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, 1998 0 - 9574
--------------------------
UNITED SYSTEMS TECHNOLOGY, INC.
Iowa 42-1102759
(State of Incorporation) (I.R.S. Employer
Identification Number)
1850 Crown Road, Suite 1109
Dallas, Texas 75234
(972) 402-8600
(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, 1998 there were 43,178,043 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 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, 1997.
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
March 31,
1998 December 31,
(Unaudited) 1997
----------- -----------
Current Assets
Cash and cash equivalents $ 237,748 $ 204,807
Trade accounts receivable,
less allowance for doubtful accounts of
$30,000 at March 31, 1997 and $40,000 at
December 31, 1997 113,774 216,693
Prepaid expenses and other 9,634 6,165
---------- ----------
Total current assets 361,156 427,665
---------- ----------
Property and equipment, net 76,754 85,940
Goodwill, net 464,607 481,605
Purchased software, net 48,596 53,056
Deposits and other 5,293 4,999
---------- ----------
595,250 625,600
---------- ----------
Total assets $ 956,406 $1,053,265
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable - related party $ 50,000 $ 50,000
Current portion of capital lease obligations 2,854 4,484
Trade accounts payable 185,457 177,316
Accrued payroll 16,935 24,485
Accrued interest - related party 77,116 76,111
Other accrued expenses 84,762 98,868
Deferred revenue 711,044 779,485
---------- ----------
Total current liabilities 1,128,168 1,210,749
Capital lease obligations,
net of current portion 1,652 2,247
---------- ----------
Total liabilities 1,129,820 1,212,996
---------- ----------
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, 500,000 shares
of Series D,and 300,000 shares of Series E,
aggregate liquidating preference of
$1,300,000 ($1.00 per share) 130,000 130,000
Common stock, par value $.10 per share;
authorized 100,000,000 shares; issued
and outstanding 43,278,043 at March 31,
1998 and December 31, 1997. 4,317,803 4,317,803
Additional paid-in capital 3,768,562 3,768,562
Accumulated deficit (8,389,779) (8,376,096)
---------- ----------
Total stockholders' equity (173,414) (159,731)
---------- ----------
Total liabilities and stockholders' equity $ 956,406 $1,053,265
========== ==========
</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,
1998 1997
---- ----
Revenue
Software packages $ 47,584 $ 78,503
Installation, training and customer support 19,342 35,031
Maintenance 256,235 279,519
Equipment and supplies sales 42,575 64,122
Other 1,843 1,304
---------- ----------
367,579 458,479
---------- ----------
Costs and expenses
Salaries 207,597 253,180
Other general, administrative and
selling expense 115,355 128,854
Depreciation and amortization 36,771 39,782
Commissions 4,001 9,109
Cost of equipment and supplies sold 18,810 33,072
---------- ----------
382,534 463,997
---------- ----------
Loss from operations (14,955) (5,518)
---------- ----------
Nonoperating income (expense)
Interest expense (1,170) (1,393)
Interest income 1,778 493
---------- ----------
608 (900)
---------- ----------
Net loss $ (14,347) $ (6,418)
---------- ----------
Preferred stock dividend requirements (22,440) (22,440)
---------- ----------
Loss available for common stockholders $ (36,787) $ (28,858)
---------- ----------
Earning (loss) per common share $ NIL $ NIL
---------- ----------
Weighted average number of common
shares outstanding 43,178,043 43,178,043
---------- ----------
</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, 1998 and 1997
(Unaudited)
<TABLE>
<S> <C> <C>
1998 1997
---- ----
Cash flows in operating activities:
Net Loss $ (14,347) $ (6,418)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 36,771 39,782
Change in operating assets and liabilities:
Accounts receivable 102,919 (12,991)
Prepaid expenses (3,469) (295)
Deposits and other (294) 7,073
Accounts payable 8,141 (22,721)
Accrued expenses (20,651) 18,780
Deferred revenue (68,441) 17,112
---------- ----------
54,976 46,740
---------- ----------
Net cash provided (used) in
operating activities $ 40,629 $ 40,322
---------- ----------
Cash flows from investing activities:
Property and equipment additions $ (5,437) $ (4,186)
