SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 2002
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 incorporation or organization) identification number)
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 [X] NO [ ]
Number of shares of registrant's common stock outstanding as of June 30, 2002:
70,371,770
UNITREND, INC. AND SUBSIDIARY
FORM 10-QSB
QUARTER ENDED JUNE 30, 2002
Table of Contents
PART I FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2002
And December 31, 2001........................................... 3
Condensed Consolidated Statements of Operations for the three
and six months ended June 30, 2002, 2001 and for the period
from September 27, 1994 (date of inception) to June 30, 2002... 4
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2002, 2001 and for the period from
September 27, 1994 (date of inception) to June 30, 2002........ 5
Consolidated Statements of Stockholders' Equity for the six
months ended June 30, 2002 and for the year ended
December 31, 2001............................................... 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....................... 11
Item 3. Defaults Upon Senior Securities................................. 11
Item 4. Submission Of Matters To A Vote Of Security Holders............. 11
Item 5. Other Information............................................... 11
Item 6. Exhibit......................................................... 11
Signatures...................................................... 11
This quarterly report on Form 10-QSB is for the three and six months ended June
30, 2002. 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.
Part I. Financial Information
Item I. Condensed Consolidated Financial Statements
UNITREND, INC. AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED BALANCE SHEETS
ASSETS
(unaudited) (unaudited)
June 30, 2002 December 31,2001
---------------- ----------------
CURRENT ASSETS
Cash $ 53 $ 235
---------------- ----------------
PROPERTY AND EQUIPMENT, at cost
Land 67,485 67,485
Building and improvements 376,716 376,716
Furniture and fixtures 65,266 65,266
Computer equipment 151,055 151,055
Computer software 46,719 46,719
Automobiles 15,937 15,937
Tooling and dies under construction 1,469,429 1,469,429
---------------- ----------------
2,192,607 2,192,607
Less accumulated depreciation (279,938) (267,016)
---------------- ----------------
Net property and equipment 1,912,669 1,925,591
---------------- ----------------
OTHER ASSETS
Patent licensing costs,
net of accumulated amortization 26,000 27,058
Loan costs, net of accumulated amortization 1,090 1,634
---------------- ----------------
Total other assets 27,090 28,692
---------------- ----------------
TOTAL ASSETS $ 1,939,812 $ 1,954,518
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITES
Accounts payable $ 554,833 $ 502,970
Current portion of note payable 217,465 225,520
Accrued expenses 495,794 492,911
---------------- ----------------
Total current liabilities 1,268,092 1,221,401
---------------- ----------------
NOTES PAYABLE - RELATED PARTIES 68,683 251,303
---------------- ----------------
STOCKHOLDERS' EQUITY
Common stock, no par value 3,795,598 3,557,503
Additional paid-in capital 8,023,695 8,023,695
Deficit accumulated in the development stage
(11,211,256) (11,099,384)
---------------- ----------------
Total stockholders' equity 608,037 481,814
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 1,939,812 $ 1,954,518
================ ================
UNITREND, INC. AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(unaudited)
(unaudited) (unaudited) (unaudited) (unaudited) September 27, 1994
Three Months Ended Three Months Ended Six Months Ended Six Months Ended (Date of Inception)
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 to June 30, 2002
---------------- ---------------- ---------------- ---------------- ----------------
Sales $ - $ - $ - $ - $ 603
Research and development
expenses - - - - (529,943)
Selling, general and
administrative expenses (38,113) (116,033) (101,105) (266,519) (10,415,619)
---------------- ---------------- ---------------- ---------------- ----------------
Operating loss (38,113) (116,033) (101,105) (266,519) (10,944,959)
Interest income - - - - 1,546
Interest expense (3,897) (9,191) (10,767) (17,642) (243,875)
---------------- ---------------- ---------------- ---------------- ----------------
Net loss before cumulative
effect of change in
accounting principle (42,010) (125,225) (111,872) (284,161) (11,187,288)
