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, 1999
-------------------------.
Commission file number 0-17080
--------
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
---------------------------------------------------
(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 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 12, 1999
1
UNITRONIX CORPORATION
INDEX
-------
Page Number
-----------
Part I. Financial Information (Unaudited)
Item 1:
Balance Sheets-
September 30, 1999 and June 30, 1999 3
Statements of Income -
Three Months Ended September 30, 1999 and 1998 4
Statement of Changes in Stockholders' Deficit-
Three Months Ended September 30, 1999 5
Statements of Cash Flows -
Three Months Ended September 30, 1999 and 1998 6
Notes to Financial Statements 7
Item 2:
Management's Discussion and Analysis of Results of 11
Operations and Financial Condition for the Three Months
Ended September 30, 1999
Part II. Other Information 13
2
UNITRONIX CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
September 30,
1999 June 30,
(Unaudited) 1999 (1)
ASSETS ----------- --------
CURRENT ASSETS:
Cash $34,441 $14,328
Accounts receivable, net of allowance for doubtful
accounts of $3,627 and $8,402 at September 30 and
June 30, 1999, respectively 79,713 50,658
Notes receivable 125,000 0
Prepaid expenses and other current assets 16,676 7,713
--------- ---------
TOTAL CURRENT ASSETS 255,830 72,699
--------- ---------
Notes receivable, long term portion 114,583 0
Property and equipment, at cost less accumulated
depreciation of $430,931 and $429,296 at September 30 and
June 30, 1999, respectively 5,018 6,653
Other assets 2,892 2,895
---------- -------
TOTAL ASSETS $378,323 $ 82,247
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable - related party $302,000 $300,000
Notes payable 199,000 199,527
Accounts payable 18,100 12,842
Accrued expenses 71,536 77,808
Accrued interest-related party 15,000 7,500
Deferred revenue 116,192 89,736
-------- -------
TOTAL CURRENT LIABILITIES 721,828 687,413
COMMITMENTS AND CONTINGENCIES
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, 1999, net of unamortized issuance costs of
$3,025 at September 30, 1999 and $3,300 at June 30,
1999, plus undeclared accumulated dividends of $71,755
at September 30, 1999 and $57,404 at June 30, 1999 1,025,458 1,010,832
STOCKHOLDERS' DEFICIT:
Undesignated capital shares; authorized 2,000,000 shares at
September 30, and June 30, 1999; 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, 1999 3,485,412 3,485,412
Additional paid-in capital 6,815 7,090
Accumulated deficit (4,861,190) (5,108,500)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT (1,368,963) (1,615,998)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $378,323 $82,247
========= ========
(1) Derived from audited financial statements.
See accompanying notes to financial statements.
3
UNITRONIX CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
September 30,
1999 1998
------ ------
REVENUE:
Computer systems and
software licenses $6,470 $166,750
Services 145,868 151,312
------- -------
TOTAL REVENUE 152,338 318,062
------- -------
COSTS AND EXPENSES:
Cost of computer systems
and software licenses 0 11,599
Cost of services 51,185 52,676
Selling and marketing 29,646 45,578
General and administrative 75,649 122,209
------- -------
TOTAL COSTS AND EXPENSES 156,480 232,062
------- -------
INCOME (LOSS) FROM OPERATIONS (4,142) 86,000
INTEREST INCOME (EXPENSE), NET (10,136) (12,060)
OTHER INCOME (EXPENSE), NET 275,939 15,003
------- -------
INCOME BEFORE INCOME TAXES 261,661 88,943
------- -------
PROVISION FOR INCOME TAXES 0 0
------- -------
NET INCOME $261,661 $88,943
======= =======
Basic net income per share $0.03 $0.01
======= =======
Shares used in computing basic net
income per share 9,456,932 9,456,932
======= =======
Diluted net income per share $0.02 $0.01
======= =======
Shares used in computing diluted net
income per share 10,813,660 10,662,891
======= =======
See notes to financial statements.
