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 December 31, 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
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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 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 February 10, 2000
1
UNITRONIX CORPORATION
INDEX
-------
Page Number
-----------
Part I. Financial Information (Unaudited)
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-
December 31, 1999 and June 30, 1999 3
Consolidated Statements of Income -
Three Months Ended December 31, 1999 and 1998 4
and Six Months Ended December 31, 1999 and 1998
Statement of Changes in Stockholders' Deficit-
Six Months Ended December 31, 1999 5
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2:
Management's Discussion and Analysis of Results of 11
Operations and Financial Condition for the Three Months
Ended December 31, 1999 and the Six Months Ended
December 31, 1999
Part II. Other Information 16
2
UNITRONIX CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
December 31,
1999 June 30,
(Unaudited) 1999 (1)
ASSETS ----------- --------
CURRENT ASSETS:
Cash $21,727 $14,328
Accounts receivable, net of allowance for doubtful
accounts of $3,627 at December 31 and June 30, 1999,
respectively 37,676 50,658
Notes receivable 125,000 0
Prepaid expenses and other current assets 18,728 7,713
--------- ---------
TOTAL CURRENT ASSETS 203,131 72,699
--------- ---------
Notes receivable, long term portion 83,333 0
Property and equipment, at cost less accumulated
depreciation of $432,566 and $429,296 at December 31 and
June 30, 1999, respectively 3,383 6,653
Other assets 2,892 2,895
---------- -------
TOTAL ASSETS $292,739 $ 82,247
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable - related party $515,202 $300,000
Notes payable 0 199,527
Accounts payable 19,276 12,842
Accrued expenses 63,363 77,808
Accrued interest-related party 4,465 7,500
Deferred revenue 103,567 89,736
-------- -------
TOTAL CURRENT LIABILITIES 705,873 687,413
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 December 31 and
June 30, 1999, net of unamortized issuance costs of
$2,750 at December 31, 1999 and $3,300 at June 30,
1999, plus undeclared accumulated dividends of $86,106
at December 31, 1999 and $57,404 at June 30, 1999 1,040,084 1,010,832
STOCKHOLDERS' DEFICIT:
Undesignated capital shares; authorized 2,000,000 shares at
December 31, and June 30, 1999; none outstanding --- ---
Common stock, no par value; authorized 12,000,000 shares;
9,456,932 shares issued and outstanding at
December 31 and June 30, 1999 3,485,412 3,485,412
Additional paid-in capital 6,540 7,090
Accumulated deficit (4,945,170) (5,108,500)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT (1,453,218) (1,615,998)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $292,739 $82,247
========= ========
(1) Derived from audited financial statements.
See notes to consolidated financial statements.
3
UNITRONIX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
------- ------- ------- -------
REVENUE:
Software licenses $8,251 $79,750 $14,721 $246,500
Services 119,311 120,463 265,179 271,775
------- ------- ------- -------
TOTAL REVENUE 127,562 200,213 279,900 518,275
------- ------- ------- -------
COSTS AND EXPENSES:
Cost of software licenses 1,090 69 1,090 11,668
Cost of services 54,402 51,446 105,587 104,122
Product development costs 10,500 0 10,500 0
Selling and marketing 25,866 41,426 55,512 87,004
General and administrative 98,016 131,480 173,665 253,689
------- ------- ------- -------
TOTAL COSTS AND EXPENSES 189,874 224,421 346,354 456,483
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS (62,312) (24,208) (66,454) 61,792
INTEREST INCOME (EXPENSE), NET (7,317) (13,904) (17,453) (25,964)
OTHER INCOME (EXPENSE), NET 0 0 275,939 15,003
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES (69,629) (38,112) 192,032 50,831
------- ------- ------- -------
PROVISION FOR INCOME TAXES 0 0 0 0
------- ------- ------- -------
NET INCOME (LOSS) $(69,629) $(38,112) $192,032 $50,831
======= ======= ======= =======
Basic net income (loss)per share $(0.01) $(0.01) $0.02 $0.00
======= ======= ======= =======
Shares used in computing basic net
income (loss) per share 9,456,932 9,456,932 9,456,932 9,456,932
========= ========= ========= =========
Diluted net income (loss) per share $(0.01) $(0.01) $0.02 $0.00
========= ========= ========= =========
Shares used in computing diluted net
income (loss) per share 9,456,932 9,456,932 10,679,465 10,413,660
========= ========= ========== ==========
See notes to consolidated financial statements.
