TABLE OF CONTENTS
As filed with the Securities and Exchange Commission on _________, 2000.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
UNITREND, INC.
(Exact name of registrant as specified in its charter)
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| Nevada |
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8731-0203 |
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34-1904923 |
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incorporation or organization) |
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number) |
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| 4665 West Bancroft St. |
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| Toledo, Ohio |
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43615 |
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| (Address of principal executive office) |
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(zip code) |
Registrant’s telephone number, including area code 419-536-2090
Copies to:
MICHAEL A. SMITH
CARLILE PATCHEN & MURPHY LLP
366 E. Broad Street
Columbus, Ohio 43215
614-228-6135
Securities to be registered pursuant to Section 12(b) of the Act:
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| TITLE OF EACH CLASS |
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NAME OF EXCHANGE ON WHICH |
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EACH CLASS IS TO BE REGISTERED |
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| Common Stock, no par value |
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Application will be made to list on various
Exchanges, including, but not limited to the
Boston Stock Exchange and the Pacific Stock
Exchange |
Securities to be registered pursuant to Section 12(g) of the Act:
NONE
ITEM 1. BUSINESS
Unitrend, Inc. (the “Company”) was founded as an Ohio Corporation in 1996 by
Conrad A.H. Jelinger. The Company was reincorporated in Nevada in July, 1999.
The Company is a development stage business, focusing on the computer enclosure
and power supply industry. The Company is preparing for the release of the
VersaCase(R) computer enclosure later this year. In 1998 we agreed to acquire
by merger a related party known as Server Systems Technology, inc., (SSTI), an
Ohio corporation formed September 27, 1994, for the purpose of obtaining
patented technology crucial to retaining control of the VersaCase line of
products. This acquisition was legally effectuated in July 1999.
COMPANY OVERVIEW
Unitrend, Inc. was founded with the purpose of expanding the useful life of
computer technology. Our mission is to maximize our customers’ return on
investment in information systems by extending the value of older technologies
as they combine with the latest advances. Our first product which is designed
to accomplish this aim is the highly modular VersaCase computer enclosure.
Unitrend’s current goal is to establish VersaCase as the industry standard for
open architecture computer enclosures while setting new benchmarks for quality
and adaptability.
We utilize proprietary and patented technology to design, develop, manufacture,
and market our products. VersaCase is a computer enclosure which allows a user
or technician to rapidly access all internal components of a computer. This
architecture dramatically reduces downtime for maintenance, and allows quick
upgrading of a single component (such as the computer’s central processing
unit) without having to replace or tear down and rebuild the entire computer.
We have also patented a computer power supply unit that greatly enhances the
energy performance and cooling operations inside a computer case. These
products save substantial time and financial resources for both users and
technical support staff. Up to the date of the filing of this document, we
have not had any sales of the VersaCase computer enclosure, but have presently
placed five units in the field for testing.
Unitrend has equipped a 13,000 square foot light assembly and metal fabricating
plant in Wauseon, Ohio for the assembly of its products. The facility will
ultimately have the production capacity of 3,000 units per day and be staffed
by 35 hourly and 5 salaried employees. The plant is operated by our affiliate,
Osborne Manufacturing, Inc. (OMI). Additionally, we have several agreements
with nationally known suppliers who have successful long-term operating
histories as manufacturers/providers of component parts for the computer
industry.
The VersaCase will be marketed and sold through direct and indirect channels.
After introducing the product to North America, we will expand to Europe,
Asia/Pacific, and Latin America, although not necessarily in that order. The
unique total modularity of VersaCase enables the end-user to save considerable
time and money, whether the product is utilized as a personal computer (PC) or
as a server in a network of computers. Due to the mission-critical nature of
computer network activities, our primary marketing efforts are directed at
server applications. We will also market to high-end PC users concerned with
complex, high quality computer systems, and expect these users to be strong
early adopters of the VersaCase technology.
In addition to its assembly plant in Wauseon, Ohio, Unitrend has its
headquarters in Toledo, Ohio. The company currently employs 12 people, and
expects to grow to 35 in mid-2000.
PATENTS AND TRADEMARKS
We rely on a combination of patents, trademarks, trade secrets and
non-disclosure agreements to protect our proprietary rights. We execute
confidentiality and non-disclosure agreements with our employees and with key
vendors and suppliers. These efforts allow us to rely upon the knowledge and
experience of our management and technical personnel and our ability to market
our existing products and to develop new products. The departure of any of our
management and technical personnel, the breach of their confidentiality and
non-disclosure obligations to us, or the failure to achieve our intellectual
property objectives may have a material adverse effect on our business,
financial condition and results of operations.
Currently, we have three United States patents issued and five United States
patent applications pending. There can be no assurance that any new patents
will be issued, that we will continue to develop proprietary products or
technologies that are patentable, that any issued patent will provide us with
any competitive advantages or will not be challenged by third parties, or that
the patents of others will not have a material adverse effect on our business
and operating results.
1
Our ability to compete successfully and achieve future revenue growth will
depend, in part, on our ability to protect our proprietary technology and
operate without infringing upon the rights of others. There can be no
assurance that these measures will successfully protect our intellectual
property or that our intellectual or proprietary technology will not otherwise
become known or be independently developed by competitors. In addition, the
laws of various countries in which our products are or may be sold may not
protect our products and intellectual property rights to the same extent as the
laws of the United States. Our inability to protect our intellectual property
and proprietary technology could have a material adverse effect on our
business, financial condition and results of operations. As the number of
patents, copyrights and other intellectual property rights in the computer
enclosure industry increases, and as the coverage of these rights and the
functionality of the products in the market further overlap, computer enclosure
companies may increasingly become subject of infringement claims. In the
future, we may be notified that we are infringing patent or other intellectual
property rights of others. Although there are no pending or threatened
intellectual property lawsuits against us, we may become the subject of
litigation or infringement claims in the future. Any of these potential claims
could result in substantial costs and diversion of resources and could have a
material effect on our business, results of operations and financial condition.
INDUSTRY
The computer industry has experienced remarkable growth. According to
eTForecasts, PC shipments reached 39.9 million units domestically, and 107
million units worldwide in 1999, a growth of 20.5% over 1998. While the Y2K
issue motivated some purchases, this sales pattern reflects both the
acquisition of first machines and replacement of existing units. Worldwide PC
sales are expected to reach over 215,000,000 units by the year 2005.
Domestic and Worldwide PC Shipments*
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34.2 |
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39.9 |
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45.3 |
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88.8 |
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107 |
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124.5 |
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*Shipments are measured in millions of units
** Projected numbers
According to International Data Corp., revenue from worldwide PC sales for 1998
was $171 billion, and in 1999 worldwide revenues were up to $189 billion,
representing a 10.5% increase over the previous year. Projected worldwide
revenue for 2000 is $204 billion, a 7.9% increase.
The PC server market likewise grew at a rapid pace. According to market
researcher eTForecasts, 1999 worldwide server shipments reached 3.7 million
units. Worldwide sales by 2005 are projected to be 11.5 million units. The
top four vendors in this segment are Compaq, Hewlett-Packard, IBM and Dell.
Growth in the computer market reflects the rapid rush to build information
highways within and between both work and home environments. The trend of
connecting people and business is further illustrated by the dramatic growth of
Web Hosting, Application Service Providers (ASPs), Internet Service Providers
(ISPs), and a rapid growth in the number of new companies entering this market.
In order to support this high level of “instant” connectivity, these companies
are building massive “server farms” using fiber optic communications to
accelerate the transmission of data by two to three times current speeds. For
example, Intel has built its first server farm in Santa Clara, CA and has
aggressive plans to open more hosting facilities around the world, each with
5,000 to 10,000 servers (Computer Reseller News, 10/8/99). Level 3
Communications, an international communications network company, is building a
worldwide network with “gateway” sites planned in 56 U.S. and 21 International
cities (Level 3 Communications web site 3/15/00).
Open Architecture. The concept of open architecture enables computer users to
combine various components and peripherals from different manufacturers. To
some extent, the industry has moved in the direction of common standards
typified by open architecture. For example, mounting boards, DVD’s, CD-ROM’s,
floppy drives, and serial ports, to name a few, are designed according to a set
of common specifications. In addition, the ATX logic board platform developed
by Intel, the world’s largest manufacturer of microprocessors, sets the
standard for placement of connecting devises to the logic board. However,
fiercely competitive market forces have thus far defeated true open
architecture.
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Major assemblers such as IBM, Dell, Gateway, and Compaq build units that
support only their proprietary components. If one of these parts should fail,
the only option is to replace it with the same part from the same company.
While this provides additional revenue for the PC producer, the consumer
suffers in significant ways. Consumers are locked into the price,
availability, and delivery time dictated by the PC producer, which can add to
downtime and cost of maintenance.
Accessibility. In order to simplify the repair and upgrade of computers, the
industry is beginning to create hardware that is easily accessible.
Historically, the design of computer enclosures has severely limited one’s
ability to service both critical and ordinary problems with a PC. Rapid access
is especially important in mission-critical applications where a technician
must make a prompt intervention to save the computer network from crashing.
Unfortunately, the human expert often loses this race. These system crashes
are all to frequent and widely publicized, as in the cases of internet
companies E-bay and Amazon.com. The loss in reputation and revenues can be
significant. Sandy Carter of IBM stated that some of their customers lose
$10,000 per minute of downtime (Computer Reseller News, 5/21/99).
Some industry leaders are moving toward tool-less cases that can be opened by
pressing tabs to lift the top panel. Apple introduced the G-3 model
highlighting the ease of access to the “guts” through a drop-down side panel.
Gateway, Dell, and IBM have recently introduced models that move in this
direction as well.
Continuous Need to Upgrade. Both hardware and software components are updated
at an astounding pace. Moore’s Law states that processing power doubles
roughly every 18 to 24 months. The rapid release of 12 Intel microprocessing
chips from the 8080 through the Pentium III Xeon over the last 25 years shows
that Moore’s observation is still remarkably accurate, while also demonstrating
technology’s rushing rate of change. A steady stream of software upgrades
takes advantage of this additional processing power to create more powerful,
intuitive, and stable software. We become increasingly dependent on the
software, and thus the software upgrades, which in turn require upgrading the
computer’s memory, storage, or processing capabilities. This cycle becomes so
expensive that the estimated 5 year total cost of ownership for a Windows based
PC is $47,500 (March 2000 Fujitsu web site, citing a study by the Gartner
Group). Instead of upgrading the computer, entire existing systems are often
simply discarded.
Scalability. The ability to change internal components is essential for
extending the investment in computer technology. As the Fortune Tech Buyers
Guide states, “ scalability is key, especially in PCs. Better systems provide
plenty of expansion slots and extra drive bays so PCs can grow as needed”
(Fortune Tech Buyers Guide Supplement Summer, 1999, p. 130, 141).
UNITREND SOLUTION
We believe Unitrend is well positioned to offer solutions to many of the issues
listed above. VersaCase was designed with these factors in mind, resulting in
a product that addresses all four areas: true open architecture; complete
accessibility; rapid upgrade and maintenance; and creative scalability.
True Open Architecture. The VersaCase achieves true open architectural design
by allowing the combination of various technologies and/or peripherals from
different manufacturers. VersaCase accepts all industry standard components,
such as motherboard configurations from Intel. Because the case design allows
for the acceptance of any non-proprietary part, the consumer will not be
restricted to using proprietary components. This significantly enhances the
computer’s value by allowing the owner to choose the best component for each
repair and upgrade.
Complete Accessibility. The VersaCase allows a user or technician to quickly
access the internal components of a computer. The design of the case is
similar to a drawer, thereby providing quick access, without tools, to the
inside of the computer. Internal components become modules that can be
installed or replaced simply and easily. This design simplifies routine
repair, maintenance, and upgrade procedures. This full-access-design is vital
for mission-critical applications. Often, a failure in a server system can be
isolated to two or three units, and the technician must rapidly check all three
units to save the entire system from shutting down. Standard computer
enclosures require considerable time to access all internal components because
they must be laboriously dismantled. With the VersaCase, the technician simply
slides open the drawer. What can take agonizing minutes or even hours with a
typical enclosure is done in seconds or minutes with a VersaCase.
