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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, 1996
-----------------
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)
(508) 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.
1
State the aggregate market value of the voting stock held by nonaffiliates 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.)
Based upon the last sale price of the stock on August 30, 1996, of $0.0625 per
share, the aggregate market value, as of September 26, 1996 of the shares of
common stock held by non-affiliates was $189,617. "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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
9,456,932 shares of common stock, no par value, as of October 4, 1996
DOCUMENTS INCORPORATED BY REFERENCE
NONE
2
PART 1
Item 1 BUSINESS
- ------ --------
INTRODUCTION
Unitronix Corporation was founded and incorporated in 1975 in the State of New
Jersey. From 1975 to 1986 the Company operated as a distributor of products
manufactured by Digital Equipment Corporation ("Digital"). Since 1986, it has
been in the business of marketing, installing and supporting turnkey computer
systems incorporating PRAXA, a proprietary line of software, with equipment
manufactured by Digital. The Company also separately licenses PRAXA software
both to existing Digital customers and to purchasers from other vendors of
Digital computer equipment. PRAXA software is a Manufacturing Resource Planning
("MRPII") system which integrates financial, manufacturing and distribution
applications into one system that monitors and supports material requirements
planning, capacity planning, factory order and cost control, inventory control,
product distribution and financial accounting. The Company believes that PRAXA
is among the most comprehensive MRPII systems currently available and that it is
particularly effective in integrating these applications for use by companies
with multiple departments or divisions in multiple locations.
PRAXA SYSTEMS
Overview of MRPII and Wholesale Distribution Markets
- ----------------------------------------------------
Manufacturers of all sizes and in all industries are under competitive pressures
to improve productivity and reduce costs. Production management techniques that
focus on reducing inventories of raw materials, parts and sub-assemblies, known
as "Just-in-Time" manufacturing, have gained acceptance in the United States.
MRPII software systems assist manufacturers in implementing just-in-time
strategy utilizing computer integrated manufacturing information systems which
coordinate the material, labor and production resources within a factory to
reduce operating expenses, while improving product quality and customer service.
These systems support a variety of well defined functions, including business
planning, production planning, master production scheduling, material
requirements planning and capacity requirements planning. Such systems are
referred to in the industry as MRPII systems to distinguish them from material
requirements planning systems ("MRP"), the first generation systems which
coordinated only the materials required in the manufacturing process.
Since MRPII software was introduced in the early 1980's, U.S. manufacturers have
increasingly focused on the ability to reduce costs by managing their entire
operation through a single integrated computer system. MRPII systems have
become cost-effective for an increasing number of companies due to a continued
decline in the price of computer hardware. These systems can benefit a wide
range of manufacturers, from small companies with annual sales less than $5
million to Fortune 500 companies.
3
Wholesale distributors of all sizes also need management information
systems to control key corporate assets including inventories and receivables,
and to provide business planning tools. Firms which distribute products from
multiple plants and multiple locations have especially pronounced needs for
these management information systems. Management information systems required
to service these needs must provide large data processing and storage
capacities, together with the flexibility to adapt to varying business
organizational structures.
PRAXA
- -----
PRAXA software provides a single solution with the capacity to serve complex
management information needs, including the flexibility to adjust to expansions
or consolidations of the customer's operations, for both manufacturers and
wholesale distributors. PRAXA is a set of on-line, interactive and integrated
standard applications software products for use exclusively on Digital's VAX and
Alpha AXP computers, and can be categorized into three subsystems; (1) the
manufacturing system, (2) the distribution system, and (3) the financial system.
Each subsystem contains several different software modules, each of which
consists of several programs. By selecting among the software modules, PRAXA
software can be closely tailored to customer requirements. The modular design
of PRAXA also enables users to add other PRAXA application modules to their
systems as their requirements change.
PRAXA software currently includes the following modules:
Manufacturing Distribution Financial
- ------------- ------------ ---------
Capacity Planning Accounts Receivable* Accounts Payable
Engineering Data Control Bookings Analysis Accounts Receivable*
Factory Order Control Inventory Control* Fixed Assets
and Cost
Rate Based Scheduling Sales Quotations
Inventory Control* Order Entry/Invoicing General Ledger
Synchronized Control
Master Production Procurement Management* Payroll
Scheduling
Material Requirements Sales Analysis Performance Accounting
Planning Forecasting Interface* Cost Build-up
Procurement Management* Telemarketing and
Lead Tracking
EDI Interface* EDI Interface*
Data Collection Interface
Lot Traceability Utility Modules
Forecasting Interface* ---------------
File Maintenance
Menu System
Screen Management System
4
PRAXA is designed for use by non-technical personnel. Users enter and retrieve
information interactively from terminals connected to the central processing
unit of a PRAXA system. Typically, a customer will have a number of video
display terminals located in different departments or functional areas within
the facility or at several facilities. A PRAXA system integrates all of its
functions through a common data base, enabling users simultaneously to access,
update and review the information required to manage and control manufacturing
distribution operations. System integration allows information entered by one
part of a business, such as orders entered by the sales department, to update
automatically the database used in other parts of the business, such as job
scheduling and material ordering for the production department. Each PRAXA
module can be used independently or interactively with one or more other
modules.
*A module listed under two functional areas indicates that the same module is
utilized in both functional areas.
SOFTWARE DEVLOPMENT AND ENHANCEMENT
- -----------------------------------
Enhancement of PRAXA is an on-going process within the Company that results in a
new version or release of the product every twelve to twenty-four months.
Version 10.3, that incorporated numerous enhancements that had been requested by
a number of users, was released in July, 1994. The Company is currently
developing Version 11 which it plans to release in the first half of calendar
year 1997. Version 11 will contain the program changes needed to accommodate
dates beyond the turn of the century, along with several enhanced functions.
Management believes this program of enhancement is a key element in continuing
to derive revenue from customers for PRAXA maintenance.
In fiscal 1993, the Company began basic research on the tools and methodology
that could best be used to develop a new version of PRAXA. This new version
incorporates the system architectures and features that users of commercial
computer software now demand from their suppliers, such as client-server
architecture, graphical user interfaces, integration with one or more relational
data bases and hardware independence. Design and development of a new version
of PRAXA, named PRAXA/OMS (for Open Manufacturing Systems), was started at the
beginning of fiscal year 1994. The Company plans to release the server portion
of the system to run on Intel based servers utilizing the WindowsNT operating
system and on Digital's Alpha AXP line of computers utilizing the DEC UNIX
operating system. The SQL Server relational database from Sybase will be used
on both hardware platforms. The Company plans to port the server software to
other manufacturers computers, including those manufactured by Hewlett-Packard,
Sun Microsystems and IBM. The client portion of the software is being developed
to initially operate on IBM compatible personal computers using Microsoft
Windows or WindowsNT.
