Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,
1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15960
U.S. Technologies Inc.
(Exact name of Registrant as specified in its charter.)
State of Delaware 73-1284747
(State of Incorporation) (I. R. S. Employer
Identification No.)
1402 Industrial Boulevard
Lockhart, Texas 78644
(Address of principal executive offices.)
Registrant's telephone number, including area code: (512)
376-1049
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 [ ]
The number of shares outstanding of the Registrant's
common stock, par value $0.02, at November 14, 1995,
was 15,875,963
2
U.S. TECHNOLOGIES INC.
Form 10-Q-For the Quarter Ended September 30, 1995
INDEX
Page No.
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Balance Sheets 4
Nine Months Ended September 30, 1995 (unaudited)
and December 31, 1994 (audited)
Consolidated Statements of Operations
Nine Months Ended September 30, 1995 and 1994 5
Consolidated Statements of Operations
Three Months Ended September 30, 1995 and 1994 6
Consolidated Statements of Changes in Stockholders'
Equity 7
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994 8
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and results of Operations. 10
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings 16
Item 2. Changes in the Rights of the Company's Security
Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
3
PART I.
Item 1. Financial Statements.
4
U.S. Technologies Inc.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1995 1994
Current assets:
Cash in bank $ 106,375 $ 2,579
Accounts receivable - trade 624,492 117,900
Accounts receivable - other 40,834 72,927
Inventories 1,128,714 1,042,306
Prepaid inventory 196,793
Prepaid expenses 22,406 31,112
Total current assets 2,119,614 1,266,824
Property and equipment - net 263,536 426,238
Other assets:
Investment - NCL 265,000 265,000
Investment - Gem stones 143,564 143,564
Investment - new technologies 1,004,550
Note receivable 156,436
Other assets 8,979 18,714
Total other assets 1,578,529 427,278
Total assets $3,961,679 $2,120,340
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - other $ 610,013 $ 50,000
Accounts payable 209,110 129,048
Accrued expenses 418,970 308,210
Total current liabilities 1,238,093 487,258
Commitments and contingencies: (Note 3)
Stockholders' equity:
Common stock - $.02 par value; 40,000,000 shares
authorized; 15,875,963 and 6,969,635 shares
issued and outstanding at September 30, 1995
and December 31, 1994, respectively 317,520 139,393
Additional paid-in capital 9,887,493 7,977,821
Accumulated deficit (7,481,427) (6,484,132)
Total stockholders' equity 2,723,586 1,633,082
Total liabilities and stockholders' equity$3,961,679 $2,120,340
The accompanying notes are an integral part
of the consolidated financial statements.
4
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended September 30,
1995 1994
Net Sales $1,647,435$1,466,938
Operating costs and expenses:
Cost of sales 1,275,653 1,819,066
Research and development expense 135,279
Selling expense 137,906 116,883
General and administrative expense 1,187,584 602,200
Allowance for doubtful accounts 9,249
__________ _________
Total operating costs and expense 2,745,671 2,538,149
__________ _________
Income (loss) from operations (1,098,236)(1,071,211)
Other income (expense)
Interest income
Other income 156,941 23,045
Interest expense (43,209) (19,552)
Gain on sale of subsidiaries 1,508,448
Other expense (12,791) (2,692)
Total other income (expense) 100,941 1,509,249
Net income (loss) $ (997,295) $438,038
Earnings (loss) per common share
Net income (loss) $(0.07) $(0.08)
Cash dividends per common share $0.00 $0.00
Weighted-average common shares outstanding14,701,5045,254,812
The accompanying notes are an integral part
of the consolidated financial statements.
5
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended September 30,
1995 1994
Net Sales $767,362 $234,547
Operating costs and expenses:
Cost of sales 442,168 444,421
Research and development expense 63,548
Selling expense 62,950 23,871
General and administrative expense 171,209 75,625
Total operating costs and expense 739,875 543,917
________ ________
Income (loss) from operations 27,487 (309,370)
Other income (expense)
Interest income
Other income 496
Interest expense (10,649) (5)
Other expense (12,965) ________
Total other income (expense) (23,118) (5)
Net income (loss) $ 4,369 $(309,375)
Earnings (loss) per common share
Net income (loss) $(0.00) $(0.06)
Cash dividends per common share $0.00 $0.00
Weighted-average common shares outstanding15,357,7165,258,823
The accompanying notes are an integral part
of the consolidated financial statements.