Cumulative effect of
change in accounting
principle - - - - (23,968)
---------------- ---------------- ---------------- ---------------- ----------------
Net loss $ (42,010) $ (125,225) $ (111,872) $ (284,161) $ (11,211,256)
================ ================ ================ ================ ================
Basic and diluted loss
per share:
Before cumulative effect
of change in accounting
principle $ (0.00) $ (0.00) $ (0.00) $ (0.00) $ (0.17)
Cumulative effect of change
in accounting principle - - - - -
---------------- ---------------- ---------------- ---------------- ----------------
Net loss $ (0.00) $ (0.00) $ (0.00) $ (0.00) $ (0.17)
================ ================ ================ ================ ================
Weighted average shares
outstanding used to compute
basic and diluted loss per
share 70,371,770 69,895,580 70,371,770 69,895,580 66,927,991
================ ================ ================ ================ ================
UNITREND, INC. AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(unaudited) (unaudited) September 27, 1994
Six Months Ended Six Months Ended (Date Of Inception)
June 30, 2002 June 30, 2001 to June 30, 2002
---------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (111,872) $ (284,161) $ (11,211,256)
---------------- ---------------- ----------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Change in accounting principle - - 23,968
Options issued for services - - 5,326,989
Depreciation & amortization 14,524 18,443 298,401
Loss on disposal of property
and equipment - 6,908 4,735
Bad debt - - 42,157
Accrued interest income - - (3,091)
Common stock issued for services - - 10,000
Increase in operating liabilities:
Accounts payable 51,863 124,773 554,833
Accrued expenses 2,883 20,044 565,735
---------------- ---------------- ----------------
Total adjustments 69,270 170,168 6,823,727
---------------- ---------------- ----------------
Net cash used in operating activities (42,602) (113,993) (4,387,529)
---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for patent licensing costs - - (31,723)
Purchase of property and equipment - (330) (2,210,464)
Proceeds from sale of property and
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 - 10,611 (2,300,480)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of loan costs - - (5,448)
Loans from stockholder 50,475 59,707 2,723,632
Proceeds from note payable - - 290,000
Payment on note payable (8,055) - (72,535)
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 42,420 59,707 6,688,062
---------------- ---------------- ----------------
Net increase (decrease) in cash (182) (43,675) 53
Cash - beginning of period 235 43,739 -
---------------- ---------------- ----------------
Cash - end of period $ 53 $ 64 $ 53
================ ================ ================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period
Interest $ 7,883 $ - $ 135,706
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
The President/Majority Stockholder exercised 476,190 options to purchase stock,
during the period ended March 31, 2002, at a price of $0.50 per share by
forgiving debt of $238,095.
UNITREND, INC. AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Six Months Ended June 30, 2002
And For the Year Ended December 31, 2001
(unaudited)
Deficit
Accumulated
Common Stock Additional During the
---------------- Paid-in Development
Shares Amount Capital Stage Total
---------- ---------- ---------- ------------- ----------
BALANCE -
DECEMBER 31, 2000 69,895,580 3,557,503 8,023,695 (10,667,395) 913,803
Net loss - 2001 - - - (431,989) (431,989)
---------- ---------- ---------- ------------- -----------
BALANCE -
DECEMBER 31, 2001 69,895,580 $3,557,503 $8,023,695 $(11,099,384) $ 481,814
Majority stockholder
exercised options
at $0.50 per share
on January 22, 2002 476,190 238,095 - - 238,095
Net loss for the
period ended June
30, 2002 - - - (111,872) (111,872)
---------- ---------- ---------- ------------- -----------
BALANCE -
JUNE 30, 2002 70,371,770 $3,795,598 $8,023,695 $(11,211,256) $ 608,037
========== ========== ========== ============= ===========
UNITREND, INC. AND SUBSIDIARY
FORM 10-Q SB
QUARTER ENDED JUNE 30, 2002
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 and six month periods ended June 30, 2002. The results for the three and
six month periods ended June 30, 2002 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 June 30, 2002, 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 $11,211,000.
