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, 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 March 31, 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>
March 31,
1999 December 31,
(Unaudited) 1998
=========== ===========
Current Assets
Cash and cash equivalents $ 609,776 $ 478,008
Trade accounts receivable, less allowance
for doubtful accounts of $25,000 at March 31,
1999 and December 31, 1998 243,472 329,708
---------- ----------
Total current assets 853,248 807,716
---------- ----------
Property and equipment, net 67,006 65,329
Goodwill, net 396,669 413,653
Purchased software, net 28,908 33,301
Deposits and other 10,489 5,139
---------- ----------
503,072 517,422
---------- ----------
Total assets $ 1,356,320 $ 1,325,138
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of capital lease obligations $ 1,857 $ 2,448
Trade accounts payable, including $113,200
payable to a related party at March 31, 1999
and December 31, 1998 212,885 182,366
Accrued payroll 48,728 110,806
Accrued interest - related party 37,249 43,457
Other accrued expenses 92,546 83,241
Deferred revenue 644,735 701,180
---------- ----------
Total current liabilities 1,038,000 1,123,498
Notes payable - related party 22,915 27,083
---------- ----------
Total liabilities 1,060,915 1,150,581
---------- ----------
Commitments and contingencies - -
Stockholders' Equity
Preferred stock, convertible, voting, 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 48,278,043 at March 31, 1999 and
December 31, 1998 4,817,804 4,817,804
Additional paid-in capital 3,338,063 3,333,561
Accumulated deficit (7,950,462) (8,066,808)
---------- ----------
335,405 214,557
Less stock purchase note receivable 40,000 40,000
---------- ----------
Total stockholders' equity 295,405 174,557
---------- ----------
Total liabilities and stockholders' equity $ 1,356,320 $ 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>
Three Months Ended
March 31,
1999 1998
=========== ===========
Revenue
Software packages $ 125,575 $ 47,584
Installation, training and customer support 89,162 19,342
Maintenance 230,328 256,235
Equipment and supplies sales 68,133 42,575
Other 4,274 1,843
---------- ----------
517,472 367,579
---------- ----------
Costs and expenses
Salaries 226,936 207,597
Other general, administrative and
selling expense 117,762 115,355
Depreciation and amortization 28,566 36,771
Commissions 4,410 4,001
Cost of equipment and supplies sold 38,292 18,810
---------- ----------
415,966 382,534
---------- ----------
Income (loss) from operations 101,506 (14,955)
---------- ----------
Nonoperating income (expense)
Interest expense (551) (1,170)
Interest income 5,521 1,778
---------- ----------
4,970 608
---------- ----------
Net income (loss) before extraordinary item 106,476 (14,347)
---------- ----------
Extraordinary gain on settlement of debt 9,870 -
---------- ----------
Net income (loss) 116,346 (14,347)
Preferred stock dividend requirements (22,440) (22,440)
---------- ----------
Income (loss) available for common stockholders $ 84,036 $ (36,787)
========== ==========
Net income (loss) per common share before
extraordinary item $ NIL $ NIL
Extraordinary gain on settlement of debt NIL NIL
Net income (loss) per common share after ---------- ----------
extraordinary item $ NIL $ NIL
========== ==========
Weighted average number of common
shares outstanding 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 Three Month Period Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<S> <C> <C>
1999 1998
=========== ===========
Cash flows in operating activities:
Net income (loss) $ 116,346 $ (14,347)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 28,566 36,771
Extraordinary gain on settlement of debt (9,870) -
Change in operating assets and liabilities:
Accounts receivable 86,236 102,919
Prepaid expenses - (3,469)
Deposits and other (5,350) (294)
Accounts payable (26,564) 8,141
Accrued expenses 9,305 (20,651)
Deferred revenue (56,445) (68,441)
---------- ----------
Net cash provided by operating activities $ 142,224 $ 40,629
---------- ----------
Cash flows from investing activities:
Property and equipment additions (8,865) (5,437)
Additions to purchased software - (690)
---------- ----------
Net cash used in investing activities (8,865) (6,127)
---------- ----------
Cash flows from financing activities:
Payments of notes payable (1,000) -
Payments on capital lease obligations (591) (1,561)
---------- ----------
Net cash used in financing activities (1,591) (1,561)
---------- ----------
Increase in cash and cash equivalents 131,768 32,941
Cash and cash equivalents, beginning of year 478,008 204,807
---------- ----------
Cash and cash equivalents, end of period $ 609,776 $ 237,748
========== ==========
</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, 1999 and December 31,
1998 and the results of operations and cash flows of USTI for the three months
ended March 31, 1999 and 1998. The consolidated results of operations for the
three months ended March 31, 1999 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, 1999 and December 31, 1998 consisted of
the following:
<TABLE>
<S> <C> <C>
March 31, December 31,
1999 1998
---- ----
Leasehold improvements $ 64,772 $ 64,772
Furniture and fixtures 40,655 40,655
Equipment 932,706 923,841
--------- ---------
1,038,133 1,029,268
Less Accumulated depreciation and amortization (971,127) (963,939)
--------- ---------
$ 67,006 $ 65,329
</TABLE>
--------- ---------
Note 3. Other Assets:
Other assets at March 31, 1999 and December 31, 1998 consisted of the
following:
<TABLE>
<S> <C> <C> <C>
Accumulated
March 31, 1999 Cost Amortization Net
- -------------- ---- ------------ ---
Goodwill $ 1,692,128 $(1,295,459) $ 396,669
Purchased Software 592,700 (563,792) 28,908
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
March 31, 1999, are entitled to the payment of approximately $367,430 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, 1999, are entitled to the payment of approximately $319,315 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, 1999, are entitled to the payment of approximately $163,915 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 custom modifications, maintenance
agreements and equipment sales and commissions. Results of operations for the
period ended March 31, 1999 include revenues of $517,472 and net income of
$116,346 as compared to revenues of $367,579 and a net loss of $14,347 for the
same period in 1998.
