SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10-QSB
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
__________________________
For the Quarter Ended: Commission File Number
September 30, 1995 0 - 9574
__________________________
UNITED SYSTEMS TECHNOLOGY, INC.
Iowa 42-1102759
(State of Incorporation) (I.R.S. Employer
Identification Number)
3021 Gateway Drive, Suite 240
Irving, Texas 75603
(214) 518-0728
(Address of principal executive offices and telephone number)
__________________________
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 ______
As of September 30, 1995 there were 33,643,163 shares of the registrant's
Common Stock, par value $0.10 per share, outstanding.
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
INDEX TO FORM 10-QSB
PART I - FINANCIAL INFORMATION (UNAUDITED) PAGE
Item 1. Consolidated Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or
Plan of Operation 8
PART II - OTHER INFORMATION 10
_________________________________________________________
The consolidated financial information reflects all adjustments which are,
in the opinion of management, necessary to a fair presentation of financial
position and of the statements of operations and cash flows for the periods
presented.
These consolidated financial statements should be read in conjunction with
the notes to the consolidated financial statements which are included in
the annual report on Form 10-KSB for the fiscal year ended December 31, 1994.
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United Systems Technology, Inc. and Subsidiary
Consolidated Balance Sheets
September 30,
1995 December 31,
(Unaudited) 1994
Current Assets
Cash and cash equivalents $ 118,923 $ 419,705
Trade accounts receivable, less allowance
for doubtful accounts of $75,000 at
September 30, 1995 and December 31, 1994 414,035 791,026
Prepaid expenses and other 2,916 3,670
Total current assets 535,874 1,214,401
Property and equipment, net 152,234 224,745
Goodwill, net 1,059,423 1,117,973
Software development costs, net 473,271 664,582
Purchased software, net 136,018 167,791
Deposits and other 25,416 28,333
1,846,363 2,203,424
Total assets $ 2,382,236 $ 3,417,825
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of capital lease
obligations $ 67,739 $ 109,629
Trade accounts payable 289,328 354,851
Accrued payroll 24,284 40,041
Accrued interest - related party 66,039 63,446
Other accrued expenses 101,403 317,611
Deferred revenue 645,382 869,451
Total current liabilities 1,194,176 1,755,029
Notes payable - related party 50,000 50,000
Capital lease obligations, net of
current portion 16,694 57,742
Total liabilities 1,260,870 1,862,771
Commitments and contingencies - -
Stockholders' Equity
Preferred stock, convertible, cumulative,
par value $.10 per share; authorized 5,000,000
shares; issued and outstanding 500,000 shares
of Series B, 750,000 shares of Series C,
500,000 shares of Series D and 300,000 shares
of Series E (liquidating preference of $1.00,
$.20, $1.00 and $1.00 per share, respectively,)
aggregating $1,450,000 at June 30, 1995
and December 31, 1994 205,000 205,000
Common stock, par value $.10 per share;
authorized 50,000,000 shares; issued and
outstanding 33,643,163 at September 30, 1995
and December 31, 1994. 3,364,315 3,364,315
Additional paid-in capital 4,589,651 4,589,651
Accumulated deficit (7,037,599) (6,603,912)
Total stockholders' equity 1,121,367 1,555,054
Total liabilities and stockholders' equity $ 2,382,236 $ 3,417,825
The accompanying notes are an integral part of the financial statements.
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United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Revenue
Software packages $ 65,236 $ 93,275 $ 182,636 $ 213,315
Installation, training and
customer support 103,712 179,047 387,057 554,669
Maintenance 245,569 274,235 736,518 846,764
Equipment sales & commissions (877) 1,998 51,092 75,409
Other 932 0 4,159 725
414,573 548,555 1,361,463 1,690,882
Costs and expenses
Salaries and contract labor 285,787 296,047 893,533 1,033,536
Other general, administrative
and selling expense 113,520 162,310 451,744 616,842
Depreciation & amortization 123,696 154,843 379,339 434,313
Commissions 10,279 7,876 25,472 27,050
Cost of equipment sold 4,769 1,233 39,548 47,564
538,050 622,309 1,789,635 2,159,305
Loss from operations (123,477) (73,754) (428,173) (468,423)
Nonoperating income (expense)
Interest expense (4,170) (22,694) (15,040) (68,240)
Interest income 2,043 0 9,526 33
(2,127) (22,694) (5,514) (68,207)
Net loss $ (125,604) $ (96,448) $ (433,687) $ (536,630)
Less: preferred stock
dividend requir (26,334) (26,334) (78,159) (78,159)
Net loss available for
common stockh $ (151,938) $ (122,782) $ (511,846) $ (614,789)
Net Loss per
common share $ (0.00) $ (0.00) $ (0.01) $ (0.02)
Weighted average number of common
shares outstanding 33,634,163 25,245,964 33,634,163 24,337,525
The accompanying notes are an integral part of the financial statements.
