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, 1997 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
(972) 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, 1997 there were 43,278,045 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 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, 1996.
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
March 31,
1997 December 31,
(Unaudited) 1996
============= =============
Current Assets
Cash and cash equivalents $ 100,323 $ 67,252
Trade accounts receivable, less allowance
for doubtful accounts of $40,000 at
March 31, 1997 and December 31, 1996 266,683 253,692
Prepaid expenses and other 574 279
---------- ----------
Total current assets 367,580 321,223
---------- ----------
Property and equipment, net 102,380 115,738
Goodwill, net 724,759 741,744
Purchased software, net 67,667 71,833
Deposits and other 20,869 27,942
---------- ----------
915,675 957,257
---------- ----------
Total assets $ 1,283,255 $1,278,480
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of capital lease obligations $ 8,515 $ 8,271
Trade accounts payable 207,318 230,039
Accrued payroll 15,949 20,432
Accrued interest - related party 73,003 72,020
Other accrued expenses 137,648 115,368
Deferred revenue 681,909 664,797
---------- ----------
Total current liabilities 1,124,342 1,110,927
Notes payable - related party 50,000 50,000
Capital lease obligations, net of current portion 4,508 6,730
---------- ----------
Total liabilities 1,178,850 1,167,657
---------- ----------
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 $1,300,000
at March 31, 1997 and 1,450,000 at December
31, 1996 130,000 205,000
Common stock, par value $.10 per share;
authorized 100,000,000 shares; issued and
outstanding 43,278,045 at March 31, 1997
and 38,634,163 at December 31, 1996. 4,327,857 3,796,975
Additional paid-in capital 3,758,508 4,214,390
Accumulated deficit (8,111,960) (8,105,542)
---------- ----------
Total stockholders' equity 104,405 110,823
---------- ----------
Total liabilities and stockholders' equity $ 1,283,255 $ 1,278,480
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<S> <C> <C>
Three Months Ended
March 31,
1997 1996
========== ==========
Revenue
Software packages $ 78,503 $ 78,679
Installation, training and customer support 35,031 73,450
Maintenance 279,519 326,837
Equipment and supplies sales 64,122 47,192
Other 1,304 -
---------- ----------
458,479 526,158
---------- ----------
Costs and expenses
Salaries 253,180 310,457
Other general, administrative and selling expense 128,854 148,580
Depreciation and amortization 39,782 77,218
Commissions 9,109 3,264
Cost of equipment and supplies sold 33,072 16,339
---------- ----------
463,997 555,858
---------- ----------
Loss from operations (5,518) (29,700)
---------- ----------
Nonoperating income (expense)
Interest expense (1,393) (2,542)
Interest income 493 1,269
---------- ----------
(900) (1,273)
---------- ----------
Net loss $ (6,418) $ (30,973)
========== ==========
Preferred stock dividend requirements (22,440) (25,865)
---------- ----------
Loss available for common stockholders $ (28,858) $ (56,838)
========== ==========
Earning (loss) per common share $ NIL $ NIL
========== ==========
Weighted average number of common
shares outstanding 43,278,045 38,634,163
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Three Month Period Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<S> <C> <C>
1997 1996
========== ==========
Cash flows in operating activities:
Net Loss $ (6,418) $ (30,972)
---------- ----------
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 39,782 77,218
Change in operating assets and liabilities:
Accounts receivable (12,991) 53,751
Prepaid expenses (295) (34,302)
Deposits and other 7,073 14,283
Accounts payable (22,721) (23,874)
Accrued expenses 18,780 15,819
Deferred revenue 17,112 (24,481)
---------- ----------
$ 46,740 $ 78,414
---------- ----------
Net cash provided (used) in operating activities 40,322 47,442
---------- ----------
Cash flows from investing activities:
Property and equipment additions $ (4,186) $ (8,077)
Additions to purchased software (1,086) (210)
---------- ----------
Net cash used in investing activities $ (5,272) $ (8,287)
---------- ----------
Cash flows from financing activities:
Payments on capital lease obligations $ (1,979) $ (17,736)
---------- ----------
Increase in cash and cash equivalents $ 33,071 $ 21,419
Cash and cash equivalents, beginning of year 67,252 139,234
---------- ----------
Cash and cash equivalents, end of period $ 100,323 $ 160,653