6
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
$0.01 Par Value
Common StockAdditional
Number of Par Paid-InAccumulated
Shares ValueCapital Deficit Total
Balance, December 31, 19922,921,029$58,421$4,323,430$(3,284,544)$1,097,307
Stock options exercised 340,000 6,800 709,231 716,031
Rule 144 stock issued 373,000 7,460 450,696 458,156
Stock exchanged for services325,0006,500 584,125 590,625
Stock issued - investment NCL118,0002,360248,390 250,750
Net (loss) _________ ________________ (2,352,572)(2,352,572)
Balance, December 31, 19934,077,02981,5416,315,872(5,637,116)760,297
Stock options exercised 171,606 3,432 125,718 129,150
Rule 144 stock issued 1,470,000 29,400 556,850 586,250
Stock exchanged for services951,00019,020685,381 704,401
Stock issued - gems 300,000 6,000 294,000 300,000
Net (loss) _________ ________________ (847,016) (847,016)
Balance December 31, 19946,969,635139,3937,977,821(6,484,132)1,633,082
Stock exchanged for services372,0007,440 198,091 205,531
Stock issued for new product 750,00015,000181,793 196,793
Stock issued for Newdat, Inc.
acquisition 7,053,728 141,0741,269,675 1,410,749
Stock options exercised 730,600 14,613 260,113 274,726
Net (loss) __________________________ (997,295) (997,295)
Balance, Sept 30, 199515,875,963$317,520$9,887,493$(7,481,427)$2,723,586
The accompanying notes are an integral part
of the consolidated financial statements.
7
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30,
1995 1994
Cash flows from operating activities:
Income (loss) from operations $(997,295) $615,924
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 655,845 160,537
Excess of market over issue price
of Rule 144 stock 145,181 241,103
Record secured note received for previous
writedown of gems (156,436)
Loss on foreclosure of assets under
Gain on sale of subsidiaries (1,376,959)
Changes in certain assets and liabilities - net of effects
of Newdat, Inc. acquisition:
Accounts receivable (447,818) 72,412
Inventories 79,573 30,040
Prepaid expense 8,706 7,085
Accounts payable 53,583 (90,377)
Accrued expenses 110,760 140,588
________ ________
Net cash provided (used) by
operating activities (547,901) (199,647)
Cash flows from investing activities:
Equipment purchases (6,658)
Decrease in other assets 9,735 (299,975)
Net cash used in investing activities 3,077 (299,975)
Cash flows from financing activities:
Proceeds from lines of credit 653,620
Principal payments on notes payable (50,000)
Proceeds from issuance of common stock45,000 480,000
_______ _______
Net cash provided by financing activities 648,620 480,000
Increase (decrease) in cash 103,796 (19,622)
Cash, beginning of period 2,579 40,911
Cash, end of period $106,375 $21,289
The accompanying notes are an integral part
of the consolidated financial statements.
8
U.S. Technologies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
U.S. Technologies Inc. furnishes administrative and
management services to its wholly owned subsidiaries. Lockhart
Technologies, Inc.("LTI") and Newdat, Inc., and furnished the
same services to its formerly wholly owned subsidiaries American
Microelectronics Inc., "AMI" Republic Technology Corporation
"Republic", Microlabs, Inc. "Microlabs" LTI operations consist of
contract manufacturing, prototyping and repair of printed circuit
boards using surface mount, through-hole and mixed technology.
Newdat, Inc. and its 80% owned subsidiary SensonCorp, Limited
were acquired on January 23, 1995. U.S. Technologies Inc.,
together with its subsidiaries, are hereinafter referred to
collectively as "the Company."
Principles of Consolidation
The consolidated balance sheet at September 30, 1995
includes the accounts of U.S. Technologies Inc., Lockhart
Technologies, Inc., NewDat, Inc., and SensonCorp, Ltd., its 80%
wholly owned subsidiary. The balance sheet at December 31, 1994
includes the accounts of U.S. Technologies Inc., and Lockhart
Technologies, Inc. The consolidated statements of operations,
changes in stockholders' equity and cash flows include the
accounts of U.S. Technologies Inc., Lockhart Technologies, Inc.,
and Newdat, Inc. and SensonCorp, Ltd. for the nine and three
months ended September 30, 1995. The the consolidated statements
of operations, changes in stockholders' equity and cash flows for
the three months ended September 30, 1994, includes the
operations of U.S. Technologies Inc., and LTI its wholly owned
subsidiary. The nine month period ended September 30, 1994,
includes the operations of LTI for the three months ended
September 30, 1994 , operations for U.S. Technologies Inc., for
the nine months ended September 30, 1994, and the operations of
American Microelectronics Inc., Republic Technology Corporation
and U.S. Microlabs Inc. (formerly wholly owned subsidiaries) for
the six months ended June 30, 1994.