Rapid Upgrade and Maintenance. The drawer-like design of the VersaCase not
only allows full access to all the internal components, it dramatically reduces
the time required to get to any given component. The time it takes to perform
upgrades and repairs is doubly expensive when you add the cost of the person’s
time performing the task to the lost productivity of the user while the system
is down. In effect, every minute saved by VersaCase buys back two minutes of
user and technical support time. The total cost of ownership for a computer
built with VersaCase is greatly reduced by allowing individual components to be
upgraded. With other cases, many
3
components such as the motherboard or central processing unit (CPU) cannot be
changed, and you are forced to discard the entire PC. With other cases, you
are forced to buy a whole new computer, leaving you with many perfectly good,
but unusable, components. Instead of spending thousands of dollars every two
years for a whole new system, VersaCase lets you spend a couple hundred dollars
(or less) by merely upgrading the old component and continuing on with using
the rest.
Creative Scalability. The VersaCase provides unmatched flexibility. It can be
used as a PC or a server. As a server, the unit can be used in a rack-mount
application or as a standalone unit. Up to fifteen 3 1/2” drives can be
mounted internally onto three independent universal mounting racks, or six 5
1/4” drives can be mounted onto two independent universal mounting racks.
Removable drive bay panels allow for any combination of drive sizes to be
installed. Due to the inter-changeability of the components, hundreds of
configurations are possible.
In summary, the VersaCase offers new technology to the market, which gives you
the ability to easily maintain and upgrade your system while providing
unsurpassed configuration options. VersaCase simplifies changes and extends
the life of computers, saving substantial time and money for both companies and
individuals.
COMPETITION
We will compete in the computer enclosure market, initially focusing on the
high-end PC and entry-level server segments. The computer enclosure market is
intensely competitive. Within the enclosure market, we will encounter
competition primarily from large domestic enclosure manufacturers and
distributors such as Berno, Inc., California P.C. Products, and CVC, Inc. To
our knowledge, no competing company offers an enclosure which contains all the
features and benefits of the VersaCase. As noted above, some major computer
assembly firms, e.g., IBM, Gateway, Acer, and Dell, have introduced PC models
that contain some modular features that are found in a VersaCase. No one,
however, has designed or introduced a model that delivers all the scalable and
versatile technology that the VersaCase offers.
We will also encounter strong competition from international computer enclosure
companies who sell to worldwide original equipment manufacturers and
distributors. These international companies also set up their own distribution
networks in international markets, including the United States. The
international market is extremely competitive due primarily to aggressive
pricing. Examples of international companies include: Chung Long Metal Co.,
Ltd.; Karrie Ind.; MacCase Ind. Corp.; Leadertech Systems; Everfit Computer
Supply; and Evergreat Group.
The VersaCase is more expensive to purchase than traditional computer
enclosures, with a retail price around $400. We will compete in the computer
enclosure market by demonstrating the value of the features and benefits of
VersaCase. We separate ourselves from other companies now offering computer
enclosures by focusing on common sense solutions. VersaCase is convertible
technology. Accordingly, it may be used as a single unit, in multiple stacks,
rack-mount configuration, workstation, file server, disk array, jukebox, or a
combination of these applications. Further, internal components can be built
with non-proprietary parts, possibly achieving even lower operating costs.
There can be no assurance that we will be able to compete effectively in this
marketplace. While unit cost and actual pricing is being established for the
product, there is no production and sales history to determine the accuracy of
these figures. Therefore, it is not possible to determine whether we can
effectively compete with other computer enclosure manufacturers on price alone.
An inability to compete with other computer enclosure manufacturers would
adversely affect our business, financial condition, and results of operations.
GROWTH STRATEGY
Our growth strategy is built around five imperatives: maintaining technology
leadership; increasing market share; acquisition of other business entities;
leveraging strategic relationships; and the recruiting and retention of key
personnel.
Maintaining Technology Leadership. The cutting edge of our effort to achieve
technological leadership is to establish a standard for open architecture and
modularity in the computer enclosure industry. Other components, accessories,
and products are in various stages of development. They will be supported by
an aggressive research and development budget.
Increasing Market Share. Our entry into the market is estimated at a modest
level to allow us to grow at a reasonable pace. However, we make no
representations or guarantees that we will be able to manage the growth of our
business. Once VersaCase is introduced,
4
we expect that there will be significant interest across a number of market
segments. The VersaCase is unparalleled in its versatile application as a PC
or server enclosure. The ease of access and scalability will provide numerous
benefits to routine and mission-critical users that will propel and increase
market share.
Acquisition of Other Business Entities. In order to expand our technological
and market capabilities, we may consider the pursuit of other companies. Such
acquisitions may include core and non-core entities. A core entity may be a
research and development group, and a non-core firm could be one that might
enhance our production process.
Leveraging Strategic Relationships. We intend to leverage our relationship
with companies that complement our mission. For instance, the uniqueness of
VersaCase technology will create opportunities for us to establish strong
relationships with key distributors. These distributors will be able to offer
their clients a product that is very competitive and distinctive. We have been
approached by distributors to consider a channel relationship or exclusive
position with them. While we must maintain a broader market focus, we may
selectively enter into agreements that would enhance market credibility and
penetration.
Recruitment and Retention of Key Personnel. An entrepreneurial spirit that was
based in creativity, risk and reward drove the birth of this company. We
intend to maintain this quality by offering competitive salary and incentive
compensation. Our overriding human resources philosophy is to build a
corporate culture that supports the success of each employee, as well as the
company.
MARKETING AND SALES
We are implementing brand-building strategies for both the Unitrend and
VersaCase brands. Our brand objective is to identify emerging trends in
computer-related technologies and to provide streamlined solutions that make
those technologies more user friendly. The VersaCase computer enclosure is the
first product that we are marketing. We will continue to build equity in the
brand by promoting the unique and patented VersaCase features via multiple
mediums to diverse market segments.
VersaCase will be marketed to, and sold for, two specific PC applications:
high-end PC users, such as automated manufacturing functions, and entry-level
servers. We intend to market and sell our products to non-profit and
commercial organizations, individuals, and original equipment manufacturers
(OEMs). OEM sales and licensing, large corporate and government accounts, and
large-volume value added re-seller (VAR) sales will be managed by Unitrend’s
direct sales organization. Sales to all other organizations will be through
distributors. We are in the process of establishing a multi-channel
distribution network that will allow us to leverage the distributors who are
strategically focused on offering value added products and services to the
computer industry. Lastly, we will sell the VersaCase and future products
directly to end-users through our Internet site. We intend to promote end-user
demand, and will support our sales efforts through a variety of marketing
programs including but not limited to: trade and consumer advertising, public
relations, and trade shows.
While our initial focus is the North American market, we plan to expand to
Europe, Asia/Pacific, and Latin America as opportunity arises. The data
presented at the beginning of the business section illustrates the size of
these market segments.
PRODUCT
VersaCase is our flagship product. The VersaCase has undergone an extensive
development process. Five developmental VersaCase prototypes have been
developed, including the yet to be released production-level beta units. These
units will undergo rigorous in-house testing as well as field placement at
selected sites, which will mirror our more prominent market segments.
The VersaCase is comprised of a number of characteristics and features, such
as:
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Chassis and outer shell are made of 16-gauge steel. |
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Up to fifteen 3 1/2” drives can be mounted internally onto three independent universal mounting racks. |
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Or six 5 1/4” drives can be mounted onto two independent universal mounting racks. |
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Removable drive bay panels allow for any combination of drive sizes to be installed. |
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Front mounted DB connector for easy laptop docking or serial, SCSI, USB and parallel connections. |
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Front DB connector can be swapped with a wireless infrared connecting port. |
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High-security tumbler lock to protect against unauthorized entry into the computer’s interior. |
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Easy to read control panel with LED readouts for Power, Turbo, HHD1
activity, HDD2 activity, Power supply cooling fan failure warning, and
Processor cooling fan failure warning, as well as a System Reset switch
and Turbo speed switch. |
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19” Rack-Mount ready chassis with invertible outer shell to maintain EMI/RFI shielding. |
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Ultra-strong construction to allow units to be stacked up to six high with docking pin accessory. |
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Rugged design allows even the heaviest CAD Monitors to be placed on top of unit. |
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Ball bearing drawer sliders with heavy duty 100lb weight capacities, for smooth opening and closing. |
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Removable back plane with 25-pin, 9-pin DB connector ports and RJ port. |
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Optional 10, 12, or 16 slot back planes available for AT, ATX, Passive back plane and other designs. |
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Includes Prism Power Supply (when available) or allows the use of
standard Slim power supplies mounted in either a horizontal or vertical
position. |
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Rear mounted cable transom to facilitate moving wires when opening
and closing chassis drawer. |
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Quick-release power supply base unit used to distribute power to
electrical components which accepts optional battery pack for
uninterrupted power in case of power supply failure. |
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Removable thread-mounted feet allow unit to be bolted down on or
under table, desk, wall, rack, etc. |
OPERATIONS
For the design, development, and manufacturing of our products, we rely on a
skilled work force imbued with a strong work ethic and moderate wage scale. In
addition, principal suppliers have been selected based on experience and
pricing considerations.
Manufacturing Facility. VersaCase will be assembled at a light assembly and
metal fabricating plant in Wauseon, Ohio, which is located 30 miles west of
Toledo. The 13,000 square foot facility will assemble the VersaCase units and
related products. The facility will ultimately have the production capacity of
3,000 units per day based on a three-shift schedule. The facility will be
operated as Osborne Manufacturing, Inc. (OMI), a joint venture between
Unitrend, Inc. and Jon Osborne. Until OMI’s third year of production of
VersaCase units for Unitrend, we will hold a majority ownership of the joint
venture, at which time our ownership will be reduced to 40%.
It is expected that 35 hourly and five salaried employees will staff the plant.
The facility is located in an area that features a solid workforce and
reasonable wage scale. Located near Interstates 80/90 and 75, the
manufacturing facility affords excellent shipping access. The facility is 15
minutes from the Toledo, Ohio airport and a short distance from the Fulton
County airport.
Key Suppliers. We will use a large national metals company which is
established, well-known and respected in the computer industry, as our major
vendor. They will produce the VersaCase chassis through a hard-tool process,
and will apply the interior rails and feet to the bottom of the unit. The
vendor also has the ability to customize parts with soft-tool applications.
Fulton Industries of Wauseon, Ohio will produce the small steel components that
will be used in the VersaCase. Fulton Industries is located in close proximity
to the main manufacturing facility and offers over 75 years experience in this
market.
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Adept Mold of Detroit, Michigan has been selected to supply the plastic
components for the VersaCase. Similar to the other vendors, Adept was selected
based on its location, price, competitive service, and molding expertise.
We intend to establish a comprehensive quality control system and will seek
ISO9000 compliance from the International Standards Organization. Our intent
is to base our quality control program around preventative logic rather than a
detection philosophy and practice. This will be accomplished by establishing a
rigorous inspection protocol at each assembly station. Documentation will be
accomplished by computer-generated evaluation methodologies.
RESEARCH AND DEVELOPMENT
Apart from tooling costs of $1,429,429, as of December 31, 1999, we have
invested $199,198 in research and development. To date, our primary focus has
been the development of the VersaCase. We are developing accessories that will
further enhance the VersaCase, and allow for further customization. It is our
intent to continue to innovate by developing similar products that will enable
a computer user to save time and money while upgrading and repairing his or her
computer. The design of a unique power supply unit is nearing completion,
although we have already received one patent on the power supply, and expect to
seek others. Other product designs are also on the drawing board. There is no
guarantee that any of these products will become viable revenue sources.
We believe timely introduction of new and enhanced products will be essential
to maintaining a competitive edge. However, we make no representation or
guarantee that we will be able to establish or maintain a competitive edge in
the marketplace. Consequently, the human and financial commitment to research
and development will increase proportionately to meet these demands.
