Form 10-K
Securities and Exchange Commission
Washington, DC 20549
ANNUAL REPORT PURSUANT TO SECTON 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2003
-----------------
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)
(Registrant's telephone number, including area code)
(978) 535-3912
---------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
--------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
(See definition of affiliate in Rule 405.)
1
Based upon the latest sale price of the stock as of September 9, 2003, of
$0.21 per share, the aggregate market value, as of September 26, 2003 of
the shares of common stock held by non-affiliates was $786,210. "Non-
affiliates" includes all share owners of the registrant other than its officers,
directors and owners of more than ten percent of its outstanding stock.
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
9,866,918 shares of common stock, no par value, as of September 26, 2003
DOCUMENTS INCORPORATED BY REFERENCE
NONE
2
Forward-Looking Statements
In addition to historical information, this Annual Report contains "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those reflected in these forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
the Section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations". 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 Securities and
Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed
by the Company in fiscal year 2004.
PART I
Item 1. BUSINESS
- ------- --------
GENERAL
Unitronix Corporation ("the Company") is a software development and services
company that is currently in transition from being a provider of material
requirements planning (MRP) systems with its PRAXA product to being a provider
of knowledge-based tools for the mineral exploration industry. Additionally,
the Company has two Canadian-based subsidiaries that were formed to explore for
minerals. One of these subsidiaries is currently actively engaged in mineral
exploration activities in the Province of Ontario.
The cost of updating PRAXA to utilize current information technologies and the
emergence of several dominant players in the MRP market, such as SAP, Oracle and
J.D. Edwards convinced management that the Company should consider other
ventures for its future business endeavors. The ensuing exploration of several
technology based opportunities resulted in the Company focusing on the rapidly
expanding geomatics* industry. Utilizing its in-house project management and
software development experience and the services of several recognized
scientists and geomatics experts, the Company has developed a mineral potential
analysis tool.
Unitronix Corporation, ("the Company"), was founded and incorporated in 1975
in the State of New Jersey, and operated as a distributor of computer products
until 1986. During that year the Company purchased the PRAXA software
package from Xerox Corporation. PRAXA is a Manufacturing Resource Planning
(MRPII) system that integrates manufacturing, distribution and financial
applications into one system that monitors and supports material requirements
planning, capacity planning, factory order and cost control, inventory control,
product sales and distribution and financial accounting.
* Geomatics, as defined by the Geomatics Industry Association of Canada, is "A
technology and service sector focusing on the acquisition, storage, analysis,
dissemination and management of geographically referenced information for
improved decision making."
3
From 1986 until 1998 the Company was in the business of marketing, installing
and supporting turnkey computer systems that incorporated PRAXA and computer
equipment manufactured by DEC. The Company also separately licensed PRAXA
software to existing users of DEC's VAX and Alpha lines of computers. Since
1998 the Company has not sold computer equipment, and the Company's sole source
of revenue has been the sale of PRAXA license upgrades, software support,
consulting services and additional PRAXA modules, to existing customers.
Although PRAXA provides substantial capabilities to small and mid-sized firms,
it is based upon obsolete technology and lacks features that many companies
now demand from their enterprise resource planning systems, such as e-commerce
and customer relationship management. The Company made two attempts to develop
new versions of PRAXA that would have been based upon current technology and
would have provided additional features that customers wanted. Neither attempt
succeeded in producing a completed product.
In 1999 the Company decided that the cost to develop a new system, and the
intense competition in the manufacturing resource planning system market made it
unfeasible to remain in the manufacturing system business. Accordingly, manage-
ment has attempted to sell the PRAXA business segment since that time, and has
redirected the Company into the geomatics industry.
In September, 1999, the Company and a Canadian mineral exploration firm, Goldsat
Mining, Inc., formed a jointly owned limited liability corporation to develop
a software tool that was intended to analyze geo-scientific data in order to
locate areas that have high potential for containing volcanogenic massive
sulfide (VMS) mineralization. The tool utilizes a deposit model and a series of
proprietary algorithms to identify the locations with the most potential within
the area that is examined. The tool, now named "Geo-Sleuth" (trademarked in
Canada), is intended to substantially reduce the time and costs typically
incurred by mineral exploration specialists in locating areas that are worthy of
further study. The limited liability corporation was dissolved in May, 2001,
with the Company becoming the sole owner of all rights to the work in progress
and the work that had been completed to date. After acquiring the sole rights
to Geo-Sleuth, the Company continued to develop and test the tool. The pro-
ducing Noranda mining camp in Rouyn-Noranda, Quebec, was utilized for Alpha
testing. The tool was Beta tested using the Sturgeon Lake mining camp in
Ontario, which is a base metal and precious metal producing region until 1992.
The tool was then applied to a "real-world" test in a relatively unexplored area
near James Bay in Quebec. In all cases, the final product was a mineral
potential analysis map.
As part of its Beta test in the Sturgeon Lake area, the Company undertook a
"ground truthing" program to verify the tool's findings. Lithogeochemical and
petrographic analysis was performed by an independent laboratory on samples that
were collected from areas that Geo-Sleuth identified as meriting further study.
This analysis showed that the areas identified by Geo-Sleuth do contain mineral-
ization that may have commercial value and thus warrant further investigation.
In May, 2002, an Ontario corporation, 1522923 Ontario, Inc., which operates as
Unitronix Mining and Exploration ("Unitronix Exploration") was formed as a
wholly owned subsidiary of the Company to follow-up on the areas of interest in
the Sturgeon Lake area. In June, 2002, the subsidiary staked claims to 128
units in the Sturgeon Lake Camp and vicinity, and in October, 2002, it staked
claims to an additional 15 units. A group of investors that includes the two
principal shareholders of the Company advanced $100,000 to Unitronix Explor-
ation to pay expenses previously incurred in developing and testing Geo-Sleuth,
4
to pay the costs of staking claims to the properties in the Sturgeon Lake area
and to pay for professional services associated with the project. In return,
the investors retained a 75% undivided interest in the claims staked in the
Sturgeon Lake area, which has since been amended to grant the investors 75% of
any net profits realized from the claims by Unitronix Exploration An additional
5% of the net profits from the Sturgeon Lake area claims was granted to
investors for advances of $16,500 that were used to pay for additional claims
staking and associated professional services.
During the quarter ended June 30, 2003, the Company and Unitronix Exploration
signed agreements with Noranda Incorporated ("Noranda") and Inmet Mining
Corporation ("Inmet"), both of which are Canadian mining companies, that allow
Unitronix Exploration to purchase the mineral rights to certain properties
located in the Sturgeon Lake area of Ontario that are currently owned by Noranda
and Inmet, such properties being adjacent to or near some of the properties that
were staked by Unitronix Exploration in 2002. Unitronix Exploration can acquire
the rights to the Noranda and Inmet properties by making certain expenditures
for further exploration of the properties. The terms and conditions of the
agreements between the Company, Unitronix Exploration, Noranda and Inmet are
more fully described in Note 1 to the Consolidated Financial Statements attached
hereto.
One condition of the agreements is that Unitronix Exploration is required to
conduct a Fugro-Megatem (electro-magnetic) survey of the optioned properties
and the adjacent Unitronix Exploration properties in order to further assess the
mineral potential of the properties. This survey was conducted in August, 2003,
and the findings are currently being analyzed by our consultant geological
engineers.
During the fiscal year ended June 30, 2002, the Company formed another subsid-
iary, currently named 3936449 Canada, Incorporated, to satisfy the terms of the
agreement that was negotiated with Goldsat Mining to dissolve the jointly owned
limited liability corporation. Goldsat Mining had the right to acquire 25%
ownership of 3936449 Canada, Incorporated, in exchange for forgiveness of a debt
of $12,639 owed to Goldsat by the dissolved limited liability corporation but
did not exercise its right to convert, resulting in the new corporation being a
wholly owned subsidiary of the Company. This subsidiary may eventually follow-
up on areas of interest identified by Geo-Sleuth during the test near James Bay.
PRODUCTS AND SERVICES
GEO-SLEUTH
----------
Geo-Sleuth is designed to decrease the costs and time typically required when
conducting mineral exploration by automating the early stages of grass roots
exploration. The tool is based on a genetic deposit model and uses commercial
geographic information system (GIS) components, remote sensing techniques
and geo-technical data to select and prioritize areas for further exploration.
Geo-Sleuth organizes the most important characteristics of volcanogenic assoc-
iated massive sulfide deposits and ore forming processes in a unique manner,
using a source-transport-deposition approach. Geo-Sleuth contains a number
of proprietary algorithms that analyze and correlate the various geotechnical
data that are gathered by satellites, aircraft and by hand. The objectives are
to provide substantial cost savings to the user in the exploration process and
to materially increase the probability of mineral discovery by reducing the
number and the size of areas that require ground follow-up.
5
PRAXA
-----
The Company's manufacturing software product, PRAXA, is a third generation MRPII
system that was well accepted by the marketplace in the late 1980's and early
1990's. PRAXA helps manufacturing and distribution firms manage their sales,
distribution, manufacturing and accounting functions. PRAXA is written in COBOL
and operates exclusively on VAX and Alpha computer systems with the VMS oper-
ating system.
