Form 10-Q
Securities and Exchange Commission
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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)
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Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the
securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
----- -----
1
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
9,456,932 shares of common stock, no par value, as of May 13, 1998.
2
UNITRONIX CORPORATION
INDEX
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Page Number
-----------
Part I. Financial Information (Unaudited)
Item 1:
Balance Sheets-
March 31, 1998 and June 30, 1997 4
Statements of Income -
Three Months Ended March 31, 1998 and 1997 5
and Nine Months Ended March 31, 1998 and 1997
Statement of Changes in Stockholders' Deficit-
Nine Months Ended March 31, 1998 6
Statements of Cash Flows -
Nine Months Ended March 31, 1998 and 1997 7
Notes to Financial Statements 8
Item 2:
Management's Discussion and Analysis of Results of 11
Operations and Financial Condition for the Three Months
Ended March 31, 1998 and 1997 and the Nine Months Ended
March 31, 1998 and 1997
Part II. Other Information 14
3
UNITRONIX CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
March 31,
1998 June 30,
(Unaudited) 1997 (1)
ASSETS ----------- --------
CURRENT ASSETS
Cash $183,416 $34,028
Accounts receivable, net 72,688 83,312
Prepaid expenses and other current assets 176,413 23,050
--------- ---------
TOTAL CURRENT ASSETS 432,517 140,390
--------- ---------
Property, plant and equipment, net 45,002 79,142
---------- ---------
Other assets 1,650 2,266
--------- -------
TOTAL ASSETS $479,169 $221,798
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Loan payable - bank $200,000 ---
Notes payable - related parties 975,924 $882,424
Notes payable 69,643 6,323
Accounts payable 172,583 301,874
Accounts payable - related party 208 2,550
Accrued expenses 114,799 128,913
Accrued interest-related party 156,360 95,693
Deferred revenue 93,823 91,294
-------- -------
TOTAL CURRENT LIABILITIES 1,783,340 1,509,071
Note payable 2,080 6,850
STOCKHOLDERS' DEFICIT
Common stock, no par value, 12,000,000 shares
authorized, 9,456,932 shares issued and
outstanding 3,485,412 3,485,412
Undesignated capital shares, 3,000,000 shares
authorized, none outstanding ---- ----
Accumulated deficit (4,791,663) (4,779,535)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT (1,306,251) (1,294,123)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $479,169 $221,798
========= ========
(1) Derived from audited financial statements.
See notes to financial statements.
4
UNITRONIX CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
------ ------ ------ ------
REVENUES:
Computer systems and
software licenses $142,000 $2,800 $478,800 $189,674
Services 159,749 158,526 442,360 514,542
------- ------- ------- ---------
TOTAL REVENUES 301,749 161,326 921,160 704,216
------- ------- ------- -------
COSTS AND EXPENSES:
Cost of computer systems
and software licenses 3,626 8,917 9,797 29,986
Cost of services 70,324 83,008 196,613 249,248
Product development costs 88,595 366,172 310,331 753,053
Selling expenses 41,600 25,402 155,469 162,276
General and administrative
expense 66,105 54,858 176,903 148,488
------- ------- --------- ---------
TOTAL COSTS AND EXPENSES: 270,250 538,357 849,113 1,343,051
------- ------- ------- -------
PROFIT (LOSS) FROM OPERATIONS 31,499 (377,031) 72,047 (638,835)
INTEREST INCOME (EXPENSE),NET (30,785) (17,142) (84,175) (41,724)
OTHER INCOME (EXPENSE), NET --- (2,356) --- (2,356)
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES 714 (396,529) (12,128) (682,915)
------- ------- ------- -------
PROVISION FOR INCOME TAXES 0 0 0 0
------- ------- ------- -------
NET INCOME (LOSS) $714 $(396,529) $(12,128) $(682,915)
======= ======= ======= =======
BASIC EARNINGS (LOSS) PER $0.00 $(0.04) $0.00 $(0.07)
COMMON SHARE
DILUTED EARNINGS (LOSS) PER $0.00 $(0.04) $0.00 $(0.07)
COMMON SHARE
Weighted average number of common
shares outstanding 9,456,932 9,456,932 9,456,932 9,456,932
See notes to financial statements.