Due to the magnitude of the development effort for PRAXA/OMS and the
availability of excellent financial accounting software, the Company elected to
incorporate accounting software from another supplier into PRAXA/OMS instead of
5
creating new software. The Company has entered into a Remarketer Agreement with
CODA Incorporated to sub-license its financial accounting software in
conjunction with sales of PRAXA/OMS licenses. The Company will develop an
interface to CODA's client-server OAS software, which operates on the same
hardware/operating system/database platform that PRAXA/OMS employs. The initial
release of PRAXA/OMS is currently planned for the first half of calendar year
1997. However, there can be no assurance that the product will be developed, or
if it is developed and released, that it will be accepted by the market.
During the fiscal years 1996, 1995, and 1994, the Company spent $801,209,
$485,976 and $365,496 respectively on research and development. Also,
programming costs of $18,612 and $106,076 were capitalized in fiscal 1995 and
1994, since these amounts were directly related to coding and testing performed
after the products technological feasibility had been established. These costs
are then amortized, commencing when the software is made available for general
release to customers, on a straight line basis over an estimated useful life of
three years or the ratio of current revenue to the total of current and
anticipated future revenues, whichever is greater.
PRODUCT PROTECTION : TRADEMARKS
As is typical in the software industry, in order to protect its rights 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, 2002, respectively.
EQUIPMENT RESALE
The Company has operated as a Value Added Reseller (VAR) of computer equipment
and services from Digital Equipment Corporation for several years. Digital has
recently been discontinuing direct relationships with VAR's that do not purchase
significant amounts of equipment and services from them. The Company's VAR
agreement with Digital was terminated by Digital in May, 1996. At approximately
the same time, the Company established itself as a Distributor Affiliated Value
Added Reseller (DVAR) with Pioneer-Standard Electronics, Inc. so that it would
continue to have a source for Digital computer equipment and services.
6
CUSTOMER DEPENDENCE
One customer accounted for $144,000 or 10.6% of the Company's total revenue in
the year ended June 30, 1996, and another accounted for $141,000 or 10.4% of the
total. Since the revenue derived from each of these customers was for a new
computer system and an associated PRAXA software license upgrade, the Company
does not anticipate sales to these customers at comparable levels in future
years. No other single customer accounted for more than 10% of total revenue
for the year.
COMPETITION
It is estimated that there are more than three hundred vendors of MRP II
software in the United states, supplying packages of varying degrees of
functionality to operate on hardware platforms of all sizes and makes, including
main-frames, mini-computers and micro-computers. The vendors of MRP II software
range in size from those with sales of less than one million dollars annually to
firms like Oracle and SAP with several hundred millions in annual revenues. The
number and diversity of the vendors of MRP II software make the MRP II
marketplace extremely competitive.
In the past, the primary factors that influenced purchasers of MRP II software
were: the breadth of product functions; the stability of the product, as
evidenced by a significant number of installations; the ease of use of the
software; the price of the product; and the availability of complimentary
software and hardware products. PRAXA competed very favorably when evaluated
against its competition on these factors, especially in the areas of product
breadth, ease of use and pricing, as is evidenced by the fact that more than 200
companies licensed some number of PRAXA modules for installation at more than
450 sites. PRAXA was especially appealing to companies that wanted an
integrated software solution for multiple companies and/or divisions.
During the past five years, other factors have gained prominence in the
evaluation of computer software purchases. Some of these factors are prompted
by the general push for reduced operating costs that are prevalent in the United
states. One trend is for firms to reduce the size and cost of their computer
operations, commonly referred to as down-sizing. This movement manifests itself
by users replacing main-frame computers with mini-computers and/or networks of
micro-computers serviced with disk storage and central printing services by
mini-computers or other micro-computers. This same trend is also in motion with
existing users of mini-computers, as newer generations of micro-computers have
the power, reliability and security to meet their needs.
Another trend that has gained momentum is towards software that will operate on
a variety of computer platforms. Called "open systems", this capability is
usually interpreted today as the ability for the applications software to
operate on hardware equipped with a UNIX or UNIX-like operating system. Other
factors that have gained importance in the selection of applications software
7
are the ability to interface with one or more relational data base management
systems, and the implementation of client-server architecture in the
applications. Several of the Company's competitors sell versions of their
software that incorporate these features.
EMPLOYEES
At September 23, 1996, the Company employed 18 persons, including 2 in sales and
sales support, 4 in customer support and technical services, 8 in product
development and 4 in administration. Management believes that the Company's
employee relations are satisfactory.
Item 2 PROPERTY
- ------ --------
The Company's executive offices and development group occupy 4400 square feet of
leased office space in Peabody, Massachusetts. The Company has a two year lease
for this facility that expires on February 28, 1998. The rent is $4,637 per
month for the first 12 months of the lease and $4,711 per month for the last
twelve months. Piedmont Software, Inc. reimburses the Company 15% of the rent
for its use of a portion of the office space.
The Company also has a two year lease for 2,125 square feet of office space in
Mt. Laurel, New Jersey, for the use of its customer support and technical
services operation. The monthly rent for this facility is $2,568 through April
30, 1997, and $2,780 through April 30, 1998, at which time the lease expires.
Item 3 LEGAL PROCEEDINGS
- ------ -----------------
The Company is not the subject of any legal proceeding at this time.
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 1996.
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
"pink sheets".
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 137 record holders of the Company's Common Stock (including
brokerage firms and other nominees) on September 24, 1996. Based upon the
number of requests for Proxy materials at the time of the last annual meeting of
the shareholders, the Company believes that there are approximately 450
beneficial shareholders.