Beginning in the early 1990's the users of commercial computer software began
to demand products that were easier to use, more readily adaptable to their
needs and less expensive to operate and maintain. Systems built around the
client-server paradigm were thought to fulfill those needs, and most existing
and some new suppliers of manufacturing software mounted major development
projects to bring client-server Enterprise Resource Planning (ERP) systems to
market. The demand for conventional MRPII systems fell dramatically to the
point where sales of PRAXA to new customers amounted to only four systems from
1992 to 2002. The Company has attempted to sell the PRAXA software business
segment but has been unable to do so.
CUSTOMER SUPPORT
----------------
The Company provides "hot-line" support to PRAXA users from its office in
Westmont, New Jersey. This support is in the nature of resolving specific
problems that users encounter in using the PRAXA software. The support group
formerly developed enhanced versions of PRAXA that were released periodically.
The current version, which contains the changes needed to handle dates in the
twenty-first century, has been in full production release since the Fall of
1997. The Company has no plans to make additional enhancements to PRAXA.
PROFESSIONAL SERVICES
---------------------
The Company provides consulting and training services to PRAXA users. Since
the Company no longer employs any pre-sales or post-sales consultants, all
consulting and training services are being provided by the Company's customer
support and management personnel. This group also provides custom programming
for PRAXA users.
SALES AND MARKETING
The Company has not yet determined if, how or when Geo-Sleuth and associated
services will be marketed to the mineral exploration industry. The Company
plans to have its exploration subsidiaries and the Company utilize Geo-Sleuth to
identify areas that merit further study, while expanding and refining the capa-
bilities of the tool and preparing it for possible commercialization.
All PRAXA related sales activities are performed by Company management.
PRODUCT DEVELOPMENT
Geo-Sleuth
- ----------
Development of the mineral potential analysis tool was coordinated by a Montreal
6
geomatics firm under contract to the Company. The geomatics firm has consider-
able expertise in generating and analyzing geoscience databases. The Company
also utilized three experienced geologists with expertise in ore-forming
processes and characteristics of mineral deposits. The Company may expand the
tool to be capable of analyzing other types of data and other forms of deposits,
which will require the services of additional consultants. The capability to
analyze hyperspectral or seismic data is an enhancement that may be made, as
well as the capability to analyze mineralizations other than volcanic massive
sulfide deposits, such as epithermal gold, diamonds and porphyry copper. The
tool, as it currently exists, requires some development to improve its ease of
use and efficiency.
PRAXA
- -----
During the period from 1993 through 1998 the Company made two significant
attempts to develop a new Enterprise Resource Planning (ERP) system to sell into
the mid-market. Neither attempt succeeded in creating a new product for
the Company. Plans to use another software development firm to modernize PRAXA
were curtailed when it was determined that the current PRAXA users had little
interest in purchasing the modernized system because of the lateness to market
and the lack of substantial new capabilities There is no further product
development planned for the PRAXA product.
PRODUCT PROTECTION : TRADEMARKS
As is typical in the software industry, in order to protect its right in the
software, the Company does not "sell" its PRAXA software products, but instead
provides customers with perpetual, fully-paid licenses to use one or more copies
of the software on specifically identified computer systems. The Company also
seeks to protect its proprietary interest in PRAXA through a combination of
copyright laws, trade secret laws, and contractual agreements (including
nondisclosure obligations) with customers, consultants, employees and others.
Existing United States copyright laws provide only limited protection and even
less protection may be available under foreign laws. While the enforceability
of contractual provisions governing confidentiality cannot be assured in all
cases, the Company believes that they tend to deter unauthorized use of the
Company's proprietary information. "PRAXA" and "Unitronix" are registered
federal trademarks of the Company which will expire, unless renewed, on January
14, 2005 and September 20, 2012, respectively. A trademark has been granted in
Canada for Geo-Sleuth, and a U.S. trademark will be applied for in the future.
CUSTOMER DEPENDENCE
In the fiscal year ended June 30, 2003, one customer accounted for 15.3% of the
Company's total revenue. Management anticipates that this customer will con-
tinue to purchase PRAXA support services from the Company in fiscal 2004.
HISTORY OF LOSSES
The Company incurred net losses of $52,913 in fiscal 2001, $330,733 in fiscal
2002 and $265,648 in fiscal 2003. As of June 30, 2003, the Company had an
accumulated deficit of $6,020,112. There can be no assurance that the Company
will be profitable in the future.
7
CONTROL BY EXISTING STOCKHOLDERS
The Company's directors and their families together own approximately 75% of
the outstanding shares of the common stock of the Company. As a result, these
stockholders are able to exercise control over matters requiring stockholder
approval, including the election of directors, and mergers, consolidations and
sales of the assets of the Company.
EMPLOYEES
At September 1, 2003, the Company employed 3 persons, including 2 in customer
support and 1 in finance and administration. Each of these individuals is a
part-time employee. The Company's subsidiaries currently have no employees.
The subsidiaries are being managed by consultants, and are using consultants to
develop the Geo-Sleuth software and to provide the expertise needed to evaluate
the potential mineral content of the claims that have been staked in the
Sturgeon Lake region.
ITEM 2 PROPERTIES
- ------ ----------
The Company headquarters office occupies 550 square feet of rented office space
in Peabody, Massachusetts, at a rental rate of $695 per month. The Company also
occupies 600 square feet of office space in Westmont, New Jersey, for its PRAXA
software support operation, at a rate of $834 per month. The Company is a
tenant at will in both locations.
ITEM 3 LEGAL PROCEEDINGS
- ------ -----------------
The Company and its subsidiaries are not currently involved in any legal
proceedings.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
The Company did not submit any matters to a vote of the shareholders during the
last quarter of fiscal year 2003.
8
PART II
Item 5 MARKET FOR THE COMPANY'S COMMON STOCK AND
-----------------------------------------
RELATED SECURITY HOLDER MATTERS
-------------------------------
The Company's common stock is currently listed on the over the counter bulletin
board.
The following table sets forth, for the calendar quarters indicated, the high
and low bid prices reported for the Company's common stock, by the indicated
source. There were 127 holders of record of the Company's Common Stock on
September 11, 2003. The Company believes that there are approximately 450
beneficial shareholders.
Calendar Year Ended December 31, OTC Bulletin Board
- -------------------------------- -------------------------
Bid Prices
----------
High Low
---- ---
2001
Third Quarter 0.0600 0.0200
Fourth Quarter 0.0600 0.0300
2002
First Quarter 0.1900 0.0500
Second Quarter 0.1600 0.0400
Third Quarter 0.5000 0.1100
Fourth Quarter 0.5000 0.2100
2003
First Quarter 0.3000 0.2200
Second Quarter 0.3000 0.2000
DIVIDEND POLICY
No dividends have been declared by the Board of Directors. The Board of
Directors currently plans to retain any future earnings for use in the Company's
business.
9
Item 6 SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
Summary Consolidated Financial Information
(in thousands, except per share data)
For fiscal year ending June 30,
--------------------------------------------
CONSOLIDATED INCOME 2003 2002 2001 2000 1999
STATEMENT DATA: ---- ---- ---- ---- ----
Revenue from Operations $184 $245 $360 $521 $856
Gain (Loss) from Operations (193) (268) (211) (332) 16
Net Loss (266) (331) (53) (62) (20)
Per Share Data:
Basic and Diluted net Loss
Per Share (.03) (.03) (.01) (.01) (.00)
Shares Used in Computing
Per Share Data 9,671,233 9,643,718 9,643,718 9,489,757 9,456,932
CONSOLIDATED BALANCE SHEET DATA:
Working Capital/(Deficit) $(206) $(971) $(751) $(748) $(615)
Total Assets 44 67 54 310 82
Short term debt, including
current maturities of
long-term debt 60 716 607 687 500
Long-term debt, less
current maturities 1,108 - - - -
Shareholder's equity
(deficit) (2,498) (2,263) (1,874) (1,720) (1,616)
10
Item 7.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
FISCAL YEAR ENDED JUNE 30, 2003 VS. FISCAL YEAR ENDED JUNE 30, 2002
Total revenue for the year ended June 30, 2003, decreased by 25% from the year
ended June 30, 2002. No revenue was realized from the sale of software licenses
in the year ended June 30, 2003, and revenue from services decreased by 20% from
the year ended June 30, 2002. This reflects the continued migration of PRAXA
users to other MRP and ERP software systems, a trend that management believes
will continue as the Company has no plans to enhance the PRAXA software.
The cost of PRAXA software related services decreased by 22% from the year ended
June 30, 2002, to the year ended June 30, 2003, because fewer PRAXA customers
contracted for software maintenance and training services. PRAXA selling ex-
penses decreased by 6% from 2002 to 2003.