4
UNITRONIX CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(Unaudited)
For the Six Months Ended December 31, 1999
Common Stock
-------------- Additional Total
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 192,032 192,032
Year to date unpaid
accumulated
preferred dividends (28,702) (28,702)
Amortization of
preferred stock
issuance costs (550) (550)
--------- --------- ------ ---------- -----------
Balance,
December 31, 1999 9,456,932 $3,485,412 $6,540 $(4,945,170) $(1,453,218)
========= ========= ====== =========== ===========
See notes to consolidated financial statements.
5
UNITRONIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended December 31,
--------------------------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $192,032 $50,831
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 3,270 13,620
Provision for bad debts (4,775) 0
Non cash expense on issuance of stock options
to consultant 0 7,020
Decreases (increases) in operating assets:
Accounts receivable 17,757 37,168
Notes receivable (208,333) 0
Prepaid expenses and other current assets (11,015) 2,954
Other assets 3 212
Increases (decreases) in operating liabilities:
Accounts payable 6,434 (36,541)
Accrued expenses (14,445) (22,898)
Accrued interest (3,035) (4,370)
Deferred revenue 13,831 16,593
------- -------
Net cash provided (used) by operating activities (8,276) 64,589
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 268,202 0
Repayments of borrowings (252,527) (43,257)
------- -------
Net cash provided (used) by financing activities 15,675 (43,257)
------- -------
Net increase in cash 7,399 21,332
Cash at beginning of period 14,328 75,466
------- -------
Cash at end of period $21,727 $96,798
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $30,428 $30,334
Taxes $410 $2,631
See notes to consolidated financial statements.
6
UNITRONIX CORPORATION
NOTES TO CONSOLIDATED 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.
The consolidated financial statements include the accounts of Unitronix Corp-
oration and its majority-owned subsidiary, Interactive Mining Technologies, LLC.
All significant inter-company accounts and transactions have been eliminated.
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 Six Months Ended
December 31, December 31,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Numerator:
Net income (loss) $(69,629) $(38,112) $192,032 $50,831
Preferred dividends (14,351) (14,351) (28,702) (28,702)
Amortization of preferred stock
issuance cost (275) (275) (550) (550)
-------- ------- ------- -------
Income available to common shareholders $(84,255) $(52,738) $162,780 21,579
======== ======= ======= =======
7
UNITRONIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
continued
Denominator:
Weighted average number of
shares issued and
outstanding 9,456,932 9,456,932 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 --- --- 265,805 0
Assumed conversion of
preferred stock --- --- 956,728 956,728
---------- ---------- ---------- ----------
Total shares 9,456,932 9,456,932 10,679,465 10,413,660
========== ========== ========== ==========
Basic net income per share $(0.01) $(0.01) $0.02 $0.00
========== ========== ========== ==========
Diluted net income per share $(0.01) $(0.01) $0.02 $0.00
========== ========== ========== ==========
The number of stock options outstanding was 465,000 as of December 31, 1999,and
December 31, 1998. The number of potential shares convertible into common stock
from the exercise of convertible preferred stock was 956,728 as of December 31,
1999 and 1998. Neither of these situations qualify as common stock equivalents
for the three month periods ended December 31, 1999 and 1998, as they would have
an antidilutive effect on earnings per share.
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.
8
UNITRONIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
continued
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 $300,000 settlement was credited to non-operating income during the period
ended December 31, 1999, and the $250,000 note was recorded as a note receiv-
able. Legal fees of $24,061 that were incurred in conjunction with the settle-
ment were charged to non-operating expenses 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 December 31, 1999 and 1998 was $0 and $3,688, respect-
ively.
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,
for a one year period, bearing interest at the prime rate.
On October 29, 1999, in response to a request for repayment by the bank, the
Company's principal shareholder paid the principal of $199,000 and interest due
of $4,202.49 to the Carolina First Bank. In turn, the Company executed a note
with the Company's principal shareholder in the amount of $203,202.49. This
note is due upon demand and bears interest at the rate of 10%.
5. Related Party Transactions
--------------------------
At the time that the $200,000 loan from the Carolina First Bank was granted in
1997, the Board of Directors of the Company approved the issue of 200,000 shares
of the Company's common stock to the principal shareholder as compensation for
the risk that the principal shareholder assumed when he personally guaranteed
the loan. These shares were never issued to the principal shareholder.