ITEM 2. FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated historical financial data as of and for the
years ended December 31, 1999, 1998, 1997, and 1996 has been derived from our
Financial Statements, which have been audited by Groner, Boyle & Quillin, LLP
(“GBQ”), independent auditors. We have retained GBQ to audit our financials
for each of the four years listed in the table below. This information should
be read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” the Company’s Consolidated Financial
Statements and the Notes to the Consolidated Financial Statements, which are
included herein.
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|
|
(1,123 |
) |
|
|
(1,099 |
) |
|
|
3,707 |
|
|
|
(5,256 |
) |
|
|
|
|
|
| Basic and diluted
earnings (loss) per
share: |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
0.06 |
|
|
|
(2.32 |
) |
|
|
|
|
|
| Balance Sheet Data: |
|
|
|
|
|
| Cash and cash equivalents |
|
|
7 |
|
|
|
2 |
|
|
|
0 |
|
|
|
78 |
|
|
|
|
|
|
| Total assets |
|
|
2,242 |
|
|
|
1,777 |
|
|
|
299 |
|
|
|
303 |
|
|
|
|
|
|
| Long-term debt |
|
|
2,021 |
|
|
|
421 |
|
|
|
26 |
|
|
|
— |
|
7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with our “Selected
Consolidated Financial Data” and our financial statements and accompanying
notes appearing elsewhere in this prospectus. This document contains
forward-looking statements that involve risks and uncertainties. The
cautionary statements made in this document should be read as being applicable
to all related forward-looking statements wherever they appear in this
document. Actual results may differ materially from those indicated in
forward-looking statements.
OVERVIEW
We invent and market computer-related products designed to make technology
simple, accessible and affordable through modularity. We have exclusive rights
to patented and patent pending products and technology for certain
computer-related products. Our VersaCase computer enclosure system, which we
have begun marketing to businesses and other entities employing computer
servers, allows users to quickly access computer components by incorporating a
pull-drawer design of high modularity, thus reducing downtime and extending the
service life of information technology.
We are a development stage company which commenced operations in April 1996 and
has incurred significant losses since that date. In 1998 we acquired Server
Systems Technology, Inc., (SSTI), a related Ohio corporation formed September
27, 1994. SSTI held the patent on technology crucial to the VersaCase line of
products. We acquired SSTI in a stock-for-stock exchange. To date, we have
not generated any revenue from sales of our patented and patent pending
products or through licensing agreements, but have relied on private equity
financing and loans from our founder. Furthermore, we have not yet been
profitable since our inception and expect to incur additional operating losses
in 2000 as we ramp up for production and sales of our VersaCase product. As of
December 31, 1999, we had an accumulated deficit of $4,177,267. At December
31, 1999, we had available net operating loss carry forwards of approximately
$3.9 million for federal income tax reporting purposes which begin to expire in
2011. To date, our operations have consisted predominantly of incidental
sales of computer components while we have principally concentrated on the
progression of the VersaCase enclosure and related products. We have not
achieved profitability on a quarterly or an annual basis and anticipate that we
will continue to incur net losses through the second quarter of 2001.
Expenses incurred have been primarily for development of the VersaCase
enclosure system, tooling and administrative support. We expect to incur
significant engineering and development and sales, general and administrative
expenses and, as a result, we will need to generate significant revenue to
achieve and maintain profitability. Additionally, our lack of operating
history makes it difficult for us to predict future operating results and,
accordingly, there can be no assurance that we will sustain revenue growth or
achieve profitability in future quarters. Although our core management team
has worked together for several years, none of the present members of
management has extensive experience in managing a large public business in the
computer industry. We intend to hire accomplished individuals in the industry
to supplement our current management team. However, we cannot assure that we
will be able to attract and retain such persons.
We expect that our initial revenues will primarily be derived from direct sales
of our VersaCase computer enclosure system to businesses specializing in
providing remote server-related services and larger entities which own onsite
server-based network equipment. We expect that substantially all of our
revenue through the second quarter of 2001 will be derived from customers based
in the United States. We expect that revenue from customers based outside the
United States will increase in future periods. In addition to revenue derived
from direct sales, we expect that revenue through indirect distribution
channels will increase in future periods. While computer case sales are
generally not affected by seasonality, sales fluctuations may be tracked by
changes in computer standards as those changes relate to the layout of
components within computer cases. Where strategically beneficial, we believe
that we will be able to enter into strategic alliances with companies focusing
on the development of computer peripherals, logic boards and power supplies.
Our notion that we can develop such strategic relationships stems from the idea
that entities with a vested interest in computer components used inside
computer enclosures will profit from the perpetuation of open architecture in
server-based computer network equipment. The creation of such alliances cannot
be guaranteed.
We plan to initially sell and distribute the VersaCase to two specific PC
applications: high-end PC users, such as automated manufacturing functions, and
entry-level servers. We intend to market and sell our products to non-profit
and commercial organizations, individuals, and original equipment manufacturers
(OEMs). OEM sales and licensing, large corporate and government accounts, and
large-volume value added re-seller (VAR) sales will be managed by Unitrend’s
direct sales organization. Sales to all other organizations will be through
distributors. We are in the process of establishing a multi-channel
distribution network that will allow us to leverage the distributors who are
strategically focused on offering value added products and services to the
computer industry. Lastly, we will sell the VersaCase and future products
directly to end-users through our Internet site. We intend to promote
8
end-user demand, and will support our sales efforts through a variety of
marketing programs including but not limited to: trade and consumer
advertising, public relations, and trade shows.
While our initial focus is the North American market, we plan to expand to
Europe, Asia/Pacific, and Latin America as opportunity arises. The data
presented at the beginning of the business section illustrates the size of
these market segments.
LIQUIDITY AND CAPITAL RESOURCES
From inception, we have financed our operations primarily through private
placements of equity securities, which provided aggregate net proceeds of
approximately $3,291,290 and loans from founder received during the past 18
months of $1,703,854. At December 31, 1999, our cash balance was $7,455.
Since that date, we have received additional proceeds from loans and the
Company’s cash position fluctuates.
Net cash used by operating activities for the years ended 1999 and 1998 was
$1,330,819 and $664,582 respectively. Our net cash flow used by investing
activities was $485,740 in 1999 and $1,500,083 in 1998. Net cash inflow from
financing activities was $1,822,123 in 1999 and $2,166,233 in 1998.
Our future capital requirements will depend upon numerous factors, including
the amount of revenues generated from operations, the cost of our sales and
marketing activities and the progress of our research and development
activities, none of which can be predicted with certainty. Once this
registration becomes effective, we anticipate engaging in a secondary offering
in an effort to raise up to $40 million. The proceeds of that proposed
offering, together with existing capital resources and cash generated from
operations, if any, will be sufficient to meet our cash requirements for at
least the next 18 to 24 months at our anticipated level of operations.
However, we cannot promise that the proposed offering will be successful in
raising $40 million. Further, we cannot declare with certainty that proceeds
from that anticipated offering can be made available to us on a timely basis,
if at all. Consequently, we may seek additional funding during the next 24
months and could seek additional funding after such time. There can be no
assurance that any additional financing will be available on acceptable terms,
if required. Moreover, if additional financing is not available, we could be
required to reduce or suspend our operations, seek an acquisition partner or
sell securities on terms that may be highly dilutive or otherwise
disadvantageous to existing investors, or investors purchasing stock offered in
the anticipated secondary offering. In the event that neither of the
capital-raising mechanisms described above result in timely usable proceeds to
the Company, we may have a serious shortfall of working capital. We have
experienced in the past, and may continue to experience, operational
difficulties and delays in product development due to working capital
constraints. Any such difficulties or delays could have a material adverse
effect on our business, financial condition and results of operations. See
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
RESULTS OF OPERATIONS
We have had no net revenues in 1999, 1998 or 1997. Consequently, there was
no cost of revenues or gross profit in 1999, 1998 or 1997.
We incurred an operating loss of $1,039,221 for the year ended December 31,
1999 (“1999”); $1,013,776 for the year ended December 31, 1998 (“1998”); and
$1,292,747 for the year ended December 31, 1997 (“1997”).
Selling, general and administrative expenses consist primarily of salaries and
related costs of: sales, marketing and customer support activities; legal
services; and finance, information technologies, human resources, and executive
expenses; as well as costs associated with trade shows, promotional activities,
advertising and public relations. Legal services for the company consisted of
salaries, filing fees, dues and subscriptions and new and ongoing patent and
trademark filings and prosecution costs. Finance, information technologies,
human resources and executive expenses consisted of expenses relating to
salaries, information systems expansion, professional fees, facilities expenses
and other general corporate expenses. Our selling, general and administrative
expenses increased $25,000 to $1,039,000 in 1999 from $1,014,000 in 1998,
decreased $279,000 in 1998 from $1,293,000 in 1997, and decreased $3,964,000 in
1997 from $5,257,000 in 1996. The 1998-1997 decrease is primarily due to
cost-cutting efforts by our management. The 1997-1996 increase is reflective
of the cancellation of compensation expense recorded in 1996 of options granted
to Mr. Eric Jelinger. We expect that selling, general and administrative
expenses will increase in the future as we hire additional personnel, expand
our operations domestically, initiate additional marketing programs, establish
sales offices in new locations and incur additional costs related to the growth
of our business and our operations as a public company.
9
Research and development expenses, which were expensed as they were incurred,
consist primarily of salaries and related expenses for: personnel engaged in
engineering and development; fees paid to research and engineering consultants
and outside service providers; costs for prototypes and test units; and other
expenses related to the design, development, testing and enhancements of
VersaCase and our future products. Our research and development expenses
decreased $35,276 to $6,523 in 1999 from $41,799 in 1998, decreased $57,679 in
1998 from $99,478 in 1997, and increased $46,080 in 1997 from $53,398 in 1996.
These fluctuations were predominantly from paying outside consultants with
stock options. We anticipate that our research and development costs for 2000
will increase dramatically, as we begin marketing VersaCase units and refocus
our efforts toward the expansion of our product base. We believe that research
and development is critical to our strategic product development objectives and
intend to enhance our products and technology to meet the changing requirements
of the market demand.
From inception through 1999, stock options were issued to employees and certain
non-employee consultants, which were formalized in writing under our 1999 Stock
Option Plan. As of December 31, 1999, 3,944,270 total options have been
granted to non-employee consultants at a price of $0.50. Options to
non-employee consultants were recorded as consulting expenses, using the fair
market value on the date of grant of the options issued. We recognized $7,868
of compensation expense to non-employees relating to these options during 1999,
$55,316 in 1998, and $252,011 in 1997. We determined that the per share
weighted average fair value of post-splits stock options granted during 1999
was $0.50 on the date of grant.
Interest expense increased $35,881 to $97,268 in 1999 compared to $61,387 in
1998. There was no interest expense recorded in 1997. These increases in
interest expenses are attributed directly to notes payable to the founder,
issued in 1998 and 1999, which have an interest rate calculated as the prime
rate on the first business day of the year, payable in ten equal annual
installments after we are profitable for one year. The founder made no similar
loans in 1997.
YEAR 2000 ISSUES
We completed our assessment of internal systems that could be affected by
the Year 2000 issue prior to December 31, 1999 and found that our computer
systems would properly utilize dates past December 31, 1999. We did not
experience any significant problems associated with Year 2000 issues, and we
are not aware that any of our vendors or suppliers experienced any such
problems. Nevertheless, we have communicated with our significant suppliers to
determine the extent to which we are vulnerable to those parties’ failure to
solve their own Year 2000 issues. Upon becoming aware that one or more of
these third parties fails to solve their Year 2000 issues such that they may
affect our operations, we will develop contingency plans. If significant
numbers of these third parties experience failures in their computer systems or
equipment due to Year 2000 non-compliance, it could affect our ability to
engage in normal business activities. To date, we have incurred expenses of
approximately $15,000 in connection with becoming Year 2000 compliant, and do
not anticipate incurring material incremental costs in future periods due to
such issues. However, we cannot assure you that these issues will not arise in
the future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivatives
and Hedging Activities,” which established accounting and reporting standards
for derivative instruments, including derivative instruments embedded in other
contracts, and for hedging activities. Under this directive, companies are
required to recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. We will adopt SFAS
No. 133 as required by SFAS No. 137, “Deferral of the Effective Date of the
FASB Statement No. 133,” in fiscal year 2001. We do not expect the adoption of
SFAS No. 133 to have an impact on our financial condition or results of
operations.