Mineral exploration project expenses increased by 22% from the year ended June
30, 2002, to the year ended June 30, 2003. The mineral exploration project in
the Sturgeon Lake area of Ontario that is being conducted by Unitronix Explor-
ation a wholly owned subsidiary of the Company, accounted for all of the expend-
itures in that category for both years. These expenses are expected to increase
significantly in future years as more work is performed to determine the extent
and commercial value of the mineralization on the properties staked by Unitronix
Exploration and the properties optioned from Noranda Incorporated and Inmet
Mining Corporation. Also, the Company's other exploration subsidiary, 3936449
Canada, Incorporated, may undertake exploration activities in the James Bay
region of Quebec in the future.
Development costs for the Geo-Sleuth mineral potential analysis software tool
decreased by 70% from the year ended June 30, 2002, to the year ended June 30,
2003, since final testing of the software was completed in early 2003. The
tool is now proven to be useful in evaluating certain types of geological
formations, but requires a significant amount of manual manipulation by its
users. The Company intends to enhance Geo-Sleuth to reduce the effort required
to use the tool, and to make it useful for other types of geological formations
and mineral deposits.
The 26% decrease in total costs and expenses from fiscal 2002 to fiscal 2003
resulted in a 28% decrease in the loss from operations from year to year.
FISCAL YEAR ENDED JUNE 30, 2002 VS. FISCAL YEAR ENDED JUNE 30, 2001
Total revenue for the year ended June 30, 2002, decreased by 32% from the year
ended June 30, 2001. Revenue from the sale of software licenses decreased by
12%, while revenue from services decreased by 27%. This reflects the continued
migration of PRAXA users to other MRP and ERP software systems. Revenue derived
from the sale of tenement maps in the year ended June 30, 2001, ended during
that year with the sale of the Company's majority owned subsidiary, EnerSource
Mapping, Inc. in April, 2001.
11
The cost of PRAXA software related services decreased by 16% from the year ended
June 30, 2001, to the year ended June 30, 2002, because fewer PRAXA customers
contracted for software maintenance and training services. PRAXA selling ex-
penses decreased by 64% from 2001 t0 2002 because the Company no longer has a
dedicated sales person. Map production costs were eliminated with the sale of
the Company's interest in EnerSource Mapping.
The mineral exploration project in the Sturgeon Lake area of Ontario that was
undertaken by Unitronix Exploration, a wholly owned subsidiary of the Company,
accounted for all of the expenditures in that category in the year ended June
30, 2002. These expenses are expected to increase significantly in future
years.
Development costs for the Geo-Sleuth mineral potential analysis software tool
increased by 307% from the year ended June 30, 2001, to the year ended June 30,
2002. Geo-Sleuth is now proven to be useful in evaluating certain types of
geological formations, but requires a significant amount of manual manipu-
lation by its users. The Company intends to enhance Geo-Sleuth to reduce the
effort required to use the tool, and to make it useful for other types of
geological formations and mineral deposits.
The decrease of 58% in general and administrative expenses from 2001 to 2002
was due to decreases in personnel that were made during the third and fourth
quarters of 2001, and the assignment of the Company's product development
manager to the Geo-Sleuth development project. Although total expenses de-
creased by 10% from 2001 to 2002, the corresponding decrease in revenue
resulted in a 27% increase in the loss from operations in 2002.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2003, the working capital deficit was $206,405 as compared to
deficits of $971,398 and $750,600 at June 30, 2002 and 2001, respectively.
The decrease in the deficit from 2002 to 2003 was due to the conversion of
$948,559 in demand notes and accrued interest to long-term convertible
debentures during the year ended June 30, 2003.
During the year ended June 30, 2000, the Company signed a new lending agree-
ment with its principal shareholder that provides for up to $1,000,000 in loans
and letters of credit. At June 30, 2002, the Company owed $740,934 for
principal and accrued interest for loans that had been provided for by the
lending agreement. The amounts owed under this agreement were among those
converted to long-term convertible debentures during fiscal 2003, so that
at June 30, 2003, no loans remained outstanding under the agreement.
Management projects that funds from sources other than operations will be needed
to bring the mineral potential assessment software and services to market, and
to further assess the mineral potential of the properties that the Company's
subsidiaries have staked and optioned and may identify in the future as being
worthy of further investigation. The Company anticipates raising this capital
through the sale of stock in the Company. At the annual meeting of the share-
holders of the Company on January 15, 2003, the shareholders approved an amend-
ment to the Company's Certificate of Incorporation that increased the authorized
capital stock of the Company from fifteen million to two hundred million shares,
one hundred million of which are designated as common shares. In June, 2003,
the Company undertook a private placement of 2,750,000 shares of common stock
at a price of eighteen cents per share that would have resulted in proceeds of
12
$495,000 for the Company. The private placement offering succeeded in selling
133,200 shares that yielded proceeds to the Company of $23,976.
The Company is currently assessing other means to raise additional funds.
There can be no assurance that the Company will be able to raise the additional
funds needed and failure to do so may jeopardize the Company's ability to
continue as a going concern.
Impact of Recently Issued Accounting Pronouncements
- ---------------------------------------------------
The Financial Accounting Standards Board 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. There were no other items of comprehensive income in the years
reported on.
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. The
Company adopted SFAS 131 in the year ended June 30, 1999.
In June, 1998, the FASB issued Statement No. 133 ("SFAS 133"), Accounting
for Derivative Instruments and Hedging Activities" which is effective for
fiscal years beginning after June 15, 1999. The statement establishes account-
ing and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability, measured at its
fair value. SFAS No. 133 also requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Adoption of this standard has not had a material
impact on the financial position or results of operations of the Company.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The information required by this Item is submitted as a separate section of this
report commencing on page 1 attached hereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------- ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
13
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The executive officers and directors of Unitronix are as follows:
NAME AGE CURRENT POSITION
- ---- --- ----------------
Jack E. Shaw 69 Chairman of the Board
Dale M. Hendrick 69 President, Chief Executive Officer,
Director
Robert C. Crawford 76 Treasurer, Secretary, Director
Dr. Howard L. Morgan 57 Director
Robert G. Sable 63 Director
William C. Wimer 66 Chief Financial Officer,
Vice President of Operations
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
JACK E. SHAW has been Chairman of the Board of Directors of the Company since
1991. He was also the Chief Executive Officer of the Company from 1991 until
January, 2003. He is Chairman and Chief Executive Officer of Shaw Resources,
Inc., a Greenville, South Carolina-based investment company and real estate
developer. Mr. Shaw is also a Director of B B & T Corporation, co-owner and a
Director of A/R Funding, Inc., President of Carolina Rentals, Inc., and owner of
Resort Golf, which operates premier miniature golf courses in Myrtle Beach,
South Carolina. Mr. Shaw is the largest shareholder of Unitronix Corporation,
holding approximately 49% of the outstanding common shares.
DALE M. HENDRICK, P. ENG., was appointed President and Chief Executive Officer
of Unitronix Corporation, President of 1522923 Ontario, Inc. and President of
3936449, Inc. in January, 2003. He had been appointed to the Board of Directors
of Unitronix in October, 2002, by the other members of the Board, and was
reelected to the Board at the shareholders meeting in January, 2003. Since 1989
Mr. Hendrick has been President of Dale M. Hendrick and Associates of Toronto, a
mining geological consulting firm, prior to which time he was an executive
officer and chief geologist for exploration of Kerr Addison Mines, Ltd. Mr.
Hendrick also serves as a Director of Radisson Mining Resources, Inc., Gammon
Lake Resources, Inc. and Mexgold Resources
ROBERT C. CRAWFORD was elected to the Board of Directors in January, 1993, and
was appointed Treasurer and Secretary on July 1, 1993. Mr. Crawford was
formerly President and Chief Executive Officer of the Floor Coverings Division
of Dan River, Inc., and was a Vice President and Director of Dan River Corp-
oration. He recently retired as Chairman of the Board of Greenville Technical
College in Greenville, South Carolina.
DR. HOWARD L. MORGAN was named a Director in January, 1993. Dr Morgan has
served as a Director of idealab! since 1999, and is also President and Founder
of Arca Group, Inc., a consulting and venture capital investment firm special-
izing in the areas of computer and communications technologies. He has more
than 25 years of experience with more than fifty high-tech entrepreneurial
ventures. Dr. Morgan was Professor of Decision Sciences at the Wharton School
14
of the University of Pennsylvania and Professor of Computer Science at the Moore
School at the University of Pennsylvania for almost 15 years. He serves on the
boards of Franklin Electronic Publishers, Inc., and Segue Software Corporation.
He received the Entrepreneur of the Year Award in 1997.
ROBERT G. SABLE, ESQ. has been a Director of the Company since February, 1994.
From 1994 through 1998 he was the President of Sable Makoroff & Gusky and in
1999 and 2000 was a Principal of Sable Pusateri Rosen Gordan & Adams LLC, a law
firm located in Pittsburgh, Pennsylvania. Since January 1, 2001, Mr. Sable
has been a Partner in McGuire Woods LLP, a law firm based in Richmond, Virginia
and with offices in a number of cities, including Pittsburgh, Pennsylvania.
WILLIAM C. WIMER was named Vice President of Operations in March, 1992, with
responsibility for Customer Support and Professional Services activities. He
assumed responsibility for all accounting activities in 1993, was named
Assistant Treasurer in July, 1994, and Chief Financial Officer in June, 1997.
