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, 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 September 30, 1996 there were 37,969,763 shares of the
registrant's Common Stock, par value $0.10 per share, outstanding.
<PAGE>
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 11
- ---------------------------
---------------------------------------------------------
The consolidated financial information reflects all adjustments which
are, in the opinion of management, necessary to reflect a fair presentation of
financial position and of the results 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.
<PAGE>
<TABLE>
United Systems Technology, Inc. and Subsidiary
Consolidated Balance Sheets
September 30,
1996 December 31,
(Unaudited) 1995
================== ===================
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 44,033 $ 139,234
Trade accounts receivable, less
allowance for doubtful accounts of $75,000 320,310 368,803
Prepaid expenses and other 17,875 8,314
---------- ----------
Total current assets 382,218 516,351
---------- ----------
Property and equipment, net 129,889 164,962
Goodwill, net 1,100,155 1,168,515
Software development costs, net 89,190 136,713
Purchased software, net 149,098 195,720
Deposits and other 30,582 28,541
---------- ----------
1,498,914 1,694,451
---------- ----------
Total assets $1,881,133 $2,210,802
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of capital lease obligations $ 13,324 $ 51,283
Notes payable - related party 50,000 50,000
Trade accounts payable 254,766 301,645
Accrued payroll 27,707 22,248
Accrued interest - related party 70,980 67,873
Other accrued expenses 137,603 115,970
Deferred revenue 653,554 839,767
---------- ----------
Total current liabilities 1,207,933 1,448,786
Capital lease obligations,
net of current portion 13,424 6,467
---------- ----------
Total liabilities 1,221,358 1,455,253
---------- ----------
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 September 30,
1996 and December 31, 1995 205,000 205,000
Common stock, par value $.10 per share;
authorized 100,000,000 shares; issued
and outstanding 37,969,763 at September 30,
1996 and 38,643,163 December 31, 1995. 3,796,975 3,864,315
Additional paid-in capital 4,214,390 4,157,151
Accumulated deficit (7,556,590) (7,470,917)
---------- ----------
Total stockholders' equity 659,775 755,549
---------- ----------
Total liabilities and stockholders' equity $1,881,133 $2,210,802
========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
========== ========== ========== ==========
Revenue
<S> <C> <C> <C> <C>
Software packages $ 88,436 $ 65,236 $ 254,600 $ 182,636
Installation, training and
customer support 55,299 103,712 190,939 387,057
Maintenance 288,033 245,569 924,961 736,518
Equipment and supplies sales 44,536 (877) 186,856 51,092
Other 8,278 932 11,247 4,159
---------- ---------- ---------- ----------
484,582 414,573 1,568,603 1,361,463
---------- ---------- ---------- ----------
Costs and expenses
Salaries 275,921 285,787 884,832 893,533
Other general, administrative
and selling expense 114,599 113,520 416,669 451,744
Depreciation and amortization 71,787 123,696 223,301 379,339
Commissions 13,917 10,279 26,129 25,472
Cost of equipment and
supplies sold 25,690 4,769 99,403 39,548
---------- ---------- ---------- ----------
501,913 538,050 1,650,333 1,789,635
---------- ---------- ---------- ----------
Loss from operations (17,331) (123,477) (81,732) (428,173)
---------- ---------- ---------- ----------
Nonoperating income (expense)
Interest expense (2,296) (4,170) (6,919) (15,040)
Interest income 410 2,043 2,978 9,526
---------- ---------- ---------- ----------
(1,886) (2,127) (3,941) (5,514)
---------- ---------- ---------- ----------
Net loss $ (19,217) $ (125,604) $ (85,673) $ (433,687)
========== ========== ========== ==========
Preferred stock dividend
requirements (26,345) (26,334) (78,449) (78,159)
---------- ---------- ---------- ----------
Loss available for common
stockholders $ (45,562) $ (151,938) $ (164,122) $ (511,846)
========== ========== ========== ==========
Loss per common share $ NIL $ NIL $ NIL $ (0.01)
========== ========== ========== ==========
Weighted average number of
common shares outstanding 37,969,763 33,634,163 37,969,763 33,634,163
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Nine Month Period Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
1996 1995
========== ==========
Cash flows in operating activities:
<S> <C> <C>
Net Loss $ (85,673) $ (433,687)
---------- ----------
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 223,301 379,339
Change in operating assets and liabilities:
Accounts receivable 29,892 376,991
Prepaid expenses (9,561) 754
Deposits and other (2,041) 2,917
Accounts payable (43,772) (62,930)
Accrued expenses 35,593 (231,965)
Deferred revenue (186,213) (224,069)
---------- ----------
$ 47,199 $ 241,038
---------- ----------
Net cash used in operating activities (38,475) (192,649)
---------- ----------
Cash flows from investing activities:
Property and equipment additions $ (23,659) $ (18,543)
Additions to purchased software (2,065) (6,650)
---------- ----------
Net cash used in investing activities $ (25,724) $ (25,193)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock - -
Payments on capital lease obligations (31,002) (82,940)
---------- ----------
Net cash used in financing activities $ (31,002) $ (82,940)
---------- ----------
Decrease in cash and cash equivalents $ (95,200) $ (300,782)
Cash and cash equivalents, beginning of year 139,234 419,705
---------- ----------
Cash and cash equivalents, end of period $ 44,033 $ 118,923
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,576 $ 1,171
========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
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, 1996 and December
31, 1995 and the results of operations and cash flows of USTI for the nine
months ended September 30, 1996 and 1995. The consolidated results of operations
for the nine months ended September 30, 1996 are not necessarily indicative of
the results to be expected for the full year.