Presentation Basis
The Company's consolidated financial statements have been
presented on the basis that the Company is a going concern which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has
incurred significant losses during each of the three years in the
period ended December 31, 1994, and had working capital
deficiencies at December 31, 1993. Additionally, at various
times during 1994 and 1993, the Company was in default
(delinquent payments) on its debt obligations.
The Company's continued existence is dependent upon its
ability to resolve its liquidity problems. While there is no
assurance that such problems can be resolved, the Company
9
believes there is a reasonable expectation of achieving that goal
through the cash generated from future operations, the
introduction of new products into the market and the sale of
additional common stock through a private placement.
The interim financial statements are unaudited but, in the
opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been included.
Such adjustments consisted only of normal recurring items.
Interim results are not necessarily indicative of results for a
full year.
Inventories
Inventories are stated at the lower of cost or market
utilizing the average cost method for raw materials and work-in-
progress, and the first-in, first-out method for finished goods.
Licenses
The cost of obtaining the rights to copy certain proprietary
software for use in the Remote Processing Module ("RPM") are
being amortized over five years using the straight line method.
10
Property and Depreciation
Property and equipment are stated at cost less accumulated
depreciation. Expenditures for additions, renewals and
improvements of property and equipment are capitalized.
Expenditures for repairs, maintenance and gains or losses on
disposals are included in operations. Depreciation is computed
using the straight-line method over the following estimated
lives:
Estimated Lives
Equipment 5-7 years
Furniture and fixtures 7 years
Vehicles 3 years
Leasehold Improvementsterm of building lease
Earnings per Share
Net loss per common share is based on the weighted average
number of common shares and common share equivalents outstanding
in each period. The shares reserved for stock options and
warrants are anti-dilutive for the purpose of determining net
income or loss per share.
Recent Pronouncements
The Company adopted Financial Accounting Standard ("FASB")
No. 109, "Accounting for Income Taxes" during the year ended
December 31, 1993, which establishes generally accepted
accounting principles for the financial accounting measurement
and disclosure principles for income taxes that are payable or
refundable for the current year and for the future tax
consequences of events that have been recognized in the financial
statements of the Company and past and current tax returns. The
change had no effect on prior year results.
Product Warranties
Under the Company's product warranty program, the Company
has agreed to replace certain products during the one year
warranty program. Expected warranty costs, if any, are provided
for in the period in which products are sold. To date accrued
warranty costs are immaterial.
Revenue Recognition
Revenue is recognized from sales of products when the
product is shipped.
New Technologies
Acquired new technologies are being amortized over a 60
month period.
2. ACCOUNTS RECEIVABLE
The Company has the policy of offering customers a 2%
discount for payment of invoiced amounts within 10 days of the
invoice date. Accounts receivable - trade at September 30, 1995
and December 31, 1994 is net of an allowance for doubtful
accounts in the amount of $59,079 and $49,830, respectively.
11
3. COMMITMENTS AND CONTINGENCIES
The Company relocated its operations to a minimum security
prison facility on December 29, 1993 and has a lease agreement
with Wackenhut Corrections Corporation, The Texas Department of
Criminal Justice, Division of Pardons and Paroles and the City of
Lockhart, Texas, to lease approximately 27,800 square feet of
manufacturing and office space under an operating lease through
January 31, 1997 and provides for automatic three year extensions
unless notification is given by either party at least six months
prior to the expiration of each term. The lease provides for
annual rental rates of $1 per year for the primary term and the
first automatic three year extension. The Company continues to
lease office space in Austin. Rental expense at other locations
for the years ended December 31, 1994 and 1993 was $7,290 and
$132,000, respectively.
12
On March 22, 1995, the Company was served with a citation in
TTI Testron, Inc. vs. American Microelectronics, Inc. and
Lockhart Technologies, Inc., County Court at Law No. 1, Travis
County, Texas, Cause No. 221,094. The petition alleges that
Lockhart Technologies, Inc. received the assets of American
Microelectronics Inc. without consideration. The action seeks
damages of $11,527. The Company believes the claim is without
merit.
