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, 2000 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, 2000 there were 54,069,078 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, 1999.
2
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
March 31
2000 December 31,
(Unaudited) 1999
----------- -----------
Current Assets
Cash and cash equivalents $ 720,465 $ 922,838
Trade accounts receivable, less allowance for
doubtful accounts of $25,000 at March 31,
2000 and December 31, 1999 262,126 216,577
--------- ---------
Total Current Assets 982,591 1,139,415
--------- ---------
Property and equipment, net 114,462 86,572
Goodwill, net 385,331 345,715
Purchased software, net 65,264 19,878
Deposits and other 50,398 18,824
--------- ---------
615,455 470,989
--------- ---------
Total Assets $ 1,598,046 $ 1,610,404
========= =========
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable - related party $ 22,915 $ 22,915
Trade accounts payable, including $113,200
payable to a related party at March 31,
2000 and December 31, 1999 173,199 171,208
Accrued payroll 21,849 157,611
Accrued interest - related party 39,144 38,673
Other accrued expenses 59,671 58,078
Deferred revenue 544,195 512,109
--------- ---------
Total Current Liabilities 860,973 960,594
Total Liabilities 860,973 960,594
--------- ---------
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 and 300,000 shares of Series E,
aggregate liquidating preference of $1,300,000
($1.00 per share) 80,000 80,000
Common stock, par value $.10 per share;
authorized 100,000,000 shares; issued and
outstanding 54,069,078 at March 31, 2000
and 51,569,078 at December 31, 1999 5,406,907 5,156,908
Additional paid-in capital 2,939,458 3,097,457
Accumulated deficit (7,649,292) (7,644,555)
--------- ---------
777,073 689,810
Less stock purchase note receivable 40,000 40,000
--------- ---------
Total Stockholders' Equity 737,073 649,810
Total Liabilities and Stockholders' Equity $ 1,598,046 $ 1,610,404
========= =========
</TABLE>
The Accompanying Notes Are An Intrefal Part of the Financial Statements.
3
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<S> <C> <C>
Three Months Ended
March 31,
2000 1999
---- ----
Revenue
Software packages $ 60,408 $ 125,575
Installation, training and
customer support 28,411 89,162
Maintenance 193,633 230,328
Equipment and supplies sales 70,981 68,133
Other 2,094 4,274
--------- ---------
355,527 517,472
--------- ---------
Costs and Expenses
Salaries 195,645 226,936
Other general, administrative and
selling expense 105,987 117,762
Depreciation and amortization 29,272 28,566
Commissions 2,725 4,410
Cost of equipment and supplies sold 36,967 38,292
--------- ---------
370,596 415,966
--------- ---------
Income (loss) From Operations (15,069) 101,506
--------- ---------
Nonoperating Income (Expense)
Interest expense (471) (551)
Interest income 10,803 5,521
--------- ---------
10,332 4,970
--------- ---------
Net Income (Loss) Before Extraordinary Item (4,737) 106,476
Extraordinary Gain on Settlement of Debt - 9,870
--------- ---------
Net Income (Loss) (4,737) 116,346
Preferred stock dividend requirements (13,961) (22,440)
--------- ---------
Income (loss) available for common stockholders $ (18,698) $ 84,036
========= =========
Net Income (Loss) per Common Share Before
Extraordinary Item $ NIL $ NIL
Extraordinary Gain on Ssttlement of Debt NIL NIL
--------- ---------
Net Income (Loss) per Common Share After
Extraordinary Item $ NIL $ NIL
========= =========
Weighted Average Number of Common
Shares Outstanding 52,091,057 48,178,043
========== ==========
</TABLE>
The Accompanying Notes Are An Intrefal Part of the Financial Statements.
