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
March 31, 1996 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 March 31, 1996 there were 38,643,163 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
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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
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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, 1995.
United Systems Technology, Inc. and Subsidiary
Consolidated Balance Sheets
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March 31, 1996 December 31,
(Unaudited) 1995
Current Assets
Cash and cash equivalents $ 160,652 $ 139,234
Trade accounts receivable, less
allowance for doubtful accounts
of $75,000 at March 31, 1995 and
December 31, 1994 306,552 360,303
Prepaid expenses and other 42,616 8,314
Total current assets 509,819 507,850
Property and equipment, net 151,184 164,962
Goodwill, net 1,145,728 1,168,515
Software development costs, net 120,460 136,713
Purchased software, net 179,608 195,720
Deposits and other 14,258 28,541
1,611,237 1,694,451
Total assets $ 2,121,056 $ 2,202,301
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of capital
lease obligations $ 33,981 $ 51,283
Trade accounts payable 276,732 301,645
Accrued payroll 17,776 22,248
Accrued interest - related party 68,912 67,873
Other accrued expenses 127,760 107,469
Deferred revenue 815,286 839,767
Total current liabilities 1,340,447 1,390,284
Notes payable - related party 50,000 50,000
Capital lease obligations,
net of current portion 6,033 6,467
Total liabilities 1,396,480 1,446,752
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
March 31, 1996 and December 31, 1995 205,000 205,000
Common stock, par value $.10 per share;
authorized 50,000,000 shares; issued
and outstanding 38,643,163 at March 31,
1996 and December 31, 1995. 3,864,315 3,864,315
Additional paid-in capital 4,157,151 4,157,151
Accumulated deficit (7,501,889) (7,470,917)
Total stockholders' equity 724,577 755,549
Total liabilities and stockholders'
equity $2,121,056 $2,202,301
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The accompanying notes are an integral part of the financial statements.
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
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Three Months Ended
March 31,
1996 1995
Revenue
Software packages $ 78,679 $ 23,600
Installation, training and
customer support 73,450 177,758
Maintenance 326,837 248,806
Equipment and supplies sales 47,192 10,018
Other - 2,561
526,158 462,743
Costs and expenses
Salaries 310,457 298,180
Other general, administrative and
selling expense 148,580 171,649
Depreciation and amortization 77,218 127,904
Commissions 3,264 905
Cost of equipment and supplies sold 16,339 6,450
555,858 605,088
Loss from operations (29,699) (142,345)
Nonoperating income (expense)
Interest expense (2,542) (5,836)
Interest income 1,269 4,106
(1,273) (1,729)
Net loss $ (30,972) $ (144,074)
Preferred stock dividend requirements
(25,865) (25,770)
Loss available for common stockholders $ (56,837) $ (169,844)
Earning (loss) per common share $ NIL $ NIL
Weighted average number of common
shares outstanding 38,634,163 33,634,163
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The accompanying notes are an integral part of the financial statements.
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Three Month Period Ended March 31, 1996 and 1995
(Unaudited)
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1996 1995
Cash flows in operating activities:
Net Loss $ (30,972) $ (144,074)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 77,218 127,904
Change in operating assets and liabilities:
Accounts receivable 53,751 242,096
Prepaid expenses (34,302) (2,208)
Deposits and other 14,283 12,084
Accounts payable (23,874) (53,571)
Accrued expenses 15,819 (112,784)
Deferred revenue (24,481) (164,711)
$ 78,414 $ 48,810
Net cash provided (used) in operating
activities 47,442 (95,264)
Cash flows from investing activities:
Property and equipment additions $ (8,077) $ (2,470)
Additions to purchased software (210) -
Net cash used in investing activities $ (8,287) $ (2,470)
Cash flows from financing activities:
Proceeds from issuance of common stock - -
Payments on capital lease obligations (17,736) (26,814)
Net cash used in financing activities $ (17,736) $ (26,814)
Increase (Decrease) in cash and
cash equivalents $ 21,418 $ (124,548)
Cash and cash equivalents, beginning
of year 139,234 419,705
Cash and cash equivalents, end of period$ 160,652 $ 295,157
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,464 $ 5,136
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The accompanying notes are an integral part of the financial statements.
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 March 31, 1996 and December 31,
1995 and the results of operations and cash flows of USTI for the three months
ended March 31, 1996 and 1995. The consolidated results of operations for the
three months ended March 31, 1996 are not necessarily indicative of the
results to be expected for the full year.
