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, 1999 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 June 30, 1999 there were 48,178,043 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, 1998.
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
June 30,
1999 December 31,
(Unaudited) 1998
----------- -----------
Current Assets
Cash and cash equivalents $ 673,853 $ 478,008
Trade accounts receivable, less allowance
for doubtful accounts of $25,000 at
June 30, 1999 and December 31, 1998 186,514 329,708
---------- ----------
Total current assets 860,367 807,716
---------- ----------
Property and equipment, net 67,161 65,329
Goodwill, net 379,684 413,653
Purchased software, net 24,515 33,301
Deposits and other 21,422 5,139
---------- ----------
492,782 517,422
---------- ----------
Total assets $ 1,353,149 $ 1,325,138
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of capital lease obligations $ 1,252 $ 2,448
Trade accounts payable, including $113,200
payable to a related party at June 30, 1999
and December 31, 1998 194,831 182,366
Accrued payroll 87,627 110,806
Accrued interest - related party 37,720 43,457
Other accrued expenses 59,098 83,241
Deferred revenue 546,000 701,180
---------- ----------
Total current liabilities 926,528 1,123,498
Notes payable - related party 22,915 27,083
---------- ----------
Total liabilities 949,443 1,150,581
---------- ----------
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, aggregating
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 48,178,043 at June 30, 1999 and
December 31, 1998 4,817,804 4,817,804
Additional paid-in capital 3,342,562 3,333,561
Accumulated deficit (7,846,660) (8,066,808)
---------- ----------
443,706 214,557
Less stock purchase note receivable 40,000 40,000
---------- ----------
Total stockholders' equity 403,706 174,557
---------- ----------
Total liabilities and stockholders' equity $ 1,353,149 $ 1,325,138
========== ==========
</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> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenue
Software packages $ 146,101 $ 76,983 $ 271,676 $ 124,567
Installation, training and
customer support 78,341 25,693 167,504 45,035
Maintenance 221,334 249,603 451,662 505,838
Equipment and supplies sales 64,498 64,141 132,631 106,716
Other 3,200 1,832 7,474 3,675
--------- --------- --------- ---------
513,474 418,252 1,030,947 785,831
--------- --------- --------- ---------
Costs and expenses
Salaries 236,572 192,324 463,507 399,921
Other general, administrative and
selling expense 104,121 133,229 221,883 248,584
Depreciation and amortization 29,124 31,565 57,690 68,336
Commissions 10,775 6,010 15,185 10,011
Cost of equipment and supplies sold 34,714 39,127 73,006 57,937
--------- --------- --------- ---------
415,306 402,255 831,271 784,789
--------- --------- --------- ---------
Income from operations 98,168 15,997 199,676 1,042
--------- --------- --------- ---------
Nonoperating income (expense)
Interest expense (514) (1,133) (1,065) (2,303)
Interest income 6,146 2,148 11,667 3,926
--------- --------- --------- ---------
5,632 1,015 10,602 1,623
--------- --------- --------- ---------
Net income before extraordinary item 103,800 17,012 210,278 2,665
--------- --------- --------- ---------
Extraordinary gain on settlement
of debt - - 9,870 -
--------- --------- --------- ---------
Net income 103,800 17,012 220,148 2,665
Preferred stock dividend requirements (22,690) (22,690) (45,130) (45,130)
--------- --------- --------- ---------
Income (loss) available for common
stockholders $ 81,110 $ (5,678) $ 165,148 $ (42,465)
========= ========= ========= =========
Net income (loss) per common share
before extraordinary item $ NIL $ NIL $ NIL $ NIL
Extraordinary gain on settlement
of debt NIL NIL NIL NIL
--------- --------- --------- ---------
Net income (loss) per common share
after extraordinary item $ NIL $ NIL $ NIL $ NIL
========= ========= ========= =========
Weighted average number of common
shares outstanding 48,178,043 43,178,043 48,178,043 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 Six Month Period Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<S> <C> <C>
1999 1998
---- ----
Cash flows in operating activities:
Net income $ 220,148 $ 2,665
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 57,690 68,336
Extraordinary gain on settlement of debt (9,870) -
Change in operating assets and liabilities:
Accounts receivable 143,194 57,668
Prepaid expenses - (13,378)
Deposits and other (16,283) (150)
Accounts payable (750) 8,887
Accrued expenses (24,143) 9,776
Deferred revenue (155,180) (92,630)
---------- ----------
(5,342) 38,509
---------- ----------
Net cash provided from operating activities $ 214,806 $ 41,174