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
During the 2002 fiscal year none of the directors, officers or beneficial owners
of more than 10 percent of the Company's common stock failed to file on a timely
basis reports required by Section 16 (a) of the Exchange Act.
Item 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The following table sets forth all compensation awarded to, earned by, or paid
by the Company to the following persons for services rendered in all capacities
to the Company during each of the fiscal years ended June 30, 2003, 2002 and
2001 to: (1)the Company's Chief Executive Officer, and (2) each of the other
officers whose total compensation for the fiscal year ended June 30, 2003,
required to be disclosed in column (c) below exceeded $100,000.
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation
-------------------
(a) (b) (c) (d) (e) (f)
Name and Other Annual All Other
Principal Position Year Salary Compensation Options Compensation
Jack E. Shaw 2003(1) (3) - - -
Chief Executive 2002 (3) - - -
Officer 2001 (3) - - -
Dale M. Hendrick 2003(2) (3) - - -
Chief Executive
Officer
(1) Until January 15, 2003.
(2) Since January 15, 2003.
(3) The Company has not paid Mr. Shaw and Mr. Hendrick any compensation for
their services to date.
15
COMPENSATION OF DIRECTORS
The Company currently does not compensate directors for their services; it does
reimburse them for reasonable expenses incurred in performing their duties as
directors.
1993 STOCK OPTION PLAN
At June 30, 2003, 1,000,000 shares of common stock were reserved for issuance
or grant under the Unitronix Corporation 1993 Stock Option Plan. The options
are granted to employees, officers, directors and consultants to the Company.
The exercise price for incentive options must be at least 100% of the fair
market value of the common stock as determined by the Option Committee of the
Board of Directors on the date of the grant, as are the exercise and expiration
dates of the grant. Options for 90,000 shares were granted and options for
90,000 shares were exercised during the year ended June 30, 2003. At June 30,
2003, there were options for 450,000 shares of common stock outstanding and
440,000 shares available for grant. No options may be granted under the 1993
Stock Option Plan after October 28, 2003.
SAVINGS AND PROFIT SHARING PLAN
The Company had in effect the Unitronix Corporation Savings and Profit Sharing
Plan (the "Savings Plan"), which allowed the Company to make contributions to
certain employees' Savings Plan accounts from profits, and permitted partici-
pating employees to contribute a portion of their salaries to their plan
accounts under the 401K feature of the plan. There had been no employees
participating in the plan since February, 2002, so in order to eliminate the
expenses incurred in administering the plan, the Board of Directors of the
Company approved the termination of the plan in May, 2002. Management is
currently arranging for the plan participants to transfer their funds into
roll-over accounts.
Item 12. SECURITY OWNERSHIP OF CERTAIN
-----------------------------
BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------
The following table sets forth information regarding the beneficial ownership of
the Company's common stock as of September 1, 2003, by those persons owning
beneficially 5% or more of such shares, by each director, and by all executive
officers and directors as a group. The persons named in the table have sole
voting and investment power with respect to all shares of common stock which
they own of record.
NAME AND ADDRESS OF SHARES OF PERCENTAGE OF
BENEFICIAL OWNER(1) COMMON STOCK COMMON STOCK
- ------------------ ------------ ------------
Jack E. Shaw (2) 4,873,673 49.4%
Robert C. Crawford 199,391 2.0%
Howard L. Morgan (3) 1,050,000 10.6%
All Directors and Officers
as a Group (6 persons) 6,123,064 62.1%
16
Samuel H. Jones, Jr. 500,000 5.1%
US Route 40
Woodstown, NJ 08098
Jane Shaw (4) 500,000 5.1%
2320 E. North Street
Greenville, SC 29607
(1)The address of each officer and director of the Company listed in the table
is in care of the Company, One Newbury Street, Peabody, MA 01960.
(2)Does not include 500,000 shares owned by Jane Shaw, his wife, and a total
of 500,000 shares owned by Ronald Shaw and Donald Shaw, his and her adult
children.
(3)Includes 30,000 shares held in trusts for the benefit of his three children,
Kimberly Morgan, Elizabeth Morgan and Danielle Morgan.
(4)Does not include 4,873,673 shares owned by Jack E. Shaw, her husband, and a
total of 500,000 shares owned by Ronald Shaw and Donald Shaw, his and her adult
children.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The information required by this Item is set forth under Notes to Financial
Statements "Related Party Transactions", page XX attached hereto.
Item 14 CONTROLS AND PROCEDURES
- ------- -----------------------
Within the 90-day period prior to the filing of this report, Unitronix
Corporation management, including the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
as defined in Exchange Act Rule 13a-14(c). Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective as of the date
of that evaluation. There have been no significant changes in internal
controls or in factors that could significantly affect internal controls,
subsequent to the date the Chief Executive Officer and Chief Financial
Officer completed their evaluation.
PART IV
-------
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
- -------- ---------------------------------------------------------------
A. The following documents are filed as a part of this report:
1.Financial Statements
-------------------- PAGE
----
Report of Independent Accountants 1
Consolidated Balance Sheets at June 30, 2003 and 2002 2
17
Consolidated Statements of Operations
- Years ended June 30, 2003, 2002 and 2001 3
Consolidated Statements of Changes in Stockholders' Deficit
-Years ended June 30, 2003, 2002 and 2001 4
Consolidated Statements of Cash Flows
- Years ended June 30, 2003, 2002 and 2001 5
Notes to Consolidated Financial Statements 6
2.Schedules
---------
SCHEDULE II - Valuation and Qualifying Accounts 21
Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the Financial Statements or notes thereto.
3.EXHIBITS (numbers below reference the Exhibit Table of Item 601 of
Regulation S-K)
(3)Articles of Incorporation and By-Laws *
(4)Specimen Common Stock Certificates *
(10)Material Contracts:
10.1 1993 Stock Option Plan **
*Previously filed with the Securities and Exchange Commission on August 12,
1988, as an exhibit to the Company's S-18 registration statement (File Number
33-22494-NY), such previously filed exhibits incorporated herein by reference.
**Previously filed with the Securities and Exchange Commission on August 29,
1994 as an exhibit to the Company's S-8 registration statement, such previously
filed exhibits incorporated herein by reference.
B. Reports on Form 8-K
The Company filed a report on Form 8-K with the U.S. Securities and Exchange
Commission on June 6, 2003, announcing mineral exploration agreements that the
Company and Unitronix Exploration had signed with Noranda Incorporated and Inmet
Mining Corporation.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITRONIX CORPORATION
BY:/s/William C. Wimer
----------------
William C. Wimer
Vice President of Operations and
Chief Financial Officer
DATED: September 29, 2003
-------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE POSITION DATE
- --------- -------- ----
/s/Jack E. Shaw
- ------------------ Chairman of the Board September 26, 2003
Jack E. Shaw of Directors
/s/Dale M. Hendrick
- ------------------- President, Chief Executive September 24, 2003
Dale M. Hendrick Officer and Director
/s/Robert C. Crawford
- --------------------- Secretary/Treasurer and September 26, 2003
Robert C. Crawford Director
/s/Howard L. Morgan
- ------------------- Director September 21, 2003
Howard L. Morgan
- --------------------- Director
Robert G. Sable
19
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
---------------------------------------------
CERTIFICATION
I, Dale M. Hendrick, certify that:
1. I have reviewed this annual report on Form 10-K of Unitronix Corporation;
2. Based on my knowledge, this annual report does not contain any untrue state-
ment of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial infor-
mation included in this annual report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/S/ Dale M. Hendrick September 24, 2003
----------------
Dale M. Hendrick
President and
Chief Executive Officer
20
CERTIFICATION
- -------------
I, William C. Wimer, certify that:
1. I have reviewed this annual report on Form 10-K of Unitronix Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/S/ William C. Wimer September 25, 2003
----------------
William C. Wimer
Vice President of Operations and
Chief Financial Officer
21
UNITRONIX CORPORATION
---------------------
FINANCIAL STATEMENTS
--------------------
JUNE 30, 2003, 2002 AND 2001
----------------------------
UNITRONIX CORPORATION
---------------------
Table of Contents
Page
----
Independent Auditors' Report 1
Exhibit A-Balance sheets as of June 30, 2003 and 2002 2
Exhibit B-Statements of operations for the years ended
June 30, 2003, 2002, and 2001 3
Exhibit C-Statements of changes in stockholders' deficit
for the years ended June 30, 2003, 2002 and 2001 4
Exhibit D-Statements of cash flows for the years ended
June 30, 2003, 2002 and 2001 5
Notes to financial statements 6-20
Schedule II-Valuation and Qualifying Accounts 21
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
Unitronix Corporation
In our opinion, the accompanying financial statements listed in the index
appearing under Item 15(A)(1) on page 17 present fairly, in all material
respects, the financial position of Unitronix Corporation at June 30, 2003,
and 2002, and the results of its operations and its cash flows for the
years ended June 30, 2003, 2002, and 2001, in conformity with accounting
principles generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the index appearing
under Item 15(A)(2) on page 18, presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstate-
ment. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/Dan Clasby & Company
September 18, 2003
Page 1
Exhibit A
UNITRONIX CORPORATION ---------
---------------------
BALANCE SHEETS
--------------
June 30, 2003 and 2002
ASSETS
------ 2003 2002
---- ----
Current assets:
Cash $ 1,306 $ 12,192
Accounts receivable, net of allowance for doubtful accounts of
$340 and $1,865 at June 30, 2003 and 2002, respectively 16,628 38,495
Prepaid expenses and other current assets 24,406 1,069
Subscriptions receivable - 11,500
------ ------
Total current assets 42,340 63,256
Property and equipment, at cost less accumulated depreciation of $291,997
and $315,574 at June 30, 2003 and 2002, respectively - 707
Other assets 1,921 2,971
------- ------
Total assets $ 44,261 $ 66,934
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Notes payable - related parties 60,000 715,774
Accounts payable 143,586 101,998
Accrued expenses 17,542 25,073
Accrued interest - related parties - 150,430
Deferred revenue 27,617 41,379
------- -------
Total current liabilities 248,745 1,034,654
------- -------
Long-term debentures, 10% convertible nonvoting; noncallable 948,558 -
Long-term notes payable - related parties 159,000 108,500
Commitments and contingencies
Series A preferred stock, $1 par value, 6% convertible nonvoting;
authorized 1,000,000 shares; 956,728 issued and outstanding at
June 30, 2003, and 2002, plus undeclared accumulated dividends of
$229,616 at June 30, 2003, and 2002 1,186,344 1,186,344
Stockholders' deficit:
Common stock, no par value; authorized 100,000,000 shares at June 30,
2003 and 14,000,000 shares at June 30, 2002; 9,866,918 shares issued
and outstanding at June 30, 2003 and 9,643,718 issued and outstanding
at June 30 2002 3,517,738 3,487,912
Additional paid-in capital 3,988 3,988
Accumulated deficit (6,020,112)(5,754,464)
---------- ---------
Total stockholders' deficit (2,498,386)(2,262,564)
--------- ---------
Total liabilities and stockholders' deficit $ 44,261 $ 66,934
======== =======
See accompanying notes to financial statements.