In recognition of the fact that the shares that had been granted will not be
issued, and as compensation for the additional risk that the principal share-
holder has taken in granting the loan of $203,202.49 to the Company, the
Company's Board of Directors has resolved to issue to the principal shareholder
warrants for the purchase of the Company's common shares at a price of $0.125
per share in the following amounts: (1) 400,000 shares for guaranteeing the
original loan from the Carolina First Bank, (2) 100,000 shares for each of the
two one-year renewals of the loan, and (3) 100,000 shares at the end of each
9
UNITRONIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
continued
fiscal year, beginning with the fiscal year ending June 30, 2000, for each
year the note to the principal shareholder remains unpaid.
During the six month period ended December 31, 1999, in addition to the loan
discussed above, the Company's principal shareholder loaned the Company $65,000
to be used to fund operations. During the same six month period, $53,000 of
this amount was repaid, leaving an outstanding balance of $12,000. This amount
is in addition to a $300,000 loan that was made to the Company by the same
shareholder in 1998. These notes bear interest at the rate of 10% per annum.
6. Operating Segments
------------------
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," in fiscal 1999. SFAS No. 131 established standards
for reporting information about operating segments in the Company's financial
statements. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision maker is the Chief Executive Officer of the Company.
The Company organizes its business units into two reportable segments: software
licenses, and services. The segments' accounting policies are the same as those
described in the summary of significant accounting 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 month and six month periods
ended December 31, 1999 and 1998, is presented below.
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Software Licenses:
Revenue $8,251 $79,750 $14,721 $246,500
Costs and expenses 108,381 135,962 169,090 277,570
-------- ------- ------- -------
(Loss) for segment (100,130) (56,212) (154,369) (31,070)
-------- ------- ------- -------
Services:
Revenue 119,311 120,463 265,179 271,775
Costs and expenses 81,493 88,459 177,264 178,913
-------- ------- ------- -------
Income for segment 37,818 32,004 87,915 92,862
-------- ------- ------- -------
Total income (loss) for segments $(62,312) $(24,208) $(66,454) $61,792
======== ======= ======= =======
10
UNITRONIX CORPORATION
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
FORWARD LOOKING STATEMENTS
- --------------------------
In addition to historical information, this Quarterly Report contains forward-
looking statements. The forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those reflected in such forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect
management's opinions only as of the date hereof. The Company undertakes no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. Readers should carefully review the risk factors
described in other documents the Company files from time to time with the SEC,
including the Annual Report on Form 10-K for the fiscal year ended June 30, 1999
and the Quarterly Reports on Form 10-Q filed by the Company in fiscal 2000.
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 six months. In
addition, the Company was 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 orders were received during the six
month period ended December 31, 1999 and management does not anticipate
receiving further orders for this product from existing PRAXA users. Also,
there can be no assurances that additional sales of the current PRAXA software
to new customers will occur in the future.
Discussions are continuing with another software development firm to have that
firm create a graphical user interface for the Company's PRAXA software and to
modify the software to operate with one or more relational database systems.
Several PRAXA users have expressed interest in these features. An assessment
of the likelihood of selling these features to the PRAXA user base is being
made. There can be no assurance that these enhancements to the PRAXA software
will be developed or that they can be sold if they are developed.
Second Quarter Ended December 31, 1999, Compared to the Second Quarter Ended
- ----------------------------------------------------------------------------
December 31, 1998
- -----------------
Total revenue for the quarter ended December 31, 1999, decreased by 36% from
the period ended December 31, 1998. The 90% decrease in revenue from the sale
of software licenses was due to selling only one PRAXA license upgrade to an
existing PRAXA customer during the 1999 period. A decrease in revenue from
software maintenance and support of approximately $10,500 was partially offset
by an increase in revenue from consulting and training services of $9,350,
resulting in a decrease in total services revenue of 1%. Management anticipates
11
that revenue from software and services will continue to decline as PRAXA
customers will continue to migrate to other software packages if the Company
cannot 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
interface and relational database capabilities. There can be no assurances that
such a partnership will be achieved or that an acceptable product can be
developed by the partnership.