ITEM 3. PROPERTIES
Our headquarters comprise approximately 10,000 square feet of space in an
office building owned by us at 4665 West Bancroft Street, Toledo, Ohio 43615.
The building houses our principal executive offices, as well as limited
laboratory and technical development space.
We purchased the office/engineering complex for cash in early summer, 1998. In
order to make better use of this resource, we obtained a mortgage against the
property in the amount of $290,000 from National City Bank, a national banking
association, whose principal place of business is located at 405 Madison
Avenue, Toledo, Ohio, 43604. The mortgage was executed July 7, 1998. The
annual amount due under this note is $19,332.00. The balance of the mortgage,
in the amount of $206,228, is due and payable on August 1, 2003. In addition, our company is obligated to pay real estate taxes
as well as insurance premiums in order to maintain coverage and utility costs.
Other expenses associated with the property include fees for snow removal and
lawn maintenance.
10
At this time, Unitrend Inc. has no plans to acquire any additional real
property. Our current facilities should be sufficient to sustain our
aggressive growth projections for the near future.
We are in partnership with John Osborne of Osborne Manufacturing Inc. (OMI), a
joint venture between Unitrend, Inc. and Jon Osborne. OMI operates a 13,000
square foot plant located in Wauseon, Ohio, and will be the final assembly and
shipping point for the VersaCase.
We have commissioned several tools and dies, crafted and held by key suppliers.
Unitrend Inc. owns the equipment and has made arrangements with the holders to
use the tools and dies to produce parts and ship them to the assemble facility
operated by OMI for completion of the VersaCase unit.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of
the Company’s shares of Common Stock as of March 15, 2000 by (i) all those
known by the Company to be beneficial owners of more than 5% of its Common
Stock; (ii) all Directors; and (iii) all Officers and Directors of the Company
as a group. As of the date of this filing, the Company has 69,383,580 shares
outstanding. Unless otherwise indicated, each of the shareholders has sole
voting and investment power with respect to the Common Stock beneficially
owned.
| |
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership |
|
|
At time of listing |
|
|
|
|
|
|
|
Number of |
| Shareholder(1) |
|
Shares |
|
Percent(2) |
|
|
|
|
|
| Conrad A. H. Jelinger |
|
|
45,296,000 |
|
|
|
64 |
% |
|
|
|
|
|
| Eric V. Jelinger |
|
|
10,000,000 |
|
|
|
14 |
% |
|
|
|
|
|
| Dale Boley |
|
|
30,000 |
|
|
|
* |
|
|
|
|
|
|
| Martha Moloney |
|
|
541,573 |
(3) |
|
|
* |
|
|
|
|
|
|
| Darryl Stolper |
|
|
5,200 |
|
|
|
* |
|
|
|
|
|
|
| Kathleen M. Novak |
|
|
260,000 |
(4) |
|
|
* |
|
|
|
|
|
|
| Terence Langenderfer |
|
|
18,270 |
(5) |
|
|
* |
|
|
|
|
|
|
| Total for Officers and Directors |
|
|
56,151,043 |
|
|
|
80 |
% |
* less than 1% of outstanding shares
| (1) |
|
Address for all the above: 4665 W. Bancroft, Toledo, Ohio 43615. |
|
|
|
|
|
| (2) |
|
Percentages are calculated to include all outstanding securities and
securities deemed outstanding pursuant to Rule 13d-3(d)(1) under the
Exchange Act. |
|
|
|
|
|
| (3) |
|
Total includes 445,773 option shares that are fully vested and
subject to exercise. |
|
|
|
|
|
| (4) |
|
Total includes 200,000 option shares that are fully vested and
subject to exercise. |
|
|
|
|
|
| (5) |
|
Total reflects only 18,270 option shares that are fully vested and
subject to exercise. |
11
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers, directors and key employees are as follows:
| |
|
|
|
|
|
|
| Name |
|
Age |
|
Position |
|
|
|
|
|
| Conrad A. H. Jelinger |
|
|
47
|
|
|
President, Chief Executive, Chairman and Director |
|
|
|
|
|
| Kathleen M. Novak |
|
|
25
|
|
|
Senior Vice President |
|
|
|
|
|
| Michael Wiegand |
|
|
52
|
|
|
Interim Chief Financial Officer |
|
|
|
|
|
| Douglas E. Stallings |
|
|
35
|
|
|
General Counsel |
|
|
|
|
|
| Terence J. Langenderfer |
|
|
39
|
|
|
Vice President, Marketing |
|
|
|
|
|
| Eric V. Jelinger |
|
|
46
|
|
|
Director |
|
|
|
|
|
| Dale Boley |
|
|
31
|
|
|
Director |
|
|
|
|
|
| Robert J. Hayes |
|
|
43
|
|
|
Director |
|
|
|
|
|
| Martha A. Moloney |
|
|
61
|
|
|
Director |
|
|
|
|
|
| Darryl Stolper |
|
|
58
|
|
|
Director |
Conrad A. H. Jelinger is the founder of Unitrend and has been Chairman,
President and CEO of the Company since its inception in 1996. Mr. Jelinger
has over 25 years of experience in the technical and computer industry. This
includes serving as President and CEO of Server Systems Technologies from
September 1994 to April 1996. Mr. Jelinger attended the University of Toledo,
where he studied Business Administration and International Finance. He also
completed technical and electronics training while serving in the United States
Navy. Mr. Jelinger is one of our executive officers.
Kathleen M. Novak joined Unitrend in December 1996 as Marketing Analyst.
In October 1997 Ms. Novak was appointed Investor Relations Specialist and in
August 1999 was appointed Director of Administration. Ms. Novak was appointed
Senior Vice President in February 2000. Ms. Novak holds a B.A. in Finance and
Marketing from Ohio University. Ms. Novak is one of our executive officers.
Michael Wiegand joined Unitrend in October 1999 as Interim Chief Financial
Officer. From 1973 to 1984, Mr. Wiegand worked at Hickory Farms, where he held
several accounting positions, most recently as Controller. From 1985 to 1989,
Mr. Wiegand was Controller for Investment Capital Associates. From 1989 to
1993, Mr. Wiegand worked at Omnisource, where he was Controller.
From 1993 to 1998, Mr. Wiegand worked for the Renhill Group, where he was Chief
Financial Officer. Before coming to Unitrend, Mr. Wiegand was Chief Financial
Officer for Team Placement Services. Mr. Wiegand holds a B.A. in Accounting
from The University of Toledo and is a licensed C.P.A. Mr. Wiegand is one of
our key employees.
Douglas E. Stallings joined Unitrend in November 1996 as General Counsel.
From September 1994 to the present, Mr. Stallings has been a part-time
instructor at the University of Toledo College of Business, Department of
Management. From November 1994 to December 1995, Mr. Stallings was in private
practice where he concentrated on business and corporate law and general civil
law. Mr. Stallings holds a J.D. from the University of Toledo College of Law
and a B.A. in Broadcast Communications from Brigham Young University. Mr.
Stallings is one of our key employees.
Terence J. Langenderfer joined Unitrend in September 1999 as Vice
President of Marketing. From August 1989 to September 1999, Mr. Langenderfer
worked at Sauder Woodworking Company where he held several sales and marketing
management positions, most recently as Director of Brand Development and
Marketing Communications. Mr. Langenderfer holds a B.S. in Industrial Design
from Ohio State University. Mr. Langenderfer is one of our key employees.
Eric V. Jelinger has been a member of the Board of Directors since July
1999 and was elected as Assistant Secretary of the Company in July of 1999.
Eric Jelinger is the brother of Conrad Jelinger. Since June of 1994, Eric Jelinger has been a vascular interventional radiologist at the Joint Township
District Memorial Hospital in St. Mary’s, Ohio. In addition, he was
Vice President and a member of the Board of Server Systems Technologies from
1994 to 1996.
Since January of 1999, he has also held the following additional
business positions: Managing Member of Van
12
Hague Elevator Company (a business
holding company), Managing Director of Golden Apple Limited (a real estate
development company), and Managing Director of AP Net Limited (an on-line
tutorial company). Since June of 1998, he has been President of 5171
CRA, Inc. (an aircraft rental company). Eric Jelinger received a B.A. from the
University of Toledo in 1980 and a M.D. from the Medical College of Ohio in
1985. He completed his fellowship in vascular interventional
radiology in 1991 at Georgetown University Hospital.
Dale Boley has been a member of the Board of Directors since July 1999.
From 1992 to October of 1996, Mr. Boley was a production operator at Teleflex
Automotive in VanWert, Ohio. From 1996 to 1997, Mr. Boley was a sales agent
with Sharron Realty Associates in VanWert, Ohio. In addition, since January of
1999, Mr. Boley has been a Manager of Van Hague Elevator Company. Mr. Boley
attended Lima Technical College focusing on computers and received a P.C. in
Microcomputers Sales and Marketing in 1991.
Robert J. Hayes became a member of the Board of Directors in March 2000.
As Senior Vice-President for Fitch USA, Mr. Hayes directs the Mechanical and
Electrical Engineering Groups. In addition, he participates in programs
involving all phases of product design, from conceptualization through
production. Mr. Hayes’ project involvement includes work for such clients as
BioImage (a Kodak company), Ciba Corning Diagnostics Corp., Compaq, Diebold,
Lear Siegler Seymour, Rubbermaid, Lionel, and Valentine Research. He is named
on numerous design and utility patents. Mr. Hayes holds a B.S. in Mechanical
Engineering from Cleveland State University.
Martha A. Moloney became a member of the Board of Directors in March 2000.
From 1972 to 1977, Mrs. Moloney was Vice President and Board member at Steger
Schowel, a restaurant supply distribution company. Since 1990, Mrs. Moloney
has been in private practice while concurrently serving as a Counselor with
Catholic Charities at numerous area hospitals. Mrs. Moloney holds a B.A. in
Psychology from Maryville University and a M.SW. from St. Louis University.
Daryl Stolper became a member of the Board of Directors in March 2000.
From 1980 to the present, Mr. Stolper has worked at Paul Revere Secondary
School where he is department Chairman for, and Teacher of, American History.
A historian and writer, Mr. Stolper has been published in numerous periodicals
including Reel West and Blues Unlimited. Mr. Stolper is recognized as an
authority in music recording history, and has served as a consultant to Rhino
Records and provided expert testimony in numerous legal cases. Since 1985, Mr.
Stolper has served as an elected member of the Pacific Palisades, California
Board of Governors. Mr. Stolper holds a B.A. in Physical Anthropology and
American History from California State University, Northridge and a M.A. in
American Studies from Pepperdine University.
ITEM 6. EXECUTIVE COMPENSATION
The Summary Compensation Table below shows compensation for the 1999 fiscal
year for each person who served in the capacity of CEO during the year and any
other executive who earned a total of more than $100,000 during the last fiscal
year.(1)
Summary Compensation Table
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM |
|
|
|
|
ANNUAL COMPENSATION |
|
COMPENSATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECURITIES |
| NAME AND PRINCIPAL |
|
|
|
|
|
|
|
|
|
UNDERLYING |
|
ALL OTHER |
| POSITION |
|
SALARY |
|
BONUS |
|
OPTIONS |
|
COMPENSATION |
|
|
|
|
|
|
|
|
|
| Conrad A. H. Jelinger, |
|
|
CEO |
|
$ |
177,428 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
| Douglas E. Stallings, |
|
|
General Counsel |
|
$ |
107,846 |
|
|
|
0 |
|
|
|
2,000,000 |
|
|
|
0 |
|
| (1) |
|
Mr. Jelinger and Mr. Stallings are the only executives who received
compensation exceeding $100,000 in fiscal year 1999. |
13
STOCK OPTION PLAN
We currently operate under the 1999 Equity Incentive Plan which governs all
aspects of option grants to employees and other who have made a substantial
contribution to the success of the company. All options granted to employees
vest over a three year period, commencing on the date of hire, and continuing
based upon years of employment. Options which are granted as past
consideration for services vest immediately.