5
UNITRONIX CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(Unaudited)
For the Nine Months Ended March 31, 1998
Common Stock
------------------
Shares Accumulated Stockholders'
Issued Amount Deficit Deficit
------ ------ ------- -------
Balance, June 30, 1997 9,456,932 $3,485,412 $(4,779,535) $(1,294,123)
Net loss for the period ---- ---- (12,128) (12,128)
-------- -------- --------- --------
Balance,
March 31, 1998 9,456,932 $3,485,412 $(4,791,663) $(1,306,251)
========= ========= =========== =========
See notes to financial statements.
6
UNITRONIX CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended March 31,
--------------------------------
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(12,128) $(682,915)
Adjustments to reconcile net loss to
net cash used by operating activities
Depreciation and amortization 34,560 53,517
(Increase) decrease in:
Accounts receivable 10,624 29,674
Prepaid expenses and other current assets (153,363) 22,705
Other assets 616 2,414
Increase (Decrease) in:
Accounts payable (41,713) 192,756
Accrued expenses 46,553 12,704
Deferred revenues 2,529 (13,270)
------- -------
Net cash used by operating activities (112,322) (382,415)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (Purchase) of Equipment, net (420) (36,262)
------- -------
Net cash used by investing activities (420) (36,262)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 535,500 416,500
Payments on debt (273,370) (4,305)
------- -------
Net cash provided by financing activities 262,130 412,195
------- -------
Net increase in cash 149,388 (6,482)
Cash at beginning of period 34,028 13,382
------- -------
Cash at end of period $183,416 $6,900
======= =======
Supplemental disclosure of non-cash financing activity:
Conversion of accounts payable to notes payable: $89,920 ---
See notes to financial statements.
7
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies:
------------------------------------------
Basis of Presentation
- ---------------------
The accompanying financial statements are unaudited. In the opinion of manage-
ment, all adjustments, which include only normal recurring adjustments necessary
to present fairly the financial position, results of operations, and cash flows
for all periods presented, have been made. The result of operations for interim
periods are not necessarily indicative of the operating results for the full
year.
Footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles has been omitted in
accordance with the published rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's June
30, 1997 Annual Report on Form 10-K.
2. Related Party Transactions:
--------------------------
During the nine month period ended March 31, 1998, the Company's principal
shareholder loaned the Company $335,000 in the form of unsecured demand notes
that bear interest at the rate of 10% per annum. $300,000 of this amount was
used as an initial payment for a new software product that is being developed
by an outside software development firm. $150,000 was charged to development
expenses in the nine month period ended March 31, 1998, and the remaining
$150,000 is included in prepaid expenses and other current assets on the
balance sheet for the period ended March 31, 1998. The remainder of the
$335,000 was used to fund operations.
During the same nine month period the Carolina First Bank loaned the Company
$200,000 in the form of a demand note that was secured by all of the tangible
assets of the Company. In addition to the pledge of assets, the Company's
principal shareholder personally guaranteed this note, which bears interest at
the rate of 9% per annum. Interest expense on these loans and prior borrowings
from shareholders amounted to $81,767 in the nine month period ended March 31,
1998. The Company repaid $242,000 of the unsecured notes to the principal
shareholder during the nine month period. Although no assurances can be given,
management believes that the shareholders and the bank do not intend to demand
repayment of the remaining amounts owed in the foreseeable future. If such a
demand were made, it would have a material adverse impact on the Company's
business and operations. The Company is attempting to secure additional sources
of funding.
During fiscal 1993 and 1992, the Company had a consulting management agreement
with a related entity controlled by its principal shareholder. Effective
8
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
related entity. The amount owed to the related entity as a result of these
agreements was $208 at March 31, 1998, and is included in accounts payable-
related party in the accompanying financial statements.
3. Supplemental Disclosures of Cash Flow Information:
-------------------------------------------------
Cash paid for interest for the periods indicated were as follows:
Nine Months Ended
December 31,
-----------------
1998 1997
-------- --------
Interest, net $10,542 $817
4. Earnings (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
the disclosure of Basic Earnings per Common Share and Diluted Earnings per
Common Share for all periods presented. Adoption of this statement has not
affected the amounts presented in any period.