Three Months Ended
December 31,
------------------------
1999 Change 1998
------- -------- -------
Software licenses $8,251 (90)% $79,750
Percentage of revenue 6.5% 39.8%
Services $119,311 (1)% $120,463
Percentage of revenue 93.5% 60.2%
------- -------
Total revenue $127,562 (36)% $200,213
======= =======
The $1,090 cost of software licenses for the period ended December 31, 1999,
was for software that was purchased for resale. Selling expenses declined by
38% 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. The cost of
services increased by 6% from the 1998 period to the comparable period in 1999
due to the increased sales of training and consulting services.
Product development expenses of $10,500 were incurred in the period ended
December 31, 1999. This amount was expended as an initial payment to a software
development firm that is developing predictive software for identifying target
areas for mineral exploration. This software will be marketed by Interactive
Mining Technologies, LLC, a newly-formed limited liability company that is 60%
owned by Unitronix, as is discussed in detail under the section of this item
headed "Majority Owned Subsidiary".
General and administrative expenses decreased by approximately $33,000, or 25%,
from the 1998 period to the 1999 period due to lower anticipated fees for audit
and tax preparation services, lower computer equipment maintenance expenses, and
reduced equipment depreciation charges. The 15% reduction in total costs and
expenses was more than offset by the 36% reduction in revenues from the 1998
period to the 1999 period, resulting in a loss from operations of $62,312 in the
1999 period as compared with a loss from operations of $24,208 in the 1998
period.
12
Three Months Ended
December 31,
------------------------
1999 Change 1998
------- -------- -------
Cost of software licenses $ 1,090 1480% $ 69
Percentage of revenue .9% ---
Cost of services $ 54,402 6% $ 51,446
Percentage of revenue 42.6% 25.7%
Product development costs $ 10,500 --- $ 0
Percentage of revenue 8.2% ---
Selling expenses $ 25,866 (38)% $ 41,426
Percentage of revenue 20.3% 20.7%
General and administrative expenses $ 98,016 (25)% $131,480
Percentage of revenue 76.8% 65.7%
------- -------
Total costs and expenses $189,874 (15)% $224,421
======= =======
Six Months Ended December 31, 1999, Compared to the Six Months Ended
- --------------------------------------------------------------------
December 31, 1998
- -----------------
Total revenue for the six months ended December 31, 1999, decreased by 46%
from the corresponding period in 1998. Revenue from the sale of software
licenses decreased by 94% because only one PRAXA license upgrade was sold
during the 1999 period as compared with the sale of four license upgrades in
the 1998 period. Total revenue from the sale of services decreased by
approximately $6,600, or 2%, from the six months ended December 31, 1998 to
the corresponding 1999 period. This decrease was due to a decrease in revenue
from software support of approximately $25,400 that was partially offset by an
increase in revenues from professional services of $18,800.
Six Months Ended
December 31,
------------------------
1999 Change 1998
------- -------- -------
Software licenses $14,721 (94)% $246,500
Percentage of revenue 5.3% 47.6%
Services $265,179 (2)% $271,775
Percentage of revenue 94.7% 52.4%
------- -------
Total revenue $279,900 (46)% $518,275
======= =======
During the six month period ended December 31, 1999, two license transfers for
Xentis software were purchased for resale to users of the PRAXA system.
During the comparable period in 1998, three license upgrades for Xentis
were purchased by the Company for resale to PRAXA users. The cost of services
increased by 1% from the 1998 period to the like period in 1999 due to
increased sales of training and consulting services.
Product development expenses of $10,500 were incurred during the six months
ended December 31, 1999, for payment to a software development firm that is
13
developing a software product for Interactive Mining Technologies LLC. This
subject is discussed in detail under the section of this item headed "Majority
Owned Subsidiary".
Selling expenses decreased by 36% from the six months ended December 31, 1998,
to the comparable period in 1999 because of lower sales commission expense,
a direct result of the lower level of sales achieved during the 1999 period.
General and administrative expenses decreased by 32% from the 1998 period to
the 1999 period because of lower anticipated fees for audit and tax preparation
services, reduced equipment maintenance expenses and lower equipment deprec-
iation expenses. The 32% reduction in total costs and expenses from the six
months ended December 31, 1998, to the comparable period in 1999 was offset
by the 46% reduction in total revenue for the same period, resulting in a loss
from operations of $66,454 for the 1999 period as compared with income from
operations of $61,792 in the 1998 period.