Further, as a result of the merger and the subsequent stock splits, the Board
has modified and amended the 1999 Equity Incentive Plan to clarify treatment of
option absorbed by the merger and the effect of the stock splits on options
already granted. The 1999 Equity Incentive Plan as Amended is attached.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth total grants of stock options through the
fiscal year ended December 31, 1999, for the Officers and Directors of the
Company.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INDIVIDUAL GRANTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
POTENTIAL |
|
|
|
|
|
|
|
|
REALIZABLE |
|
|
|
|
|
|
|
|
VALUE |
|
|
|
|
|
|
|
|
ASSUMED |
|
|
|
|
|
|
|
|
ANNUAL RATES |
|
|
|
|
|
|
|
|
OF STOCK |
|
|
NUMBER OF |
|
|
|
|
|
PRICE |
|
|
SECURITIES |
|
|
|
|
|
APPRECIATION |
|
|
UNDERLYING % |
|
OF TOTAL OPTIONS |
|
|
|
|
|
FOR OPTION |
|
|
OPTIONS |
|
GRANTED TO |
|
EXERCISE |
|
|
|
TERM(D) |
|
|
GRANTED |
|
EMPLOYEES IN |
|
PRICE |
|
EXPIRATION |
|
|
|
|
(A) |
|
1999(B) |
|
(C) |
|
DATE |
|
5% |
|
10% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terence Langenderfer |
|
|
18,270 |
(1) |
|
|
18,270 |
|
|
$ |
0.50 |
|
|
|
12-10-04 |
|
|
$ |
0.61 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
Kathleen M. Novak |
|
|
800,000 |
(2) |
|
|
800,000 |
|
|
$ |
0.50 |
|
|
|
1-4-10 |
|
|
$ |
0.61 |
|
|
$ |
0.73 |
|
EMPLOYMENT CONTRACTS AND CHANGES IN CONTROL AGREEMENTS
Conrad A.H. Jelinger. Mr. Jelinger has executed an Employment contract with
the company, as well as a Trade Secret agreement and a Non-Compete agreement.
Mr. Jelinger currently has no severance package and no stock options. Mr.
Jelinger is eligible to participate in the 2000 Cash Incentive Plan.
Kathleen M. Novak. Ms. Novak has executed an employment agreement with the
company, as well as a Trade Secret and Non-Compete agreement. Ms. Novak
currently has no severance package. Ms. Novak is entitled to participate in
the Equity Incentive Plan and the 2000 Cash Incentive Plan. Ms. Novak has been
granted and has the right to exercise 200,000 options resulting from her
employment. If she leaves the company, these options will convert to
non-qualified options and she will have the remaining of the 10 year period to
exercise. Additionally, Ms. Novak was granted 800,000 options in January, 2000
under the 1999 Equity Incentive Plan. These options will vest over a three
year period. In the event of termination, Ms. Novak will have 3 months to
exercise the options or forfeit them.
14
Terence Langenderfer. Mr. Langenderfer and the Company have not reached an
agreement as to terms of the Employment and Non-Compete agreements. When Mr.
Langenderfer executes the Employment and Non-Compete agreements, he will be
eligible to participate in both the Equity Incentive Plan and Cash Incentive
Plan.
Michael Wiegand. Mr. Wiegand has executed a letter agreement outlining the
terms of his employment as Interim Chief Financial Officer. Furthermore he has
executed a Non-compete and Trade Secret agreement. Under the terms of Mr.
Wiegand’s employment agreement, he is not entitle to participate in the Equity
Incentive Plan or Cash Incentive Plan.
BOARD COMPENSATION
Unitrend, Inc. currently offers no compensation to members of the board, except
reasonable reimbursement for expenses.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 1999 the Company was indebted to Conrad A.H. Jelinger in the
aggregate amount of $1,703,854. Mr. Jelinger has continued to make loans to
the Company in 2000. This indebtedness relates to loans made by Mr. Jelinger
to the Company in 1998 and 1999. The loans accrue interest at the market rate
as determined on the first business day of the year, and are payable in ten
equal annual installments after the Company has become profitable for one year.
The Company believes that these loans are on terms no less favorable than
could be secured from unrelated third parties.
ITEM 8. LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no established trading market for common shares of the Company’s
securities. As of December 31, 1999, the Company had outstanding shares in the
amount of 69,383,580 held by 772 holders of record. As of December 31, 1999,
the Company had outstanding options to purchase 6,885,970 of common stock, of
which 5,069,433 are exercisable. As of March 15, 2000, the Company has
outstanding options to purchase 7,930,452 shares of common stock, of which
5,652,785 are exercisable.
The Company has not paid dividends since its formation and does not currently
intend to do so.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
There has been no recent sales of unregistered Unitrend Stock.
ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED
COMMON STOCK
The Company’s Amended Articles of Incorporation authorize 200,000,000 shares of
Common Stock, without par value. As of March 15, 2000, the Company had issued
and outstanding 69,383,580 shares held by 772 holders of record. In July,
1999, the Company had a four to one stock split, except for the shares issued
relating to the Server System Technology, Inc. merger that were split three to
one. In August, 1999, the Company split all common stock issuing five shares
for every one share outstanding at the time.
Holders of Unitrend, Inc. common stock are entitled to receive such dividends,
if any, as may be declared by the Board out of legally available funds. In the
event of liquidation, dissolution or winding up of the Company, holder of
common shares are entitled to share equally and ratably, based upon the number
of shares held, in the assets, if any, remaining after payment of all of the
Corporation’s debts and liabilities.
Holders of common stock are entitled to one vote per share for each share held
of record on any matter submitted to the stockholders for a vote. Any
amendment to the Articles of Incorporation, merger, or consolidation of the
Company, sale, lease or exchange of all
or substantially all of the Company’s property and assets or voluntary
dissolution of the Company requires approval by Company
15
shareholders, as
required by Nevada Law. Common shares are neither redeemable nor convertible,
and the holders thereof have no preemptive rights to subscribe for or purchase
any additional shares of capital stock issued by the Company.
The summary description of the relative rights and limitations of Common Stock
is qualified in its entirety by reference to the Articles of Incorporation and
Bylaws of the Company.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
A director of the Company may not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director’s duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, or (iii)
for any transaction from which the director derived any improper personal
benefit. The provisions of the Corporation’s Bylaws eliminating the liability
of directors for monetary damages do not affect the standard of conduct to
which directors must adhere, nor do such provisions affect the availability of
equitable relief. In addition, such limitations on personal liability do not
affect the availability of monetary damages under causes of action based on
federal law.
Article Ten of the Corporation’s Bylaws provides for indemnification of its
officers and directors. In addition, the Company provides director and officer
insurance coverage for the benefit of its directors and officers.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is identified in the section “Index to
Financial Statements” on page F-1 hereof and is contained in the section
“Unitrend, Inc. — Financial Statements” attached hereto and such sections are
incorporated herein by reference.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The information required by this item is contained in the “Contents to Financial
Statements” on page F-2 hereof.
(b) Exhibits
| |
|
|
| EXHIBIT |
| NUMBER |
|
DESCRIPTION |
| 2.1 |
|
Articles of Merger for the Merger of Unitrend, Inc., and Server Systems Technologies, Inc. |
|
|
|
|
|
| 2.2 |
|
Articles of Merger for the Merger of Unitrend, Inc., an Ohio Corporation, and Unitrend, Inc., a Nevada Corporation |
|
|
|
|
|
| 3.1 |
|
Articles of Incorporation and Amendments |
|
|
|
|
|
| 3.2 |
|
Bylaws of the Corporation |
|
|
|
|
|
| 4.1 |
|
Lock-up Agreement between Unitrend, Inc. and Eric Jelinger |
|
|
|
|
|
| 10.1 |
|
1999 Equity Incentive Plan |
|
|
|
|
|
| 10.2 |
|
Form Stock Option Agreement (Employee) |
16
| |
|
|
| EXHIBIT |
| NUMBER |
|
DESCRIPTION |
|
|
|
|
|
| 10.3 |
|
Form Stock Option Agreement (Non-Employee/Non-Qualified) |
|
|
|
|
|
| 10.4 |
|
Cash Incentive Plan |
|
|
|
|
|
| 10.5 |
|
Employment Agreement, Non-compete Agreement and Trade Secret Agreement between the Corporation and Conrad Jelinger |
|
|
|
|
|
| 10.6 |
|
Employment Agreement, Non-compete Agreement and Trade Secret Agreement between the Corporation and Kathleen M. Novak |
|
|
|
|
|
| 10.7 |
|
Employment Agreement, Non-compete Agreement and Trade Secret Agreement between the Corporation and Douglas E. Stallings |
|
|
|
|
|
| 10.8 |
|
Letter Agreement, Noon-compete Agreement and Trade Secret Agreement between the Corporation and Michael Wiegand |
|
|
|
|
|
| 10.9 |
|
Option Agreements between the Corporation and Kathleen M. Novak |
|
|
|
|
|
| 10.10 |
|
Option Agreements between the Corporation and Douglas E. Stallings |
|
|
|
|
|
| 10.11 |
|
Option Agreement between the Corporation and Terence Langenderfer |
|
|
|
|
|
| 10.12 |
|
Option Agreement between the Corporation and Martha Moloney |
|
|
|
|
|
| 10.13 |
|
Promissory Note for the purchase of the property located at 4665 W. Bancroft, Toledo, Ohio |
|
|
|
|
|
| 10.14 |
|
Mortgage for the property located at 4665 W. Bancroft, Toledo, Ohio |
|
|
|
|
|
| 10.15 |
|
Promissory Note from the Corporation given to Conrad Jelinger for the year ending 1998 |
|
|
|
|
|
| 10.16 |
|
Promissory Note from the Corporation given to Conrad Jelinger for the year ending 1999 |
|
|
|
|
|
| 10.17 |
|
Joint Venture Agreement between Unitrend, Inc., and Jon Osborne |
|
|
|
|
|
| 10.18 |
|
Promissory Note given to the Corporation from Osborne Manufacturing, Inc., for year ending 1998 |
|
|
|
|
|
| 10.19 |
|
Promissory Note given to the Corporation from Osborne Manufacturing, Inc., for the year ending 1999 |
|
|
|
|
|
| 27.1 |
|
Financial Data Schedule |
Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
| |
Unitrend, Inc.
(Registrant) |
| |
By /s/ Conrad A. H. Jelinger
Conrad A.H. Jelinger
President and Chief Executive Officer |
Dated March 29, 2000
17
CONTENTS TO FINANCIAL STATEMENTS
| |
|
|
|
|
|
|
|
|
Page |
| INDEPENDENT AUDITORS’ REPORT |
|
|
F-3 |
|
|
|
|
|
|
| FINANCIAL STATEMENTS: |
|
|
|
|
|
| BALANCE SHEETS |
|
|
F-4 |
|
|
|
|
|
|
| STATEMENTS OF OPERATION |
|
|
F-5 |
|
|
|
|
|
|
| STATEMENTS OF STOCKHOLDERS’ DEFICIT |
|
|
F-6 |
|
|
|
|
|
|
| STATEMENTS OF CASH FLOWS |
|
|
F-8 |
|
|
|
|
|
|
| NOTES TO FINANCIAL STATEMENTS |
|
|
F-9 |
|
To the Stockholders
Unitrend, Inc.
Toledo, Ohio
INDEPENDENT AUDITORS’ REPORT
We have audited the accompanying balance sheets of Unitrend, Inc. (a
development stage company) as of December 31, 1999 and 1998, and the related
statements of operation, stockholders’ equity (deficit) and cash flows for the
years ended December 31, 1999, 1998, 1997, and for the period from the
inception date of September 27, 1994 to December 31, 1999. 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 Unitrend, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years ended December 31, 1999, 1998, 1997, and for the period
from the inception date of September 27, 1994 to December 31, 1999 in
conformity with generally accepted accounting principles.
Columbus, Ohio
January 21, 2000
/s/ Groner, Boyle & Quillian, LLP
UNITREND, INC.