5. Legal Proceedings
-----------------
The Company filed suit against Computer Management Sciences, Inc. (CMSI) in
the United States District Court for the District of 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 counter-
claim 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.
9
6. Subsequent Event
----------------
On April 17, 1998, the Company executed an agreement with Command Systems, Inc.
("the Creditor") a creditor of the Company, to satisfy $121,500 owed to the
Creditor. The agreement calls for one payment of $10,000 and the issuance of
101,500 shares of $1.00 par value, 6% cumulative, non-voting preferred stock.
This agreement settles all remaining balances owed to the Creditor.
10
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
- ---------------------
The company continued to sell additional PRAXA software modules, software
support services and consulting services to existing customers over the past
nine months. In addition, the Company is actively marketing the latest version
of the PRAXA software to PRAXA users that are no longer covered by support
agreements, because of the ability of the latest version to handle dates beyond
the end of 1999. Three sales of the year 2000 compliant version of PRAXA were
made during the nine month period. Additional prospects are currently in
negotiations with the Company.
In September, 1997, the Company contracted with an independent software develop-
ment firm for the development of a state of the art Enterprise Resource Planning
system. Because of delays that were encountered in the development of the
software, the Company is currently renegotiating the terms of the contract while
exploring alternatives to continuing with the project.
Third Quarter Ended March 31, 1998, Compared to the Third Quarter Ended
- -----------------------------------------------------------------------
March 31, 1997
- --------------
Revenue for the three month period ended March 31, 1998 increased by 87% from
the like period in 1997. Sales of computer systems and software licenses
increased approximately $139,000, while revenue from services increased approx-
imately $1,200. The increase in revenue from the sale of computer systems and
software licenses is due to two sales of the year 2000 compliant version of
PRAXA.
Total costs and expenses decreased by 50% from the third quarter of 1997 to the
same quarter in 1998, primarily due to lower product development costs and
lower cost of services. Both of these costs decreased because of the elimin-
ation of personnel from these functions late in fiscal 1997.
The higher level of sales and decreased costs and expenses resulted in a profit
from operations of approximately $31,000, or 10% of sales, during the third
quarter of fiscal 1998, versus a loss from operations of $377,000 during the
like quarter in fiscal 1997.
11
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
- -----------------------------------------------------------------------------
Revenue for the nine month period ended March 31, 1998, increased by 31%
from the like nine month period in 1997. Sales of computer systems and software
licenses increased by 152% due to the sale of a corporate-wide PRAXA license,
a major license upgrade and the aforementioned sales of the year 2000 compliant
version of PRAXA. Revenue from services declined by 14%. The decrease in
revenue from services is primarily due to customers not renewing their software
support agreements. Management anticipates that this trend will continue in the
future, as customers install other software or become confident of their own
capabilities to support the PRAXA software.
Total costs and expenses decreased by 37% from the 1997 period to the same
period in 1998. This decrease is primarily due to the elimination of personnel
from the support and product development functions during the fiscal year
ended June 30, 1997.
The increased revenues and decreased costs and expenses resulted in a profit
from operations of approximately $72,000 for the nine months ended March 31,
1998, as compared with a loss from operations of $639,000 for the nine months
ended March 31, 1997.
Earnings (Loss) per Common Share
- --------------------------------
In the fiscal quarter ended March 31, 1998, the Company recorded net earnings
of $714 or $0.00 per common share. In the fiscal quarter ended March 31, 1997,
the Company experienced a net loss of ($396,529) or ($0.04) per common
share.
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS 128) "Earnings per Share", which requires
the disclosure of Basic Earnings per Common Share and Diluted Basic Earnings
per Common Share for all periods presented. Adoption of this statement has not
affected the earnings per share amounts presented in any period.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1998, the working capital deficit was $1,350,823 as compared to a
deficit of $1,368,681 at June 30, 1997.
During the three month period ended March 31, 1998, the Company resolved the
legal actions that were brought by four creditors for nonpayment by issuing
notes and a schedule of payments to three of the creditors and by making a
partial payment and agreeing to issue preferred stock to the fourth. Management
does not believe that any other creditors will seek legal remedies in their
attempts to collect moneys that they are owed by the Company, but there can be
no assurances that they will not do so.
