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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________ .
COMMISSION FILE NUMBER: 001-15777
UNITREND, INC.
(Exact name of registrant as specified in its charter)
Nevada 34-1904923
(State or other jurisdiction (I.R.S. employer
of identification number)
incorporation or organization)
4665 West Bancroft St.
Toledo, Ohio 43615
(Address of principal executive offices, including zip code)
(419) 536-2090
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES NO X
--- ---
Number of shares of registrant's common stock outstanding as of March 31, 2001:
69,895,580
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UNITREND, INC. AND SUBSIDIARY
FORM 10-QSB
QUARTER ENDED MARCH 31, 2001
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2001 and December 31,
2000............................................................................. 3
Condensed Consolidated Statements of Operations for the three months ended
March 31, 2001, 2000 and for the period from September 27, 1994 (date of
inception) to March 31, 2001..................................................... 4
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2001, 2000 and for the period from September 27, 1994 (date of
inception) to March 31, 2001..................................................... 5
Consolidated Statements of Stockholders' Equity for the three months ended
March 31, 2001 and for the year ended December 31, 2000.......................... 6
Notes to Condensed Consolidated Financial Statements............................. 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................ 10
Item 2. Changes In Securities And Use Of Proceeds........................................ 10
Item 3. Defaults Upon Senior Securities.................................................. 10
Item 4. Submission Of Matters To A Vote Of Security Holders.............................. 10
Item 5. Other Information................................................................ 10
Item 6. Exhibit.......................................................................... 10
Signatures....................................................................... 10
This quarterly report on Form 10-QSB is for the three months ended March 31,
2001. This quarterly report modifies and supersedes documents filed prior to
this quarterly report. The Securities and Exchange Commission (SEC) allows us to
"incorporate by reference" information that we file with them, which means that
we can disclose important information to you by referring you directly to those
documents. Information incorporated by reference is considered to be part of
this quarterly report. In addition, information that we file with the SEC in the
future will automatically update and supersede information contained in this
quarterly report. In this quarterly report, "Unitrend," "we," "us" and "our"
refer to Unitrend, Inc. and its subsidiary.
You should carefully review the information contained in this quarterly report
and in other reports or documents that we file from time to time with the SEC.
In this quarterly report, we state our beliefs of future events and of our
future financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
2
Part I. Financial Information
Item I. Condensed Consolidated Financial Statements
UNITREND, INC AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED BALANCE SHEETS
ASSETS
(unaudited) (audited)
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
CURRENT ASSETS
Cash $ 105 $ 43,739
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Land 67,485 67,485
Building and improvements 376,386 376,385
Furniture and fixtures 65,266 83,115
Computer equipment 151,064 151,064
Computer software 46,719 46,719
Automobiles 15,937 15,937
Tooling and dies under construction 1,469,429 1,469,429
------------ ------------
2,192,285 2,210,134
Less accumulated depreciation (243,770) (235,248)
------------ ------------
Net property and equipment 1,948,515 1,974,886
------------ ------------
OTHER ASSETS
Patent licensing costs, net of accumulated amortization
28,457 28,924
Loan costs, net of accumulated amortization 2,452 2,724
------------ ------------
Total other assets 30,909 31,648
------------ ------------
TOTAL ASSETS $ 1,979,529 $ 2,050,273
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 409,450 $ 338,176
Current portion of note payable 248,073 248,073
Accrued expenses 528,606 517,755
------------ ------------
Total current liabilities 1,186,129 1,104,004
------------ ------------
NOTES PAYABLE - RELATED PARTIES 38,534 32,466
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, no par value 3,557,503 3,557,503
Additional paid-in capital 8,023,695 8,023,695
Deficit accumulated in the development stage (10,826,332) (10,667,395)