(A development stage company)
BALANCE SHEETS
December 31, 1999 and 1998
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 |
|
|
|
|
|
|
1999 |
|
(as restated) |
|
|
|
|
|
|
|
|
|
| ASSETS |
|
|
|
|
|
| CURRENT ASSETS |
|
|
|
|
|
|
Cash |
|
$ |
7,455 |
|
|
$ |
1,891 |
|
|
|
|
|
|
|
Current portion of notes receivable |
|
|
22,458 |
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
29,913 |
|
|
|
8,891 |
|
|
|
|
|
|
|
|
|
|
| PROPERTY AND EQUIPMENT, at cost
|
|
Land |
|
|
67,485 |
|
|
|
67,483 |
|
|
|
|
|
|
|
Building and improvements |
|
|
351,167 |
|
|
|
348,575 |
|
|
|
|
|
|
|
Furniture and fixtures |
|
|
49,813 |
|
|
|
44,981 |
|
|
|
|
|
|
|
Computer equipment |
|
|
121,787 |
|
|
|
121,787 |
|
|
|
|
|
|
|
Computer software |
|
|
45,328 |
|
|
|
44,929 |
|
|
|
|
|
|
|
Tooling and dies under construction |
|
|
1,429,429 |
|
|
|
1,240,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,065,009 |
|
|
|
1,868,104 |
|
|
|
|
|
|
|
Less accumulated depreciation |
|
|
(195,123 |
) |
|
|
(165,637 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
1,869,886 |
|
|
|
1,702,467 |
|
|
|
|
|
|
|
|
|
|
| OTHER ASSETS |
|
|
|
|
|
|
Patent licensing costs, net of accumulated amortization |
|
|
30,790 |
|
|
|
— |
|
|
|
|
|
|
|
Loan costs, net of accumulated amortization |
|
|
3,813 |
|
|
|
4,903 |
|
|
|
|
|
|
|
Notes receivable |
|
|
307,297 |
|
|
|
60,442 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
|
341,900 |
|
|
|
65,345 |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
2,241,699 |
|
|
$ |
1,776,703 |
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
| CURRENT LIABILITIES |
|
|
|
|
|
|
Accounts payable |
|
$ |
292,143 |
|
|
$ |
573,294 |
|
|
|
|
|
|
|
Current portion of long-term debt |
|
|
19,332 |
|
|
|
19,332 |
|
|
|
|
|
|
|
Accrued payroll and sundry taxes |
|
|
14,922 |
|
|
|
56,597 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
326,397 |
|
|
|
649,223 |
|
|
|
|
|
|
|
|
|
|
| LONG-TERM LIABILITIES |
|
|
|
|
|
|
Accrued interest |
|
|
72,215 |
|
|
|
1,245 |
|
|
|
|
|
|
|
Note payable — bank |
|
|
244,892 |
|
|
|
261,002 |
|
|
|
|
|
|
|
Note payable — stockholder |
|
|
1,703,854 |
|
|
|
158,531 |
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
2,020,961 |
|
|
|
420,778 |
|
|
|
|
|
|
|
|
|
|
| COMMON STOCK SUBJECT TO RESCISSION |
|
|
— |
|
|
|
92,250 |
|
|
|
|
|
|
|
|
|
|
| STOCKHOLDERS’ EQUITY (DEFICIT) |
|
Common stock, no par value |
|
|
3,301,503 |
|
|
|
2,906,343 |
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
770,105 |
|
|
|
762,237 |
|
|
|
|
|
|
|
Deficit accumulated in the development stage |
|
|
(4,177,267 |
) |
|
|
(3,054,128 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit) |
|
|
(105,659 |
) |
|
|
614,452 |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
$ |
2,241,699 |
|
|
$ |
1,776,703 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
(F-4)
UNITREND, INC.
(A development stage company)
STATEMENTS OF OPERATION
For the Years Ended December 31, 1999, 1998, 1997 and for the period from the
inception date of September 27, 1994 to December 31, 1999
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994 |
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
(Date of Inception) |
|
|
|
Year Ended |
|
December 31, |
|
December 31, |
|
to December 31, |
|
|
|
December 31, |
|
1998 |
|
1997 |
|
1999 |
|
|
|
1999 |
|
(as restated) |
|
(as restated) |
|
(as restated) |
|
|
|
|
|
|
|
|
|
|
| Sales |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
603 |
|
|
|
|
|
|
| Operating expenses |
|
|
1,039,221 |
|
|
|
1,013,776 |
|
|
|
1,292,747 |
|
|
|
9,008,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating loss |
|
|
(1,039,221 |
) |
|
|
(1,013,776 |
) |
|
|
(1,292,747 |
) |
|
|
(9,007,944 |
) |
|
|
|
|
|
| Other income |
|
|
— |
|
|
|
— |
|
|
|
4,999,950 |
|
|
|
4,999,950 |
|
|
|
|
|
|
| Interest income |
|
|
13,350 |
|
|
|
— |
|
|
|
— |
|
|
|
13,350 |
|
|
|
|
|
|
| Interest expense |
|
|
(97,268 |
) |
|
|
(61,387 |
) |
|
|
— |
|
|
|
(158,655 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) before change
in accounting principle |
|
|
(1,123,139 |
) |
|
|
(1,075,163 |
) |
|
|
3,707,203 |
|
|
|
(4,153,299 |
) |
|
|
|
|
|
| Cumulative effect of change in
accounting principle |
|
|
— |
|
|
|
(23,968 |
) |
|
|
— |
|
|
|
(23,968 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) |
|
$ |
(1,123,139 |
) |
|
$ |
(1,099,131 |
) |
|
$ |
3,707,203 |
|
|
$ |
(4,177,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and diluted earnings
(loss) per share: |
|
|
|
|
|
|
Before cumulative effect of change
in accounting principle |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.06 |
|
|
$ |
(0.06 |
) |
|
|
|
|
|
|
Cumulative effect of change in
accounting principle |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.06 |
|
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average shares outstanding
used to compute basic and
diluted earnings (loss) per share |
|
|
69,059,567 |
|
|
|
67,471,023 |
|
|
|
63,343,945 |
|
|
|
65,860,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
(F-5)
UNITREND, INC.
(A development stage company)
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
For the Years Ended December 31, 1999, 1998, 1997 and for the period from the
inception date of September 27, 1994 to December 31, 1999
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
Common Stock |
|
Additional |
|
During the |
|
|
|
|
|
Paid-In |
|
Development |
|
|
|
Shares |
|
Amount |
|
Capital |
|
Stage |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
| BALANCE - |
|
|
|
|
|
|
SEPTEMBER 27, 1994 |
|
|
|
|
|
|
(inception) |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
| Sale of stock to founders for
cash at .000006 per share
on September 27, 1994 |
|
|
17,500,000 |
|
|
|
100 |
|
|
|
454,910 |
|
|
|
— |
|
|
|
455,010 |
|
|
|
|
|
|
| Sale of common stock
to founder for cash at
$0.000002 per share on
April 12, 1996 |
|
|
45,296,000 |
|
|
|
113 |
|
|
|
— |
|
|
|
— |
|
|
|
113 |
|
|
|
|
|
|
| Stock options issued on
July 2, 1996 |
|
|
— |
|
|
|
— |
|
|
|
4,999,950 |
|
|
|
— |
|
|
|
4,999,950 |
|
|
|
|
|
|
| Net loss since inception to
December 31, 1996 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,662,200 |
) |
|
|
(5,662,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| BALANCE - |
|
|
|
|
|
|
DECEMBER 31, 1996 |
|
|
|
|
|
|
(as restated) |
|
|
62,796,000 |
|
|
|
213 |
|
|
|
5,454,860 |
|
|
|
(5,662,200 |
) |
|
|
(207,127 |
) |
|
|
|
|
|
| Exercise of stock options
for common stock at
$0.000005 per share on
December 10, 1997 |
|
|
10,000,000 |
|
|
|
50 |
|
|
|
— |
|
|
|
— |
|
|
|
50 |
|
|
|
|
|
|
| Stock options issued on
January 15, 1997 |
|
|
— |
|
|
|
— |
|
|
|
252,011 |
|
|
|
— |
|
|
|
252,011 |
|
|
|
|
|
|
| Cancellation of stock options
for common stock at
$0.000005 per share on
December 31, 1997 |
|
|
(10,000,000 |
) |
|
|
(50 |
) |
|
|
(4,999,950 |
) |
|
|
— |
|
|
|
(5,000,000 |
) |
|
|
|
|
|
| Net income - 1997 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,707,203 |
|
|
|
3,707,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| BALANCE - |
|
|
|
|
|
|
DECEMBER 31, 1997 |
|
|
|
|
|
|
(as restated) |
|
|
62,796,000 |
|
|
|
213 |
|
|
|
706,991 |
|
|
|
(1,954,997 |
) |
|
|
(1,247,863 |
) |
The accompanying notes are an integral part of the financial statements.
(F-6)
UNITREND, INC.
(A development stage company)
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
For the Years Ended December 31, 1999, 1998, 1997 and for the period from the
inception date of September 27, 1994 to December 31, 1999
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
Common Stock |
|
Additional |
|
During the |
|
|
|
|
|
Paid-In |
|
Development |
|
|
|
Shares |
|
Amount |
|
Capital |
|
Stage |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
| BALANCE - |
|
|
|
|
|
|
DECEMBER 31, 1997 |
|
|
|
|
|
|
(as restated) |
|
|
62,796,000 |
|
|
|
213 |
|
|
|
706,921 |
|
|
|
(1,954,997 |
) |
|
|
(1,247,863 |
) |
|
|
|
|
|
| Sale of common stock for
cash at $0.50 per share from
January 17 to April 13, 1998 |
|
|
5,812,260 |
|
|
|
2,906,130 |
|
|
|
— |
|
|
|
— |
|
|
|
2,906,130 |
|
|
|
|
|
|
| Stock options issued on
January 15 and August 1, 1998 |
|
|
— |
|
|
|
— |
|
|
|
55,316 |
|
|
|
— |
|
|
|
55,316 |
|
|
|
|
|
|
| Net loss - 1998 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,099,131 |
) |
|
|
(1,099,131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| BALANCE - |
|
|
|
|
|
|
DECEMBER 31, 1998 |
|
|
|
|
|
|
(as restated) |
|
|
68,608,260 |
|
|
$ |
2,906,343 |
|
|
$ |
762,237 |
|
|
$ |
(3,054,128 |
) |
|
$ |
614,452 |
|
|
|
|
|
|
| Sale of common stock for
cash at $0.50 per share from
January 1 to June 30, 1999 |
|
|
770,320 |
|
|
|
385,160 |
|
|
|
— |
|
|
|
— |
|
|
|
385,160 |
|
|
|
|
|
|
| Stock options issued on
January 15, August 10,
August 15, and
November 29, 1999 |
|
|
— |
|
|
|
— |
|
|
|
7,868 |
|
|
|
— |
|
|
|
7,868 |
|
|
|
|
|
|
| Common stock issued for
services at $2.00 per share
on August 30, 1999 |
|
|
5,000 |
|
|
|
10,000 |
|
|
|
— |
|
|
|
— |
|
|
|
10,000 |
|
|
|
|
|
|
| Net loss - 1999 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,123,139 |
) |
|
|
(1,123,139 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| BALANCE - |
|
|
|
|
|
|
DECEMBER 31, 1999 |
|
|
69,383,580 |
|
|
$ |
3,301,503 |
|
|
$ |
770,105 |
|
|
$ |
(4,177,267 |
) |
|
$ |
(105,659 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
(F-7)
UNITREND, INC.