During the six month period ended December 31, 1999, the Company settled a
dispute with InterObjects, a software development firm that had been contracted
to develop an Enterprise Resource Planning system for the Company. The terms
of the settlement call for InterObjects to return to the Company $300,000 that
was paid to InterObjects by the Company in 1997 as partial payment for the new
software. The Company was paid $50,000 of the settlement amount in August,
1999, and received a note for the remaining $250,000, which will be paid over
a 24 month period. The $300,000 settlement was recorded as other income and
the legal fees that were incurred by the Company in reaching the settlement
was recorded as other expense. The addition of the net amount of the other
income and expenses resulted in income before taxes for the six months ended
December 31, 1999, of $192,032.
Six Months Ended
December 31,
------------------------
1999 Change 1998
------- -------- -------
Cost of software licenses $ 1,090 (91)% $ 11,668
Percentage of revenue .4% 2.2%
Cost of services $105,587 1% $104,122
Percentage of revenue 37.7% 20.1%
Product development costs $ 10,500 --- $ 0
Percentage of revenue 3.8% ---
Selling expenses $ 55,512 (36)% $ 87,004
Percentage of revenue 19.8% 16.8%
General and administrative expenses $173,665 (32)% $253,689
Percentage of revenue 62.0% 48.9%
------- -------
Total costs and expenses $346,354 (32)% $456,483
======= =======
14
Majority Owned Subsidiary
- -------------------------
During the period ended December 31, 1999, the Company, along with Goldsat
Mining, Inc., an Alberta, Canada corporation, organized a South Carolina limited
liability company that is 60% owned by Unitronix and 40% owned by Goldsat
Mining. Goldsat Mining, which is listed on the Canadian Venture Exchange, was
founded in 1996 and is dedicated to mineral exploration. The new company,
initially named Geotronix, LLC, and later renamed Interactive Mining Technol-
ogies, LLC ("IMT"), will initially 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.
A Montreal area software development firm that has experience in developing
geological software for the mining industry was selected by the Company to
develop a model that will be the basis for the software product to be developed
in the next phase of the project. The envisioned product will utilize existing
geographic information system (GIS) components and remote sensing techniques to
identify volcanogenic-hosted massive sulfide deposits in the Pre-Cambrian
Shield. The project may be terminated by the Company upon completion of the
model if it appears that a commercially successful product cannot be developed.
The Company is committed to fund the development of the model, the cost of
which is currently estimated at approximately $200,000, as a portion of its
capital contribution to IMT. Under certain conditions, the Company can discon-
tinue its involvement in the project upon completion of the model. If the
Company elects to continue with the project, an additional capital contribution
of approximately $325,000 will be made by the Company to IMT for development
of the software and other operating expenses. As its initial capital contri-
bution to IMT, Goldsat Mining, Inc. will place in trust a 67% interest in two
properties located in Northwestern Quebec that may contain commercially viable
mineral deposits. The 67% interest in the properties can be assumed by IMT at
any time the management of IMT chooses to do so. At its own expense, Goldsat is
providing certain expert technical services to IMT. The costs of these services
represent additional capital contributions to IMT by Goldsat.
There can be no assurance that the envisioned software can be developed or that
it can be marketed if it is developed. Also, there can be no assurance that
the properties to be assigned to IMT by Goldsat Mining contain commercially
exploitable mineral deposits.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1999, the working capital deficit was $(502,742) as compared
to a deficit of $(614,714) at June 30, 1999. The improvement in the Company's
working capital position is due to the cash received and the note receivable
from the settlement reached with InterObjects.
Management projects that capital from sources other than operations will be
required to fund the Company's ownership share of Interactive Mining Tech-
nologies. 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
15
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 March 31, 2000. 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 March 31, 2000, will be available on acceptable terms or at
all, in which case the Company may be forced to cease operations.
Year 2000 Readiness
- -------------------
The Company was informed on January 14, 2000, of one minor problem with the year
2000 compliant version of the PRAXA software. This problem incorrectly
reported certain dates on a few reports and inquiries, but did not create
corrupted data files. A solution to the problem was developed within 48 hours
and the programs that were revised were shipped to all users by January 21.
The Company has not experienced any Y2K related problems with the software and
hardware that is used for administration and software development and support
activities.
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 as 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
16
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. All payments that were scheduled to be received through January 1,
2000, have been received by the Company.
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.
17
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: February 10, 2000
By: /s/William C. Wimer
---------------
William C. Wimer
Vice President, Operations and
Chief Financial Officer
18
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