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 580 $ 1,464
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<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 March 31, 1997 and December 31,
1996 and the results of operations and cash flows of USTI for the three months
ended March 31, 1997 and 1996. The consolidated results of operations for the
three months ended March 31, 1997 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, 1997 and December 31, 1996 consisted of
the following:
<TABLE>
<S> <C> <C>
March 31, December 31,
1997 1996
---------- ----------
Leasehold improvements $ 58,702 $ 58,702
Furniture and fixtures 38,330 38,330
Equipment 873,941 869,292
--------- ---------
970,973 966,324
Less Accumulated depreciation
and amortization (868,593) (850,586)
--------- ---------
$ 102,380 $ 115,738
--------- ---------
</TABLE>
Note 3. Other Assets:
Other assets at March 31, 1997 and December 31, 1996 consisted of the
following:
<TABLE>
<S> <C> <C> <C>
Accumulated
March 31, 1997 Cost Amortization Net
- -------------- ---- ------------ ---
Goodwill $ 1,692,128 $ (967,369) $ 724,759
Purchased Software 591,740 (524,073) 67,667
December 31, 1996
- -----------------
Goodwill $ 1,692,128 $ (950,384) $ 741,744
Purchased Software 590,654 (518,821) 71,833
</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, 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, 1997, are entitled to the payment of approximately $297,430 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, 1997, are entitled to the payment of approximately $249,315 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, 1997, are entitled to the payment of approximately $121,915 in
dividends which are currently in arrears.
Note 5. New Accounting Pronouncement:
The FASB has issued Statement of Financial Accounting Standards No, 128,
Earnings Per Share, which which is effective for financial statements issued
after December 15, 1997. Early adoption of the new standard is not permitted.
The new standard eleminates primary and fully diluted earnings per share and
requires presentation of basic and siluted earnings per share together with
disclosure of how the per share amounts are computed. The adoption of this new
standard is not expected to have a material impact on the disclosure of earnings
per share in the financial statements. The effect of adopting this new standard
has not been determined.
<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 March 31, 1997 include revenues of $458,479 and a net loss of
$6,418 as compared to revenues of $526,158 and a net loss of $30,973 for the
same period in 1996.
The Company continues to adjust its expenses based on anticipated levels of
revenue resulting in decreased expenses and improved results of operations. The
Company is continuing its development of additional modules for its asystTM
product line, which was initially introduced in 1996. The asystTM product line
will operate in a single user or network Windows environment and is seamlessly
interfaced with the other Microsoft Office products. The Company believes that
its asystTM product line offers its current and prospective customers with an
attractive software solution, both from a financial and functionality standpoint
and follows the trend of clients moving to PC networks.
Three Month Period Ended March 31, 1997 and 1996
The Company's total revenue decreased 13% from $526,158 during the first
quarter in 1996 to $458,479 in 1997. Software license fees remained constant
during the first quarter of 1997 as compared to 1996. The Company continues to
market its QuestTM, asystTM and LegacyTM product lines toward prospective
customers which it believes are best suited for its products. Installation and
training decreased 52% from 1996 due to the decrease in licensing of the
Company's minicomputer products which require a higher amount of these type of
services. Maintenance revenue decreased 14% in 1997 , due in part, to an
attrition in the number of customers of the Company's LegacyTM products to
select maintenance coverage. Equipment and supplies sales increased 36% in the
first quarter of 1997 due, in part, to increased sales of computer equipment and
compatible preprinted forms for its products.
Total costs and expenses decreased 17% from $555,858 in 1996 to $463,997 in
1997. Salary expense decreased 18% in 1997 as a result of the Company's
continued adjustments in staffing to align with its anticipated levels of
revenue. Other general, administrative and selling expense costs decreased 13%
in 1997 as a result of continued efforts to control or reduce expenses.