Note 2. Property and Equipment:
Property and equipment at September 30, 1996 and December 31, 1995
consisted of the following:
<TABLE>
September 30, December 31,
1996 1995
---------- ----------
<S> <C> <C>
Leasehold improvements $ 58,702 $ 58,702
Furniture and fixtures 37,518 37,518
Equipment 871,615 847,956
---------- ----------
967,835 944,176
Less Accumulated depreciation
and amortization (837,946) (779,214)
---------- ----------
$ 129,889 $ 164,962
---------- ----------
</TABLE>
Note 3. Other Assets:
Other assets at September 30, 1996 and December 31, 1995 consisted of
the following:
<TABLE>
Accumulated
September 30, 1996 Cost Amortization Net
- -------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Goodwill $1,692,128 $ 591,973 $1,100,155
Software development
costs 2,337,299 2,248,109 89,190
Purchased Software 622,917 473,819 149,098
December 31, 1995
Goodwill $1,692,128 $ 523,614 $1,168,515
Software development costs 2,337,299 2,200,586 136,713
Purchased Software 620,853 425,133 195,720
</TABLE>
<PAGE>
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, 1996, are entitled to the payment of approximately $280,075 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, 1996, are entitled to the payment of approximately $112,050 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, 1996, are entitled to the payment of approximately $231,960 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, 1996, are entitled to the payment of approximately $111,500 in
dividends which are currently in arrears.
<PAGE>
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, 1996 include revenues of $484,582 and a net loss of
$19,039 as compared to revenues of $414,573 and a net loss of $125,604 for the
same period in 1995. Results for the nine month period ended September 30, 1996
include revenues of $1,568,603 and a net loss of $85,495 as compared to revenues
of $1,361,463 and a net loss of $433,687 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, the Boss for
Windows application, and the release of its new asystTM product line, the
Company believes it presents to prospective clients a broader choice of hardware
platforms on which to operate the Company's software. Recently, the response to
the Company's direct marketing efforts for the asystTM product line have been
encouraging to the Company. Like BOSS for Windows, the asystTM product line
operates 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 offers its current and prospective customers an attractive
option, both from a financial and functionality standpoint.
Three Month Period Ended September 30, 1996 and 1995
The Company's total revenue increased 17% from $414,573 during the
third quarter in 1995 to $484,582 in 1996. Software license fees increased 36%
from $65,236 during the third quarter in 1995 to $88,436 in 1996, due, in part,
to the Company's increased marketing efforts. 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 47% from 1995 due to the decrease in licensing minicomputer
products in previous periods. Maintenance revenue increased 17% in 1996 , which
is attributable to the addition of the Quest Data clients. Equipment sales
increased significantly over the third quarter of 1996 due, in part, to the
sales of computer equipment and compatible preprinted forms for its products.
Total costs and expenses decreased 7% from $538,050 in 1995 to $501,735
in 1996. Other general, administrative and selling expense costs increased only
marginally by 2% in 1996 as a result of continued efforts to control or reduce
expenses. Depreciation and amortization expense decreased 42% 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 35% in 1996 resulting from the increased licensing
of the Company's software products by Company sales representatives over the
same quarter in 1995. Cost of equipment sold increased 439% as a result of
increased hardware sales during the period as well as the addition of preprinted
forms sales for its applicable products.