Calendar Year ended December 31 NASDAQ OTC Bulletin Board
- ------------------------------- -------------------------
Bid Prices
----------
High Low
---- ---
1994
Third Quarter No Bid No Bid
Fourth Quarter 0.06 0.06
1995
First Quarter 0.06 0.06
Second Quarter 0.06 0.06
Third Quarter No Bid No Bid
Fourth Quarter No Bid No Bid
1996
First Quarter No Bid No Bid
Second Quarter No Bid No Bid
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 1996 1995 1994 1993 1992
STATEMENT DATA: ---- ---- ---- ---- ----
Revenue from
Continuing Operations $ 1,353 $1,496 $2,081 $1,612 $2,470
(Loss) from Operations (451) (227) (201) (411) (2,081)
Net Income/(Loss) from
Continuing Operations (464) (242) (209) (426) (2,169)
Reorganization Items - - - - (77)
Total Net Income/(Loss)
from Operations (464) (242) (209) (426) (2,246)
Loss on Disposal of
Distribution Division - - - - (21)
Income (Loss) Before
Extraordinary Item (464) (242) (209) (426) (2,267)
Extraordinary Item:
Forgiveness of debt - - - 1,746 -
Net Income (Loss) (464) (242) (209) 1,320 (2,267)
Per Share Data:
Profit (Loss) From
Continuing Operations (.05) (.03) (.03) (.14) (1.02)
Reorganization Items - - - - (.04)
Loss on Disposal of
Distribution Division - - - - (.01)
Extraordinary Item - - - .60 -
Income (Loss) Per Share (.05) (.03) (.03) .46 (1.07)
Shares Used in computing
per share data 9,456,932 9,456,932 6,028,149 2,893,529 2,120,500
CONSOLIDATED BALANCE SHEET DATA:
Working Capital/(Deficit) $(600) $(318) $(325) $(426) $(353)
Total Assets 318 569 926 1,274 1,458
Short term debt, including
current maturities of
long-term debt 344 124 124 100 0
Long-term debt, less
current maturities 13 19 26 0 0
Liabilities subject to
compromise 0 0 0 0 2,234
Shareholder's equity
(deficit) (491) (27) 214 324 (1,731)
10
Item 7.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULT OF OPERATIONS
- --------------------
FISCAL YEAR ENDED JUNE 30, 1996 VS. FISCAL YEAR ENDED JUNE 30, 1995
Total revenue for the Company decreased by 10% from $1,495,969 in fiscal 1995 to
$1,352,871 in fiscal 1996. Revenue from the sale of computer systems and
software licenses decreased by 4% while revenue from services declined by 12%.
The decline in revenue from services was due to lower software maintenance
revenue, which was anticipated by management. More PRAXA users determined that
they did not want new releases of the software and did not require hotline
technical support. The decreased support revenue was partially offset by higher
consulting and training revenue. Management believes that support revenue will
decline further in fiscal 1997.
The 23% decrease in the cost of computer systems and software licenses from
$464,383 in 1995 to $356,919 in 1996 was due to lower amortization expense for
capitalized software development costs. This expense will decline further in
1997 as the remaining capitalized software development costs are less than
$30,000.
Product development expenses increased by 30% from 1995 to 1996 as the Company
continued to devote considerable resources to the development of it's new
PRAXA/OMS product. In addition to hiring additional development personnel, the
Company employed the services of a software consulting firm to assist in writing
the new software. The software consulting contract was terminated during the
first quarter of fiscal 1997, and the Company anticipates hiring other outside
vendors to assist in continuing the product development.
Selling and marketing expenses increased by 21% due to higher incentive compen-
sation costs and higher exhibition costs. Administrative costs declined by 13%
as certain administrative staff devoted significant amounts of time to develop-
ment of the PRAXA/OMS product, and their expenses associated with that effort
are included in product development expenses. Total costs and expenses
increased by approximately 5% from 1995 to 1996.
The net loss for the Company increased by approximately $222,000 from 1995 to
1996. Approximately $143,000 of the increase is attributable to lower revenue;
the remainder is due to higher costs and expenses.
Total assets decreased by $251,000 from 1995 to 1996. The most significant
decreases were in capitalized software development costs and accounts receiv-
able.
11
Liabilities increased by $213,000 due to higher borrowings by the Company and
higher accrued expenses. Deferred revenue from prepaid software support agree-
ments declined by $36,000.
The loss in 1996 caused the stockholders' deficit to further increase to a
balance of $(491,176) in 1996.
The Company anticipates bringing the PRAXA/OMS product to market in the next
fiscal year. However, there is no assurance that this will happen, nor that
the market will accept the product when it is released for sale.
FISCAL YEAR ENDED JUNE 30, 1995 VS. FISCAL YEAR ENDED JUNE 30, 1994
Total revenue for the Company decreased by 28% from $2,080,525 in 1994 to
$1,495,969 in 1995. Most of the decrease was due to a decline in revenue for
computer systems and software licenses of 50%; revenue from services declined
by 6%. Much of the large decrease in revenue derived from computer systems and
software licenses was due to a single large sale of multiple computer systems
and an associated software license upgrade in 1994 that was not repeated in
1995.
The decline in revenue from services was due to fewer software customization
contracts in 1995 than in the prior year. Software maintenance, which is a
component of services revenue, increased slightly from year to year.
The cost of computer systems and software licenses decreased by 46% in 1995.
This decrease was a direct result of the decline in sales of new computer
systems and decreased amortization expenses for capitalized software development
costs.
The cost of services declined by 9% because the Company did not find it necess-
ary to replace a support analyst that resigned. Selling expenses declined by
18% because the Company did not replace a salesman that resigned in late 1994.
General and administrative expenses decreased by 43% due to the elimination of
the former headquarters office in Bridgewater, New Jersey and its' associated
staff during the third quarter of 1994.
Product development costs increased by 33% from 1994 to 1995, on top of a 49%
increase from 1993 to 1994. The increased development expenses are due to a
larger development staff for PRAXA/OMS.
Total costs and expenses declined by 24% from 1994 to 1995. Management projects
a significant increase in operating expenses in 1996 due to increasingly larger
expenditures for the development of PRAXA/OMS.
The net loss for the Company increased by $32,000 from $209,000 in 1994 to
$242,000 in 1995.
Total assets decreased by $357,000 from 1994 to 1995. This decrease was attrib-
utable to a decrease in capitalized software development costs of $236,000, a
12
decrease of $60,000 in the net value of property and equipment, and a reduction
of $75,000 in accounts receivable.
Total liabilities decreased by $115,000 from 1994 to 1995, most of which was
attributable to a decrease of $119,000 in deferred revenue from prepaid software
support agreements.