4
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Three Month Period Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<S> <C> <C>
2000 1999
---- ----
Cash flows in operating activities:
Net Income (Loss) $ (4,737) $ 116,346
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating
activities:
Depreciation and amortization 29,272 28,566
Recognition of deferred compensation costs
on employee stock purchase 4,500 -
Extraordinary gain on settlement of debt - (9,870)
Change in Operating Assets and Liabilities:
Accounts receivable 67,931 86,236
Deposits and other (30,598) (5,350)
Accounts payable 1,991 (26,564)
Accrued expenses (133,697) 9,305
Deferred revenue (49,617) (56,445)
--------- ---------
Net Cash (Used In) Provided by Operating
Activities $ (114,955) $ 142,224
--------- ---------
Cash Flows From Investing Activities:
Property and equipment additions (5,418) (8,865)
Purchase of CPS assets (200,000) -
Sale of CPS assets 30,500 -
--------- ---------
Net Cash Used in Investing Activities (174,918) (8,865)
--------- ---------
Cash Flows From Financing Activities:
Exercise of common stock options 87,500 -
Payments of notes payable - (1,000)
Payments on capital lease obligations - (591)
--------- ---------
Net Cash Provided by (Used In) Financing
Activities 87,500 (1,591)
--------- ---------
(Decrease) increase in cash and cash equivalents (202,373) 131,768
Cash and cash equivalents, beginning of year 922,838 478,008
--------- ---------
Cash and Cash Equivalents, End of Period $ 720,465 $ 609,776
========= =========
</TABLE>
The Accompanying Notes Are An Intrefal Part of the Financial Statements.
5
<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, 2000 and December 31,
1999 and the results of operations and cash flows of USTI for the three months
ended March 31, 2000 and 1999. The consolidated results of operations for the
three months ended March 31, 2000 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, 2000 and December 31, 1999 consisted of
the following:
<TABLE>
<S> <C> <C>
March 31, December 31,
2000 1999
---- ----
Leasehold improvements $ 66,571 $ 66,416
Furniture and fixtures 48,655 40,655
Equipment 1,003,051 974,789
--------- ---------
1,118,277 1,081,860
Less Accumulated depreciation
and Amortization (1,003,815) (995,288)
--------- ---------
$ 114,462 $ 86,572
--------- ---------
</TABLE>
NOTE 3. Other Assets:
Other assets at March 31, 2000 and December 31, 1999 consisted of the
following:
<TABLE>
<S> <C> <C> <C>
Accumulated
MARCH 31, 2000 COST Amortization Net
- -------------- ---- ------------ ---
Goodwill $ 1,747,875 $(1,362,544) $ 385,331
Purchased Software 647,105 (581,840) 65,264
DECEMBER 31, 1999
- -----------------
Goodwill $ 1,692,128 $(1,346,413) $ 345,715
Purchased Software 597,104 (577,226) 19,878
</TABLE>
6
<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 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,
2000, are entitled to the payment of approximately $402,525 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, 2000,
are entitled to the payment of approximately $184,970 in dividends, which are
currently in arrears.
NOTE 5. ACQUISITION OF ASSETS:
On March 24, 2000, the Northern District of Texas US Bankruptcy Court
approved United Systems Technology's ("USTI") bid for the purchase of certain
assets of CPS Systems, Inc. ("CPS") at a Bankruptcy auction. This transaction
closed on March 30, 2000. USTI successfully bid $200,000 in cash for the CPS
City Fund Accounting and Utility Billing source code, software support and
licensing agreements for approximately 60 customers located in Texas and
Oklahoma. The assets purchased also included the accounts receivable related to
these customers as well as substantially all of the fixed assets of CPS in its
Dallas office. USTI subsequently sold a portion of these fixed assets for
$30,500.
7
<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, 2000 include revenues of $355,527 and a net loss of
$4,737 as compared to revenues of $517,472 and net income of $116,346 for the
same period in 1999.
