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
September 30, 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 September 30, 2000 there were 56,178,663 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 9
PART II - OTHER INFORMATION 13
---------------------------
---------------------------------------------------------
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.
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
September 30,
2000 December 31,
(Unaudited) 1999
============ ===========
Current Assets
Cash and cash equivalents $ 561,152 $ 922,838
Trade accounts receivable, less allowance for
doubtful accounts of $31,700 at September 30,
2000 and $25,000 at December 31, 1999 339,369 216,577
--------- ---------
Total Current Assets 900,521 1,139,415
--------- ---------
Property and equipment, net 122,683 86,572
Goodwill, net 772,861 345,715
Purchased software, net 179,286 19,878
Deposits and other 58,180 18,824
--------- ---------
1,133,010 470,989
--------- ---------
Total Assets $ 2,033,531 $ 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 December 31, 1999 35,503 171,208
Accrued payroll 54,500 157,611
Accrued interest - related party 40,092 38,673
Other accrued expenses 106,817 58,078
Deferred revenue 765,270 512,109
--------- ---------
Total Current Liabilities 1,025,097 960,594
Total Liabilities 1,025,097 960,594
--------- ---------
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 June 30, 2000 and 51,569,078 at
December 31, 1999 5,617,865 5,156,908
Additional paid-in capital 2,804,894 3,097,457
Accumulated deficit (7,454,325) (7,644,555)
--------- ---------
Less stock purchase note receivable 40,000 40,000
--------- ---------
Total Stockholders' Equity 1,008,434 649,810
--------- ---------
Total Liabilities and Stockholders' Equity $ 2,033,531 $ 1,610,404
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
==== ==== ==== ====
Revenue
Software packages $ 26,849 $ 169,962 $ 134,593 $ 441,638
Installation, training and
customer support 55,880 60,966 96,958 228,470
Maintenance 441,295 211,905 921,662 663,567
Equipment and supplies sales 56,570 72,198 174,775 204,829
Other 3,888 3,248 7,950 10,722
--------- --------- --------- ---------
584,482 518,279 1,335,938 1,549,226
Costs and expenses
Salaries 298,710 236,028 712,112 699,536
Other general, administrative and
selling expense 114,626 100,238 326,383 322,123
Depreciation and amortization 55,579 29,632 119,510 87,321
Commissions 2,027 18,963 7,277 34,148
Cost of equipment and supplies sold 29,100 40,227 90,419 113,233
--------- --------- --------- ---------
500,042 425,088 1,255,701 1,256,361
--------- --------- --------- ---------
Income form operations 84,440 93,191 80,237 292,865
--------- --------- --------- ---------
Nonoperating income (expense)
Interest expense (477) (502) (1,419) (1,567)
Interest income 5,269 7,416 24,396 19,082
--------- --------- --------- ---------
4,792 6,914 22,977 17,515
--------- --------- --------- ---------
Net income before extraordinary item 89,232 100,105 103,214 310,380
Extraordinary gain on settlement
of debt 88,211 - 88,211 9,870
--------- --------- --------- ---------
Net Income 177,443 100,105 191,425 320,250
Preferred stock dividend requirements (14,118) (22,930) (42,040) (68,060)
--------- --------- --------- ---------
Income available for common
stockholders $ 163,325 $ 77,175 $ 149,385 $ 252,190
========= ========= ========= =========
Basic and diluted earnings per share
Net income per common share before
extraordinary item $ NIL $ NIL $ NIL $ 0.01
Extraordinary gain on settlement
of debt NIL NIL NIL NIL
--------- --------- --------- ---------
Net income per common share after
extraordinary item $ NIL $ NIL $ NIL $ 0.01
========= ========= ========= =========
Weighted average number of common
shares outstanding
Basic 55,762,335 48,178,043 53,980,682 48,178,043
========== ========== ========== ==========
Diluted 59,508,335 54,615,878 57,726,682 50,323,988
========== ========== ========== ==========
</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 Nine Month Period Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<S> <C> <C>
2000 1999
=========== ===========
Cash flows in operating activities:
Net Income $ 191,425 $ 320,250
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 119,510 87,321
Recognition of deferred compensation costs
on employee stock purchase 13,500 -
Extraordinary gain on settlement of debt (88,211) -
Change in operating assets and liabilities:
Accounts receivable 111,117 100,538
Deposits and other (38,380) (6,809)
Accounts payable (21,505) (4,965)
Accrued expenses (131,869) (3,990)
Deferred revenue (230,021) (130,688)
--------- ---------
(265,859) 41,407
--------- ---------
Net cash provided from (used in) operating
activities $ (74,434) $ 361,657
--------- ---------
Cash flows from investing activities:
Property and equipment additions (23,647) (33,222)
Additions to purchased software (460) (1,944)
Purchase of CPS assets (200,000) -
Sale of CPS assets 30,500 -
Purchase of Auto Administrators assets (255,700) -
--------- ---------
Net cash used in investing activities (449,307) (35,166)
--------- ---------
Cash flows from financing activities:
Exercise of common stock options 162,055 -
Payments on capital lease obligations - (1,819)
--------- ---------
Net cash provided (used in) financing activities 162,055 (1,819)
--------- ---------
Increase (decrease) in cash and cash equivalents (361,686) 324,672
Cash and cash equivalents, beginning of period 922,838 478,008
--------- ---------
Cash and cash equivalents, end of period $ 561,152 $ 802,680
========= =========
</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 September 30, 2000 and December
31, 1999 and the results of operations and cash flows of USTI for the nine
months ended September 30, 2000 and 1999. The consolidated results of operations
for the nine months ended September 30, 2000 are not necessarily indicative of
the results to be expected for the full year.