The Company is continuing its 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 2nd 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 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 1st quarter of 1999.
Three Month Period Ended March 31, 1999 and 1998
- ------------------------------------------------
The Company's total revenue increased 41% from $367,579 during the first
quarter in 1998 to $517,472 in 1999. Software license fees increased 164% in
1999 due 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 $89,162 in 1999 from $19,342 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 10% 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. This decrease was partially offset by an increase in maintenance
revenue from the asystTM customers. Equipment and supplies sales increased 60%
in the first quarter of 1999 due, in part, to an increase in the volume of
computer equipment sold in conjunction with its products.
<PAGE>
Total costs and expenses increased 9% from $382,534 in 1998 to $415,966 in
1999. Salary expense increased 9% in 1999, due in part, to an increase in
incentives resulting from improved results of operations. Other general,
administrative and selling expense costs remained at approximately the same
level in 1999 as they were in 1998. Depreciation and amortization expense
decreased 22% in 1999 as a result of a portion of the Company's assets becoming
fully depreciated in 1999. Cost of equipment sold increased 104% in 1999 as a
result of increased sales of computer equipment during the period.
Liquidity and Capital Resources
- -------------------------------
The Company had net cash provided from operating activities of $142,224
during the three months ended March 31, 1999, as compared to net cash provided
by operations of $40,629 for the same period in 1998. Net cash of $8,865 was
utilized during 1999 for investing in capital expenditures as compared to $6,127
in 1998.
Management believes that the effect of its continued focus on adjusting the
Company's expenses to the level of revenue has resulted in a significant
increase in the Company's current cash balances and these cash balances 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 and 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 March 31, 1999 there was $22,915 due to the remaining note holders and
$37,249 of interest outstanding on these notes.
The Company is currently in arrears in the payment of dividends to holders
of its preferred stock. As of March 31, 1999, dividends were in arrears on
Series B preferred stock in the amount of $367,430, on Series D preferred stock
in the amount of $319,315 and on Series E preferred stock in the amount of
$163,915.
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 affects 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.
<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 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
March 31, 1999, are entitled to the payment of approximately $367,430 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, 1999, are entitled to the payment of approximately $319,315 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, 1999, are entitled to the payment of approximately $163,915 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, 1999 By: /s/ Thomas E. Gibbs
--------------------
Thomas E. Gibbs, President
and Chairman of the Board
(Principal Executive Officer)
Date: May 14, 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> 609776 0 478008
<SECURITIES> 0 0 0
<RECEIVABLES> 243472 0 329708
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 853248 0 807716
<PP&E> 67006 0 65329
<DEPRECIATION> 28566 36771 130243
<TOTAL-ASSETS> 1356320 0 1325138
<CURRENT-LIABILITIES> 1038000 0 1123498
<BONDS> 22915 0 27083
0 0 0
130000 0 130000
<COMMON> 4817804 0 4817804
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1356320 0 1325138
<SALES> 125575 47584 0
<TOTAL-REVENUES> 517472 367579 0
<CGS> 38292 18810 0
<TOTAL-COSTS> 415966 382534 0
<OTHER-EXPENSES> (4970) (608) 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 551 1170 0
<INCOME-PRETAX> 0 0 0
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<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 116346 (14347) 0
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