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United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Nine Month Period Ended September 30, 1995 and 1994
(Unaudited)
1995 1994_
Cash flows in operating activities:
Net (loss) $ (433,687) $ (536,629)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 379,339 434,313
Stock issued for services - 46,875
Change in operating assets and liabilities:
Accounts receivable 376 26,479
Prepaid expenses 7 21,882
Deposits and other 2,917 1,040
Accounts payable (62,930) 26,663
Accrued expenses (231,965) (28,976)
Deferred revenue (224,069) (129,875)
$ 241,038 $ 398,401
Net cash used in operating activities (192,649) (138,228)
Cash flows used in investing activities:
Property and equipment additions $ (18,543) $ (12,373)
Additions to purchased software (6,650) -
Net cash used in investing activities $ (25,193) $ (12,373)
Cash flows from financing activities:
Borrowings under note payable agreements $ - $ 30,000
Proceeds from issuance of common stock - 200,000
Payments on capital lease obligations (82,940) (74,595)
Net cash provided by (used in)
financing activities $ (82,940) $ 155,405
Decrease (increase) in cash & cash equivalents $ (300,782) $ 4,804
Cash and cash equivalents, beginning of year 419,705 8,185
Cash and cash equivalents, end of period $ 118,923 $ 12,989
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,171 $ 18,869
The accompanying notes are an integral part of the financial statements.
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UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation:
In the opinion of management, the accompanying unaudited consolidated
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the consolidated financial position of
United Systems Technology, Inc. ("USTI") as of September 30, 1995 and
December 31, 1994 and the results of operations and cash flows of USTI for
the nine months ended September 30, 1995 and 1994. The consolidated results
of operations for the nine month period ended September 30, 1995 are not
necessarily indicative of the results to be expected for the full year.
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Note 2. Property and Equipment:
Property and equipment at September 30, 1995 and December 31, 1994 consisted of
the following:
September 30, December 31,
1995 1994
Leasehold improvements $ 58,702 $ 58,702
Furniture and fixtures 35,518 35,518
Equipment 816,181 797,638
910,401 891,858
Less Accumulated depreciation
and amortization (758,167) (667,113)
$ 152,234 $ 224,745
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Note 3. Other Assets:
Other assets at September 30, 1995 and December 31, 1994 consisted of the
following:
Accumulated
September 30, 1995 Cost Amortization Net
Goodwill $ 1,561,340 $ 501,917 $ 1,059,423
Software development
costs 2,337,299 1,864,028 473,271
Purchased Software 545,853 409,835 136,018
December 31, 1994
Goodwill $ 1,561,340 $ 443,367 $ 1,117,973
Software development
costs 2,337,299 1,672,717 664,582
Purchased Software 539,203 371,412 167,791
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UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
Note 4. Preferred Stock:
The company is in arrears in the payment of dividends to holders of its
Series B, C, D and E Preferred Stock. Holders of Series B Preferred Stock
are entitled to annual dividends of $.07 per share, payable quarterly and,
as of September 30, 1995, are entitled to the payment of approximately
$244,975 in dividends which are currently in arrears. Holders of Series C
Preferred Stock are entitled to annual dividends of $.018 per share, payable
annually and, as of September 30, 1995, are entitled to the payment of
approximately $98,510 in dividends which are currently in arrears. Holders
of Series D Preferred Stock are entitled to annual dividends of $.07 per
share, payable quarterly and, as of September 30, 1995, are entitled to the
payment of approximately $196,860 in dividends which are currently in
arrears. Holders of Series E Preferred Stock are entitled to annual
dividends of $.07 per share, payable quarterly and, as of September 30, 1995,
are entitled to the payment of approximately $85,445 in dividends which are
currently in arrears.
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis of Financial Condition
or Plan of Operation
Results of Operations
The Company derives its revenue from the licensing of its software packages,
installation, training and customer modifications, maintenance agreements
and equipment sales and commissions. Results of operations for the period
ended September 30, 1995 include revenues of $414,573 and a net loss of
$125,604 as compared to revenues of $548,555 and a net loss of $96,448 for
the same period in 1994. Results for the nine month period ended
September 30, 1995 include revenues of $1,361,463 and a net loss of $43,687
as compared to revenues of $1,690,882 and a net loss of $536,630 in 1994.
The management of the Company continues to strive toward decreased expenses
and improved results of operations. This focus has resulted in continued
reduction in total costs for the period ending September 30, 1995. Likewise,
management is persistent in its efforts to increase the customers'
satisfaction and to direct its marketing efforts toward prospective clients
which management believes are better candidates for the Company's products.