The Company is continuing the development of additional modules for its
asyst 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 asyst product line currently includes a Fund Accounting product
line, a Utility Billing product line, a General Government product line and a
Public Safety product line. The Fund Accounting product line includes General
Ledger, Budget XLence, Report XLence, Accounts Payable, Accounts Receivable,
Purchase Orders, Cash Receipts and Payroll modules. The Utility Billing product
line includes Utility Billing, Meter Reader Interface, Bank Drafts and Budget
Billing modules. The General Government product line includes Master and Land
Directories, Business and Animal Licenses and Building Permits modules. The
Public Safety product line includes Mater Name Index, Calls for Service, Offense
Reports, Citations, State Interface, Computer Aided Dispatch and UCR reports
modules. The Company has released additional modules for its asyst product
lines, includeing Code Enforcement, Service Orders, Alarm Billing and Jail
Management modules. To add to its existing asyst offerings during the 1st
Quarter of 2000. The Company believes that its asyst product line will continue
to offer its current and prospective customers an attractive software solution,
both from a financial and functionality standpoint and follows the trend of
clients moving to Windows based PC networks.
THREE MONTH PERIOD ENDED MARCH 31, 2000 AND 1999
- ------------------------------------------------
The Company's total revenue decreased 31% from $517,472 during the first
quarter in 1999 to $355,527 in 2000. Softwar license fees decreased 52% in 2000
due to a decrease in the licensing of the Company's Year 2000 version of its
legacy products. License fee revenue for the asyst product line continued at a
pace slightly higher in 2000 as compared to 1999. Installation and training
decreased to $28,411 in 2000 from $89,162 in 1999 due, in part, to a decrease in
custom programming and conversion services related to the implementation of the
Year 2000 verion of the Company's Legacy products. Maintenance revenue cecreased
16% during 2000, due in part, to a decrease in the number of the Company's Quest
and Legacy customers who continued to utilize these products after 1999. This
decrease was partially offset by an increase in maintenance revenue from new
asyst customers. Equipment and supplies sales remained relatively constant from
year to year.
8
<PAGE>
Total costs and expenses decreased 11% from $415,966 in 1999 to $370,596 in
2000. Salary expense decreased 14% in 2000, due in part, to a decrease in
employee incentives related to decreased profitability. Other general,
administrative and selling expenses decreased 10% in 2000 as compared to 1999 as
a result of a continued effort to reduce operating expenses by operating more
efficiently. Depreciation and amortization expense and cost of equipment and
supplies sold remained constant in 2000 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had net cash used in operating activities of $114,955 during
the three months ended March 31, 2000, as compared to net cash provided by
operations of $142,224 for the same period in 1999. This decrease in cash
provided in 2000 was primarily the result of the decrease in the results of
operations in the first quarter of 2000. Net cash of $5,418 was utilized in 2000
for the purchase of equipment necessary for the sales, development and support
of the Company's products. In addition, on March 24, 2000, the Northern District
of Texas US Bankruptcy Court approved the Company's bid for the purchase of
certain assets of CPS Systems, Inc. ("CPS"). This transaction closed on March
30, 2000. USTI successfully bid $200,000 in cash for the CPS City Fund
Accounting and Utility Billing source code and software support and licensing
agreements for approximately 60 customers located in Texas and Oklahoma. The
assets purchased also included the accounts receivable related to these
customers as well as substantially all of the fixed assets of CPS in its Dallas
office. The Company sold some of these fixed assets for a sum of $30,500.
Management believes that its ability to generate positive cash flows from
operations, in addition to its existing 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 is currently in arrears in the payment of dividends to holders
of its preferred stock. As of March 31, 2000, dividends were in arrears on the
Series B preferred stock in the amount of $402,525 and on Series E preferred
stock in the amount of $184,970.
9
<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.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is 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 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,
2000, are entitled to the payment of approximately $402,525 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, 2000,
are entitled to the payment of approximately $184,970 in dividends, which are
currently in arrears.
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) The Company filed an 8-K dated March 24, 2000 related to the
acquisition of the CPS assets.
11
<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 12, 2000 BY: /S/ THOMAS E. GIBBS
--------------------
Thomas E. Gibbs, President
and Chairman of the Board
(Principal Executive Officer)
DATE: MAY 12, 2000 BY: /S/ RANDALL L. MCGEE
---------------------
Randall L. McGee, Secretary
and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
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<CIK> 0000350194
<NAME> United Systems Technology, Inc.
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