The growth in the accumulated deficit of the Company caused the stockholders'
equity to decrease to a negative $27,000 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company began operating as a debtor in possession under a Chapter 11 reorg-
anization court order on February 18, 1992. A final decree was issued by the
Bankruptcy Court on November 3, 1993, that closed the Company's case. Final
payments to complete all bankruptcy related obligations were made during the
year ended June 30, 1994.
At June 30, 1996, the working capital deficit was $599,721 as compared to
deficits of $317,703 a year earlier and $324,683 at June 30, 1994.
Management projects that capital from sources other than operations will be
needed to fund the Company in fiscal 1997. The $400,000 lending agreement
between the Company and its principal shareholder has been exhausted; at October
1, 1996, the Company owed $420,924 plus accrued interest against the lending
agreement. Although no assurances can be given, management believes that the
principal shareholder does not intend to demand repayment of the amounts owed
in the foreseeable future. Additional funds of $75,000 in the form of demand
notes have been provided to the Company by two of its shareholders under a lend-
ing arrangement. There is no guarantee that the shareholders will continue to
provide funds under this arrangement. The Company is attempting to secure
additional sources of funding.
Management has not projected the realization of a significant amount of revenue
from sales of PRAXA/OMS in fiscal 1997. There can be no assurance that the
product will be developed, or if it is developed , that it will be accepted by
the market.
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
-----------------------------------
There have been no changes in the Registrant's independent auditors within the
last two fiscal years.
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 62 Chairman of the Board, Chief
Executive Officer, Director
Sean F. Abad 41 Chief Operating Officer,
Acting President
Robert C. Crawford 69 Treasurer, Secretary, Director
Dr. Howard L. Morgan 50 Director
Robert G. Sable 56 Director
William C. Wimer 59 Vice President of Operations
Assistant Treasurer
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
JACK E. SHAW, Chairman of the Board and Chief Executive Officer of the Company.
He is also Chairman and CEO of Shaw Resources Inc., a Greenville, South Carolina
based investment company and real estate developer. Mr. Shaw is also Chairman
of Piedmont Software, Inc., President of Carolina Rentals, Inc., and owner of
Resort Golf, who operate premier miniature golf courses in Myrtle Beach, South
Carolina. Mr. Shaw is also the largest shareholder of Unitronix Corporation,
holding approximately 52% of the outstanding common shares.
SEAN F. ABAD was appointed Acting President and Chief Operating Officer in
March, 1993. Mr. Abad has served as President of Piedmont Software, Inc. since
January, 1992, a position that he continues to hold. Prior to that, he was
President of SFA Consulting, his own computer consulting firm.
ROBERT C. CRAWFORD was elected to the Board of Directors in January, 1993. He
was appointed Treasurer and Secretary on July 1, 1993. Mr. Crawford was
formerly President, Chief Executive Officer and a Director of Dan River Inc.,
Floor Coverings Division. He is presently 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 is
President of the Arca Group, Inc., a consulting and investment management firm.
He previously directed Renaissance Technologies Corporation's venture capital
activities. He also serves as a Director of Franklin Computer Corporation,
Scan-Graphics, Inc., Integrated Circuit Systems, Inc., Quarterdeck Office
Systems, Cylink Corporation, Kentek Information Systems and Segue Software, Inc.
14
ROBERT G. SABLE, ESQ. has been a director of the Company since February, 1994.
For more than the past five years he has been Chief Executive Officer of Sable,
Makaroff & Gusky, P.C., a law firm located in Pittsburgh that specializes in
commercial law.
WILLIAM C. WIMER was named Vice President of Operations in March, 1992, with the
responsibility for all Customer Service and Support activities. He was named
Assistant Treasurer in July, 1994. Mr. Wimer joined Piedmont Software in 1990
in a Customer Support and Marketing capacity. Prior to that he owned his own
software consulting firm, Wimer Associates.
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
During the 1996 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, 1996, 1995, 1994:
(1)the Company's Chief Executive Officer, and (2) each of the other officers
whose total compensation for the fiscal year ended June 30, 1996 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 1996 (1) - - -
Chief Executive 1995 (1) - - -
Officer 1994 (1) - - -
(1)The Company has not paid Mr. Shaw any compensation for his services to date.
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.
15
1993 STOCK OPTION PLAN
On October 28, 1993, the Board of Directors of the Company adopted and on
February 7, 1994, the shareholders approved the Unitronix Corporation 1993 Stock
Option Plan (the "Option Plan"). The Option Plan is designed to permit the
Company to grant either incentive stock options under Section 422A of the
Internal Revenue Code (the "Code") or nonqualified stock options. Under the
Option Plan, a Stock Option Committee (the "Option Committee") of the Board is
authorized to grant options to purchase up to 1,000,000 shares of stock to key
employees, officers, directors and consultants of the Company. The Option
Committee administers the Option Plan and designates the optionees, the type of
options to be granted (i.e., nonqualified or incentive stock options), the
number of shares subject to the options, and the terms and conditions of each
option. The terms and conditions include the exercise price, date of grant, and
date of exercise of each option. An employee may, at the discretion of the
Option Committee, be permitted to exercise an option and make payment by giving
a personal note.
Stock options may be granted only to officers, key employees, directors or
consultants. The exercise price for incentive stock options must be at least
(100%) of the fair market value of the Common Stock as determined by the Option
Committee on the date of the grant. All stock options under the Option Plan
must be granted within ten (10) years from the date of the adoption of the
Option Plan and each option must be exercised, if at all, within ten (10) years
of the date of the grant or sooner at the discretion of the Option Committee.
In no event may any employee be given incentive stock options whereby more than
$100,000 of options become exercisable for the first time in a single calendar
year. Upon the termination of an option holder's employment for any reason
other than death, termination for cause, or retirement pursuant to the terms of
a retirement program of the Company, his or her option privileges shall be
limited to the shares which were immediately purchasable by him at the date of
such termination, and such option privileges shall expire unless exercised
within three months after the date of such termination, but not later than the
date of expiration of the option. If an option holder's employment is
terminated for cause, all rights under his or her option shall expire
immediately upon the giving to the option holder of the notice of such
termination. Upon the termination of an option holder's employment by reason of
retirement pursuant to the terms of a retirement program of the Company, his or
her option privileges shall be limited to the shares which were immediately
purchasable at the date of such retirement, and such option privileges shall
expire unless exercised within the period not to exceed two years specified by
the Committee in the applicable instrument or instruments evidencing the option,
but not later than the date of expiration.