4
UNITRONIX CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(Unaudited)
For the Three Months Ended September 30, 1999
Common Stock
-------------- Additional
Shares Paid-in Accumulated Stockholders'
Issued Amount Capital Deficit Deficit
------ ------ ------- ------- -------
Balance,
June 30, 1999 9,456,932 $3,485,412 $7,090 $(5,108,500) $(1,615,998)
Net profit 261,661 261,661
Unpaid accumulated
preferred dividends (14,351) (14,351)
Amortization of
preferred stock
issuance costs (275) (275)
--------- --------- ------ ---------- -----------
Balance,
September 30, 1999 9,456,932 $3,485,412 $6,815 $(4,861,190) $(1,368,963)
========= ========= ====== =========== ===========
See notes to financial statements.
5
UNITRONIX CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended September 30,
--------------------------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $261,661 $88,943
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,635 6,810
Provision for bad debts (4,775) 0
Non cash expense on issuance of stock options
to consultant 0 3,510
Decreases (increases) in operating assets:
Accounts receivable (24,280) (13,420)
Notes receivable (239,583) 0
Prepaid expenses and other current assets (8,963) (4,134)
Other assets 3 120
Increases (decreases) in operating liabilities:
Accounts payable 5,258 (24,721)
Accrued expenses (6,272) (18,438)
Accrued interest 7,500 (13,510)
Deferred revenue 26,456 17,840
------- -------
Net cash provided by operating activities 18,640 43,000
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 2,000 0
Repayments of borrowings (527) (21,071)
------- -------
Net cash provided (used) by financing activities 1,473 (21,071)
------- -------
Net increase in cash 20,113 21,929
Cash at beginning of period 14,328 75,466
------- -------
Cash at end of period $34,441 $97,395
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $5,139 $25,570
Taxes $410 $2,631
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, 1999 Annual Report on Form 10-K.
2. Net Income (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. Shares used in computing basic and
diluted net income (loss) per share are based on the weighted average shares
outstanding in each period, excluding treasury stock. Basic net income (loss)
per share excludes any dilutive effect of stock options and convertible
preferred stock. Diluted net income per share includes the dilutive effect
of the assumed exercise of stock options using the treasury stock method,
and the assumed conversion of the outstanding convertible preferred stock. The
following table shows the computation of basic and diluted net income per share:
Three Months Ended
September 30,
------------------
1999 1998
---- ----
Numerator:
Net income $261,661 $88,943
Preferred dividend 0 0
-------- -------
Income available to common shareholders $261,661 $88,943
======== =======
7
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
continued
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 would have
been purchased with the proceeds of
those options 92,404 249,231
Assumed conversion of preferred stock 956,728 956,728
--------- ---------
Total shares 10,506,064 10,662,891
========= ==========
Basic net income per share $0.03 $0.01
========= =========
Diluted net income per share $0.02 $0.01
========= =========
The number of stock options outstanding was 465,000 as of September 30, 1999,and
360,000 as of September 30, 1998. The number of potential shares convertible
into common stock from the exercise of convertible preferred stock was 956,728
as of September 30, 1999 and 1998.
3. 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 a client-server ERP software system,
such 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 a negative outcome will not
result in an adverse effect on the Company's financial position or results of
its operations.
On June 30, 1998, the Company filed for arbitration against InterObjects, a
software development firm, for breach of contract and failure to meet
milestones in the development of a new Enterprise Resource Planning system.
The Company made a prepayment of $300,000 in September of 1997 related to this
contract, all of which was charged to operating expenses in the year ended
June 30, 1998. Development of the new system by InterObjects ceased in January,
1998, and the contract was subsequently terminated.
The Company and InterObjects reached an agreement to settle their dispute during
the period ended September 30, 1999, without resorting to arbitration. Inter-
Objects agreed to repay the $300,000 that the Company had advanced to them for
the terminated software project. An initial payment of $50,000 was made by
8
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
continued
InterObjects in August, 1999. A note for the remaining $250,000 that will be
paid by the founder of InterObjects in equal monthly installments over a 24
month period, along with interest on the unpaid balance, was accepted by the
Company. The first three monthly payments had been received by the Company as
of November 5, 1999.
The $300,000 settlement was credited to non-operating income during the period,
and the $250,000 note was recorded as a note receivable. Legal fees of
$24,061 that were incurred in conjunction with the settlement were charged to
non-operating expense during the same period.