12
During the nine months ended March 31, 1998, the Company borrowed $200,000
bearing interest at a rate of 9%, from the Carolina First Bank, $195,000 of
which was used to repay funds that had been advanced to the Company by it's
major shareholder that were beyond the terms of an existing lending agreement.
The Company also borrowed $335,500 from it's major shareholder, $300,000 of
which was used as an initial payment to a software development firm that has
contracted to develop a new Enterprise Resource Planning ("ERP") product for
the Company. The remainder of these funds were used to fund operations. The
Company later repaid $47,000 of the borrowings from it's major shareholder. All
of the borrowings from the major shareholders bear interest at 10% per annum.
Prepaid expenses increased by $153,000 from June 30, 1997, to March 31, 1998,
as a result of the aforementioned initial payment to the software development
firm for the ERP software development project. An increase in current liabil-
ities of approximately $274,000 was mainly due to additional borrowings. At
March 31, 1998, the Company owed $975,924 to shareholders in outstanding notes,
and $156,000 in accrued interest on those notes. Although no assurances can be
given, management believes that the shareholders do not intend to demand
repayment of the amounts owed in the foreseeable future.
Management believes that capital from sources other than operations will be
needed to fund future operations. There can be no assurances that the Company
will be able to raise these additional funds and failure to do so may have a
material adverse impact on the Company's business and operations.
Impact of Recently Issued Accounting Pronouncements
- ---------------------------------------------------
The Financial Accounting Standards Board recently issued Statement No. 130
("SFAS 130"), "Reporting Comprehensive Income". This statement requires
changes in comprehensive income to be shown in a financial statement that is
displayed with the same prominence as other financial statements. While not
mandating a specific financial statement format, the Statement requires that
an amount representing total comprehensive income be reported. The Statement
is effective for fiscal years beginning after December 15, 1997. Reclass-
ification of financial statements for earlier periods is required for compar-
itive purposes. The Company believes the implementation of SFAS 130 will not
have an impact on results of its operations.
The FASB also issued Statement No. 131 ("SFAS 131"), "Disclosures about Seg-
ments of an Enterprise and Related Information". This Statement, which super-
sedes Statement No. 14, "Financial Reporting for Segments of a Business Enter-
prise," changes the way public companies report information about segments.
The Statement, which is based on the management approach to segment reporting,
includes requirements to report segment information quarterly and entity-wide
disclosures about products and services, major customers, and the material
countries in which the entity holds assets and reports revenues. The Statement
is effective for periods beginning after December 15, 1997. Restatement for
earlier years is required for comparative purposes unless impracticable. In
addition, SFAS 131 need not be applied to interim periods in the initial year,
13
however, in subsequent years, interim period information must be presented on a
comparative basis. The Company is currently evaluating this Statement and
its effect on financial statement disclosures.
Part II-Other Information
Item 3. Defaults Upon Senior Securities
As of March 31, 1998 the Company had borrowed $975,924 from three of its
shareholders. The loans are in the form of demand notes that require quarterly
payments of interest to the holders of the notes. The Company has made only one
interest payment of $9,350 against the notes and, as of March 31, 1998, owed
$156,360 in accrued interest to the note holders. This amount is included
in accrued interest-related party in the Company's balance sheet. As of April
27, 1998 the note holders have not requested payment of the interest due on the
notes, but there can be no assurance that no such demand will be made.
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 the nine months
ended March 31, 1998.
14
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: May 13, 1998
By: /s/William C. Wimer
-------------------
William C. Wimer
Vice President, Operations and
Chief Financial Officer
15
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 183,416
<SECURITIES> 0
<RECEIVABLES> 77,738
<ALLOWANCES> 5,050
<INVENTORY> 0
<CURRENT-ASSETS> 432,517
<PP&E> 680,947
<DEPRECIATION> 635,945
<TOTAL-ASSETS> 479,169
<CURRENT-LIABILITIES> 1,783,340
<BONDS> 0
<COMMON> 3,485,412
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 479,169
<SALES> 921,160
<TOTAL-REVENUES> 921,160
<CGS> 9,797
<TOTAL-COSTS> 9,797
<OTHER-EXPENSES> 839,316
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (84,175)
<INCOME-PRETAX> (12,128)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,128)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,128)
<EPS-PRIMARY> (.00)
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