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, 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 June 30, 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 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>
June 30,
2000 December 31,
(Unaudited) 1999
=========== ============
Current Assets
Cash and cash equivalents $ 495,443 $ 922,838
Trade accounts receivable, less allowance for
doubtful accounts of $31,700 at June 30, 2000
and $25,000 at December 31, 1999 319,597 216,577
--------- ---------
Total Current Assets 815,040 1,139,415
--------- ---------
Property and equipment, net 119,459 86,572
Goodwill, net 809,072 345,715
Purchased software, net 192,887 19,878
Deposits and other 57,931 18,824
--------- ---------
Total Assets $ 1,994,389 $ 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 June 30, 2000
and December 31, 1999 166,096 171,208
Accrued payroll 20,762 157,611
Accrued interest - related party 39,616 38,673
Other accrued expenses 124,936 58,078
Deferred revenue 859,772 512,109
--------- ---------
Total Current Liabilities 1,234,097 960,594
Total Liabilities 1,234,097 960,594
--------- ---------
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 5,406,907 5,156,908
Additional paid-in capital 2,943,958 3,097,457
Accumulated deficit (7,630,573) (7,644,555)
--------- ---------
800,292 689,810
Less stock purchase note receivable 40,000 40,000
--------- ---------
Total Stockholders'Equity 760,292 649,810
--------- ---------
Total Liabilities and Stockholders'Equity $ 1,994,389 $ 1,610,404
========= =========
</TABLE>
The accompanying notes are an integral pary 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,
2000 1999 2000 1999
==== ==== ==== ====
Revenue
Software packages $ 47,334 $ 146,101 $ 107,742 $ 271,676
Installation, training and
customer support 12,667 78,341 41,077 167,504
Maintenance 286,735 221,334 480,368 451,662
Equipment and supplies sales 47,224 64,498 118,206 132,631
Other 1,968 3,200 4,062 7,474
--------- --------- --------- ---------
395,928 513,474 751,455 1,030,947
--------- --------- --------- ---------
Costs and Expense
Salaries 217,756 236,572 413,401 463,507
Other general, administrative and
selling expense 105,770 104,121 211,757 221,883
Depreciation and amortization 34,659 29,124 63,931 57,690
Commissions 2,525 10,775 5,250 15,185
Cost of equipment and supplies sold 24,352 34,714 61,319 73,006
--------- --------- --------- ---------
385,062 415,306 755,658 831,271
--------- --------- --------- ---------
Income (loss) form operations 10,866 98,168 (4,203) 199,676
--------- --------- --------- ---------
Nonoperating income (expense)
Interest expense (472) (514) (943) (1,065)
Interest income 8,325 6,146 19,128 11,667
--------- --------- --------- ---------
7,853 5,632 18,185 10,602
--------- --------- --------- ---------
Net income before extraordinary item 18,719 103,800 13,982 210,278
--------- --------- --------- ---------
Extraordinary gain on settlement of
debt - - - 9,870
--------- --------- --------- ---------
Net income 18,719 103,800 13,982 220,148
--------- --------- --------- ---------
Preferred stock dividend
requirements (13,960) (22,690) (27,920) (45,130)
--------- --------- --------- ---------
Income (loss) available for common
stockholders $ 4,759 $ 81,110 $ (13,938) $ 165,148
========= ========= ========= =========
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 54,069,078 48,178,043 53,080,067 48,178,043
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral pary of the financial statements.
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Six Month Period Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<S> <C> <C>
2000 1999
=========== ============
Cash flows in operating activities:
Net income $ 13,982 $ 220,148
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 63,931 57,690
Recognition of deferred compensation costs on
employee stock purchase 9,000 -
Extraordinary gain on settlement of debt - (9,870)
Change in operating assets and liabilities:
Accounts receivable 130,889 143,194
Deposits and other (38,130) (16,283)
Accounts payable (4,170) (750)
Accrued expenses (118,598) (24,143)
Deferred revenue (136,202) (155,180)
--------- ---------
(93,280) (5,342)
--------- ---------
Net cash provided from operating activities $ (79,298) $ 214,806
--------- ---------
Cash flows from investing activities:
Property and equipment additions (10,397) (16,765)
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 (435,597) (16,765)
--------- ---------
Cash flows from financing activities:
Exercise of common stock options 87,500 -
Payments on notes payable - (1,000)
Payments on capital lease obligations - (1,196)
--------- ---------
Net cash provided (used in) financing activities 87,500 (1,196)
--------- ---------
Increase in cash and cash equivalents (427,395) 196,845
Cash and cash equivalents, beginning of period 922,838 478,008
--------- ---------
Cash and cash equivalents, end of period $ 495,443 $ 674,853
========= =========
</TABLE>
The accompanying notes are an integral pary 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, 2000 and December 31,
1999 and the results of operations and cash flows of USTI for the six months
ended June 30, 2000 and 1999. The consolidated results of operations for the six
months ended June 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 June 30, 2000 and December 31, 1999 consisted of
the following:
<TABLE>
<S> <C> <C>
June 30, December 31,
2000 1999
---- ----
Leasehold improvements $ 66,571 $ 66,416
Furniture and fixtures 52,025 40,655
Equipment 1,014,186 974,789
--------- ---------
1,132,782 1,081,860
Less Accumulated depreciation
and amortization (1,013,321) (995,288)
--------- ---------
$ 119,459 $ 86,572
--------- ---------
</TABLE>
NOTE 3. OTHER ASSETS:
Other assets at June 30, 2000 and December 31, 1999 consisted of the
following:
<TABLE>
<S> <C> <C> <C>
Accumulated
June 30, 2000 COST Amortization Net
------------- ---- ------------ ---
Goodwill $ 2,189,027 $(1,379,955) $ 809,072
Purchased Software 782,469 (589,582) 192,887
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 June 30,
2000, are entitled to the payment of approximately $411,250 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, 2000,
are entitled to the payment of approximately $190,210 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
company's consolidated financial statements since they were acquired.