Nonqualified stock options under the Option Plan are generally subject to the
same rules as discussed above. Nonqualified stock options may, however, be
granted to directors and consultants, whether or not such individuals are
employees of the Company. The exercise price for nonqualified stock options may
not be granted at less than eighty-five percent (85%) of the fair market value
of the shares on the date of the grant.
16
During the year ended June 30, 1996, the following options were granted under
the Option Plan:
INCENTIVE EXERCISE
OPTIONS PRICE OPTION POTENTIAL VALUE
GRANTED (per share) EXPIRATION DATE AT EXPIRATION DATE
- --------- --------- --------------- ------------------
3,000 shares $0.125 February 7, 2004 $150.00(1)
common stock $292.00(2)
(1)Based upon $0.05 market value at time of grant and 5% annual appreciation in
market value.
(2)Based upon $0.05 market value at time of grant and 10% annual appreciation in
market value.
SAVINGS AND PROFIT SHARING PLAN
The Company has in effect the Unitronix Corporation Savings and Profit Sharing
Plan (the "Savings Plan"). All employees of the Company who complete one year
of service in which they are credited with at least 1,000 hours of service, and
who have attained age 21, are eligible to participate in the profit sharing
portion of the Savings Plan. Any employee who completes one month of service
with the Company and is age 21 is eligible to elect to reduce his salary and
contribute under the 401(k) feature contained therein. If any employee elects
to reduce his salary to contribute to the Plan, the Company may elect to make a
matching contribution to the Savings Plan equal to fifty percent (50%) of the
amount of such employee's salary reduction contribution up to six percent (6%)
of an employee's salary, resulting in a maximum Company matching contribution of
three percent(3%).
On February 1, 1991, the Plan was amended to make the Company's matching
contribution discretionary. Since February 1, 1991 the Company has made no
matching contributions.
17
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 October 4, 1996 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 51.5%
Robert C. Crawford 199,391 2.1%
Howard L. Morgan 1,350,000 14.3%
All Directors and Officers
as a Group (7 persons) 6,423,064 67.9%
Samuel H. Jones, Jr. 500,000 5.3%
US Route 40
Woodstown, NJ 08098
Jane Shaw (3) 500,000 5.3%
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)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, her and his adult
children.
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The information required by this Item is set forth under Notes to Consolidated
Financial Statements "Related-Party Transaction", pages 8 to 9 attached hereto.
18
PART IV
-------
Item 14 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
Balance Sheets at June 30, 1996 and 1995 . . . . . . . . . . . . . . .2
Statements of Operations - Years ended June 30, 1996,1995,1994 . . . .3
Statements of Changes in Stockholders' Equity (Deficit)-. . . . . . . 4
Years ended June 30, 1996, 1995, 1994
Statements of Cash Flows - Years ended June 30, 1996, 1995, 1994 . . .5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 6
2.Schedules
---------
Report of Independent Accountants. . . . . . . . . . . . . . . . . . 16
SCHEDULE II - Valuation and Qualifying Accounts . . . . . . . . . . .17
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:
Lending Agreement **
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.
19
**Previously filed with the Securities and Exchange Commission on November 5,
1993 as an exhibit to the Company's 8-K report, 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 did not file any reports on form 8-K during the last quarter of
fiscal year 1996.
20
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/Sean F. Abad
---------------
Sean F. Abad
President
DATED: October 11, 1996
----------------
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 October 10, 1996
- --------------- Chief Executive Officer
Jack E. Shaw
/s/Robert C. Crawford Secretary/Treasurer October 10, 1996
- --------------------- Director
Robert C. Crawford
/s/Howard L. Morgan Director October 8, 1996
- -------------------
Howard L. Morgan
/s/Robert G. Sable Director October 7, 1996
- ------------------
Robert G. Sable, Esq.
/s/William C. Wimer Vice President/Operations October 11, 1996
- ------------------- Assistant Treasurer
William C. Wimer
21
UNITRONIX CORPORATION
FINANCIAL STATEMENTS
UNITRONIX CORPORATION
INDEX TO FINANCIAL STATEMENTS
for the years ended June 30, 1996, 1995 and 1994
Page(s)
Report of Independent Accountants 1
Balance Sheets as of June 30, 1996 and 1995 2
Statements of Operations for the years ended
June 30, 1996, 1995 and 1994 3
Statements of Changes in Stockholders' Equity (Deficit)
for the years ended June 30, 1996, 1995 and 1994 4
Statements of Cash Flows for the years ended
June 30, 1996, 1995 and 1994 5
Notes to Financial Statements 6-15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Unitronix Corporation:
We have audited the accompanying balance sheets of Unitronix Corporation as of
June 30, 1996 and 1995, and the related statements of operations, changes in
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Unitronix Corporation as of
June 30, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1996 in conformity with
generally accepted accounting principles.
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.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
September 18, 1996
UNITRONIX CORPORATION
BALANCE SHEETS
June 30, 1996 and 1995
ASSETS 1996 1995
Current assets:
Cash $13,382 $44,450
Accounts receivable, net of allowance for
doubtful accounts of $10,401 and $5,925
at June 30, 1996 and 1995, respectively 130,453 168,698
Prepaid expenses and other current assets 52,639 46,481
-------- --------
Total current assets 196,474 259,629
-------- --------
Property and equipment, at cost less accumulated
depreciation and amortization of $670,686 and
$615,787 at June 30, 1996 and 1995,respectively 88,013 111,735
Capitalized software costs 28,328 189,924
Other assets 4,850 7,653
-------- --------
Total assets $317,665 $568,941
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable - related party 337,424 117,424
Note payable 6,323 6,323
Accounts payable 116,595 135,989
Accounts payable - related party 57,100 57,100
Accrued expenses 161,122 107,096
Deferred revenue 117,631 153,400
-------- --------
Total current liabilities 796,195 577,332
Note payable 12,646 18,968
Commitments and contingencies (Note 7)
Stockholders' equity (deficit):
Undesignated capital shares; authorized 3,000,000
shares at June 30, 1996 and 1995; none outstanding - -
Common stock, no par value; authorized 12,000,000
shares; 9,456,932 issued and outstanding 3,485,412 3,485,412
Accumulated deficit (3,976,588) (3,512,771)
----------- -----------
Total stockholders' equity (deficit) (491,176) (27,359)
Total liabilities and stockholders'
equity (deficit) $317,665 $568,941
The accompanying notes are an integral part of the financial statements.