With the added diversity of the InterFundTM product line (acquired by the
Company in 1994), the acceptance of USTI as a Microsoft Solution provider and
the June release of the Boss for Windows application, the Company believes it
presents to prospective clients a broader choice of hardware platforms on
which to operate the Company's software. Recently, management has been
encouraged by the initial response to the Company's direct marketing effort
of the new BOSS for Windows application. Along with the above goals, the
Company remains steadfast in its effort to grow the business through internal
and external growth, which it is optimistic will improve the Company's
financial results.
Three Month Period Ended September 30, 1995 and 1994
The Company's total revenue decreased 24% from $548,555 during the third
quarter in 1994 to $414,572 in 1995. Software license fees decreased 30% in
1995 as compared to 1994, due to a decrease in the volume of revenue per
software sale in 1995 as compared to 1994. Management continues to market
the InterFundTM and LegacyTM product lines toward those prospective
customers which it believes are better suited for its products. Installation,
training and support decreased 42% as a result of a lower backlog of software
installations based on previous licensing periods and the culmination of a
facilities management contract for a client during 1995. Maintenance revenue
decreased 10% in 1995 ,due in part, to decreased revenue from the Integrity
Elections product line which was sold by the Company in December 1994.
Total costs and expenses decreased 14% from $622,309 in 1994 to $538,050
in 1995. Salary and contract labor expense decreased 3% in 1995 as a result
of the reorganization and expense reduction plan initiated by the Company in
1994. Other general, administrative and selling expense costs decreased 27%
in 1995 as a result of the expense reduction plan that has reduced almost
every category of expense, with the most significant reductions in the areas
of travel, payroll taxes, health insurance, building rental and telephone
expense. Depreciation and amoritization expense decreased 20% in 1995 as a
result of the sale of the Integrity Election product line in December 1994
and the expiration of leasehold improvements for the prior lease period ended
August 31, 1995. Commission expense increased 31% in 1995 resulting from
increased utilization of agents to license the Company's software products
during the quarter.
Nine Month Period Ended September 30, 1995 and 1994
The Company's total revenue decreased 19% from $1,690,882 in 1994 to
$1,361,463 in 1995. Though software license fees decreased 14% in 1995 as
compared to 1994, the Company's marketing efforts to target prospective
clients that are better suited for its products continues. Installation.
training and customer support revenue decreased 30% in 1995 as compared to
1994 primarily as a result of a decrease in the volume of professional
services generated from the licensing activity of the Company's products in
prior periods. Maintenance revenue decreased 13% in 1995 mainly due to the
sale of the Integrity Elections product line which was sold by the Company in
December 1994. Equipment sales and commissions decreased 32% in 1995 due, in
part, to a lower volume of commissions earned from the sale of hardware
related to the licensing of the Company's software packages.
Total costs and expenses decreased 17% from $2,159,305 in 1994 to $1,789,635
during the period in 1995. Salary and contract labor expense decreased 14%
in 1995 when compared to 1994 as a result of personnel realignment and the
expense reduction plan initiated by the Company in 1994. Other general,
administrative and selling expense costs decreased 27% in 1995 as a result of
the expense reduction plan that has reduced almost every category of expense,
with the most significant reductions in the areas of travel, payroll taxes,
health insurance, building rental, and telephone expense. Depreciation and
amoritization expense decreased 13% in 1995 as a result of the sale of the
Integrity Election product line in December 1994 and the expiration of
leasehold improvements for the prior lease period ended August 31, 1995.
Commission expense decreased 6% in 1995 resulting from decreased licensing of
the Company's software products during the quarter. Cost of equipment sold
decreased 17% as a result of decreased sales during the period.
Liquidity and Capital Resources
The Company had net cash used by operating activities of $192,649 during
the nine month period ended September 30, 1995, as compared to net cash used
by operations of $138,228 for the same period in 1994. This increase in cash
used was primarily the result of the improved efficiency in client
satisfaction and collection as well as the retirement of old Company
obligations in 1995 as compared to 1994. Net cash of $25,193 was utilized
during 1995 for investing in capital expenditures. Net cash of $82,940 of
$82,940 was utilized for financing activities during the three month period
In January 1995, the Company canceled it's working capital line of credit.
Management believes that the effect of its continued focus on adjusting the
Company's expenses to the level of revenue which management anticipates
achieving and to the Company's current cash balances will be adequate to meet
its working capital requirements in the near future. However, if the Company
is not able to continue to generate positive cash flows in the future by
acheiving a level of sales adequate to support the Company's cost structure,
additional financing may be required, of which there is no assurance. If the
Company is not able to obtain additional financing in the future, it ma not
be able to continue as a going concern.
The Company has a $50,000 note payable to Ventana Growth Fund, a related
party. The maturity date of the note was extended from September 30, 1994 to
September 30, 1996. The original maturity date of this note was
October 17, 1987. As of September, 1995 there was $66,039 of interest
outstanding on the note.