NOTE 2. PROPERTY AND EQUIPMENT:
Property and equipment at September 30, 2000 and December 31, 1999
consisted of the following:
<TABLE>
<S> <C> <C>
September 30, December 31,
2000 1999
---- ----
Leasehold improvements $ 75,570 $ 66,416
Furniture and fixtures 51,987 40,655
Equipment 1,019,021 974,789
--------- --------
1,146,578 1,081,860
Less Accumulated depreciation
and amortization (1,023,895) (995,288)
--------- --------
$ 122,683 $ 86,572
--------- --------
</TABLE>
NOTE 3. OTHER ASSETS:
Other assets at September 30, 2000 and December 31, 1999 consisted of the
following:
<TABLE>
<S> <C> <C> <C>
Accumulated
September 30, 2000 Cost Amortization Net
------------------ ---- ------------ ---
Goodwill $ 2,184,052 $(1,411,191) $ 772,861
Purchased Software 782,345 (603,059) 179,286
December 31, 1999
-----------------
Goodwill $ 1,692,128 $(1,346,413) $ 345,715
Purchased Software 597,104 (577,226) 19,878
</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 and E Preferred Stock. Holders of Series B Preferred Stock are entitled
to annual dividends of $.07 per share, payable quarterly and, as of September
30, 2000, are entitled to the payment of approximately $420,075 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 September
30, 2000, are entitled to the payment of approximately $195,500 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.
On June 21, 2000, the Ontario Superior Court of Justice in Bankruptcy
approved USTI's bid for the purchase of substantially all of the assets and
assumption of certain customer support obligations of Auto Administrator Int'l,
Inc. ("Auto Admin"). USTI successfully bid US $255,700 in cash for the Auto
Admin DOS and Windows source code and software support and licensing agreements
for over 300 customers primarily located in Canada. The assets purchased also
included the accounts receivable related to these customers as well as
substantially all of the fixed assets of Auto Administrator in both the London,
Ontario and Winnipeg, Manitoba offices. The customer support obligations assumed
included approximately US $400,000 of annual support contracts that expire
during the next 12 months. USTI registered a wholly owned subsidiary, USTI
Canada, Inc., which received the assets purchased in the transaction and serves
as USTI's operating entity in Canada. Results of operations are included in the
compan s consolidated financial statements since they were acquired.
The following summarizes the unaudited consolidated pro forma results of
operations of the Company for the nine months ended September 30, 2000 and 1999,
giving effect to the Auto Admin acquisition as if it had occurred on January 1,
2000 and 1999, respectively (in thousands):
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5. ACQUISITION OF ASSETS (CON'T):
<TABLE>
<S> <C> <C>
PRO FORMA
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
---- ----
Revenue 2,013 2,797
Net income 88 196
Net income per share NIL NIL
</TABLE>
<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
three month period ended September 30, 2000 include revenues of $584,482 and net
income of $177,443 as compared to revenues of $518,279 and net income of
$100,105 for the same period in 1999. Results for the nine month period ended
September 30, 2000 include revenues of $1,335,938 and net income of 191,425 as
compared to revenues of $1,549,226 and net income of $320,250 in 1999. During
2000, the Company has seen less than normal demand for its software products.
The Company believes that this trend being experienced throughout the local
government software industry is due to the accelerated purchase decisions made
by local governments during the 12 to 24 month period preceding this year that
resulted from Y2K concerns.
The Company is continuing the development of additional modules for its
asystTM products, a windows product line that operates in a single user or
network enviorment and is seamlessly interfaced with the other Microsoft Office
products. The asystTM 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, Budget
Billing and Service Orders modules. The General Government product line includes
Master and Land Directories, Business and Animal Licenses, Building Permits and
Code Enforcement modules. The Public Safety product line includes Master Name
Index, Calls for Service, Offense Reports, Citations, State Interface, Computer
Aided Dispatch, UCR Reports, Alarm Billing and Jail Management modules. The
Company believes that its asystTM 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 SEPTEMBER 30, 2000 AND 1999
The Company's total revenue increased 13% from $518,279 during the third
quarter in 1999 to $584,482 in 2000. Software license fees decreased 84% in 2000
due it a decrease in the licensing of the Company's products. Installation and
training decreased to $55,880 in 2000 from $60,966 in 1999 due, in part, to a
decrease in custom programming and conversion services related to the
implementation of the Year 2000 version of the Company's LegacyTM products.