2
UNITRONIX CORPORATION
STATEMENTS OF OPERATIONS
for the years ended June 30, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Revenue:
Computer systems and software licenses $498,664 $519,933 $1,043,561
Services 854,207 976,036 1,036,964
--------- --------- ----------
Total revenue 1,352,871 1,495,969 2,080,525
--------- --------- ---------
Costs and expenses:
Cost of computer systems and software
licenses 356,919 464,383 865,553
Cost of services 342,280 303,489 333,942
Product development 630,411 485,976 365,496
Selling and marketing 238,837 197,027 239,703
General and administrative 235,396 271,620 476,431
--------- --------- ---------
Total expenses 1,803,843 1,722,495 2,281,125
Loss from operations (450,972) (226,526) (200,600)
Interest income (expense), net (20,005) (14,180) (9,478)
Other income (expense) 7,160 (1,143) 713
--------- --------- ---------
Loss from operations before income taxes 463,817) (241,849) (209,365)
Provision for income taxes - - -
--------- --------- ---------
Net (loss) $(463,817) $(241,849) $(209,365)
--------- --------- ---------
Net (loss) per common share $(.05) $(.03) $(.03)
--------- --------- ---------
Weighted average number of common
shares outstanding 9,456,932 9,456,932 6,028,149
The accompanying notes are an integral part of the financial statements.
3
UNITRONIX CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended June 30, 1996, 1995 and 1994
Common Stock
----------------------- Stockholders'
Shares Accumulated Equity
Issued Amount Deficit (Deficit)
------ ------ ----------- -------------
Balance, June 30, 1993 3,958,000 $3,385,839 $(3,061,557) $324,282
Common stock issued in
connection with Plan
of Reorganization 5,498,932 99,573 - 99,573
Net loss - - (209,365) (209,365)
--------- ---------- ------------ ---------
Balance, June 30, 1994 9,456,932 3,485,412 (3,270,922) 214,490
Net loss - - (241,849) (241,849)
--------- ---------- ------------ ---------
Balance, June 30, 1995 9,456,932 3,485,412 (3,512,771) (27,359)
Net loss - - (463,817) (463,817)
--------- ---------- ------------ ---------
Balance, June 30, 1996 9,456,932 $3,485,412 $(3,976,588) $(491,176)
The accompanying notes are an integral part of the financial statements.
4
UNITRONIX CORPORATION
STATEMENTS OF CASH FLOWS
for the years ended June 30, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities:
Net (loss) $(463,817) $(241,849) $(209,365)
Adjustments to reconcile net (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 216,495 36,442 333,863
Loss on sale of fixed assets - 384 -
Issuance of note payable in settlement of
tax liability - - 37,937
Provision for bad debts 10,087 3,294 4,168
Decreases (increases) in operating assets:
Accounts receivable 28,158 72,287 1,158
Prepaid expenses and other current assets (6,158) (9,481) 14,924
Increases (decreases) in operating liabilities:
Accounts payable and accrued expenses 34,632 10,238 (215,946)
Deferred revenue (35,769) (118,652) (54,692)
--------- --------- ---------
Net cash provided (used) by operating
activities (216,372) 52,663 (87,953)
Cash flows from investing activities:
Purchase of equipment (31,177) (10,332) -
Additions to capitalized software costs - (30,184) (106,076)
Other assets 2,803 1,846 (3,898)
Proceeds from notes receivable - - 99,835
--------- --------- ---------
Net cash used by investing activities (28,374) (38,670) (10,139)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from common stock issued - - 49,573
Proceeds from borrowings 220,000 - 50,000
Repayments of borrowings (6,322) (6,850) (5,796)
--------- --------- ---------
Net cash provided (used) by
financing activities 213,678 (6,850) 93,777
--------- --------- ---------
Net increase (decrease) in cash (31,068) 7,143 (4,315)
Cash at beginning of year 44,450 37,307 41,622
--------- --------- ---------
Cash at end of year $13,382 $44,450 $37,307
--------- --------- ---------
The accompanying notes are an integral part of the financial statements.
5
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND BUSINESS
Unitronix Corporation (the "Company") operates in one business segment and
licenses PRAXA software which operates on Digital Equipment Corporation
("Digital") computer equipment.
The Company's ongoing business is the sale and maintenance of PRAXA software and
associated computer equipment and the design and development of software
compatible with client/server platforms.
The Company has continued to incur losses from operations and has a working
capital deficit as of June 30, 1996 of approximately $600,000, including notes
payable to its principal shareholder of approximately $337,000 under an expired
line of credit. As a result, management anticipates that additional financing
will be required in the foreseeable future to fund the Company's operations and
to repay the notes. Management's plans in continuing their operations and to
repay the notes include raising additional funds from new and existing investors
and generating revenues from product sales. There can be no assurance that the
Company will obtain the financing or product revenues to provide the resources
necessary for the Company to continue its operations and to repay the notes.
These financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
CHAPTER 11 BANKRUPTCY REORGANIZATION PROCEEDINGS
On December 12, 1991, the Company's major creditor, in conjunction with two
other creditors, petitioned the U.S. Bankruptcy Court District of New Jersey to
place the Company in Chapter 7 pursuant to Section 303 of the Bankruptcy Code.
On February 18, 1992, the Company successfully converted the Chapter 7
proceedings to Chapter 11 pursuant to Section 706a of the Bankruptcy Code. The
Company's officers and directors were authorized to continue in the management
and control of the business and property as debtors-in-possession under Section
1107 and 1108 of the Bankruptcy Code. On September 18, 1992, the Company filed
a Plan of Reorganization and a Disclosure Statement with the Bankruptcy Court;
these filings were subsequently amended on November 17, 1992. On December 21,
1992 the Bankruptcy Court confirmed the Amended Plan of Reorganization (the
"Plan of Reorganization"). On November 3, 1993 the Bankruptcy Court issued a
final decree that closed the case, releasing the Company from the oversight of
the Court. The Company's principal shareholder prior to the confirmation date
of the Plan of Reorganization received the majority of all common stock issued
under the Plan of Reorganization.
Continued
6
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The Company has satisfied its obligations to pre-bankruptcy creditors and has
satisfied its post-petition claims of Digital Equipment Corporation. An
extraordinary gain in the amount of $1,746,080 was recognized in fiscal 1993 as
a result of the debt forgiven in connection with the reorganization. Final
payments to settle all bankruptcy related obligations were made during fiscal
1994.