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 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 require 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, 2002 (unaudited) and 2001 (unaudited), 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
June 30, 2002 and December 31, 2001, the outstanding balance of the note
payable to the President/majority stockholder was $63,683 and $251,303,
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 one lawsuit by a stockholder. Management believes
that it will ultimately prevail in this legal action 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 - SECOND QUARTER OF 2002 COMPARED TO SECOND QUARTER
OF 2001
The Company did not have revenues during the quarter ended June 30, 2002 or
during the quarter ended June 30, 2001. We expect to begin selling the
VersaCase in early 2003.
We had an operating loss of $38,113 during the quarter ended June 30, 2002 as
compared to an operating loss of $116,033 during the quarter ended June 30,
2001, a decrease of 67%. As discussed below, the operating loss decreased due
to a reduction in selling, general and administrative expenses.
Selling, general and administrative expenses decreased to $38,113 during the
quarter ended June 30, 2002 as compared to $116,033 for the quarter ended June
30, 2001, a decrease of 67%. This change was due primarily to a decrease in
advertising, rent expense and professional fees of approximately $73,700 during
the quarter ended June 30, 2002 as compared to the quarter ended June 30, 2001.
Other decreases in miscellaneous office expenses and utilities and telephone
expense were approximately $1,200 and $1,100, respectively as the Company
continued its efforts to cut costs to decrease the Company's need for cash. The
Company did not incur any significant increases during the quarter ended June
30, 2002 as compared to the quarter ended June 30, 2001.
There were no stock options granted to non-employees during the three months
ended June 30, 2002 or during the three months ended June 30, 2001.
RESULTS OF OPERATIONS - FIRST SIX MONTHS OF 2002 COMPARED TO FIRST SIX MONTHS OF
2001
The Company did not have revenues during the six months ended June 30, 2002 or
during the six months ended June 30, 2001. We expect to begin selling the
VersaCase in early 2003.
We had an operating loss of $101,105 during the six months ended June 30, 2002
as compared to an operating loss of $266,519 during the six months ended June
30, 2001, a decrease of 62%. As discussed below, this change is due to a
decrease in selling, general and administrative expenses.
The Company did not have research and development expenses during the six months
ended June 30, 2002 or for the six months ended June 30, 2001. We believe that
research and development expenses will increase as we go forward.
Selling, general and administrative expenses decreased to $101,105 during the
six months ended June 30, 2002 as compared to $266,519 during the six months
ended June 30, 2001, a decrease of 62%. This change was due primarily to a
decrease in advertising costs, professional fees, contract labor costs and rent
expense of approximately $149,000 during the six months ended June 30, 2001 as
compared to the six months ended June 30, 2000. Other significant decreases in
utilities and telephone expenses, insurance expense, office expenses and
promotional materials were approximately $12,900 $10,000, $2,800 and $2,300,
respectively as the Company continued its efforts to cut costs to decrease the
Company's need for cash. The Company saw no significant increases during the
six months ended June 30, 2002 as compared to the six months ended June 30,
2001.
There were no stock options granted to non-employees during the six months ended
June 30, 2002 or during the six months ended June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through public
and private sales of equity securities, as well as through loans from its
President/majority stockholder, Conrad A.H. Jelinger. As of June 30, 2002, the
Company's cash totaled $53. Loans from Mr. Jelinger during the six months
ended June 30, 2002 totaled $50,475. Accounts payable increased to $554,833 for
the six months ended June 30, 2002 compared to $502,970 at years end December
31, 2001.
Primary uses of cash for the six months ended June 30, 2002 included $42,602
for the Company's operations and working capital requirements. For the six
months ended June 30, 2001, primary uses of cash for the Company's operations
and working capital requirements totaled $113,993.
Our future capital requirements will depend upon numerous factors, including the
amount of revenues generated from operations, the cost of 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 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.
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: August 14, 2002 By: /S/ CONRAD A.H. JELINGER:
_________________________
Conrad A.H. Jelinger
Chief Executive Officer,
Interim Chief Financial Officer
and President