Nine Month Period Ended September 30, 1996 and 1995
The Company's total revenue increased 15% from $1,361,463 in 1995 to
$1,568,603 in 1996. Software license fees increased 36% in 1996 as compared to
1995, due, in part, to the licensing of QuestTM products, the Company's BOSS for
Windows product and its new asystTM product line. 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.
training and customer support revenue decreased 51% in 1996 as compared to
1995 primarily as a result of a decrease in the volume of professional
services generated from the licensing activity of the Company's minicomputer
products in prior periods. Maintenance revenue increased 26% in 1996 mainly
due to the addition of the Quest Data clients. Equipment sales increased over
266% in 1996 due, in part, to the sales of computer equipment and compatible
preprinted forms for its products.
Total costs and expenses decreased 8% from $1,789,635 in 1995 to
$1,650,155 during the period in 1996. Salary and contract labor expense remained
relatively constant in 1996 when compared to 1995. Other general, administrative
and selling expense costs decreased 8% in 1996 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, legal expense, health insurance,
conference fees and equipment repair/maintenance expense. Depreciation and
amortization expense decreased 41% in 1996 as a result of the complete
depreciation of the leasehold improvements for the corporate office move in 1993
and a reduction in software amortization expense. Commission expense increased
3% in 1996 resulting from the increased licensing of the Company's software
products by Company sales representatives. Cost of equipment sold increased 151%
as a result of increased hardware sales during the period as well as the
addition of preprinted forms sales for its applicable products.
Liquidity and Capital Resources
The Company had net cash used by operating activities of $38,475 during
the nine months ended September 30, 1996, as compared to net cash used by
operations of $192,649 for the same period in 1995. This decrease in cash used
was primarily the result of the improvement in the results of operations and the
improved collection efforts in 1996 as compared to 1995. Net cash of $25,724 was
utilized during 1996 for investing in capital expenditures versus $25,193 in
1995. Net cash of $31,002 was utilized in 1996 as compared to $82,940 in 1995
for financing activities during the nine 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 Company is currently negotiating an extension to
this maturity date. The original maturity date of this note was October 17,
1987. As of September 30, 1996 there was $70,980 of interest outstanding on the
note. It may be necessary for the Company to seek further extensions of the
maturity of this obligation in the future.
The Company is currently in arrears in the payment of dividends to
holders of its preferred stock. As of September 30, 1996, dividends were in
arrears on Series B preferred stock in the amount of $280,075, on Series C
preferred stock in the amount of $112,050, on Series D preferred stock in the
amount of $231,960 and on Series E preferred stock in the amount of $111,500.
<PAGE>
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 August 12, 1996, Plaintiff City of Siloam Springs, Arkansas filed
suit against USTI alleging defects in software and services sold to the city in
1994. The suit alleges three different theories of recovery, as to each of
which, plaintiff claims in excess of $10,000. USTI intends to answer the lawsuit
by denying all material allegations therein, and intends to vigorously defend
such allegations.
Item 2. Change In Securities
Not Applicable
<PAGE>
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, 1996, are entitled to the payment of approximately $280,075 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, 1996, are entitled to the payment of approximately $112,050 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, 1996, are entitled to the payment of approximately $231,960 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, 1996, are entitled to the payment of approximately $111,500 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.
<PAGE>
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 14, 1996 By: /s/ Thomas E. Gibbs
--------------------
Thomas E. Gibbs, President
and Chairman of the Board
(Principal Executive Officer)
Date: November 14, 1996 By: /s/ Randall L. McGee
----------------------
Randall L. McGee, Secretary
and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 350194
<NAME> UNITED SYSTEM TECHNOLOGY, INC
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995 DEC-31-1995
<CASH> 44033 0 139234
<SECURITIES> 0 0 0
<RECEIVABLES> 320310 0 368803
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 382218 0 516351
<PP&E> 129889 0 164962
<DEPRECIATION> 71787 123696 0
<TOTAL-ASSETS> 1881133 0 2210802
<CURRENT-LIABILITIES> 1207933 0 1448786
<BONDS> 50000 0 50000
0 0 0
205000 0 205000
<COMMON> 3796975 0 3864315
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1881133 0 2210802
<SALES> 88436 65236 0
<TOTAL-REVENUES> 484582 414573 0
<CGS> 25690 4769 0
<TOTAL-COSTS> 501735 538050 0
<OTHER-EXPENSES> 1886 2127 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 2296 4170 0
<INCOME-PRETAX> 0 0 0
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (19039) (125604) 0
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