Additions to purchased software (690) (1,086)
---------- ----------
Net cash used in investing activities $ (6,127) $ (5,272)
---------- ----------
Cash flows from financing activities:
Payments on capital lease obligations $ (1,561) $ (1,979)
---------- ----------
Increase in cash and cash equivalents $ 32,941 $ 33,071
Cash and cash equivalents, beginning of year 204,807 67,252
---------- ----------
Cash and cash equivalents, end of period $ 237,748 $ 100,323
========== ==========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 115 $ 580
========== ==========
</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, 1998 and December 31,
1997 and the results of operations and cash flows of USTI for the three months
ended March 31, 1998 and 1997. The consolidated results of operations for the
three months ended March 31, 1998 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, 1998 and December 31, 1997 consisted of
the following:
<TABLE>
<S> <C> <C>
March 31, December 31,
1998 1997
---- ----
Leasehold improvements $ 64,772 $ 63,772
Furniture and fixtures 39,248 39,248
Equipment 908,760 904,323
---------- ----------
1,011,780 1,007,343
Less Accumulated depreciation
and amortization (936,026) (921,403)
---------- ----------
$ 76,754 $ 85,940
---------- ----------
</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, 1998 Cost Amortization Net
- -------------- ---- ------------ ---
Goodwill $ 1,692,128 $(1,227,521) $ 464,607
Purchased Software 593,390 (544,794) 48,596
December 31, 1997
- -----------------
Goodwill $ 1,692,128 $(1,210,523) $ 481,605
Purchased Software 592,700 (539,644) 53,056
</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, 1998, are entitled to the payment of approximately $332,430 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, 1998, are entitled to the payment of approximately $284,315 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, 1998, are entitled to the payment of approximately $142,915 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 March 31, 1998 include revenues of $367,579 and a net loss of
$14,347 as compared to revenues of $458,479 and a net loss of $6,418 for the
same period in 1997.
The Company's expenses continued to be adjusted downward during the first
quarter of 1998. The Company is continuing its development of its asystTM
product line, a Windows product line that operates in a single user or network
environment and is seamlessly interfaced with the other Microsoft Office
products. The asystTM product line has been installed at over 150 locations and
includes General Ledger, Accounts Payable, Accounts Receivable, Cash Receipts,
Purchase Orders, Budgeting, Reporting, and Utility Billing modules. The Company
is currently developing its asystTM Public Safety products and anticipates that
the initial modules will be released later this year. The Company believes that
its asystTM product line will continue to offer 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.
This trend resulted in a continued decrease in the licensing of the Company's
DOS (QuestTM ) and mid-range (LegacyTM ) products in the first quarter of 1998.
The Company is offering a Year 2000 version of certain QuestTM and LegacyTM
modules and expects to begin shipping these products in the 4th quarter of 1998.
Three Month Period Ended March 31, 1998 and 1997
The Company's total revenue decreased 20% from $458,479 during the first
quarter in 1997 to $367,579 in 1998. Software license fees decreased 39% in 1998
due, in part, to a decrease in the licensing of the Company's QuestTM and
LegacyTM product lines, while the volume of the licensing of the Company's newer
asystTM products did not increase to a level sufficient to offset the decrease.
The Company continues to market its products to prospective customers, which it
believes are best suited for its products. Installation and training decreased
45% in 1998 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 8% during 1998 , due in part, to a decrease in the number of
the Company's QuestTM and LegacyTM customers that elected to select maintenance
coverage. Equipment and supplies sales decreased 34% in the first quarter of
1998 due, in part, to a decrease in the volume of computer equipment sold in
conjunction with its products.