The following summarizes the unaudited consolidated pro forma results of
operations of the Company for the six months ended June 30, 2000 and 1999,
giving effect to the Auto Admin acquisition as if it had occurred on January 31,
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
SIX MONTHS ENDED JUNE 30,
2000 1999
---- ----
Revenue 1,428 1,863
Net income (loss) (90) 137
Net income (loss) 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 June 30, 2000 include revenues of $395,928 and net
income of $18,719 as compared to revenues of $513,474 and net income of $103,800
for the same period in 1999. Results for the six month period ended June 30,
2000 include revenues of $751,455 and net income of 13,982 as compared to
revenues of $1,030,947 and net income of $220,148 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 envoirment 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 Mater 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 JUNE 30, 2000 AND 1999
===============================================
The Company's total revenue decreased 23% From $513,474 during the first
quarter in 1999 to $395,928 in 2000. Software license fees decreased 68% in 2000
due to a decrease in the licensing of the Company's products. Installation and
training decreased to $12,667 in 2000 from $78,341 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.
Mainteannce revenue increased 30% during 2000, due to an increase in revenue
from the CPS and Auto Admin customers aquired during the year and an increase in
maintenance revenue from new asystTM customers. This increase was partially
offset by a reduction in maintnenace revenue generated from its LegacyTM and
QuestTM products. Equipment and supplies sales decreased 27% as a result of
lower sales of hardware sold in conjunction with the Company's software
products.
Total costs and expenses decreased 7% from $415,306 in 1999 to $385,062 in
2000. Salary expense decreased 8% in 2000, due in part, to a decrease in
employee incentives related to decreased profitability. Other general,
administrative and selling expenses remained constant in 2000. Depreciation and
amortization expense increased 19% in 2000 as a result of increased expense
related to the CPS acquisition. Commission and cost of equipment and supplies
sold decreased 77% and 30% respectively as a result of lower sales of the
Company's products during 2000.
<PAGE>
SIX MONTH PERIOD ENDED JUNE 30, 2000 AND 1999
=============================================
The Company's total revenue decreased 27% From $1,030,947 during the first
six months in 1999 to $751,455 in 2000. Software license fees decreased 60% in
2000 due to a decrease in licensing of the Company's software products.
Installation and training decreased to $41,077 in 2000 from $167,504 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. Maintenacne revenue increased 6% 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 11% as a result of lower sales of hardware sold in
conjunction with the company's software products.
Total costs and expenses decreased 9% from $831,271 during the first six
months in 1999 to $755,658 in 2000. Salary expense decreased 11% in 2000, due in
part, to a decrease in employee incentives related to decreased profitability.
Other general, administrative and selling expenses decreased 5% in 2000 due to
the continued effort by the Company to control its expenses. Depreciation and
amortization expense increased 11% in 2000 as a result of increased expense
related to the CPS acquisition. Commission and cost of equipment and supplies
sold decreased 65% and 16% respectively as a result of lower sales of the
company's products during 2000.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
===============================
The Company had net cash used in operating activities of $79,298 during the
six months ended June 30, 2000, as compared to net cash provided by operations
of $214,806 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 six months of 2000. Net cash of $10,397 was utilized in 2000 for the
purchase of equipment necessary for the sales, development and support of the
Company's products.
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.
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 $411,250 and on Series E preferred
stock in the amount of $190,210.
<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 June 30,
2000, are entitled to the payment of approximately $411,250 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, 2000,
are entitled to the payment of approximately $190,210 in dividends, which are
currently in arrears.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 21, 2000, the Company held its Annual Meeting of Shareholders. This
meeting was adjourned until July 6, 2000. At the meeting, the shareholders
approved the following items:
The following persons were elected as Directors of the Company:
Thomas E. Gibbs
Earl H. Cohen
Jordan Issackedes
Randall L. McGee
The Company's Stock Option plan was amended to increase the number of
shares reserved for issuance under the plan from 12,000,000 to 22,000,000.
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) The Company filed an 8-K dated June 21, 2000 related to the
acquisition of the Auto Administrators Int'l, Inc. assets.
<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 14, 2000 BY: /S/ THOMAS E. GIBBS
---------------------
Thomas E. Gibbs, President
and Chairman of the Board
(Principal Executive Officer)
DATE: August 14, 2000 BY: /S/ RANDALL L. MCGEE
----------------------
Randall L. McGee, Secretary
and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