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
period. 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 is subject to a dispute with a software consulting firm vendor.
Although no assurances can be given, in the opinion of management the results of
this dispute will not have a material adverse effect on the Company's financial
condition or results of operations.
ECONOMIC DEPENDENCE
The Company's PRAXA software runs exclusively on computers manufactured by
Digital. Therefore, the Company's PRAXA System business is dependent upon a
continuing relationship with Digital and the continued competitiveness and
market acceptance of Digital computer products.
In the fiscal year ended June 30, 1996, two customers accounted for
approximately 11% and 10% of total revenue. In the fiscal year ended June 30,
1995, one customer accounted for approximately 11% of total revenue, and in the
fiscal year ended June 30, 1994 one customer accounted for approximately 20% of
total revenue.
Continued
7
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
REVENUE RECOGNITION
Software revenue and computer system revenue are 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.
SOFTWARE COSTS
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," the Company capitalizes certain software costs after technological
feasibility of the product has been established. For the years ended June 30,
1996, 1995 and 1994, the Company capitalized $0, $30,184, and $106,076,
respectively, of software 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. Amortization of these costs amounted to $161,596, $266,104, and
$260,364 for fiscal years ended June 30, 1996, 1995, and 1994, respectively and
is included in the cost of computer systems and software licenses. Costs
incurred prior to the establishment of technological feasibility are charged to
product development costs.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which
requires a balance sheet approach for accounting for income taxes. Under SFAS
109, deferred tax liabilities and assets are recognized based on temporary
differences between the financial statement and tax bases of assets and
liabilities using current statutory tax rates.
LOSS PER COMMON SHARE
Loss per common share is based on the weighted average number of common shares
outstanding. Common equivalent shares are included only when they are dilutive
and consist of stock options (calculated using the treasury stock method). For
the years ended June 30, 1996, 1995 and 1994 common equivalent shares are
excluded as they are antidilutive.
Continued
8
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS, 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
depreciation are removed from the accounts; any resulting gain or loss is
credited or charged to income.
RECLASSIFICATION OF PRIOR YEAR BALANCES
Certain reclassifications have been made to prior years' financial statements to
conform to the current presentation.
2. RELATED PARTY TRANSACTIONS:
During fiscal 1996, 1995 and 1994, the Company's principal shareholder loaned
the Company $220,000, $50,000 and $100,000, respectively, under a $400,000 line
of credit agreement which bears interest at the time the funds are loaned at the
greater of either 10% or the bank's prime interest rate plus 2%. These notes
bear interest at the rate of 10% per annum and interest expense amounted to
$18,656, $11,742 and $6,323 in fiscal years 1996, 1995 and 1994, respectively.
The unused portion of the line of credit at June 30, 1996 is approximately
$60,000. The line of credit was not renewed by the principal shareholder on
September 1, 1996. Although no assurances can be given, management believes
that the principal shareholder does not intend to demand repayment of the notes
or interest in the foreseeable future.
In accordance with the Company's Plan of Reorganization, the principal
shareholder purchased in 1994 and 1993 approximately 4,800,000 shares of the
Company's common stock for $287,350 in cash, the forgiveness of $32,576 in debt
and $17,424 in accounts payable, and the extension of the $400,000 line of
credit. The average price of the shares issued was greater than the fair value
of the stock as determined by the Company's Board of Directors.
Continued
9
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
During fiscal 1993 the Company had a consulting and management agreement with a
related entity controlled by its principal shareholder. The terms of this
agreement, which began in May 1992 and terminated on June 30, 1993, provided for
fees and expenses not to exceed $25,000 per month to be paid by the Company for
such consulting and management services. The amount owed to this related entity
was $57,100 at June 30, 1996 and 1995 and is included in accounts payable -
related party. Effective July 1, 1993 a new agreement became effective in which
substantially all of the employees of the related entity became employees of the
Company. Under the new agreement, the Company charges the related entity for
services it provides as well as fifteen percent of the Company's rent expense
for space occupied by the remaining employees of the related entity. Under this
new agreement, approximately $45,805 and $31,350 were owed to the Company as of
June 30, 1996 and 1995, respectively. These amounts are included in prepaid
expenses and other current assets.
3. PROPERTY AND EQUIPMENT:
The major classes of property and equipment are as follows:
June 30,
--------------------
1996 1995
---- ----
Computer equipment $627,131 $597,012
Office furniture and fixtures 131,568 130,510
-------- --------
758,699 727,522
Less: accumulated depreciation (670,686) (615,787)
-------- --------
$88,013 $111,735
Depreciation expense for the years ended June 30, 1996, 1995 and 1994 was
$54,899, $70,338 and $76,481, respectively.
Continued
10
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. INCOME TAXES:
The components of the deferred tax assets and liabilities as of June 30, 1996
and 1995 were as follows:
1996 1995
---- ----
Deferred tax assets:
Net operating loss carryforwards $2,223,617 $2,109,532
Tax credits 154,204 161,571
Other 16,679 7,653
---------- ----------
Subtotal 2,394,500 2,278,756
Deferred tax liabilities:
Capitalized software costs 11,408 76,482
Other - 3,031
---------- ----------
Subtotal 11,408 79,513
---------- ----------
Valuation allowance (2,383,092) (2,199,243)
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, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $5,500,000 which expire from the
years 2005 through 2011. The Company also has research and development credits
for federal income tax purposes in the amount of $140,568 available to offset
future income taxes. These credits expire from the years 2005 through 2011.
Due to the Company's issuance of stock, the Company's use of its existing net
operating loss carryforwards may be restricted under Section 382 of the Internal
Revenue Code.
Continued
11
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
A reconciliation of the provision for income taxes at the federal statutory
income tax rate of 34% for the years ended June 30, 1996, 1995 and 1994, with
the provision reflected in the financial statements is as follows:
1996 1995 1994
---- ---- ----
Tax expense (benefit) at federal statutory
income tax rate $(157,664) $(147,048) $(71,184)
state income taxes, net of federal benefit (27,550) (32,460) (13,055)
Nondeductible business expenses 1,365 - 393
Credits - (10,000)
Change in valuation allowance 183,849 179,508 93,846
--------- --------- --------
Total tax provision in accompanying
financial statements - - -
--------- --------- --------
5. PROFIT SHARING PLAN:
The Company has a qualified profit-sharing plan covering substantially all full-
time Company employees. The plan was amended effective July 1, 1986 to
incorporate a "savings" feature under Section 401(k) of the Internal Revenue
Code, which allows participants to make contributions by salary reduction. The
amendment provided for a matching contribution by the Company of 50% up to a
maximum of 6% of an employee's salary. On February 1, 1991, the Company amended
this provision by eliminating the 50% match up to 6% of an employee's salary and
instead provided for a discretionary percentage to be determined by the Company.