Maintenance revenue increased 108% during 2000, due to an increase in revenue
from the CPS and Auto Admin customers acquired during the year and an increase
in maintenance revenue fromthe new asystTM customers. This increase was
partially offset by a reduction in maintenance revenue generated from the
Company's LegacyTM and QuestTM products. Equipment and supplies sales decreased
22% as a result of lower sales of hardware sold in conjunction with the
Company's software products.
Total costs and expenses increased 18% from $425,088 in 1999 to $500,042 in
2000. Salary expense increased 27% in 2000 due, in part, to an increase in the
number of employees added as a result of the CPS and Auto Admin acquisitions
that were completed during 2000. Other general, administrative and selling
expenses increased 14% in 2000 as a result of increased expenses related to the
CPS and Auto Admin acquisitions. Depreciation and amortization expense increased
88% in 2000 as a result of increased depreciation and amortization expense
related to the CPS and Auto Admin acquisitions. Commissions and cost of
equipment and supplies sold decreased 89% and 28% respectively as a result of
lower sales of the Company's products during 2000.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000 AND 1999
The Company's total revenue decreased 14% from $1,549,226 during the first
nine months in 1999 to $1,335,938 in 2000. Software license fees decreased 70%
in 2000 due to a decrease in the licensing of the Company's software products.
Installation and training decreased to $96,958 in 2000 from $228,470 in 1999
due, in part, to a decrease in custom programming and conversion services
related to the implementation of the Year 2000 version of the Company's LegacyTM
products. Maintenance revenue increased 39% during 2000, due to an increase in
revenue from the CPS and Auto Admin customers acquired during the year and an
increase in maintenance revenue from new asystTM customers. Equipment and
supplies sales decreased 15% as a result of lower sales of hardware sold in
conjunction with the Company's software products.
Total costs and expenses remained constant at $1,255,701 during the first
nine months in 2000 as compared to $1,256,361 in 1999. Salary expense increased
16% in 2000, due in part, to an increase in the number of employees added as a
result of the CPS and Auto Admin acquisitions. Other general, administrative and
selling expenses remained constant in 2000 at $326,383 as compared to $322,123
during the nine-month in 1999. Depreciation and amortization expense increased
37% in 2000 as a result of increased depreciation and amortization expense
related to the CPS and Auto Admin acquisitions. Commissions and cost of
equipment and supplies sold decreased 79% and 20% respectively as a result of
lower sales of the company's products during 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net cash used in operating activities of $74,434 during the
nine months ended September 30, 2000, as compared to net cash provided by
operations of $361,657 for the same period in 1999. This decrease in cash
provided in 2000 was due, in part, to a decrease in the results of operations in
the first nine months of 2000. Net cash of $24,107 was utilized in 2000 for the
purchase of equipment necessary for the sales, development and support of the
Company's products.
<PAGE>
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.
On June 21, 2000, the Ontario Superior Court of Justice in Bankruptcy
approved USTI's bid for the purchase of substantially all of the assets and
assumed certain customer support obligations of Auto Administrator Int'l, Inc.
("Auto Admin"). USTI successfully bid US $255,700 in cash for the Auto Admin DOS
and Windows source code and software support and licensing agreements for over
300 customers primarily located in Canada. The assets purchased also included
the accounts receivable related to these customers as well as substantially all
of the fixed assets of Auto Administrator in both the London, Ontario and
Winnipeg, Manitoba offices. The customer support obligations assumed included
approximately US $400,000 of annual support contracts that expire during the
next 12 months. USTI registered a wholly owned subsidiary, USTI Canada, Inc.,
which received the assets purchased in the transaction and serves as USTI's
operating entity in Canada. Results of operations are included in the company's
consolidated financial statements since they were acquired.
The Company entered into an equipment lease with Ventana Leasing, Inc.
("Ventana Leasing"), a related party, in 1991. Payments totaling approximately
$113,200 remained outstanding since their due dates under the terms of the
lease. During July 2000, Ventana Leasing and the Company reached a settlement
whereby the Company paid $25,000 and issued 75,000 common stock purchase
warrants to Ventana Leasing in full and final settlement of the payments due on
the lease. The warrants were issued at fair market value and are exercisable for
a period of five years. This transaction resulted in a gain on debt forgiveness
of $88,211 during the quarter ended September 30, 2000.
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 June 30, 2000, dividends were in arrears on the
Series B preferred stock in the amount of $420,075 and on Series E preferred
stock in the amount of $195,500.
<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 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 September
30, 2000, are entitled to the payment of approximately $420,075 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 September
30, 2000, are entitled to the payment of approximately $195,500 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) 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: NOVEMBER 14, 2000 BY: /S/ THOMAS E. GIBBS
---------------------
Thomas E. Gibbs, President
and Chairman of the Board
(Principal Executive Officer)
DATE: NOVEMBER 14, 2000 BY: /S/ RANDALL L. MCGEE
----------------------
Randall L. McGee, Secretary
and Treasurer
(Principal Financial and
Accounting Office
<PAGE>