Page 2
Exhibit B
UNITRONIX CORPORATION ---------
---------------------
STATEMENTS OF OPERATIONS
-------------------------------------
Years Ended June 30, 2003, 2002 and 2001
2003 2002 2001
---- ---- ----
Revenue:
Software licenses $ - $ 13,650 $ 15,556
PRAXA software related services 184,227 231,071 318,448
Maps and related services - - 26,128
--------- ------- ---------
Total revenue 184,227 244,721 360,132
--------- -------- ---------
Costs and expenses:
Cost of PRAXA software related services 76,198 98,215 116,510
Cost of map production - - 2,894
Mineral exploration project expenses 93,493 76,477 -
Geo-Sleuth software development costs 51,172 167,769 41,221
PRAXA selling expenses 6,922 7,372 20,611
General and administrative 149,772 162,454 389,902
--------- --------- ---------
Total costs and expenses 377,557 512,287 571,138
--------- --------- ---------
Operating loss (193,330) (267,566) (211,006)
Interest income (expense), net (72,335) (66,567) (56,193)
Other income (expense), net 17 3,400 214,286
-------- -------- --------
Loss before income taxes (265,648) (330,733) (52,913)
-------- -------- --------
Provision for income taxes - - -
Net loss $(265,648) $(330,733) $(52,913)
======== ======== ========
Basic and diluted net (loss) per share $(0.03) $(0.03) $(0.01)
======== ======== ========
Shares used in computing basic and diluted net
(loss) per share 9,671,233 9,643,718 9,643,718
========= ========= =========
See accompanying notes to financial statements.
Page 3
Exhibit C
UNITRONIX CORPORATION ---------
---------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
----------------------------------------------
Years Ended June 30, 2003, 2002 and 2001
Common Stock Additional Total
Shares Paid-In Accumulated Stockholders'
Issued Amount Capital Deficit Deficit
---------------------- ---------- ----------- ------------
Balance, June 30, 2000 9,643,718 $3,487,912 $48,150 $(5,256,010) $(1,719,948)
Net loss (52,913) (52,193)
Return of capital contribution (42,160) (42,160)
Unpaid accumulated preferred dividends (57,404) (57,404)
Amortization of preferred
stock issuance costs (1,100) (1,100)
--------- ---------- ------- --------- ----------
Balance, June 30, 2001 9,643,718 $3,487,912 $4,890 $(5,366,327) $(1,873,525)
Net loss (330,733) (330,733)
Unpaid accumulated
preferred dividends (57,404) (57,404)
Amortization of preferred
stock issuance costs (1,100) (1,100)
Capital contributions to
subsidiaries 198 198
--------- ---------- ------- --------- ---------
Balance, June 30, 2002 9,643,718 $3,487,912 $3,988 $(5,754,464) $(2,262,564)
Net loss (265,648) (265,648)
Sale of shares 193,200 29,826 29,826
--------- ---------- ------- --------- ---------
Balance, June 30, 2003 9,836,918 $3,517,738 $3,988 $(6,020,112) $(2,498,386)
========= ========= ===== =========== ===========
See accompanying notes to financial statements.
Page 4
Exhibit D
UNITRONIX CORPORATION ---------
---------------------
STATEMENTS OF CASH FLOWS
------------------------
Years Ended June 30, 2003, 2002 and 2001
2003 2002 2001
---- ---- ----
Cash flows from operating activities:
Net loss $(265,648) $(330,733) $(52,913)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 707 1,344 4,856
Provision for bad debts (1,526) 2,767 (7,307)
(Increases) decreases in operating assets:
Accounts receivable 23,393 5,871 10,016
Subscriptions receivable 11,500 (11,500) -
Note receivable (1,827) 145,833
Prepaid expenses and other current assets (23,337) 2,902 368
Other assets 1,050 (79) 1,436
Increases (decreases) in operating liabilities:
Accounts payable 41,588 66,276 (70,931)
Accrued expenses (7,531) (2,945) (26,824)
Accrued interest (150,430) 67,565 48,384
Deferred revenue (13,762) (5,475) (30,983)
------- ------- -------
Net cash provided (used) by operating activities (383,996) (205,834) 21,935
------- ------- -------
Cash flows from investing activities:
Sale of equipment - - 660
------- ------- -------
Net cash provided (used) by investing activities - - 660
------- ------- -------
Cash flows from financing activities:
Capital contributions to subsidiaries - 198 -
Proceeds from sale of common stock 29,826 - -
Proceeds from borrowings 999,058 217,730 86,051
Repayments of borrowings (655,774) - (144,000)
------- ------- -------
Net cash provided (used) by financing activities 373,110 217,928 (57,949)
------- ------- -------
Net increase (decrease) in cash (10,886) 12,094 (35,354)
Cash at beginning of year 12,192 98 35,452
------- ------- -------
Cash at end of year $1,306 $12,192 $98
======== ======== ========
See accompanying notes to financial statements.
Page 5
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. Summary of Significant Accounting Policies:
------------------------------------------
Basis of Presentation and Business
- ----------------------------------
The consolidated financial statements include the accounts of Unitronix Corp-
oration ("the Company"), its wholly owned subsidiaries, 3936449 Canada, Inc. and
1522923 Ontario, Inc., which does business as Unitronix Mining and Exploration
("Unitronix Exploration"), and its former majority-owned subsidiaries, Inter-
active Mining Technologies, LLC, and Enersource Mapping, Inc. All significant
inter-company accounts and transactions have been eliminated.
Unitronix Corporation has historically been in the business of licensing PRAXA
software, which operates on VAX and Alpha Computers which were manufactured by
Digital Equipment Corporation and Compaq Computer Corporation, and providing
software maintenance, training, consulting and custom programming services in
conjunction with the PRAXA software. Because of the deficiencies of PRAXA and
the projected costs of developing a new product for the highly competitive
manufacturing system marketplace, the Company changed its focus so that it is
now concentrating on developing products and services for use in the mineral
exploration, mining and related industries. This business segment consists of
the business of the Company's former majority owned subsidiary, Interactive
Mining Technologies, LLC, which had partially developed a software tool to be
used to evaluate certain types of geological formations for their potential
mineral content. The Company also formed two subsidiaries to use the mineral
potential analysis software tool to identify properties of merit for eventual
joint venture or sale.
Interactive Mining Technologies ("IMT") had been the majority shareholder of
EnerSource Mapping, Inc.("ESM"), a Canadian corporation that was engaged in
producing and marketing tenement maps to the mining, exploration and investment
communities. IMTs' shares of ESM were sold to Goldsat Mining, Inc., a Canadian
corporation engaged in mineral exploration and development in Canada, who was
the only other shareholder in both IMT and ESM.
The Company has continued to incur losses from operations and has a working
capital deficit as of June 30, 2003 of $206,405, current notes payable of
$60,000 and long-term notes payable of $159,000. In addition, it has convert-
ible debentures outstanding with a face value of $948,558 which must be redeemed
by the Company at par no later than July 15, 2008, unless redeemed for common
shares of Company stock by the holder. All of the debentures and all but
$12,500 of the notes are held by investment groups that include two directors of
the Company. The debentures bear interest at a rate of 10% per annum and the
notes are non-interest bearing.