Effective January 1, 1993, the plan was amended to allow certain distributions
to be rolled over to a retirement account. Effective December 28, 1994 the plan
was further amended to incorporate annual compensation limits as defined in the
Internal Revenue Code. Employees vest immediately in their contributions and
vest in the Company contributions over a seven-year period of service. Contrib
utions under the profitsharing feature of the plan are discretionary and
determined annually by management. There were no contributions made to the plan
for the years ending June 30, 1996, 1995 and 1994.
6. NOTE PAYABLE:
As of August 1, 1993, the Company entered into a $37,937 note payable bearing
interest at 8% due to the Illinois Department of Revenue for settlement of
revenue taxes owed to the State of Illinois. The note is payable in monthly
installments of $527 and will expire on July 1, 1999.
Continued
12
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. COMMITMENTS AND CONTINGENCIES:
As of March 1, 1996 the Company amended the lease agreement for its facility in
Peabody, Massachusetts by extending the agreement for a period of two years.
Rent is payable in monthly installments of $4,637 during the first twelve months
of the lease and $4,711 during the second twelve months of the lease. During
fiscal year 1996 and 1995, $52,528 and $48,028, respectively, were paid under
this lease agreement.
As of May 1, 1996 the Company amended the lease agreement for its Mount Laurel,
New Jersey location by extending the agreement for a period of two years. Rent
is payable in monthly installments of $2,568 during the first year of the lease
and $2,780 during the second year of the lease. During fiscal year 1996 and
1995 $37,008 and $34,528, respectively, were paid under this lease agreement.
At June 30, 1996, the Company's future minimum payments under noncancelable
leases were as follows:
Fiscal year 1997 $ 87,169
Fiscal year 1998 65,484
--------
Total $152,653
Total rental expense was $72,868, $75,514 and $88,256 for the years ended June
30, 1996, 1995 and 1994, respectively.
8. STOCK OPTION PLAN:
On October 28, 1993 and February 7, 1994 the Board of Directors and the
shareholders, respectively, adopted the Company's 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 employees 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).
In September 1994 the Stock Option Committee of the Board of Directors of the
Company granted 475,000 options retroactive to June 21, 1994. These options
were granted at or above market value as determined by the Board of Directors on
the grant date. Plan data is summarized as follows:
Continued
13
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Exercise
Number of Price per
Shares Share
--------- ---------
Options outstanding June 30, 1994 - -
Options granted 475,000 $ . 125
Options exercised - $ . 125
Options canceled 65,000 $ . 125
------- -------
Options outstanding at June 30, 1995 410,000 $ . 125
Options granted 3,000 $ . 125
Options exercised - $ . 125
Options canceled - $ . 125
------- -------
Options outstanding at June 30, 1996 413,000 $ . 125
At June 30, 1996, there were 413,000 options exercisable and 587,000 available
for grant.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based-
Compensation," which is effective for fiscal year 1997. The Company has
determined that it will elect the disclosure-only alternative. The Company will
be required to disclose the pro forma net income or loss and per share amounts
in the notes to the financial statements using the fair value based method
beginning in fiscal 1997 with comparable disclosures for fiscal 1996. The
Company has not determined the impact of these pro forma adjustments.
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) for interest and income taxes for the periods indicated
were as follows:
Year Ended June 30,
------------------------------------
1996 1995 1994
---- ---- ----
Interest, net $1,475 $2,111 $(2,023)
Taxes 3,842 1,124 423
Continued
14
UNITRONIX CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. COMMON STOCK:
The Plan of Reorganization called for raising $1,450,000 to fund the
reorganization. As of June 30, 1996, the Company had raised $834,573 through
the issuance of approximately 7,300,000 shares of its common stock to several
investors in addition to obtaining a line of credit of $400,000 from its
principal shareholder. The line of credit expired September 1, 1996.
The common stock issuances which raised $834,573 occurred principally in two
related series of transactions. To raise capital in fiscal year 1993, the
principal shareholder and other investors, some who are employees of the
Company, purchased common stock at a price of $0.40 per share. As part of these
stock transactions the Company also agreed that, in a related second series of
transactions, the principal shareholder and certain of the other investors who
combined to purchase 95 percent of the $0.40 shares would receive additional
shares at a price of $0.01 per share. The investors who received the remaining
five percent of the $0.40 shares purchased their stock in a separate private
placement and were not involved in the second series of transactions. The
average prices of all of the $0.40 and $0.01 share issuances to each individual
investor were equal to, or above, the fair value of the Company's common stock
as determined by its Board of Directors at the time of the issuances. Therefore,
the Company did not record any charge to income related to these transactions.
In fiscal 1994, the Company issued approximately 5,500,000 shares of its common
stock for approximately $100,000 in the transactions noted above.
During fiscal 1993, $735,000 had been received through common stock subscrip-
tions for 1,837,500 shares at $0.40 per share. All shares issued in fiscal 1994
and 1993 were privately negotiated and did not involve a public offering.
Therefore, they were issued without registration under the Securities Act of
1933, pursuant to Section 4(2) of said Act. Pursuant to the agreements between
the Company and these shareholders, the 1,837,500 shares issued in fiscal 1993
are considered issued and outstanding effective with the date of subscription
and receipt of the purchase price. Legend certificates were issued to the
shareholders on October 8, 1993.
15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Unitronix Corporation:
Our report on the financial statements of Unitronix Corporation included an
explanatory paragraph about the Company's ability to continue as a going
concern, and is included in Item 8 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
September 18, 1996
UNITRONIX CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C 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, 1996:
Allowance for doubtful
accounts $5,925 $10,087 $5,611 $10,401
Year ended June 30, 1995:
Allowance for doubtful
accounts 5,245 3,294 2,614 5,925
Year ended June 30, 1994:
Allowance for doubtful
accounts 26,196 4,168 25,119 5,245
*Write-off of bad debts