Total costs and expenses decreased 18% from $463,997 in 1997 to $382,534 in
1998. Salary expense decreased 18% in 1998 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 10%
in 1998 as a result of continued efforts to control or reduce expenses.
Depreciation and amortization expense decreased 8% in 1998. Commission expense
decreased 56% in 1998 due, in part, to a decrease in the volume of licensing
Company's software by agents in 1998. Cost of equipment sold decreased 43% as a
result of decreased sales of computer equipment during the period.
Liquidity and Capital Resources
The Company had net cash provided from operating activities of $40,629
during the three months ended March 31, 1998, as compared to net cash provided
by operations of $40,740 for the same period in 1997. Net cash of $6,127 was
utilized during 1998 for investing in capital expenditures as compared to $5,272
in 1997.
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 is currently in arrears in the payment of dividends to holders
of its preferred stock. As of March 31, 1998, dividends were in arrears on
Series B preferred stock in the amount of $332,430, on Series D preferred stock
in the amount of $284,315 and on Series E preferred stock in the amount of
$142,915.
Year 2000
Until just a few years ago, most computer programs were written to define
an applicable year by using two digits for the year instead of four. The effect
on a computer program that was written in such a way is to define a year that is
entered with the two digits "00" as 1900 rather than 2000. When the Year 2000
arrives, any computer programs that are written in this manner will either have
to be modified to accept a date in the 21st century or the programs will have to
be replaced. This issue not only effects the Company's internal automated
information systems but also has an effect on the software products the Company
develops, supports and markets to its customers. The Company has evaluated the
computer programs that is utilizes internally for its information systems and
has determined that substantially all of its systems are currently Year 2000
compliant. The Company's asystTM product line is Year 2000 compliant. The
Company's customers that are utilizing its LegacyTM, and QuestTM product lines
are being offered a Year 2000 compliant version of certain packages within these
product lines or are being encouraged to migrate to the Company's products that
are Year 2000 compliant. Based on currently available information, the Company
does not anticipate that the costs to address the issues related to the Year
2000 will have a material adverse impact on the Company's financial condition,
results of operations or liquidity.
<PAGE>
Forward-Looking Statements
This report contains forward-looking statements, other than historical
facts, which reflect the view of Company's management with respect to future
events. Such forward-looking statements are based on assumptions made by and
information currently available to the Company's management. Although management
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from such expectations include, without limitation, the ability of
the Company i) to generate levels of revenue and adequate cash flows from its
operations to support and maintain its current cost structure and ii) to develop
and deliver products that are competitive, accepted by its markets and are not
rendered obsolete by changing technology. The forward-looking statements
contained herein reflect the current views of the Company's management with
respect to future events and are subject to these factors and other risks,
uncertainties and assumptions relating to the operations, results of operations
and financial position of the Company. The Company assumes no obligation to
update the forward-looking statements or to update the reasons actual results
could differ from those contemplated by such forward-looking statements.
<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 acquisition 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 in such amount. 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.
The Company is also a defendant in various legal actions, which arose out
of the normal course of business, In the opinion of management, none of these
actions are extexted to have a material effect on the consolidated results of
operations or financial position of 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, 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, 1998, are entitled to the payment of approximately $332,430 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, 1998, are entitled to the payment of approximately $284,315 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, 1998, are entitled to the payment of approximately $142,915 in
dividends which are currently in arrears.
<PAGE>
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: May 14, 1998 By: /s/ Thomas E. Gibbs
--------------------
Thomas E. Gibbs, President
and Chairman of the Board
(Principal Executive Officer)
Date: May 14, 1998 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-31-1998 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997 DEC-31-1997
<CASH> 237748 0 204807
<SECURITIES> 0 0 0
<RECEIVABLES> 113774 0 216693
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 361156 0 427665
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<DEPRECIATION> 36771 39782 159579
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<BONDS> 50000 0 50000
0 0 0
130000 0 130000
<COMMON> 4317803 0 4317803
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<TOTAL-LIABILITY-AND-EQUITY> 956406 0 1053265
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