During the quarter ended June 30, 2003, the Company and Unitronix Exploration
signed agreements with Noranda Incorporated ("Noranda") and Inmet Mining
Corporation ("Inmet"), both of which are Canadian mining companies, that allow
Unitronix Exploration to purchase the mineral rights to certain properties
located in the Sturgeon Lake area of Ontario that are currently owned by Noranda
and Inmet, such properties being adjacent to or near properties that were staked
by Unitronix Exploration in 2002. Unitronix Exploration can acquire the rights
Page 6
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. continued
to the Noranda properties by expending at least $2,500,000 (Canadian) for
further exploration of the Noranda properties by December 31, 2005, and can
acquire the rights to the Inmet properties by expending at least $1,000,000
(Canadian) for further exploration by April 30, 2006.
The Noranda agreement requires that Unitronix Exploration or the Company expends
or commits to expend no less than $200,000 (Canadian) for further work on the
optioned properties or the properties staked by Unitronix Exploration, by April
30, 2004. The agreement also requires that Unitronix Exploration or the Company
conduct a Fugro-Megatem (electro magnetic) survey of the optioned properties and
the properties staked by Unitronix Exploration. The survey and substantial
follow-up analysis and mapping has been completed. Further analysis and interp-
retation of the survey results and data supplied by Noranda was recommended by
the geological engineer that is consulting on the project, and is now underway.
The Inmet agreement requires that Unitronix Exploration of the Company expends
$100,000 (Canadian) for further work on the optioned property by April 30, 2004.
If the expenditures are not made or committed as required by the Noranda and
Inmet agreements, the Company risks being in breach of the agreements and could
lose all rights to the optioned properties.
If Unitronix Exploration acquires the rights to the Noranda properties, Noranda
will be entitled to a 1% NSR production royalty. If Unitronix Exploration
acquires the rights to the Inmet properties, Inmet will be entitled to a 2% NSR
production royalty. Both agreements provide for reacquisition of 51% interest
in the properties by the optionors if they expend at least 200% of the amounts
expended by Unitronix Exploration for further exploration and development of the
properties, in which case the NSR royalties would no longer be applicable.
Unitronix Exploration has also assayed samples gathered from field work
conducted on claims staked north-west of the Sturgeon Lake mining camp. These
properties were staked as a result of findings from the use of the Geo-Sleuth
mineral potential analysis tool. Additional interpretation of data from the
field work is planned for the near future.
As a result of these agreements and the continuing decline in revenues from
the PRAXA software business segment, additional financing is required in order
to sustain the operations of the Company and its subsidiaries and to repay the
notes. Management initiated a private placement offering of 2,750,000 shares of
common stock at eighteen cents per share in June, 2003, to attempt to raise
approximately $500,000 to be used for the exploration programs and general
expenses. This effort raised only $23,916 through the sale of 133,200 shares.
The Company is exploring other options to sell additional shares. There can be
no assurances that the Company will succeed in selling additional shares of
stock or be able to obtain financing in some other manner that will allow it to
continue its operations. The financial statements do not include any adjust-
ments that might result from these uncertainties.
Page 7
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. continued
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported periods. Actual results could differ from those estimates.
Risks and Uncertainties
- -----------------------
The Company is subject to risks common to companies in the high technology
industry including, but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
and protection of proprietary technology. The Company's subsidiaries are
subject to the risks and uncertainties that prevail in the mineral exploration
industry.
Economic Dependence
- -------------------
In the fiscal year ended June 30, 2003, one customer accounted for 15.3% of the
Company's total revenue. In the fiscal year ended June 30, 2002, one customer
accounted for 11.5% of the Company's total revenue. In the fiscal year ended
June 30, 2001, no one customer accounted for more than 10% of the Company's
total revenue.
Revenue Recognition
- -------------------
Effective December 31, 1997, the Company adopted Statement of Position 97-2
(Software Revenue Recognition) issued by the American Institute of Certified
Public Accountants. This statement provides guidance on when revenue should
be recognized, and in what amounts for licensing, selling, leasing or otherwise
marketing computer software. Software revenue is generally recognized upon
product shipment, provided that no significant vendor obligation exists and
collection of the related receivable is deemed probable by management. Revenue
from software maintenance contracts is recognized ratably over the contractual
period, and other service revenue is generally recognized as the services are
provided. There has been no revenue earned by the mineral exploration products
and services and the mineral exploration business segments.
Software Costs
- --------------
The Company capitalizes certain software costs after technological feasibility
of the product has been established and ceases capitalization when the product
is available for general release to customers. Costs incurred prior to the
establishment of technological feasibility are charged to product development
costs. Such costs are amortized on a straight-line basis over the estimated
useful life of three years or the ratio of current revenue to the total of
current and anticipated future revenue, whichever is greater. The Company did
not capitalize any software costs for the years ended June 30, 2003, 2002 and
Page 8
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. continued
2001. All software development costs that had been capitalized in prior years
were completely amortized prior to the year ended June 30, 2001.
Income Taxes
- ------------
The Company follows the liability method for accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized based on
temporary differences between the financial statement and tax bases of assets
and liabilities using current statutory tax rates. A valuation allowance is
required to offset any net deferred assets if, based upon weighted available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
Loss per Common Share
---------------------
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. The computation of basic and
diluted earnings per share is presented below.
Basic and diluted net loss per share:
- ------------------------------------
For the Years Ended June 30,
---------------------------
2003 2002 2001
---- ---- ----
Numerator:
Net loss $(265,648) $(330,733) $(52,913)
Preferred dividends - - -
-------- ------- ---------
Income available to common shareholders $(265,648) $(330,733) $(52,913)
========= ========= =========
Denominator:
Weighted average number of shares issued
and outstanding 9,671,233 9,643,718 9,643,718
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 9,671,233 9,643,718 9,643,718
--------- --------- ---------
Basic and diluted net loss per share $ (.03) $ (.03) $ (.01)
========= ========= =========
As a result of a net loss for all periods presented, common stock equivalents
for the assumed exercise of options and conversion of preferred shares are not
included in the calculation of weighted average shares since their effect would
be antidilutive.
Page 9
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. continued
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
three to five years, for financial reporting, and accelerated methods for income
taxes. Expenditures for repairs and maintenance which do not increase the
useful life of the related assets are expensed as incurred. Upon retirement or
sale, the cost of the assets disposed of and the related accumulated deprec-
iation are removed from the accounts; any resulting gain or loss is credited or
charged to income. No value has been assigned to the mineral claims staked by
Unitronix Exploration.
Recently Issued Accounting Pronouncements
- -----------------------------------------
The Financial Accounting Standards Board has 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-
ative purposes. There were no other items of comprehensive income in the
years reported on.
The FASB has also issued Statement No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information". This Statement, which
supersedes Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise," changes the way public companies report information about seg-
ments. 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. Restate-
ment for earlier years is required for comparative purposes unless impractic-
able. Additional information pertaining to segment reporting is provided in
Note 11.
In June, 1998, the FASB issued Statement No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities", which is effective for
fiscal years beginning after June 15, 1999. The statement establishes account-
ing and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability, measured at
its fair value. SFAS N0. 133 also requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Adoption of this standard has not had a material impact on
the financial position or results of operations of the Company.
Page 10
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
2. Sale and Dissolution of Former Subsidiaries
-------------------------------------------
On April 27, 2001, Interactive Mining Technologies, LLC, (IMT) which at that
time was a majority owned subsidiary of the Company, finalized the sale of its
majority interest in Enersource Mapping, Inc., a Canadian corporation engaged in
the production and marketing of tenant maps to the mineral exploration and
related industries. IMT's shares in Enersource Mapping were sold to Goldsat
Mining Inc., the minority shareholder in Enersource Mapping. IMT's interest in
Enersource Mapping was sold because IMT management had determined that
Enersource Mapping would not become profitable within a reasonable length of
time. Included in the sale were IMT's rights to The Mining Exchange domain
names and web sites. IMT was granted a one year promissory note for $200,000
Canadian ($136,000 U.S.) by Goldsat Mining with interest thereon at 6% per year.
Goldsat also granted to IMT a warrant to purchase, within 13 months from the
closing date of the sale, 1,000,000 common shares of Goldsat Mining at a price
of $0.20 Canadian per share. Goldsat also committed to deliver to IMT 156,786
shares of the Company's common stock that had been granted to Glen and Sandra
Jones for the purchase of the assets of G.E. Jones Enterprises in fiscal
2000, within 6 months of the closing date of the sale, or to issue to IMT
156,786 shares of Goldsat Mining stock in lieu thereof. Since Goldsat
failed to deliver either the Unitronix stock that had been issued to Glen and
Sandra Jones or an equal number of shares of Goldsat stock to IMT, the Company
is considering taking steps to have the Unitronix stock returned directly from
Glen and Sandra Jones.