------------ ------------
Total stockholders' equity 754,866 913,803
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,979,529 $ 2,050,273
============ ============
3
UNITREND, INC AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(unaudited)
(unaudited) (unaudited) September 27, 1994
Three Months Ended Three Months Ended (Date of Inception)
March 31, 2001 March 31, 2000 to March 31, 2001
-------------------- --------------------- --------------------
Sales $ - $ - $ 603
Research and development expenses - (16,680) (529,943)
Selling, general and administrative expenses (150,486) (354,317) (10,068,458)
-------------------- --------------------- --------------------
Operating loss (150,486) (370,997) (10,597,798)
Interest income - 405 1,546
Interest expense (8,451) (6,950) (206,112)
-------------------- --------------------- --------------------
Net loss before cumulative
effect of change in accounting
principle (158,937) (377,542) (10,802,364)
Cumulative effect of change in
accounting principle - - (23,968)
-------------------- --------------------- --------------------
Net loss $(158,937) $(377,542) $(10,826,332)
==================== ===================== ====================
Basic and diluted loss per share:
Before cumulative effect of
change in accounting
principle $(0.00) $(0.01) $(0.16)
Cumulative effect of change in
accounting principle - - -
-------------------- --------------------- --------------------
Net loss $(0.00) $(0.01) $(0.16)
==================== ===================== ====================
Weighted average shares outstanding
used to compute basic and diluted
loss per share 69,895,580 69,383,580 66,779,856
==================== ===================== ====================
4
UNITREND, INC AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(unaudited) (unaudited) September 27, 1994
Three Months Ended Three Months Ended (Date of Inception)
March 31, 2001 March 31, 2000 to March 31, 2001
------------------- ------------------ ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (158,937) $ (377,542) $ (10,826,332)
------------------- ------------------ ----------------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Change in accounting principle - - 23,968
Options issued for services - 5,029 5,326,989
Depreciation & amortization 9,261 9,988 256,232
Loss on disposal of property & equipment 6,908 - 6,908
Bad debt - - 42,157
Accrued interest income - (405) (3,091)
Common stock issued for services - - 10,000
Increase (decrease) in operating liabilities:
Accounts payable 71,274 (52,994) 409,450
Accrued expenses 10,851 7,512 598,548
------------------- ------------------ ----------------------
Total adjustments 98,294 (30,870) 6,671,161
------------------- ------------------ ----------------------
Net cash used in operating activities (60,643) (408,412) (4,155,171)
------------------- ------------------ ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for patent licensing costs - - (31,723)
Purchase of property and equipment - (56,343) (2,210,134)
Proceeds from sale of property & equipment 10,941 - 10,941
Loans to related parties - - (18,191)
Loans to other entities - - (23,916)
Repayment from employee - - 3,041
Payment of organizational cost - - (30,168)
------------------- ------------------ ----------------------
Net cash provided by (used in ) investing
activities 10,941 (56,343) (2,300,150)
------------------- ------------------ ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of loan costs - - (5,448)
Loans from stockholder 6,068 468,000 2,460,388
Proceeds from note payable - - 290,000
Payment on note payable - (4,833) (41,927)
Proceeds from sale of common stock
and exercise of stock options - - 2,619,563
Payments for stock recissions - - (134,170)
Sale of stock subject to recission for cash - - 1,267,020
------------------- ------------------ ----------------------
Net cash provided by financing activities 6,068 463,167 6,455,426
------------------- ------------------ ----------------------
Net increase (decrease) in cash (43,634) (1,588) 105
Cash - beginning of year 43,739 8,779 -
------------------- ------------------ ----------------------
Cash - end of period $ 105 $ 7,191 $ 105
=================== ================== ======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period
Interest $ - $ 6,932 $ 127,823
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
During the first quarter ended March 31, 2000 the majority shareholder forgave
loans to the company of $2,171,854, and accrued interest of $69,942, this was
accounted for as additional paid-in capital. The President/Majority
Stockholder also exercised 500,000 options to purchase stock, during the year
ended December 31, 2000, at a price of $0.50 per share by forgiving debt of
$250,000.