---------- ----------
Cash flows from investing activities:
Property and equipment additions (16,765) (13,154)
Additions to purchased software - (690)
---------- ----------
Net cash used in investing activities (16,765) (13,844)
---------- ----------
Cash flows from financing activities:
Payments on notes payable (1,000) -
Payments on capital lease obligations (1,196) (3,145)
---------- ----------
Net cash used in financing activities (2,196) (3,145)
---------- ----------
Increase in cash and cash equivalents 195,845 24,185
Cash and cash equivalents, beginning of period 478,008 204,807
---------- ----------
Cash and cash equivalents, end of period $ 673,853 $ 228,992
========== ==========
</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 June 30, 1999 and December 31,
1998 and the results of operations and cash flows of USTI for the three and six
months ended June 30, 1999 and 1998. The consolidated results of operations for
the six months ended June 30, 1999 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, 1999 and December 31, 1998 consisted of
the following:
<TABLE>
<S> <C> <C>
June 30, December 31,
1999 1998
---- ----
Leasehold improvements $ 64,772 $ 64,772
Furniture and fixtures 60,655 40,655
Equipment 916,476 923,841
--------- ----------
1,046,034 1,029,268
Less Accumulated depreciation
and amortization (978,873) (963,939)
--------- ----------
$ 67,161 $ 65,329
--------- ----------
</TABLE>
Note 3. Other Assets:
Other assets at June 30, 1999 and December 31, 1998 consisted of the
following:
<TABLE>
<S> <C> <C> <C>
Accumulated
June 30, 1999 Cost Amortization Net
- ------------- ---- ------------ ---
Goodwill $ 1,692,128 $ (1,312,444) $ 379,684
Purchased Software 592,700 (568,185) 24,215
December 31, 1998
- -----------------
Goodwill $ 1,692,128 $ (1,278,475) $ 413,653
Purchased Software 592,700 (559,399) 33,301
</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
June 30, 1999, are entitled to the payment of approximately $376,155 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, 1999, are entitled to the payment of approximately $328,045 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, 1999, are entitled to the payment of approximately $169,150 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
three month period ended June 30, 1999 include revenues of $513,474 and net
income of $103,800 as compared to revenues of $418,252 and net income of $17,012
for the same period in 1998. Results for the six month period ended June 30,
1999 include revenues of $1,030,947 and net income of $220,148 as compared to
revenues of $785,831 and net income of $2,665 in 1998.
The Company is continuing the development of its asystTM products, 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 currently includes a Fund Accounting system, a Utility Billing
system and a Public Safety system and has been installed at over 300 locations.
The Fund Accounting system includes General Ledger, Budget XLence, Report
XLence, Accounts Payable, Accounts Receivable, Purchase Orders, Cash Receipts,
and Payroll modules. The Utility Billing system includes Utility Billing, Meter
Reader Interface, Bank Drafts and Budget Billing modules. The initial Public
Safety system includes Master Name Index, Calls for Service, Offense Reports and
UCR Reporting modules. The Company is currently developing its asystTM General
Government products, which include Business and Animal Licenses, Code
Enforcement and Building Permits modules, and anticipates that the initial
modules will be released in the 3rd quarter of 1999. 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 to new accounts in 1999. The
Company is offering a Year 2000 version of certain QuestTM and LegacyTM modules
and has received commitments to license this version of these products and
continued to ship its Year 2000 version of the LegacyTM modules in the first six
months of 1999.
Three Month Period Ended June 30, 1999 and 1998
- -----------------------------------------------
The Company's total revenue increased 23% from $418,252 during the second
quarter in 1998 to $513,474 in 1999. Software license fees increased 90% in
1999, due, in part, to an increase in the licensing of the Company's Year 2000
version of its LegacyTM products as well as an increase in the licensing of the
Company's asystTM products. The Company continues to market its products to
prospective customers which it believes are best suited for its products.
Installation and training increased to $78,341 in 1999 from $25,693 in 1998,
due, in part, to an increase in the demand for custom programming related to the
implementation of the Year 2000 version of the Company's LegacyTM products.