4. Notes Payable
-------------
On August 1, 1993, the Company incurred 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 was payable in monthly
installments of $527 and the final payment was made on July 1, 1999. The note
payable balance as of September 30, 1999 and 1998 was $0 and $5,269,
respectively.
On July 14, 1997, the Carolina First Bank loaned the Company $200,000 in the
form of a demand note that was secured by all of the assets of the Company and
the guarantee of the Company's principal shareholder. This note was renewed for
$199,000 on June 30, 1998, for a one year period and again on July 28, 1999,
bearing interest at the prime rate. The renewed note is due July 28, 2000.
5. Related Party Transactions
--------------------------
During the period ended September 30, 1999, the Company's principal shareholder
loaned the Company $2,000 to be used for paying expenses. This amount is in
addition to a $300,000 loan that was made to the Company by the same share-
holder in 1998. Both notes bear interest at the rate of 10% per annum.
6. Operating Segments
------------------
The Company organizes its business units into two reportable segments: computer
systems and software licenses, and computer services. The segments' accounting
policies are the same as those described in the summary of significant account-
ing policies except that interest expense and non-operating income and expenses
are not allocated to the individual operating segments when determining segment
profit or loss. The Company evaluates performance based on profit or loss from
operations before interest and income taxes not including nonrecurring gains
and losses.
A summary of the segment information for the three months ended September 30,
1999 and 1998 is presented below.
9
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
continued
Three Months Ended
September 30,
------------------
1999 1998
---- ----
Computer systems and software licenses:
Revenue $6,470 $166,750
Costs and expenses 60,709 141,608
-------- -------
Income (loss) for segment (54,239) 25,142
-------- -------
Services:
Revenue 145,868 151,312
Costs and expenses 95,771 90,454
-------- -------
Income for segment 50,097 60,858
-------- -------
Total income (loss) for segments $(4,142) $86,000
======== =======
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 PRAXA software, software support services and
consulting services to existing customers during the past three months. In
addition, the Company is marketing the latest version of the PRAXA software to
PRAXA users that are not covered by support agreements because of the ability
of the latest version to handle dates in the twenty-first century (year 2000
compliant or Y2K compliant), although no further orders were received during
the period ended September 30, 1999, and the Company does not expect to receive
additional orders in future periods. Also, there can be no assurances that
additional sales of the PRAXA software to new customers will occur.
First Quarter Ended September 30, 1999, Compared to the First Quarter Ended
- ---------------------------------------------------------------------------
September 30, 1998
- ------------------
Total revenue for the period ended September 30, 1999, decreased by 52% from
the period ended September 30, 1998. The 96% decrease in revenue from the sale
of computer systems and software licenses was due to selling only two add-on
modules to existing PRAXA customers during the 1999 period. A decrease in
revenue from software maintenance and support of approximately $15,000 was
partially offset by an increase in revenue from consulting and training serv-
ices of $9,450, resulting in a decrease in total services revenue of 4%.
Management anticipates that revenue from services will continue to decline as
PRAXA customers continue to migrate to other software packages, unless the
Company can locate or develop products that are competitive with the current
software offerings from other vendors. To this end, the Company is continuing
its attempts to structure a partnership with a software company that has the
expertise and resources to enhance the PRAXA system with a graphic user inter-
face and relational database capabilities. There can be no assurances that
such a partnership will be achieved.
The cost of computer systems and software licenses was nil in the period ended
September 30, 1999, since no software was purchased for resale. Selling
expenses declined by 35% from the 1998 period to the 1999 period due to lower
sales commissions, a direct result of the low level of sales of software
licenses. General and administrative expenses decreased by approximately
$47,000, or 38%, from the 1998 period to the 1999 period due to lower antici-
pated fees for audit and tax preparation services, lower computer equipment
maintenance expenses, and reduced equipment depreciation charges. The 33%
reduction in total costs and expenses was more than offset by the 52% reduct-
ion in revenues from the 1998 period to the 1999 period, resulting in a loss
from operations of $4,142 in the 1999 period as compared with income from
operations of $86,000 in the 1998 period.