5
UNITREND, INC AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2001
And For the Year Ended December 31, 2000
Deficit
Accumulated
Common Stock Additional During the
-------------------------------- Paid-in Development
Shares Amount Capital Stage Total
--------------- ---------------- -------------- --------------- -------------
BALANCE -
December 31, 1999 $ 69,383,580 $ 3,301,503 $ 5,770,055 $ (9,388,662) $ (317,104)
Stock options issued on
January 2, January 3, February 3,
March 1, and June 5, 2000 -- -- 11,844 -- 11,844
Forgiveness of loans by
majority stockholder on
March 31, 2000 -- -- 2,241,796 -- 2,241,796
Exercise of stock options at $0.50
per share on October 11 and
December 19, 2000 12,000 6,000 -- -- 6,000
Majority stockholder exercised
options at $0.50 per share
on December 1, 2000 500,000 250,000 -- -- 250,000
Net loss - 2000 -- -- -- (1,278,733) (1,278,733)
------------ ------------ ------------ ------------ ------------
BALANCE -
DECEMBER 31, 2000 69,895,580 3,557,503 8,023,695 (10,667,395) 913,803
Net loss for the period
ended March 31, 2001 -- -- -- (158,937) (158,937)
------------ ------------ ------------ ------------ ------------
BALANCE -
MARCH 31, 2001 69,895,580 $ 3,557,503 $ 8,023,695 $(10,826,332) $ 754,866
============ ============ ============ ============ ============
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UNITREND, INC. AND SUBSIDIARY
FORM 10-Q SB
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments) that
are, in the opinion of management, necessary to state fairly the results for the
three month period ended March 31, 2001. The results for the three month period
ended March 31, 2001 are not necessarily indicative of the results expected for
the full fiscal year.
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
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. As of March 31, 2001, 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 $10,826,000.
On April 16, 1998, the Company formed another entity called Osborne
Manufacturing, Inc. (OMI). The Company owns sixty percent of OMI and a current
employee of OMI owns the remaining forty percent. The Company's ownership will
be reduced to forty percent, three years after the commencement of OMI's
production of the "VersaCase(R)" units for the Company and upon OMI obtaining
profitability. OMI was organized to do all of the production of "VersaCase(R)"
units as well as manufacturing for other entities.
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.
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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements are on the accrual basis of accounting and
include the financial statements of the Parent for the period ended March 31,
2001 (unaudited) and 2000, in entirety, and include the financial statements of
its 60% owned Subsidiary. All material intercompany balances and transactions
are eliminated in consolidation.
RELATED PARTY PAYABLE
There were unsecured notes payable to the President/majority stockholder,
including interest at prime on the first business day of the year, payable in
ten equal installments after the Company is profitable for one year. As of March
31, 2001 and December 31, 2000, the outstanding balance of the note payable to
the
7
President/majority stockholder was $38,534 and $32,466, respectively. On March
31, 2000, our President/majority stockholder forgave loans to the Company of
$2,171,854 and accrued interest of $69,942. The forgiveness was accounted for as
contributed capital.
CONTINGENCIES
The Company is a defendant in two lawsuits, one by a stockholder and one by a
former employee. Management believes that it will ultimately prevail in these
legal actions and accordingly, no provision for the amount of any award has been
recorded in the accompanying financial statements.
NEW ACCOUNTING PRONOUNCEMENT
None
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS - FIRST THREE MONTHS OF 2001 COMPARED TO FIRST THREE
MONTHS OF 2000
The Company did not have revenues during the three months ended March 31, 2001
nor during the three months ended March 31, 2000. We expect to begin selling the
VersaCase in mid 2002.
We had an operating loss of $150,486 during the three months ended March 31,
2001 as compared to an operating loss of $370,997 during the three months ended
March 31, 2000, a decrease of 59%. As discussed below, this operating loss
decreased due to a reduction in selling, general and administrative expenses.
The Company did not have research and development expenses during the three
months ended March 31, 2001 as compared to $16,680 for the three months ended
March 31, 2000. This decrease was due to a consulting fee paid during the 2000
first quarter to an international product design and consulting firm to examine
the Company's products for possible improvement and modification suggestions
prior to the commencement of full-scale production. We believe that research and
development expenses will increase as we go forward.