On January 24, 1995, an action styled SensonCorp Systems,
Inc., SensonCorp Pacific, SensonCorp Southeast, SensonCorp West,
Creative Media Resources vs. SensonCorp Limited, William Meehan,
Dugal Allen, John Allen, DOES 1 through 50, United States
District Court Northern District of California, Cause No. C-95-
00282. The action seeks equitable relief and damages for breach
of contract, breach of implied warranty of good faith and fair
dealing, common law fraud, negligent misrepresentation, unfair
competition, interference with contract, accounting,
receiver/attachment, and theft of trade secrets. The causes of
action are related to a marketing agreement between SensonCorp
Ltd., plaintiffs. Defendant John Allen is the Chairman of the
Board of the Company. Dugal Allen is John Allen's son and is
vice president of operations for SensonCorp Ltd. Mr. Meehan is
president of U.S. Technologies Inc. The suit does not specify
the dollar amount of damages sought. The plaintiff's were denied
most of the equitable relief they sought, but obtained a
temporary injunction requiring Senson to continue selling them
certain products on Senson's usual and customary terms. This
temporary relief became redundant when a subsequent clause of
cancellation of contract without cause was effected. The
cancellation by SensonCorp Systems Inc. was accepted and a
cancellation fee of approximately $7,600 was paid to SensonCorp
Systems Inc. Subsequent determination by the Federal Court
stayed the plaintiff's case pending arbitration (in accordance
with contract obligations). The same determination, removed John
V. Allen from the case. The plaintiffs appealed this ruling, but
it was dismissed.
The Company expects to participate in arbitration during
December 1995, and believes that the plaintiffs claims are
without merit and that SensonCorp, Ltd. and the other defendants
will prevail.
On August 9, 1994, an action styled Austin Temporary
Services, Inc. vs. U.S. Technologies, Inc., dba American
Microelectronics Inc., 345th Judicial District Court, Travis
County Texas, Cause No. 94-09813, alleging that the Company was
indebted to Austin Temporary Services, Inc. ("ATS") in the amount
of $67,622 plus costs of court, interest, and attorney's fees for
temporary employee services that ATS furnished to American
Microelectronics Inc. Subsequently, ATS has amended its petition
to add Jack D. Bryant, Ryan Corley, Leonard D. Hilt, American
Microelectronics, Inc., and Lockhart Technologies, Inc. as
additional named defendants. This action has been dismissed with
prejudice. The terms of the settlement agreement are subject to
13
a confidentiality agreement, but reflect the Company's position
that the plaintiff's claims were without merit.
On July 16, 1995, the Company was served with a citation in
Elpac Electronics Vs. U.S. Technologies Inc., in the 53rd
District Court of Travis County, Texas. The petition alleges
that the Company is liable for certain debts of a former
subsidiary, American Microelectronics, Inc. ("AMI") on the basis
of a fraudulent transfer of assets from AMI to the Company. The
petition seeks $101,461 in damages plus $35,000 in attorney's
fees, interest, and costs. The Company believes the complaint is
without merit.
On July 16, 1995, the Company was served with a citation in
Evins Personnel Consultants vs. U.S. Technologies Inc., County
Court at Law No. 1 of Travis County, Texas. The petition alleges
that the Company is liable for certain debts of a former
subsidiary, American Microelectronics, Inc. ("AMI") on the theory
that the Company was doing business as AMI. The petition seeks
$40,818 in damages plus $13,500 in attorney's fees, interest, and
costs. The Company believes the complaint is without merit.
On July 16, 1995, the Company was served with a citation in
Texas Industrial Svcs. vs. U.S. Technologies Inc., in County
Court at Law No. 2 Travis County, Texas. The petition alleges
that the Company is liable for certain debts of a former
subsidiary, American Microelectronics, Inc. ("AMI") on the theory
that the Company was doing business as AMI. The petition seeks
$24,842 in damages plus $8,000 in attorney's fees, interest and
costs. The Company believes that the complaint is without merit.
On March 21, 1994, The District Court, 98th Judicial
District, Travis County, Texas granted a judgment to Travis
County, et al. in the amount of $78,732 plus interest in the
amount of $13,397 and attorney's fees in the amount of $13,819
for delinquent personal property tax for the years of 1992 and
1993. The total Judgment has been accrued at December 31, 1993
and $57,940 and $48,008 was recorded in expense. The Company is
not liable for the judgment, but has reflected these amount in
accrued liabilities because the judgments remain unpaid and are a
lien on certain equipment owned by LTI that was previously owned
by AMI.