11
Other Significant Events
- ------------------------
During the period ended September 30, 1999, the Company, along with Goldsat
Mining, Inc., organized a South Carolina limited liability company that is
60% owned by Unitronix and 40% owned by Goldsat Mining. Goldsat Mining is a
Canadian corporation, listed on the Alberta Stock Exchange, that was founded
in 1996 and is dedicated to mineral exploration. The new company, Geotronix,
LLC, will develop and market predictive software for the mining industry. The
software will be designed to assist in identifying locations with high potential
for containing commercially exploitable mineral deposits. Negotiations are
currently being conducted with an independent software developer to develop the
software product for Geotronix. There can be no assurance that the software
will be developed or that it can be marketed if it is developed.
Unitronix Corporation is committed to fund the development of the software,
the cost of which is currently estimated at approximately $500,000, as its
initial contribution to Geotronix. The Company can terminate its funding
commitment and its ownership position in Geotronix after the first phase of the
software development project with a total estimated expenditure of approximately
$125,000, if it appears that a commercially successful product cannot be
developed.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1999, the working capital deficit was $(465,998) as compared
to a deficit of $(614,714) at September 30, 1998. The improvement in the
Company's working capital position is primarily due to the cash received and
the note receivable from the favorable settlement reached with InterObjects.
Management projects that capital from sources other than operations will be
required to fund the Company's ownership share of Geotronix. The Company
anticipates raising this capital through the private placement of stock in the
Company. This plan will require that new shares be authorized by the current
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 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 Company's business and operations.
Management projects that sufficient funds will not be generated from the sale of
existing products and services to allow the Company to operate through the
period ended December 31, 1999. As a result, management anticipates that
additional financing will be required during the next period to sustain the
Company's operations. There can be no assurance that funds sufficient to
operate through December 31, 1999, will be available on acceptable terms or at
all, in which case the Company may be forced to cease operations.
Year 2000 Readiness
- -------------------
As of September 30, 1999, the year 2000 compliant version of the Company's
PRAXA software had been shipped to all of the customers that are covered by
support agreements. Management is not aware of any customers that have
received the year 2000 compliant software that are not using it. Also,
management is not aware of any unresolved problems with the software.
12
All of the DEC computers and personal computers that the Company uses for
customer support, software development and administrative functions have been
tested for year 2000 compliance. After upgrading the operating system on one
DEC computer, all machines are now Y2K compliant, with the exception of one
DEC MicroVax, the use of which will be discontinued before December 31, 1999.
PART II - OTHER INFORMATION
Item 1. 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,
such 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 a negative outcome will not
result in an adverse effect on the Company's financial position or results of
its operations.
On June 30, 1998, the Company filed for arbitration against InterObjects, a
software development firm, for breach of contract and failure to meet
milestones in the development of a new Enterprise Resource Planning system.
The Company made a prepayment of $300,000 in September of 1997 related to this
contract, all of which was charged to operating expenses in the year ended
June 30, 1998. Development of the new system by InterObjects ceased in January,
1998, and the contract was subsequently terminated.
The Company and InterObjects reached an agreement to settle their dispute during
the period ended September 30, 1999, without resorting to arbitration. Inter-
Objects agreed to repay the $300,000 that the Company had advanced to them for
the terminated software project. An initial payment of $50,000 was made by
InterObjects in August, 1999. A note for the remaining $250,000 that will be
paid by the founder of InterObjects in equal monthly installments over a 24
month period, along with interest on the unpaid balance, was accepted by the
Company. The first three installment payments had been received by the Company
as of November 5, 1999.
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.
13
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 12, 1999
By: /s/William C. Wimer
---------------
William C. Wimer
Vice President, Operations and
Chief Financial Officer
14
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 34,441
<SECURITIES> 0
<RECEIVABLES> 83,340
<ALLOWANCES> 3,627
<INVENTORY> 0
<CURRENT-ASSETS> 255,830
<PP&E> 435,949
<DEPRECIATION> 430,931
<TOTAL-ASSETS> 378,323
<CURRENT-LIABILITIES> 721,828
<BONDS> 0
<COMMON> 3,485,412
956,728
0
<OTHER-SE> 6,815
<TOTAL-LIABILITY-AND-EQUITY> 378,323
<SALES> 152,338
<TOTAL-REVENUES> 152,338
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 156,480
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,649
<INCOME-PRETAX> 261,661
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,278)
<DISCONTINUED> 0
<EXTRAORDINARY> 275,939
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