The Company
anticipates that the users that are not covered by support agreements and that
have not purchased the year 2000 compliant version of the software will either
modify the software themselves to make it year 2000 compliant, will install
another software package, or will purchase the year 2000 compliant version from
the Company.
The supplier of the Company's computer equipment, Compaq Computer Corporation,
has recommended that software patches be applied to the VMS operating systems
that are used on three of the Company's Digital Equipment Corporation computers,
even though it is highly unlikely that the absence of the patches will result in
any performance irregularities with the computers. The patches will be applied
to the Company's VMS operating systems during the first half of calendar year
1999, at a cost of $400. The Company will also upgrade its accounting systems
to the current version of PRAXA during the first half of 1999. The Company will
test the personal computers that its personnel use for administrative tasks for
year 2000 compliance during the same time period, and make any necessary
modifications to the equipment and software.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 27. Financial Data Schedule
B. Reports on Form 8-K
The Company did not file any reports on Form 8-K during this quarter.
11
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Unitronix Corporation
Date: November 13, 1998
By: /s/William C. Wimer
---------------
William C. Wimer
Vice President, Operations and
Chief Financial Officer
12
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 97,395
<SECURITIES> 0
<RECEIVABLES> 95,888
<ALLOWANCES> 3,527
<INVENTORY> 0
<CURRENT-ASSETS> 215,269
<PP&E> 568,964
<DEPRECIATION> 541,880
<TOTAL-ASSETS> 245,434
<CURRENT-LIABILITIES> 745,253
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<COMMON> 3,485,412
956,728
0
<OTHER-SE> 4,405
<TOTAL-LIABILITY-AND-EQUITY> 245,434
<SALES> 318,062
<TOTAL-REVENUES> 318,062
<CGS> 11,599
<TOTAL-COSTS> 11,599
<OTHER-EXPENSES> 220,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (12,060)
<INCOME-PRETAX> 88,943
<INCOME-TAX> 0
<INCOME-CONTINUING> 88,943
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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