There are several lawsuits outstanding against AMI and Republic
at the time they were sold. Ami and Republic are separate
corporations, incorporated under the laws of the State of Texas.
Therefore, the Company believes it has no liability arising out
of or in connection with any lawsuits against AMI or Republic.
On July 14, 1989, Company's Board of Directors adopted a
bonus plan for certain employees that sets aside 1%, 2% and 3% of
sales as long as the Company has maintained pretax income of 10%,
15% and 20% of sales, respectively. The performance standards
will be based on a three month period of time. Bonuses will be
accrued quarterly and determined as of the end of each calendar
14
year. No employees will have vested rights in the bonus plan.
The Board of Directors will act as a committee to determine who
participates and the actual amount of the individual bonuses. No
bonuses were declared during the three months ended June 30, 1995
or during the year ended December 31, 1994.
The previous Board of Directors guaranteed severance pay to
four individuals in the event of any merger or acquisition by the
Company. In such event the company guaranteed severance pay of
four months each to Ryan Corley and Jack Bryant, who served as
directors of the Company until October 30, 1995, if their
employment with the Company is terminated voluntarily or
involuntarily for any reason (with or without cause) within six
months following the closing of any acquisition or merger.
4. SHAREHOLDERS EQUITY
On January 23, 1995, the Company acquired all of the
outstanding capital stock of Newdat, Inc., in exchange for
7,053,728 shares of the Company's common stock. As a result of
the acquisition, the Company has available two new products which
will go into production during the third and fourth quarters and
an 80% interest in another company which is marketing a line of
environmentally friendly chemical coatings developed by a major
Australian chemical company.
The acquisition was accounted for by the purchase method of
accounting, and accordingly, the purchase price has been
allocated to assets acquired and liabilities assumed based on
their fair market value at the date of acquisition. The excess
of purchase price over the fair values of net assets acquired has
been recorded as goodwill. The fair values of these assets and
liabilities are summarized as follows:
Cash $ 2,846
Accounts receivable 11,243
Inventory 165,981
Property and equipment 4,578
Purchased technologies 1,167,500
Goodwill 314,324
Accounts payable and accrued expenses(26,479)
Notes payable (229,243)
$1,410,750
Included in the purchased technologies is $300,000 of
technologies for a tape storage device that is still in the
development stage. That amount was charged to expense during the
quarter ended March 31, 1995.
On December 2, 1994, the Company entered into an master
distribution agreement with Carlton Technologies & Services Ltd.,
for a master distributorship of plastic shrink tubing materials.
The distribution agreement gives the Company the exclusive
territories of distribution in the states of Texas, Arizona and
California. The Board of directors approved the issuance of
15
750,000 shares of common stock to Carlton Technologies & Services
Ltd., in exchange for shrink wrap material valued at $196,793.
Shrink wrap is a plastic material widely used in the electronics
industry as an electrical insulator which shrinks when exposed to
heat. The Company acquired the material primarily for resale
through its contacts in the electronics industry. The stock was
not actually issued until January 24, 1995, and, therefore, not
booked by the Company for accounting purposes until that date.
During the first quarter, 372,000 shares of the of the
Company's nonqualified stock options were exercised. Some of the
options were granted previously at less than market value at the
date of the grant but were contingent upon certain conditions
being met before they could be exercised. Those conditions were
met during the first quarter and the stock options were exercised
resulting in a charge being made against current operations as
compensation for the excess of market value over the option price
in the amount of $145,181 in the accompanying financial
statements for the quarter ended March 31, 1995.
On July 21, 1995, the Board of directors approved the
amendment of the Company's Certificate of incorporation to
increase the Company's total authorized capital stock from twenty
million (20,000,000) shares of $.02 par value Common Stock to
forty million (40,000,000) shares of $.02 par value Common Stock
and the creation of ten million (10,000,000) shares of a new
class of $.02 par value Preferred stock. The Preferred stock may
be issued in one or more series with rights and privileges to be
set by the board of directors.
5. INCOME TAXES
At December 31, 1994, the Company has available for federal
income tax purposes unused operating losses which may provide
future tax benefits expiring as follows:
Year of Expiration Net Operating Loss
2003 $1,383,000
2005 390,000
2006 165,000
2007 147,000
2008 2,291,000
2009 836,000
$5,212,000
6. SALE OF SUBSIDIARIES
Prior to June, 1994, the Company owned three (3) additional
subsidiaries which had been in operation for several years:
American Microelectronics Inc. ("AMI"), Republic Technology
Corporation ("Republic"), and U.S. MicroLabs Inc. ("MicroLabs").