Note 2. Property and Equipment:
Property and equipment at March 31, 1996 and December 31, 1995 consisted
of the following:
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March 31, December 31,
1996 1995
Leasehold improvements $ 58,702 $ 58,702
Furniture and fixtures 35,518 37,518
Equipment 856,034 847,956
952,253 944,176
Less Accumulated depreciation
and amortization (801,070) (779,214)
$ 151,184 $ 164,962
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Note 3. Other Assets:
Other assets at March 31, 1996 and December 31, 1995 consisted of the
following:
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Accumulated
March 31, 1996 Cost Amortization Net
Goodwill $ 1,692,128 $ 546,400 $ 1,145,728
Software development costs 2,337,299 2,216,839 120,460
Purchased Software 621,063 441,455 179,608
December 31, 1995
Goodwill $ 1,692,128 $ 523,613 $ 1,168,515
Software development costs 2,337,299 2,200,586 136,713
Purchased Software 620,852 425,132 195,720
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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
March 31, 1996, are entitled to the payment of approximately $262,525 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 March 31, 1996, are entitled to the payment of approximately $105,245 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 March 31, 1996, are entitled to the payment of approximately $214,315 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 March 31, 1996, are entitled to the payment of approximately $100,915 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 March 31, 1996 include revenues of $526,158 and a net loss of
$30,972 as compared to revenues of $462,743 and a net loss of $144,074 for the
same period in 1995.
The Company continues to adjust its expenses based on anticipated levels
of revenue resulting in decreased expenses and improved results of operations.
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 QuestTM product line (acquired by the Company
in November 1995), release of the Boss for Windows application, and the
release of its AsystTM product line in the second quarter of 1996, the
Company believes it presents to prospective clients a broader choice of
hardware platforms on which to operate the Company's software. The response
to the Company's direct marketing efforts for the BOSS for Windows
application is encouraging to the Company as it begins its marketing campaign
in the second quarter for the new AsystTM product line for Windows. Like
BOSS for Windows, the AsystTM product line will operate in a single user or
network Windows environment and is seamlessly interfaced with other
Microsoft Office products. The Company believes that its AsystTM product
line will offer its current and prospective customers an attractive option,
both from a financial and functionality standpoint. Based on the diversity
of USTI's products and its ability to offer affordable viable solutions to
its clients, management is optimistic that it can continue to grow the
business.
Three Month Period Ended March 31, 1996 and 1995
The Company's total revenue increased 14% from $462,743 during the first
quarter in 1995 to $526,158 in 1996. Software license fees increased over
200% in 1996 as compared to 1995, due, in part, to the licensing of products
purchased from Quest Data Systems in November 1995 and licensing of its BOSS
for Windows product. Management continues to market the InterFundTM, QuestTM,
AsystTM and LegacyTM product lines toward prospective customers which it
believes are best suited for its products. Installation and training
decreased 59% from 1995 due to the decrease in licensing activity in
previous periods. Maintenance revenue increased 31% in 1996 , which is
attributable to the Quest Data clients. Equipment sales increased over 300%
in the first quarter of 1996 due, in part, to the sales of computer
equipment and compatible preprinted forms for its products.
Total costs and expenses decreased 8% from $605,088 in 1995 to $555,858
in 1996. Other general, administrative and selling expense costs decreased 7%
in 1996 as a result of continued efforts to control or reduce expenses, with
the most significant reductions in the areas of travel, legal expense, health
insurance, director's fees and telephone expense. Depreciation and
amortization expense decreased 40% in 1996 from 1995 due in part to the
complete depreciation of the leasehold improvements for the corporate office
move in 1993 and a reduction in software amortization expense. Commission
expense increased 261% in 1996 resulting from the increased licensing of the
Company's software products during the quarter. Cost of equipment sold
increased 153% as a result of increased sales during the period and the
addition of forms sales for its applicable products.
Liquidity and Capital Resources
The Company had net cash provided in operating activities of $47,442
during the three months ended March 31, 1996, as compared to net cash used by
operations of $95,264 for the same period in 1995. This decrease in cash used
was primarily the result of the improvement in the results of operations in
1996 as compared to 1995. Net cash of $8,287 was utilized during 1996 for
investing in capital expenditures versus $2,470 for in 1995. Net cash of
$17,736 was utilized in 1996 as compared to $26,8154 in 1995 for financing
activities during the three month period.
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 the Company's current cash balance 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
achieving a level of sales adequate to support the Company's cost structure,
additional financing may be required, of which there can be no assurance.
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 March 31, 1996 there was $68,912 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 March 31, 1996, dividends were in
arrears on Series B preferred stock in the amount of $262,525, on Series C
preferred stock in the amount of $105,245, on Series D preferred stock in the
amount of $214,315 and on Series E preferred stock in the amount of $100,915.
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.
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
March 31, 1996, are entitled to the payment of approximately $262,525 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 March 31, 1996, are entitled to the payment of approximately $105,245 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 March 31, 1996, are entitled to the payment of approximately $214,315 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 March 31, 1996, are entitled to the payment of approximately $100,915 in
dividends which are currently in arrears.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
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: May 14, 1996 By: /s/ Thomas E. Gibbs
Thomas E. Gibbs, President
and Chairman of the Board
(Principal Executive Officer)
Date: May 14, 1996 By: /s/ Randall L. McGee
Randall L. McGee, Secretary
and Treasurer
(Principal Financial and
Accounting Officer)
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<NAME> UNITED SYSTEMS TECHNOLOGY INC
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<PERIOD-TYPE> 3-MOS 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995 DEC-31-1995
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