The note receivable from Goldsat Mining was assigned to two of the Company's
shareholders that had granted loans to the Company in exchange for the forgive-
ness of a like amount of the loans granted, which was $136,000. The warrants
received for the purchase of Goldsat Mining shares were also assigned to these
shareholders as consideration for their having no recourse if Goldsat should
default on its note. The shares of stock receivable from Goldsat are not
recognized on the Balance Sheets of the Company. The note receivable from
Goldsat and the elimination of the liabilities of Enersource Mapping resulted in
other non-operating income of $214,286 for IMT in the year ended June 20, 2001.
In May, 2001, the Company and Goldsat Mining recognized that Goldsat, the
minority shareholder in IMT, did not fulfill its obligations under the
operating agreement for IMT. Furthermore, the mining properties that had been
granted to IMT by Goldsat as its major contribution to IMT, which were to be
used as test sites for the mineral potential analysis software then being
developed by IMT, were determined to be useless for that purpose. The members
of IMT, being Goldsat Mining and the Company, agreed to liquidate IMT, with the
mining properties being returned to Goldsat and all rights to the mineral
potential analysis software going to the Company. The Company also assumed the
existing assets and liabilities of IMT. The dissolution agreement was finalized
on May 24, 2001, and filed with the State of South Carolina on July 3, 2001.
In June, 2002, the Company's majority shareholder assigned a $10,230 note
receivable from Goldsat Mining and accumulated interest thereon of $937.75
to the Company in exchange for a note and accrued interest thereon in the same
amounts payable by the Company to the majority shareholder. After repeated
Page 11
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
2. continued
attempts to obtain payment of the note, interest thereon and $3,400 that had
been advanced to Goldsat by Unitronix were ignored by Goldsat, the Company
opted to offset an amount payable to Goldsat by Unitronix from the dissolution
of IMT against the note, interest and advances receivable from Goldsat, leaving
$1,632.78 receivable by the Company from Goldsat. Because in all likelihood
this indebtedness will never be paid by Goldsat, a reserve for bad debts was
made for the full amount due.
3. Related Party Transactions:
--------------------------
On October 27, 1993, the Company had entered into a one year agreement that had
provided for its principal shareholder to lend up to $400,000 to the Company.
This agreement was renewed for additional one year periods in 1994 and 1995, but
expired on September 1, 1996, at which time the line of credit had been fully
drawn down. During the period from September 1, 1996, until March 1, 2000, the
principal shareholder continued to provide loans to the Company from time to
time under the terms of the expired agreement, at which time a new lending
agreement that provides for up to $1,000,000 in loans to the Company was signed.
The new agreement expires on March 1, 2005, but can be renewed for successive
one year periods at the option of the shareholder and the Company. At the time
that the new lending agreement was signed, outstanding loans of $338,250 were
owed to the principal shareholder by the Company. At June 30, 2003, the
Company owed $531,960 in principal and accrued interest for loans that had been
provided under the old and new lending agreements, all of which bear interest at
the rate of 10% per annum.
As further compensation for the risk borne in the past and to be borne in the
future by lending funds to the Company, the new lending agreement provides for
the issuance of immediately exercisable warrants to purchase 338,250 shares of
the common stock of the Company at a price of $0.125 per share. It also
provides for the issuance of immediately exercisable warrants on each
anniversary date of the agreement, such warrants to be for the purchase of the
common stock of the Company at a price that is 25% below the bid price for such
stock on such anniversary date or the most recent trading date for which a bid
price is available, with the number of such warrants so issuable to be equal to
one such warrant for each dollar of total loans outstanding on such anniversary
date.
In July, 1997, a loan of $200,000 was granted to the Company by the Carolina
First Bank. The loan was secured by the pledge of all of the assets of the
Company and by the personal guaranty and pledge of certain personal assets of
the Company's principal shareholder. The loan was renewed on June 20, 1998, for
$199,000 and again on July 28, 1999, for $199,000. On October 29, 1999, the
Company's principal shareholder personally repaid to the bank the principal and
interest due, amounting to $203,202, thereby canceling and discharging all
outstanding obligations from the Company to the bank and creating an obligation
to the principal shareholder in the same amount. On that same date, the Company
issued a note to the principal shareholder in the amount of $203,202, bearing
interest at the rate of 10% per annum. At June 30, 2003, the Company owed
$276,531 for principal and accrued interest for this loan. Although no assur-
ances can be given, management believes that this shareholder does not intend to
Page 12
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
3. continued
demand repayment of the debt and interest outstanding under this note or the
lending agreement discussed above, in the foreseeable future.
The Board of Directors of the Company had previously voted to grant 200,000
shares of common stock to the principal shareholder for the risk assumed in
guaranteeing the $200,000 bank loan, but such shares were never issued. As
compensation for the risk being borne by the principal shareholder and in
recognition of the fact that the previously approved grant of 200,000 shares of
common stock was not satisfied, the Board of Directors voted to grant warrants
for the purchase of 600,000 shares of the Company's common stock at a price of
$0.125 per share to the principal shareholder, and to grant warrants for an
additional 100,000 shares at the end of each fiscal year, beginning with the
fiscal year ended June 30, 2000, for each year that the note remains unpaid.
Another shareholder of the Company had loaned a total of $108,500 to the
Company as of June 30, 2003. These loans bear interest at 10% per annum.
At June 30, 2003, the Company owed this shareholder $140,067 for the loans
and accrued interest.
On June 30, 2003, with the approval of the Board of Directors and the two
shareholders that had granted the loans to the Company, the demand notes
and accrued interest thereon were converted into long-term convertible
debentures. The principal amount of the loans and accrued interest totaled
$948,558 at that time. The debentures must be redeemed by the Company at par no
later than July 15, 2008, unless converted into common shares of Company stock
by the holder on or before that date The debentures bear interest at a rate of
10% per annum, compounded quarterly, which will be added to the outstanding
amount of the debentures.
As an incentive for the creditors to convert their notes and interest receivable
to convertible debentures, the creditors were granted warrants to purchase a
number of shares of the Company's common stock equal to the dollar amount of
loans and accrued interest outstanding as of June 30, 2003, for twenty-five
cents per share, such warrants expiring ninety days after the conversion of
the debentures to common stock, or upon mandatory redemption of the debentures
by the Company, unless sooner exercised. The creditors were also given a UCC-1
that will convey to them full ownership of the Geo-Sleuth mineral potential
assessment tool in the event that the Company should default upon the debent-
ures or file for bankruptcy. The conversion terms for the debentures are as
follows:
Conversion Date Conversion Rate (Amount of debenture)
--------------- -------------------------------------
July 1, 2003 through June 30, 2004 Twenty-five cents ($0.25) per share
July 1, 2004 through June 30, 2005 Fifty cents ($0.50) per share
July 1, 2005 through June 30, 2006 Seventy-five cents ($0.75) per share
July 1, 2006 through June 30, 2008 One dollar ($1.00) per share
As of June 30, 2003, the two principal shareholders of the Company and invest-
ment groups in which they participate had advanced $206,500 to Unitronix Explor-
Page 13
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
3. continued
ation to be used to pay exploration and software development expenses. These
loans, which are not callable and are non-interest bearing, are to be repaid
only from profits of the subsidiaries. The Company has no obligation to make
repayment if the subsidiary is unprofitable. As compensation for granting
these loans to Unitronix Exploration, the investment groups were granted a
total of 80% of any net profits realized by Unitronix Exploration from the
properties that were staked in the Sturgeon Lake area in 2002.
On June 30, 1998, the Company entered into an agreement to exchange $675,924
of demand notes outstanding and $152,679 in accrued interest to three share-
holders for 828,603 preferred shares (see Note 9).
On June 30, 1998, the Company entered into an agreement to exchange $16,125 in
accounts payable to an entity controlled by a director of the Company for 16,125
shares of preferred stock (see Note 9).
4. Property and Equipment:
----------------------
The major classes of property and equipment are as follows:
June 30,
---------------
2003 2002
---- ----
Computer equipment $283,454 $299,218
Office furniture and fixtures 8,543 17,063
------- -------
291,997 316,281
Less: accumulated depreciation 291,997 (315,574)
------- -------
$ - $ 707
======= =======
Depreciation expense for the years ended June 30, 2003, 2002 and 2001 was
$707, $1,344, and $1,855, respectively.
5. Income Taxes:
------------
The components of the deferred tax assets and liabilities as of June 30, 2003
and 2002 were as follows:
2003 2002
---- ----
Deferred tax assets:
Net operating loss carryforwards $2,748,714 $ 2,667,807
Tax credits 197,252 197,252
Other 7,189 7,189
--------- ---------
Subtotal 2,953,155 2,872,248
Page 14
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. continued
Deferred tax liabilities:
Capitalized software costs - -
Net fixed assets - -
--------- ---------
Subtotal - -
--------- ---------
Valuation allowance $(2,953,155) $(2,872,248)
========= =========
Net deferred tax assets - -
The Company has established a valuation allowance for its net deferred tax
assets due to the uncertainty surrounding their realization.
As of June 30, 2003, the Company has net operating loss carry forwards for
federal income tax purposes of approximately $6,544,000 which expire from the
years 2006 through 2023. The Company also has research and development credits
for federal income tax purposes in the amount of $153,243 available to offset
future income taxes. These credits expire from the years 2007 through 2012.