Maintenance revenue decreased 11% during 1999, due, in part, to a decrease in
the number of the Company's QuestTM and LegacyTM customers that elected to
select maintenance coverage.
<PAGE>
Total costs and expenses increased 3% from $402,255 in 1998 to $415,306 in
1999. Salary expense increased 23% in 1999, due, in part, to an increase in
incentives resulting from improved results of operations. Other general,
administrative and selling expense decreased 22% in 1999 as a result of the
Company's continued efforts to manage its expenses. Depreciation and
amortization expense decreased 8% in 1999 as a result of a portion of the
Company's assets becoming fully depreciated in 1999. Commission expense
increased 79% in 1999 due to an increase in the volume of licensing Company's
software in 1999. Cost of equipment and supplies sold decreased 11% in 1999.
Six Month Period Ended June 30, 1999 and 1998
- ---------------------------------------------
Total costs and expenses increased 6% from $784,789 in 1998 to $831,271 in
1999. Salary expense increased 16% in 1999, due, in part, to an increase in
incentives resulting from improved results of operations. Other general,
administrative and selling expense costs decreased 11% in 1999 as a result of
continued efforts to control or reduce expenses. Depreciation and amortization
expense decreased 16% as a result of a portion of the Company's assets becoming
fully depreciated during the period. Commission expense increased 52% in 1999
due to an increase in the volume of licensing the Company's products in 1999.
Cost of equipment and supplies sold increased 26% as a result of increased sales
of computer equipment and supplies during the period.
Liquidity and Capital Resources
- -------------------------------
The Company had net cash provided from operating activities of $214,806
during the six months ended June 30, 1999, as compared to net cash provided by
operations of $41,174 for the same period in 1998. Net cash of $16,765 was
utilized during 1999 for investing in capital expenditures as compared to
$13,844 in 1998.
Management believes that its ability to generate positive cash flows from
operations added to 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 had a $50,000 note payable to Ventana Growth Fund
("Ventana"), a related party. Ventana distributed this note to its limited
partners in its fund in 1997. During 1998, the Company offered the note holders
the option of extending each note for an additional two year period or receiving
a partial payment of the balance due in full in final settlement of the
principal and interest due to each note holder. As of December 31, 1998, there
was $27,083 due to the remaining note holders and $43,457 of interest
outstanding on these notes. In 1999 certain additional note holders opted to
receive a partial payment totaling $1,000 in lieu of the balance due of $4,168
on the note and $6,702 of accrued interest resulting in a $9,870 gain on
settlement of debt. As of June 30, 1999 there was $22,915 due to the remaining
note holders and $37,720 of interest outstanding on these notes.
<PAGE>
The Company is currently in arrears in the payment of dividends to holders
of its preferred stock. As of June 30, 1999, dividends were in arrears on Series
B preferred stock in the amount of $376,155, on Series D preferred stock in the
amount of $328,045 and on Series E preferred stock in the amount of $169,150.
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 it 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. The Company currently estimates that the
total cost to achieve Year 2000 compliance to be approximately $25,000.
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 Company filed third party complaints against counsel
representing the parties to the transaction for negligence in their
representation on this matter. On April 26, 1999, a settlement was reached in
this matter, with all parties, whereby this case will be dismissed with
prejudice upon the execution of the documentation necessary for the settlement
and was reached without material adverse effect to the Company
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 expected 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
June 30, 1999, are entitled to the payment of approximately $376,155 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, 1999, are entitled to the payment of approximately $328,045 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, 1999, are entitled to the payment of approximately $169,150 in
dividends which are currently in arrears.
Item 4. Submission of Matters to a Vote of Security Holders
On June 23, 1999, 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
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.
<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: August 13, 1999 By: /s/ Thomas E. Gibbs
--------------------
Thomas E. Gibbs, President
and Chairman of the Board
(Principal Executive Officer)
Date: August 13, 1999 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-31-1999 DEC-31-1998 DEC-31-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998 DEC-31-1998
<CASH> 673853 0 478008
<SECURITIES> 0 0 0
<RECEIVABLES> 186514 0 329708
<ALLOWANCES> 0 0 0
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<BONDS> 22915 0 27083
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<COMMON> 4817804 0 4817804
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</TABLE>