(A development stage company)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998, 1997 and for the period from the
inception date of September 27, 1994 to December 31, 1999
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
September 27, 1994 |
|
|
|
|
|
Year Ended |
|
December 31, |
|
December 31, |
|
(Date of Inception) |
|
|
|
|
|
December 31, |
|
1998 |
|
1997 |
|
to December 31, |
|
|
|
|
|
1999 |
|
(as restated) |
|
(as restated) |
|
1999 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1,123,139 |
) |
|
$ |
(1,099,131 |
) |
|
$ |
3,707,203 |
|
|
$ |
(4,177,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Change in accounting principle |
|
|
— |
|
|
|
23,968 |
|
|
|
— |
|
|
|
23,968 |
|
|
|
|
|
|
|
|
|
Options issued for services |
|
|
7,868 |
|
|
|
55,316 |
|
|
|
(4,747,939 |
) |
|
|
315,195 |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
31,509 |
|
|
|
34,673 |
|
|
|
44,761 |
|
|
|
203,891 |
|
|
|
|
|
|
|
|
|
Bad debt |
|
|
8,149 |
|
|
|
— |
|
|
|
— |
|
|
|
8,149 |
|
|
|
|
|
|
|
|
|
Accrued interest income |
|
|
(13,350 |
) |
|
|
(1,546 |
) |
|
|
— |
|
|
|
(14,896 |
) |
|
|
|
|
|
|
|
Common stock issued for services |
|
|
10,000 |
|
|
|
— |
|
|
|
— |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
Increase in operating assets: |
|
|
|
|
|
|
|
|
Other assets |
|
|
— |
|
|
|
5,537 |
|
|
|
6,040 |
|
|
|
— |
|
|
|
|
|
|
|
|
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(281,151 |
) |
|
|
453,526 |
|
|
|
95,842 |
|
|
|
292,143 |
|
|
|
|
|
|
|
|
|
Accrued payroll and sundry taxes |
|
|
(41,675 |
) |
|
|
(138,170 |
) |
|
|
141,136 |
|
|
|
14,922 |
|
|
|
|
|
|
|
|
|
Accrued interest |
|
|
70,970 |
|
|
|
1,245 |
|
|
|
— |
|
|
|
72,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
(207,680 |
) |
|
|
434,549 |
|
|
|
(4,460,160 |
) |
|
|
925,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(1,330,819 |
) |
|
|
(664,582 |
) |
|
|
(752,957 |
) |
|
|
(3,251,680 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
Payment for patent licensing costs |
|
|
(31,723 |
) |
|
|
— |
|
|
|
— |
|
|
|
(31,723 |
) |
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(196,905 |
) |
|
|
(1,540,723 |
) |
|
|
(158,292 |
) |
|
|
(2,065,009 |
) |
|
|
|
|
|
|
Loans to related parties |
|
|
(257,112 |
) |
|
|
(16,789 |
) |
|
|
(277 |
) |
|
|
(292,092 |
) |
|
|
|
|
|
|
Repayment from (loans to) other entities |
|
|
— |
|
|
|
7,999 |
|
|
|
(35,916 |
) |
|
|
(30,916 |
) |
|
|
|
|
|
|
Payment of organizational cost |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(30,168 |
) |
|
|
|
|
|
|
Repayment from stockholder |
|
|
— |
|
|
|
49,430 |
|
|
|
94,390 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(485,740 |
) |
|
|
(1,500,083 |
) |
|
|
(100,095 |
) |
|
|
(2,449,908 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
Payment of loan costs |
|
|
— |
|
|
|
(5,448 |
) |
|
|
— |
|
|
|
(5,448 |
) |
|
|
|
|
|
|
Loan from stockholder |
|
|
1,545,323 |
|
|
|
123,737 |
|
|
|
26,229 |
|
|
|
1,703,854 |
|
|
|
|
|
|
|
Proceeds from note payable |
|
|
— |
|
|
|
290,000 |
|
|
|
— |
|
|
|
290,000 |
|
|
|
|
|
|
|
Payments on notes |
|
|
(16,110 |
) |
|
|
(9,566 |
) |
|
|
— |
|
|
|
(25,776 |
) |
|
|
|
|
|
|
Proceeds from sale of common stock
and exercise of stock options |
|
|
292,910 |
|
|
|
1,865,430 |
|
|
|
— |
|
|
|
2,613,563 |
|
|
|
|
|
|
|
Payments for stock rescissions |
|
|
— |
|
|
|
(97,920 |
) |
|
|
(30,000 |
) |
|
|
(134,170 |
) |
|
|
|
|
|
|
Sales of stock subject to rescission
for cash |
|
|
— |
|
|
|
— |
|
|
|
779,510 |
|
|
|
1,267,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
financing activities |
|
|
1,822,123 |
|
|
|
2,166,233 |
|
|
|
775,739 |
|
|
|
5,709,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
5,564 |
|
|
|
1,568 |
|
|
|
(77,313 |
) |
|
|
7,455 |
|
|
|
|
|
|
| Cash — beginning of year |
|
|
1,891 |
|
|
|
323 |
|
|
|
77,636 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash — end of year |
|
$ |
7,455 |
|
|
$ |
1,891 |
|
|
$ |
323 |
|
|
$ |
7,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
Interest |
|
$ |
26,298 |
|
|
$ |
61,387 |
|
|
$ |
2,021 |
|
|
$ |
92,151 |
|
The accompanying notes are an integral part of the financial statements.
(F-8)
UNITREND, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998, 1997 and for the period from
the inception date of September 27, 1994 to December 31, 1999
NATURE AND SCOPE OF BUSINESS
Unitrend, Inc. (the Company) a Nevada corporation as of January, 1999,
formerly an Ohio corporation, is a development stage company formed to produce
computer ergonomic enclosures for a national market. The Company was
incorporated on April 11, 1996 as Versa Case, Inc. On May 15, 1996, the
Company changed its name to Unitrend, Inc. The Company’s operations to date
have consisted primarily of incidental sales of computer components while the
company personnel have concentrated on the development of the enclosures.
Expenses incurred have been primarily for administrative support, tooling and
product development of the enclosures that will ultimately be sold, which has
resulted in an accumulated deficit in the development stage of approximately
$4,200,000.
The Company merged with Server Systems Technology, Inc., (SSTI) effective
December 15, 1998. SSTI was the predecessor to the Company and was formed
September 27, 1994. It owns several patents that are key to the Company’s
products, but otherwise has ceased its development stage operations when the
Company was formed in April, 1996. SSTI is a related party to the Company
since the two entities have common stockholders.
Generally accepted accounting principles require the transaction to be
accounted for as a pooling of interest. SSTI’s assets, liabilities and
stockholders’ equity will be recorded at book value as of the effective date of
the transaction. At the time of the merger, SSTI’s recorded assets were not
significant and there were no liabilities. Additionally, it had ceased its
development stage operations. The patents held by SSTI were deemed to have
approximately a $10,000,000 market value and, therefore, 17,500,000 shares of
the Company were issued to stockholders of SSTI at the time of the merger.
The financial statements prior to December 31, 1999, have been restated to
reflect the assets acquired and the issuance of stock to the stockholders of
SSTI. Additionally, the statement of operations has been restated to reflect
$449,625 of development costs that was incurred by SSTI from September 27, 1994
to April 11, 1996. This restatement increased the basic and fully diluted
earnings per share by $.01 for the period.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
(Continued)
(F-9)
UNITREND, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998, 1997 and for the period from
the inception date of September 27, 1994 to December 31, 1999
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and Equipment
Property and equipment is carried at cost, less accumulated depreciation
computed using the straight-line method over the estimated useful lives of the
related assets. Furniture, fixtures, computer software, and computer equipment
are depreciated over lives ranging from three to ten years. Building and
improvements are depreciated over lives of 40 years. Major renewals and
betterments are capitalized and depreciated; maintenance and repairs that
neither improve nor extend the life of the respective assets are charged to
expense as incurred. Upon disposal of assets, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
income. The Company has capitalized certain costs related to the construction
of tooling and dies to be used in the manufacturing process. The cost of the
tooling and dies is not being depreciated until such time as the Company
commences manufacturing.
Patent Costs
Patent costs, which consist of the costs to obtain certain patents are
being amortized over the life of such patents. Amortization expense amounted
to $933 for 1999. The Company did not have amortization expense in 1998, 1997,
or for the period from the inception date to December 31, 1996.
Loan Costs
Loan costs are being amortized over the life of the loan and are shown net
of amortization. Accumulated amortization was $1,635 and $545 at December 31,
1999 and 1998, respectively.
Research and Development
All research and development costs are expensed as incurred. Research and
development costs for the years ended December 31, 1999, 1998, 1997, and for
the period from the date of inception on April 11, 1996 to December 31, 1999
amounted to $6,523, $41,799, $99,478, and $199,198, respectively.
Statement of Cash Flows
For the purpose of reporting cash flows, cash includes cash on hand and
demand deposits held by banks.
(Continued)
(F-10)
UNITREND, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998, 1997 and for the period from
the inception date of September 27, 1994 to December 31, 1999
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cumulative Effect of Change in Accounting Principle
On January 1, 1998 the Company adopted Statement of Position 98-5
“Reporting on the Costs of Start-Up Activities” that requires all start-up
costs previously capitalized by the Company to be expensed. The cumulative
effect of the change in accounting principles is reflected in the statements of
operation. All start-up costs incurred after adoption of the statement will be
expensed as incurred.
NOTES RECEIVABLE
Notes receivable consisted of the following at December 31:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 |
|
|
1999 |
|
(as restated) |
|
|
|
|
|
| Note receivable from an unrelated
party, due December 31, 2000,
including interest at 5.0%,
unsecured |
|
$ |
22,458 |
|
|
$ |
11,025 |
|
|
|
|
|
|
| Note receivable from an unrelated
party, due July 31, 2001, including
interest at 5.0%, unsecured |
|
|
11,550 |
|
|
|
21,438 |
|
|
|
|
|
|
| Note receivable from an unrelated
party, due on demand, non-interest
bearing, unsecured |
|
|
— |
|
|
|
7,000 |
|
|
|
|
|
|
| Note receivable from employee |
|
|
— |
|
|
|
8,149 |
|
(Continued)
(F-11)
UNITREND, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998, 1997 and for the period from
the inception date of September 27, 1994 to December 31, 1999
NOTES RECEIVABLE (continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 |
|
|
1999 |
|
(as restated) |
|
|
|
|
|
| Unsecured notes receivable due
from related party — Osborne
Manufacturing, Inc. (OMI)
including interest at prime, due
in 10 annual installments
commencing after OMI is
profitable for one year |
|
|
295,747 |
|
|
|
19,830 |
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
329,755 |
|
|
|
67,442 |
|
|
|
|
|
|
| Less current maturities |
|
|
(22,458 |
) |
|
|
(7,000 |
) |
|
|
|
|
|
|
|
|
|
| Long-term note receivable |
|
$ |
307,297 |
|
|
$ |
60,442 |
|
|
|
|
|
|
|
|
|
|
RELATED PARTY PAYABLE
| |
|
|
|
|
|
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
| Unsecured notes payable to the President
and majority stockholder, including
interest at prime on the first business day
of the year, payable in ten equal annual
installments after the Company is
profitable for one year |
|
$ |
1,703,854 |
|
|
$ |
158,531 |
|
|
|
|
|
|
|
|
|
|
NOTE PAYABLE
The Company has a note payable with a bank that was used to finance the
acquisition of the building. The note is payable in monthly installments of
$1,611 plus interest which is charged at the prime rate plus 1-1/2 % (9.75%
and 9.25% at December 31, 1999 and 1998, respectively). The note matures on
August 1, 2003 at which time the remaining principal is due. The note is
secured by the building and the personal guarantee of the majority
stockholder. The annual maturities of long-term debt at December 31, 1999
are as follows: 2000 — $19,332; 2001 — $19,332; 2002 — $19,332; 2003 -
$206,228.
(Continued)
(F-12)
UNITREND, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998, 1997 and for the period from
the inception date of September 27, 1994 to December 31, 1999
EMPLOYEE BENEFIT PLAN
The Company maintains a simplified employee pension salary reduction plan.
The plan allows employees to make contributions up to the maximum amount
permitted by the Internal Revenue Code. All full-time employees are
eligible to participate in the plan. The Company may make contributions at
the discretion of management. The Company has made no discretionary
contributions to date.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of the temporary differences between the financial reporting and tax
bases of assets and liabilities at each year-end based on enacted tax laws
and statutory tax rates. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized. An income tax expense represents the taxes currently payable and
the net change during the period in deferred tax assets and liabilities.
