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
June 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 June 30, 1996 there were 37,969,763 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 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.
<TABLE>
United Systems Technology, Inc. and Subsidiary
Consolidated Balance Sheets
June 30,
1996 December 31,
(Unaudited) 1995
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 108,731 $ 139,234
Trade accounts receivable, less allowance
for doubtful accounts
of $75,000 327,691 360,303
Prepaid expenses and other 25,677 8,314
Total current assets 462,099 507,850
Property and equipment, net 133,007 164,962
Goodwill, net 1,122,942 1,168,515
Software development costs, net 104,825 136,713
Purchased software, net 164,416 195,720
Deposits and other 25,641 28,541
1,550,830 1,694,451
Total assets $2,012,929 $2,202,301
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of capital
lease obligations $ 22,076 $ 51,283
Trade accounts payable 311,382 301,645
Accrued payroll 23,725 22,248
Accrued interest - related party 69,940 67,873
Other accrued expenses 127,783 107,469
Deferred revenue 723,489 839,767
Total current liabilities 1,278,395 1,390,284
Notes payable - related party 50,000 50,000
Capital lease obligations, net
of current portion 5,542 6,467
Total liabilities 1,333,937 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 June 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 June 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 (7,537,373) (7,470,917)
Total stockholders' equity 678,992 755,549
Total
liabilities and stockholders' equity $ 2,012,929 $ 2,202,301
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
1996 1995 1996 1995
Revenue
Software packages $ 87,485 $ 93,800 $ 166,164 $ 117,400
Installation, training
and customer support 62,190 105,587 135,640 283,345
Maintenance 310,091 242,143 636,928 490,949
Equipment and supplies
sales 95,128 41,951 142,320 51,969
Other 2,969 666 2,969 3,227
557,863 484,147 1,084,021 946,890
Costs and expenses
Salaries 298,454 309,566 608,912 607,746
Other general,
administrative and
selling expense 153,493 166,575 302,073 338,224
Depreciation and
amortization 74,296 127,739 151,514 255,643
Commissions 8,948 14,288 12,212 15,193
Cost of equipment and
supplies sold 57,373 28,329 73,712 34,779
592,565 646,497 1,148,422 1,251,585
Loss from operations (34,702) (162,350) (64,401) (304,695)
Nonoperating income
(expense)
Interest expense (2,082) (5,034) (4,624) (10,870)
Interest income 1,299 3,377 2,568 7,483
(782) (1,658) (2,055) (3,387)
Net loss $ (35,484) $(164,008) $ (66,456)$(308,082)
Preferred stock dividend
requirements (26,240) (26,055) (52,104) (51,825)
Loss available for common
stockholders $ (61,724) $(190,063) $(118,560)$(359,907)
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
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Three Month Period Ended June 30, 1996 and 1995
(Unaudited)
1996 1995
Cash flows in operating
activities:
<S> <C> <C>
Net Loss $ (66,456) $ (308,082)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 151,514 255,643
Change in operating
assets and liabilities:
Accounts receivable 22,511 387,547
Prepaid expenses (17,364) 2,219
Deposits and other 2,900 1,819
Accounts payable 11,804 (32,457)
Accrued expenses 21,791 (195,636)
Deferred revenue (116,278) (235,296)
$ 76,879 $ 183,838
Net cash provided (used) in operating
activities 10,422 (124,244)
Cash flows from investing activities:
Property and equipment additions $ (9,598) $ (18,543)
Additions to purchased software (1,195) (6,650)
Net cash used in investing activities $ (10,793) $ (25,193)
Cash flows from financing
activities:
Proceeds from issuance of common stock - -
Payments on capital lease obligations (30,132) (53,646)
Net cash used in financing activities $ (30,132) $ (53,646)
Decrease in cash and cash
equivalents $ (30,503) $ (203,083)
Cash and cash equivalents,
beginning of year 139,234 419,705
Cash and cash equivalents, end
of period $ 108,731 $ 216,622
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 1,171 $ 3,222
</TABLE>
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
June 30, 1996 and December 31, 1995 and the results of operations and
cash flows of USTI for the six months ended June 30, 1996 and 1995. The
consolidated results of operations for the six months ended June 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 June 30, 1996 and December 31, 1995
consisted of the following:
<TABLE>
June 30, December 31,
1996 1995
<S> <C> <C>
Leasehold improvements $ 58,702 $ 58,702
Furniture and fixtures 37,518 37,518
Equipment 857,554 847,956
953,774 944,176
Less Accumulated depreciation
and amortization (820,767) (779,214)
$ 133,007 $ 164,962
</TABLE>
Note 3. Other Assets:
Other assets at June 30, 1996 and December 31, 1995 consisted of
the following:
<TABLE>
Accumulated
June 30, 1996 Cost Amortization Net
<S> <C> <C> <C>
Goodwill $ 1,692,128 $ 569,186 $ 1,122,942
Software development costs 2,337,299 2,232,474 104,825
Purchased Software 622,048 457,632 164,416
December 31, 1995
Goodwill $ 1,692,128 $ 523,614 $ 1,168,514
Software development costs 2,337,299 2,200,586 136,713
Purchased Software 620,853 425,133 195,720
</TABLE>
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 June 30, 1996, are entitled to the payment of