The Company is currently in arrears in the payment of dividends to holders
of its preferred stock. As of September, 1995, dividends were in arrears on
Series B preferred stock in the amount of $244,975, on Series C preferred
stock in the amount of $98,510, on Series D preferred stock in the amount of
$196,860 and on Series E preferred stock in the amount of $90,445. The
Company is currently not in the position to make these dividend payments.
Part II - Other Information
Item 1. Legal Proceedings
The Company is involved in the following legal proceedings:
On December 10, 1993, Plaintiff County of Essex filed suit against USTI,
USTEI, New Jersey Municipal Data Management ("MDM") and MDM's surety in
Superior Court of New Jersey. The suit is based on allegations that MDM
failed to perform its obligations related to software and related services
sold by MDM to the County of Essex and that USTI and USTEI succeeded to the
obligations of MDM by the acquisition of MDM. USTI and USTEI have answered
each of such lawsuits, denying all material allegations therein, and intend
to vigorously defend such allegations.
On August 11, 1993, Plaintiff City of Sinton, Texas filed suit against USTI
alleging defects in software and services sold to the city in 1990. The suit
failed to specify a measure of damages which the City of Sinton seeks and
USTI has answered the lawsuit by denying all material allegations therein,
and intends to vigorously defend such allegations.
On April 28, 1994, Plaintiff Logical Arts, Inc. filed suit against USTI
alleging failure to pay for certain contract programming services provided.
The Plaintiff seeks the amount of $45,000 plus attorney fees and costs. USTI
has answered the suit and filed a counter claim for non-performance of
contracted obligations by Plaintiff, and intends to defend the allegations
therein.
On December 1, 1994, International Business Machines Corporation ("IBM")
filed suit against USTI and USTEI in United States District Court. The suit
is based on allegations that the Company failed to perform its obligations
related to various agreements between USTI and USTEI and IBM in which USTI
and USTEI were sub-contractors to IBM. USTI and USTEI answered the lawsuit,
denying all material allegations therein and intend to vigorously defend such
allegations. The parties have been involved for some time in settlement
discussions, and, on May 25,1995, the parties entered into a Settlement
Agreement. The terms of this agreement require USTI and USTEI to deliver
certain services, materials and computer products to customers within a 180
day period in exchange for IBM dismissing its suit. In the event that USTI
and USTEI does not perform its obligations under the agreement, there are
liquidated damages provided for in the agreement. USTI and USTEI has every
intention of performing its obligations and, as of the date of this filing,
has completed the delivery of these services and products.
The Company is a defendant in various legal actions which arose out of the
normal course of its business. In the opinion of management, none of these
actions are expected to result in a material loss to the Company.
Item 2. Change In Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
The Company is in arrears in the payment of dividends to holders of its
Series B, C, D and E Preferred Stock. Holders of Series B Preferred Stock
are entitled to annual dividends of $.07 per share, payable quarterly and, as
of September 30, 1995, are entitled to the payment of approximately $244,975
in dividends which are currently in arrears. Holders of Series C Preferred
Stock are entitled to annual dividends of $.018 per share, payable annually
and, as of September 30, 1995, are entitled to the payment of apporximately
$98,510 in dividends which are currently in arrears. Holders of Series D
Preferred Stock are entitled to annual dividends of $.07 per share, payable
quarterly and, as of September 30, 1995, are entitled to the payment of
approximately $196,860 in dividends which are currently in arrears. Holders
of Series E Preferred Stock are entitled to annual dividends of $.07 per
share, payable quarterly and, as of September 30, 1995, are entitled to the
payment of approximately $90,445 in dividends which are currently in arrears.
Item 4. Submission of Matters to a Vote of Security Holders
On July 11, 1995, the Company held its Annual Meeting of Shareholders. At
the meeting, the shareholders of the Company voted to approve the following
items:
1. The following persons were elected as Directors of the Company
John Pappajohn
Jordan Issackedes
Scott Burri
Thomas Gibbs
2. The accounting firm of Grant Thorton was selected as independent
accountants for the Company.
3. The Company's Articles of Incorporation were amended to increase the
number of authorized shares from 50,000,000 to 100,000,000.
4. The Company's Stock Option Plan was amended to increase the number of
Common Shares Authorized for issuance from 3,500,000 to 12,000,000.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - No exhibits are required to be filed with this report.
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
United Systems Technology, Inc.
Date: November 13, 1995 By: /s/ Thomas E. Gibbs
Thomas E. Gibbs, President
and Chairman of the Board
(Principal Executive Officer)
Date: November 13, 1995 By: /s/ Randall L. McGee
Randall L. McGee, Secretary
and Treasurer
(Principal Financial and
Accounting Officer)
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