The components of the net deferred tax asset (liability) are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999 |
|
1998 |
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
|
|
Net operating loss |
|
$ |
1,477,000 |
|
|
$ |
1,042,000 |
|
|
|
|
|
|
|
Organizational costs |
|
|
5,000 |
|
|
|
7,000 |
|
|
|
|
|
|
|
Other |
|
|
1,000 |
|
|
|
8,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
1,483,000 |
|
|
|
1,057,000 |
|
|
|
|
|
|
|
|
|
|
| Liabilities: |
|
|
|
|
|
|
Depreciation |
|
|
5,000 |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
|
1,478,000 |
|
|
|
1,054,000 |
|
|
|
|
|
|
|
|
Less: valuation allowance |
|
|
(1,478,000 |
) |
|
|
(1,054,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
(Continued)
(F-13)
UNITREND, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998, 1997 and for the period from
the inception date of September 27, 1994 to December 31, 1999
INCOME TAXES (continued)
A reconciliation of the Company’s effective tax values is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 1994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date of Inception) to |
|
|
1999 |
|
1998 |
|
1997 |
|
December 31, 1999 |
|
|
|
|
|
|
|
|
|
| Income tax at
statutory rates |
|
$ |
(426,793 |
) |
|
$ |
(417,670 |
) |
|
$ |
1,408,737 |
|
|
$ |
(1,587,361 |
) |
|
|
|
|
|
| Surtax and other
rate differences |
|
|
656 |
|
|
|
1,091 |
|
|
|
(766 |
) |
|
|
(13 |
) |
|
|
|
|
|
| Permanent differences |
|
|
2,137 |
|
|
|
579 |
|
|
|
10,206 |
|
|
|
109,374 |
|
|
|
|
|
|
| Change in valuation
allowance |
|
|
424,000 |
|
|
|
416,000 |
|
|
|
(1,418,177 |
) |
|
|
1,478,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A valuation allowance has been recorded against the net deferred tax assets,
as it is not known if the benefits will be realized by the Company.
As of December 31, 1999, the Company has approximately $3,900,000 of tax net
operating loss carryforwards remaining to be utilized. The tax net loss
carryforwards begin to expire in 2011 through 2019.
COMMON STOCK SUBJECT TO RESCISSION
The Company issued shares of stock in 1997 which were subject to a
rescission offer which could have been exercised at the option of the
stockholder and accordingly were not included in equity. The Company sold
440,340 shares for $220,170 in 1997.
During 1998, the Company issued 5,812,260 shares of common stock under an
offering. As part of this offering, significantly all holders of common
stock subject to rescission agreed to convert their stock subscription
receipts under a one for one trade for the new stock or to rescind their
stock subscription in full. During 1998, four states had not given their
approval for the offering as of December 31, 1998. A total of 2,367,040
shares were issued in exchange for common stock. Stock subscription
rescissions totaled 255,840 for $127,920 along with interest costs of $3,039
as of December 31, 1998. The total number of shares left to be exchanged or
rescinded was 184,500 at December 31, 1998. These shares were exchanged for
the new stock during 1999. There were no stock rescissions during 1999.
(Continued)
(F-14)
UNITREND, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998, 1997 and for the period from
the inception date of September 27, 1994 to December 31, 1999
EARNINGS PER SHARE
Earnings per share is computed on the weighted average number of common
shares outstanding, including any dilutive options and warrants. Per share
amounts have been restated for the effects of the four-for-one and
five-for-one stock splits that were effective July 9, 1999 and August 9,
1999 for stockholders of record as of the same dates, respectively.
Options to purchase 6,885,970, 6,742,700, 4,684,680, and 6,885,970 shares
for the years ended December 31, 1999, 1998, 1997, and the period from the
inception date of September 27, 1994 to December 31, 1999, respectively were
not included in the computation of diluted EPS because the Company had a net
loss during the periods and therefore the options are assumed to be
anti-dilutive.
STOCKHOLDERS’ EQUITY (DEFICIT)
In July 1999, the Company reincorporated as a Nevada corporation. At
December 31, 1999 and 1998, the Company had 200,000,000 and 5,000,000
authorized common shares, no par value, respectively. In July 1999, the
Company had a four for one stock split, except for the shares issued to the
president/major stockholder related to the SSTI merger that were split at
three to one. In August, 1999, the Company split its common stock issuing,
five shares for every one share outstanding at the time. The Company issued
5,000 shares of common stock for consulting expense during August, 1999.
The service had a value of $10,000 which was recorded for the exchange of
the common stock.
The Company provides for the granting of stock options to certain employees.
The options are cancelable upon exercise.
(Continued)
(F-15)
UNITREND, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998, 1997 and for the period from
the inception date of September 27, 1994 to December 31, 1999
STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
The Company applies Accounting Principles Board Opinion (APB) No. 25 and
related interpretations in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized in the accompanying
financial statements for options issued under the plan. Had compensation
cost for the Company’s stock option plan been determined based on the fair
value at the grand dates for awards under the plan consistent with the
methodology of Financial Accounting Standards Board Statement No. 123
“Accounting for Stock-Based Compensation,” the Company’s net income (loss)
and net income (loss) per share would change as indicated below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
1999 |
|
1998 |
|
1997 |
|
1999 |
|
|
|
|
|
|
|
|
|
|
| Net income (loss): |
|
|
|
|
|
|
As reported |
|
$ |
(1,123,139 |
) |
|
$ |
(1,099,131 |
) |
|
$ |
3,707,203 |
|
|
$ |
(4,177,267 |
) |
|
|
|
|
|
|
Pro forma |
|
|
(1,157,344 |
) |
|
|
(1,239,134 |
) |
|
|
3,668,250 |
|
|
|
(4,402,855 |
) |
|
|
|
|
|
| Basic and diluted earnings (loss) per share: |
|
|
|
|
|
|
As reported |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.06 |
|
|
$ |
(0.06 |
) |
|
|
|
|
|
|
Pro forma |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.06 |
|
|
$ |
(0.07 |
) |
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, and 1997, and the period from the
inception date of September 27, 1994 to December 31, 1999.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception |
|
|
|
|
|
|
|
|
|
|
|
|
Date to |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
1999 |
|
1998 |
|
1997 |
|
1999 |
|
|
|
|
|
|
|
|
|
| Dividend yield |
|
0
|
|
|
0
|
|
|
|
0
|
|
|
|
0 |
|
|
|
|
|
|
| Expected volatility |
|
0%
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0% |
|
|
|
|
|
| Risk-free interest rates |
|
4.55%, 4.57%,
4.60%, 5.13%, 5.01%
5.67%
|
|
|
5.39%, 5.06%, & 5.61%
|
|
|
|
6.25%, 6.62%,
6.36%, & 6.11%
|
|
|
|
6.32%, 6.58%,
6.51%, & 5.70% |
|
|
|
|
|
| Expected lives |
|
3 years
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
3 years |
|
/
(Continued)
(F-16)
UNITREND, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998, 1997 and for the period from
the inception date of September 27, 1994 to December 31, 1999
STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
A summary of the status of the Company’s employee stock option plan as of
December 31,1999, 1998 and 1997 and changes for the years then ended is
presented below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999 |
|
1998 |
|
1997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Shares |
|
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
| January 1 |
|
|
2,896,700 |
|
|
$ |
0.50 |
|
|
|
1,596,680 |
|
|
$ |
0.50 |
|
|
|
1,320,000 |
|
|
$ |
0.50 |
|
|
|
|
|
|
| Granted |
|
|
45,000 |
|
|
|
0.50 |
|
|
|
1,500,000 |
|
|
|
0.50 |
|
|
|
410,000 |
|
|
|
0.50 |
|
|
|
|
|
|
| Canceled |
|
|
— |
|
|
|
0.50 |
|
|
|
(199,980 |
) |
|
|
0.50 |
|
|
|
(133,320 |
) |
|
|
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31 |
|
|
2,941,700 |
|
|
|
0.50 |
|
|
|
2,896,700 |
|
|
|
0.50 |
|
|
|
1,596,680 |
|
|
|
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options
exercisable at
year-end |
|
|
2,726,700 |
|
|
|
|
|
|
|
2,250,407 |
|
|
|
|
|
|
|
440,010 |
|
|
|
|
|
|
| Weighted-average
fair value of
options granted
during the year |
|
$ |
0.06 |
|
|
|
|
|
|
$ |
0.07 |
|
|
|
|
|
|
$ |
0.17 |
|
The following summarizes information about employee stock options at
December 31, 1999.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
| Range of |
|
|
|
|
|
Remaining |
| Exercise |
|
Number Outstanding |
|
Contractual Life |
|
Weighted-Average |
|
Number Exercisable |
|
Weighted-Average |
| Prices |
|
December 31, 1999 |
|
(In Years) |
|
Exercise Price |
|
December 31, 1998 |
|
Exercise Price |
|
|
|
|
|
|
|
|
|
|
|
| $0.50 |
|
|
2,941,700 |
|
|
|
3.00 |
|
|
$ |
0.50 |
|
|
|
2,250,407 |
|
|
$ |
0.50 |
|
In 1996, the Company granted stock purchase options to Eric V. Jelinger,
brother of the President. The option was granted for compensation of past
services to the Company. The options allowed Mr. Jelinger to acquire up to
10,000,000 shares of stock at a price of $0.000005 per share. Under APB No.
25, compensation expense was recorded in 1996 of $4,999,950. On December
31, 1997, the options were canceled under an agreement of mutual mistake
entered into by Unitrend and Eric V. Jelinger. As a result of this
agreement, the compensation expense of $4,999,950 recorded in 1996 was
reversed by offsetting other income amount of $4,999,950 during 1997.
(Continued)
(F-17)
UNITREND, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998, 1997 and for the period from
the inception date of September 27, 1994 to December 31, 1999
STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
In 1999, 1998, and 1997, stock options were issued to non-employee
consultants. Consulting expense was recorded using the fair market value on
the date of grant of the options issued. Consulting expense related to
these options was $7,868, $55,316, and $252,011, respectively was recorded
in the statement of operations.
At December 31, 1999, 1998, and 1997, other non-employees held options to
purchase 3,944,270, 3,846,000, and 3,088,000 shares of common stock for
$0.50 per share, respectively. Options granted to non-employees vest at the
rate of 1/3 per year following the grant date. The number of non-employee
options that were vested at December 31, 1999, 1998, and 1997 were
2,342,733, 1,040,426, and 33,333, respectively. These options begin to
expire three years after the date that a registration statement for a public
offering of the Company’s stock becomes effective with the Securities and
Exchange Commission.
OPERATING LEASE OBLIGATIONS
The Company leased office space and equipment. The Company entered into a
vehicle lease during 1996 in which the whole lease expense of $12,080 was
paid in full at that time. The lease was treated as an operating lease and
was expensed over the life of the lease. Lease expense for the years ended
December 31, 1999, 1998, and 1997 and for the period from the inception date
of September 27, 1994 to December 31, 1997 was $12,000, $11,879, $20,261 and
$48,960, respectively.
COMMITMENTS
The Company has entered into purchase commitments with other entities to
perform the tooling designs for the computer enclosures. The total
commitment as of December 31, 1999 was $1,553,450 with progress payments
having been made of $715,000. The total future commitment remaining as of
December 31, 1999 was $838,450.
RELATED PARTY
During 1998, the Company formed another entity called Osborne Manufacturing,
Inc. (OMI) The Company will own sixty percent of OMI and a current employee
will own the remaining forty percent. The Company’s ownership will be
reduced to 40%, three years after the commencement of OMI’s production of
the “VersaCase(R)” units for the Company. OMI is being organized to do all
of the production of the “VersaCase(R)” as well as manufacturing for other
entities. OMI will operate from a single, leased facility in Wauseon, Ohio.
The Company has paid for operating expenses of OMI and expects to be repaid
in full. Total advances as of December 31, 1999 and 1998 were $283,943 and
$18,194, respectively. Interest is being accrued on the outstanding balance
of the advances at the prime rate (8.25% at December 31, 1999). The total
accrued interest was $11,804 and $1,636 at December 31, 1999 and 1998,
respectively.
(F-18)