Due to the Company's issuance of stock, the Company's use of its existing net
operating loss carry-forwards may be restricted under Section 382 of the
Internal Revenue Code.
A reconciliation of the provision for income taxes at the federal statutory
income tax rate of 25% for the year ended June 30, 2003, 25% for the year ended
June 30, 2002, and 15% for the year ended June 30, 2001, with the provision
reflected in the financial statements is as follows:
2003 2002 2001
---- ---- ----
Tax expense (benefit) at federal statutory
income tax rate $(82,763) $(82,683) $ 580
State income taxes, net of federal benefit 1,756 1,646 380
Nondeductible business expenses 100 100 100
Other - - -
Credits - - -
Change in valuation allowance 80,907 80,937 (1,060)
------- ------- -------
Total tax provision - - -
========= ======== =======
6. Profit Sharing Plan:
-------------------
The Company had a qualified profit-sharing plan that incorporated a "savings"
feature under Section 401(k) of the Internal Revenue Code (IRC), which allowed
participants to make contributions by salary reduction subject to annual
compensation limits as defined by the IRC. Contributions under the profit-
sharing feature of the plan were discretionary and determined annually by
management. No contributions had been made to this plan for any year since
1989. All participation under the 401(k) feature of the plan had ceased as of
Page 15
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
6. continued
February, 2002, after which time the Board of Directors voted to discontinue
the plan in ins entirety because of the expenses being incurred to administer
the plan. As of June 30, 2003, two former employees had funds remaining in
the plan, which management is attempting to have transferred into rollover
accounts.
7. Commitments and Contingencies:
-----------------------------
The Company currently occupies both of its offices as tenants at will.
Total rental expense was $18,526, $18,484 and $50,757 for the years ended
June 30, 2003, 2002 and 2001, respectively.
8. Legal Proceedings:
-----------------
The Company is not currently involved in any legal proceedings.
9. Preferred Stock:
---------------
On June 30, 1998, the Company converted $675,924 in notes payable, $119,525
in accounts payable and $161,279 in accrued interest into 956,728 shares of
mandatory redeemable, convertible, Series A preferred stock $1.00 per share
par value("preferred stock"). The preferred stock had a 6% cumulative
dividend feature and has no voting rights. The Company incurred $4,400 in
issuance costs associated with the preferred stock offering and has netted
them against the preferred stock carrying amount on the balance sheet. These
costs were accreted from the date of issue until the date of the original
mandatory redemption, which was June 30, 2002.
During the quarter ended June 30, 2002, the Board of Directors, acting in what
it believed to be in the best interests of the Company, voted to amend the
cumulative dividend feature, conversion rights and mandatory redemption date of
the preferred shares, subject to approval by a majority of the holders of the
shares. The holders of a majority of the shares subsequently approved the
following amendments to the Series A Convertible Preferred shares:
The mandatory redemption date for the preferred shares is June 30, 2006.
The mandatory redemption price is $1.00 per share plus all dividends accrued
through June 30, 2002.
The cumulative dividend feature was eliminated as of June 30, 2002, so that
any quarterly dividend not declared by the Board of Directors will not accum-
ulate for later payment.
The conversion terms were made more favorable for the preferred shareholders
so that from July 1, 2002 through June 30, 2006, each share of preferred
stock can be converted into one share of common stock of the Company.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up of the Company, the holders of the preferred stock are
entitled to be paid an amount equal to the greater of (a) $1.00 per share
Page 16
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
9. continued
plus all accrued but unpaid preferred dividends or (b) the amount that would
be distributable to the shareholders of the preferred stock if those holders
converted the preferred stock as indicated above.
10.Stock Option Plan:
-----------------
During fiscal 1994 the Company adopted the 1993 Stock Option Plan (the
"Plan"), and reserved 1,000,000 shares of common stock for issuance under the
Plan. Under the Company's incentive and nonqualified stock option plan,
incentive stock options can be granted to officers, key employees, directors
or consultants of the Company and any subsidiary, entitling them to
purchase shares of common stock within one to ten years from the date of
grant at option prices equal to or above the fair market value at the date of
grant. Nonqualified stock options are generally granted under the same
terms. The exercise price for incentive stock options may not be less than
the fair market value of the common stock on the date of the grant (or 110%
of fair market value in the case of employees or officers holding 10% or more
of the total combined voting power of all classes of stock of the Company).
The vesting period for the options is determined by the option committee at
the time of the grant.
In October 1995, the FASB issued SFAS NO. 123, "Accounting for Stock-Based
Compensation." SFAS NO. 123 is effective for periods beginning after
December 15, 1995. SFAS NO. 123 requires that companies either recognize
compensation expense for grants of stock, stock options, and other equity
instruments based on fair value, or provide pro forma disclosure of net
income and earnings per share in the notes to the financial statements. The
Company adopted the disclosure provisions of SFAS NO. 123 in 1996 and has
applied APB Opinion 25 and related interpretations in accounting for its
plans. Had compensation costs for the Company's stock-based compensation
plan been determined and recognized based on the fair value at the grant
dates as calculated in accordance with SFAS NO. 123, the Company's net loss
for the years ended June 30, 2003, 2002 and 2001 would have been as follows:
2003 2002 2001
---- ---- ----
Net Loss Net Loss Net Loss
-------- -------- --------
Reported $(265,648) $(330,733) $(52,913)
Pro forma $(265,648) $(330,733) $(52,913)
The fair value of each stock option was estimated on the date of grant using
the Black-Scholes option-pricing model. The following weighted-average
assumptions were used in the valuation of the options:
June 30, 2003 June 30, 2002 June 30, 2001
Expected life 2 years 2 years -
Expected volatility 150% 150% -
Dividend yield - - -
Risk-free interest rate 3.5% 4.62% -
Page 17
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
10. continued
During the years ended June 30, 2003 and 2002, options for 90,000 and 120,000
shares were granted respectively under the plan. No options were granted during
the year ended June 30, 2001.
A summary of the status of the Company's stock option plan as of June 30, 2003,
2002, and 2001,and changes during each of the years then ended, is presented
below:
Weighted
Average
Exercise
Number of Price per
Shares Share
--------- ---------
Options outstanding at June 30, 2000 375,000 0.125
Options granted 0 -
Options exercised 0 -
Options canceled (20,000) 0.125
-------
Options outstanding at June 30, 2001 355,000 0.125
Options granted 120,000 0.200
Options exercised 0 -
Options canceled 0 -
--------
Options outstanding at June 30, 2002 475,000 0.144
Options granted 90,000 0.380
Options exercised 90,000 0.125
Options canceled 25,000 0.125
--------
Options outstanding at June 30, 2003 450,000 0.196
========
There were 450,000 options exercisable as of June 30, 2003. The following table
summarizes information about stock options outstanding at June 30, 2003
Options Outstanding Options Exercisable
------------------------------------------------ -----------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
- -------- ----------- ----------- -------- ----------- ----------
$0.125 240,000 0.87 years $0.125 240,000 $0.125
$0.200 120,000 0.77 years $0.200 120,000 $0.200
$0.380 90,000 1.65 years $0.380 90,000 $0.380
There are 440,000 options available for grant as of June 30, 2003.
Page 18
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
10. continued
The effects of applying SFAS NO. 123 in this disclosure are not indicative of
future amounts. SFAS NO. 123 does not apply to awards made prior to 1995.
Additional awards in future years are anticipated.
11.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 three reportable segments:
manufacturing software licenses and related services; mineral exploration
products and services; and, mineral exploration activities. 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.
Reconciliation of Segment Information
-------------------------------------
2003 2002 2001
---- ---- ----
Manufacturing Software Licenses
and Related Services
Revenue $184,227 $244,721 $334,004
Costs and expenses 140,428 154,619 197,945
-------- -------- ---------
Income (Loss) for segment 43,799 90,102 136,059
Mineral Exploration Products
and Services:
Revenue - - 26,128
Costs and expenses 102,392 245,677 373,193
-------- -------- ---------
Income for segment (102,392) (245,677) (347,065)
Page 19
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
11. continued
2003 2002 2001
---- ---- ----
Mineral Exploration Activities
Revenue - - -
Costs and expenses 134,737 111,991 -
-------- -------- ---------
(Loss) for segment (134,737) (111,991) -
------- ------- -------
Total income (loss) for segments $(193,330) $(211,006) $(331,522)
======= ======== =========
Page 20
UNITRONIX CORPORATION AND SUBSIDIARIES
--------------------------------------
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
---------------------------------------------
Col. A Col. B Col. E Col. D Col. E
- ------ ------ ------ ------ ------
Balance at Charged to
Beginning Costs and Balance at
Description of Period Expenses Deductions* End of Period
----------- ----------- ---------- ---------- -------------
Year ended June 30, 2003:
Allowance for doubtful
accounts $1,865 $9,630 $(11,155) $ 340
Year ended June 30, 2002:
Allowance for doubtful
accounts 925 24,538 (23,598) 1,865
Year ended June 30, 2001:
Allowance for doubtful
accounts 8,232 15,456 (22,763) 925
*(Write-off) recovery of bad debts
Page 21