Depreciation and amortization expense decreased 48% in 1997 from 1996 due in
part, to a reduction in software and goodwill amortization expense. Commission
expense increased 179% in 1997 resulting from the increased number of sales
representaives employed by the Company and the use of an agent to license the
Company's software during the quarter. Cost of equipment sold increased 102% as
a result of increased sales of computer equipment during the period.
<PAGE>
Liquidity and Capital Resources
The Company had net cash provided in operating activities of $40,324 during
the three months ended March 31, 1997, as compared to net cash provided by
operations of $47,442 for the same period in 1996. Net cash of $5,735 was
utilized during 1997 for investing in capital expenditures versus $8,287 for
1996. Net cash of $1,979 was utilized in 1997 as compared to $17,736 in 1996 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, 1996 to
September 30, 1998. The original maturity date of this note was October 17,
1987. As of March 31, 1997 there was $73,003 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, 1997, dividends were in arrears on
Series B preferred stock in the amount of $297,430, on Series D preferred stock
in the amount of $249,315 and on Series E preferred stock in the amount of
$121,915.
<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, that USTI and USTEI succeeded to the obligations of MDM by the
acquisition of the assets of MDM, and that there was a failure to comply with
the New Jersey bulk sales act in USTEI's acquisition of the assets of MDM. USTI
and USTEI did not assume any obligations or liabilities of MDM with respect to
the County of Essex in the acquistion transaction. USTEI did agree to pay up to
$50,000 in defense costs of MDM with respect to such claim. USTI and USTEI
answered each of such lawsuits, denying all material allegations therein, and
intend to vigorously defend such allegations. On March 20, 1996, the County of
Essex's claim that USTI and USTEI succeeded to the obligations of MDM was
dismissed with prejudice. Subsequently, the Court found that the New Jersey bulk
sales act was not complied with but has made no finding on the amount of
damages, if any, with respect thereto. The Company has filed third party
complaints against counsel representing the parties to the transaction for their
failure to have caused the bulk sales act to be complied with. Additionally, on
April 10, 1997, the County of Essex obtained a judgement against MDM for
approximately $600,000 on its claim for failure of performance by MDM and
recovered $248,277 from the surety and the surety succeeded to the County of
Essex's claim against MDM, USTI and USTEI. The litigation is still in the
discovery phase. As stated above, USTI and USTEI have denied all material
allegations of the County of Essex and intend to vigorously defend such
litigation and pursue its third party claims.
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 was seeking;
USTI answered the lawsuit by denying all material allegations therein. In April
1997, a jury ruled in favor of USTI in this suit, finding that there was no
breach of warranty by USTI with respect to the software or services provided.
The jury further found that the City of Sinton had breached the software
contracts by asserting rights and duties which were not specified in the
contracts. USTI is currently seeking an award of at least some of its attorney's
fees as part of the motion for judgement on the verdict proceedings currently
underway.
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 damages in excess of $10,000. USTI has been granted an
extension of time to answer in the matter and 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
Item 3. Defaults Upon Senior Securities
The company is in arrears in the payment of dividends to holders of its
Series B, 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, 1997, are entitled to the payment of approximately $297,430 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, 1997, are entitled to the payment of approximately $249,315 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, 1997, are entitled to the payment of approximately $121,915 in
dividends which are currently in arrears.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
<PAGE>
Item 5. Other Information
During the first quarter 1997, Ventana Growth Fund elected its option to
convert its 750,000 shares of the Company's Series C preferred stock into shares
of the Company's common stock. There were dividends in arrears on the Series C
preferred stock in the amount of $115,415 which were also converted into common
stock. A total of 5,308,280 shares of the Company's common stock were issued as
a result of this conversion.
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: May 14, 1997 By: /s/ Thomas E. Gibbs
--------------------
Thomas E. Gibbs, President
and Chairman of the Board
(Principal Executive Officer)
Date: May 14, 1997 By: /s/ Randall L. McGee
----------------------
Randall L. McGee, Secretary
and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
<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-31-1997 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996 DEC-31-1996
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<BONDS> 50000 0 50000
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130000 0 205000
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</TABLE>