Selling, general and administrative expenses decreased to $150,486 during the
three months ended March 31, 2001 as compared to $354,317 during the three
months ended March 31, 2000, a decrease of 58%. This change was due primarily to
a decrease in payroll and related employee benefit costs of approximately
$140,000 during the three months ended March 31, 2001 as compared to the three
months ended March 31, 2000. The Company notified its employees on January 1,
2001 that due to its financial condition, payroll ceased and employees could
work on a volunteer basis only. Other significant decreases in officers'
insurance, travel expenses, computer supplies and consulting expenses were
approximately $11,500, $10,700, $9,000 and $5,000, respectively. The Company saw
increases in professional fees and contract labor during the three months ended
March 31, 2001 of approximately $55,000 as compared to the three months ended
March 31, 2000 because of costs associated with our SB-2 registration with the
SEC.
During the three months ended March 31, 2000, 64,472 stock options were granted
to non-employees at an exercise price of $0.50 each, under our 1999 Stock Option
Plan. Options to the non-employee consultants were recorded for $5,029 in
consulting expenses based on the fair market value of the services rendered.
There were no stock options granted to non-employees during the three months
ended March 31, 2001.
We had a decrease in plant, property and equipment of $17,849 due to the sale of
equipment that was no longer needed for our production facility. Accounts
payable increased to $409,450 for the three months ended March 31, 2001 compared
to $338,176 at years end December 31, 2000. Since April 1, 2000, the employees
have agreed to defer compensation for their services until such a time that the
Company's cash flow deficiencies are satisfied.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through public
and private sales of
8
equity securities, as well as through loans from its President/majority
stockholder, Conrad A.H. Jelinger. As of March 31, 2001, the Company's cash
totaled $105. Loans from the Mr. Jelinger during the three months ended March
31, 2001 totaled $6,068. On March 31, 2000, our President/majority stockholder
forgave loans to the Company of $2,171,854 and accrued interest of $69,942. This
was accounted for as contributed capital.
Primary uses of cash for the three months ended March 31, 2001 included $60,643
for the Company's operations and working capital requirements.
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. In December, 2000,
the company filed an SB-2 registration statement with the Securities and
Exchange Commission to register 4,000,000 shares of common stock, at $10.00 per
share in a "Best Efforts" offering. The filing was declared effective on
December 28, 2000. The purpose of the offering was to raise sufficient funds to
enable the company to commence manufacturing of its VersaCase product.
Ultimately, the company did not receive sufficient subscriptions to enable to
commence manufacturing operations and the offering terminated with all funds
returned to subscribers. Currently, the company plans to raise sufficient funds
to commence manufacturing through the advancement of monies by its founder.
While funds advanced from the founder may enable the company to commence
manufacturing, we cannot be certain that the founder will continue to fund our
capital needs. Consequently, we may seek additional funding during the next 24
months through a post effective amendment to the SB-2 registration statement.
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.
OUTLOOK
The outlook section contains a number of forward-looking statements, all of
which are based on current expectations. Actual results may differ materially.
Our growth strategy is built around five imperatives: maintaining technology
leadership; increasing market share; acquiring other business entities;
leveraging strategic relationships; and the recruiting and retaining 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, 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.
ACQUIRING 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
9
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.
RECRUITING AND RETAINING 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.
Part II. Other Information
Item 1. Legal Proceedings
Two former employees, spouses to each other, filed suit against the company in
April 2000 requesting the return of their investment of $250,000. The suit was
filed in the United States District Court in Hawaii based on Hawaii state
securities law. The United States District Court in Hawaii removed the case to
the United States District Court in Ohio for lack of jurisdiction. The Company
believes this lawsuit has no merit and intends to vigorously defend itself.
On November 16, 2000, we were served with notice of a lawsuit filed in the Lucas
County Court of Common Pleas. This suit was instituted by a former employee of
the Company, who seeks an unspecified monetary judgment in an amount greater
than $25,000 relating to claims of consulting fees and back wages. We have filed
a counterclaim against this former employee and intend to vigorously defend our
self in this lawsuit.
Item 2. Changes In Securities And Use Of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission Of Matters To A Vote Of Security Holders
Not Applicable
Item 5. Other Information
None
Item 6. Exhibit
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Unitrend,
Inc. has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNITREND, INC.
Dated: January 15, 2002 By: /s/ CONRAD A.H. JELINGER
----------------------------
Conrad A.H. Jelinger
Chief Executive Officer, Interim Chief
Financial Officer and President
10