approximately $271,250 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 June 30, 1996, are entitled
to the payment of approximately $108,610 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 June
30, 1996, are entitled to the payment of approximately $223,040 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 June 30, 1996, are entitled to the payment of
approximately $106,150 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 June 30, 1996 include revenues of $557,863 and a
net loss of $35,484 as compared to revenues of $484,147 and a net loss
of $164,008 for the same period in 1995. Results for the six month
period ended June 30, 1996 include revenues of $1,084,021 and a net loss
of $66,456 as compared to revenues of $946,890 and a net loss of
$308,082 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 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 June 30, 1996 and 1995
The Company's total revenue increased 15% from $484,147 during the
second quarter in 1995 to $557,863 in 1996. Software license fees
decreased 7% for the period in 1996 as compared to 1995, due, in part,
to a decrease in the revenue per unit sold of PC based products versus
larger minicomputer products. 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 41% from 1995 due to the
decrease in licensing minicomputer products in previous periods.
Maintenance revenue increased 28% in 1996 , which is attributable to the
Quest Data clients. Equipment sales increased over 125% in the second
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 $646,497 in 1995 to
$592,565 in 1996. Other general, administrative and selling expense
costs decreased 9% 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, conference fees and equipment
repair/maintenance expense. 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
decreased 37% in 1996 resulting from the increased licensing of the
Company's software products by Company sales representatives versus
sales agents over the same quarter in 1995. Cost of equipment sold
increased 103% as a result of increased hardware sales during the
period as well as the addition of preprinted forms sales for its
applicable products.
Six Month Period Ended June 30, 1996 and 1995
The Company's total revenue increased 15% from $946,890 in 1995 to
$1,084,021 in 1996. Software license fees increased 42% in 1996 as
compared to 1995, due, in part, to the licensing of QuestTM products
(purchased from Quest Data Systems in November 1995), 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 52% 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 30% in 1996 mainly due to the
addition of the Quest Data clients. Equipment sales increased over 170%
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 $1,251,585 in 1995 to
$1,148,422 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 11% 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 40% 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
decreased 20% in 1996 resulting from the increased licensing of the
Company's software products by Company sales representatives versus
sales agents over the same period in 1995. Cost of equipment sold
increased 112% 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 provided from operating activities of
$10,422 during the six months ended June 30, 1996, as compared to net
cash used by operations of $124,244 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 $10,793
was utilized during 1996 for investing in capital expenditures versus
$25,193 in 1995. Net cash of $30,132 was utilized in 1996 as compared
to $53,646 in 1995 for financing activities during the six 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 June 30, 1996 there was $69,940
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 June 30, 1996, dividends were in
arrears on Series B preferred stock in the amount of $271,250, on Series
C preferred stock in the amount of $108,610, on Series D preferred stock
in the amount of $223,040 and on Series E preferred stock in the amount
of $106,150.
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 June 30, 1996, are entitled to the payment of
approximately $271,250 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 June 30, 1996, are entitled
to the payment of approximately $108,610 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 June
30, 1996, are entitled to the payment of approximately $223,040 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 June 30, 1996, are entitled to the payment of
approximately $106,150 in dividends which are currently in arrears.
Item 4. Submission of Matters to a Vote of Security Holders
On June 26, 1996, the Company held its Annual Meeting of
Shareholders. At the meeting, the shareholders of the Company voted to
approve the following items:
The following persons were elected as Directors of the Company:
Thomas E. Gibbs
Jordan Issackedes
David G. Sengpiel
Scott A. Burri
Earl H. Cohen
The accounting firm of Grant Thornton LLP was selected as
independent accountants for the Company.
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)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000350194
<NAME> UNITED SYSTEMS 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> JUN-30-1996 JUN-30-1995 DEC-31-1995
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</TABLE>