AMI was in the electronics contract manufacturing business.
Republic was in the business of designing and marketing personal
computers. MicroLabs had been inactive for several years, but
had at one time been in the business of developing and marketing
16
software. AMI was the largest secured creditor of Republic. The
Company was the largest secured creditor of AMI. In June, 1994,
AMI foreclosed on its security interest in Republic and accepted
an assignment of all of Republic's assets (all of which were
covered by AMI's security agreement) in satisfaction of
Republic's debts to AMI. Subsequent thereto the Company
foreclosed on its security interest in AMI and accepted an
assignment of AMI's assets (that were covered by the Company's
security agreement) in satisfaction of AMI's debts to the
company. The Company made a capital contribution of the assets
thus obtained to the newly formed company, Lockhart Technologies,
Inc., in exchange for all of the capital stock of that company.
On June 30, 1994, all of the common stock of AMI, Republic
and Microlabs were sold to an unrelated party for cash totaling
$1,758. The transaction resulted in a gain of $1,376,959.
Following is a summary of net assets and results of
operations for the three subsidiaries sold as of June 30, 1994:
June 30
Total Assets $ 214,159
Total liabilities 1,589,360
Net assets (liabilities)$1,375,201
Sales and other income$1,255,437
Operating cost and other expense 1,783,733
Net income (loss $(528,296)
7. SUBSEQUENT EVENT
On October 30, 1995, the board of directors of the Company
voted to increase the number of board members to five menbers.
At that time Mr. William E. Meehan, President of the Company, and
Mr. Norman Frank were appointed to replace Mr. Ryan Corley and
Mr. Jack D. Bryant who resigned as board members on that date.
17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
Working capital increased by $101,955 to $881,521 at
September 30, 1995, from $779,566 at December 31, 1994. As of
September 30, 1995, the Company has no unused lines of credit
available under bank credit agreements. The Company's
consolidated financial statements have been presented on the
basis that the Company is a going concern which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company's continued existence is
dependent upon its ability to resolve its previous liquidity
problems, principally from profitable operations, by increasing
its level of sales, operating more efficiently and obtaining
lines of credit, long-term debt or equity financing. To help the
Company overcome its liquidity and operational problems, the
Company has done the following:
A. On January 23, 1995, the Company acquired Newdat,
Inc. of Arizona, including an 80% ownership in
SensonCorp Ltd. (a manufacturer and distributor of
environmentally friendly corrosion inhibition
products), With this acquisition, the Company considers
that it has a greater range of talent available for
both its traditional electronics business and its newly
acquired activities. The Company previously predicted
to break even in the quarter ending September 30, 1995,
and to show a profit in the fourth quarter of 1995. In
fact the Company has reported a modest profit for the
quarter ended September 30, 1995.
B. The Company appointed a new president on June 30,
1995, who is experienced in company turnarounds,
production controls and management. It has also
appointed a Vice President of Sales and Marketing who
has an outstanding record in both industrial and retail
sales and marketing. On October 30, 1995, the Company
hired a general manager for its Lockhart facility to
improve manufacturing operations and to implement plans
for a smooth upsurge in business.
B. The Company is presently implementing a plan
expected to increase the traditional business at the
Lockhart facility from about $100,000 a month to
approximately $700,000 per month over the next 24 month
period. To enable the Company to achieve this goal,
the sales force has been expanded from 2 to 5 persons
in order to adequately cover the Texas market.
Additionally, a sales person is being recruited in
Arizona to secure traditional work in that area.
15
Additional sales force expansion will take place if
sales objectives so demand.
C. The Company plans to commence production as early
as possible of the Newdat high-tech products; namely
its TSD 9000 high speed high volume tape storage device
and its wire measurement device. The production of
these products is expected to generate approximately
$800,000 in business within one year and greater than
$3,000,000 by December 31, 1997, with satisfactory
profit margins.
D. The 80% equity ownership in SensonCorp Inc. is
expected to contribute to the profitability of the
Company by the end of 1995. During 1996. the
subsidiary predicts to have sales of approximately
$4,000,000.
E. The Company is presently preparing an offering of
a yet to be specified amount to assist in the launching
of its owned technologies, and to cover inventory and
cash flow gaps during its 1996 expansion program.
F. The Company will launch production of an earthquake
warning device in November 1995 for which is has an
exclusive manufacturing right. The product is priced
to sell into the consumer market and the Company will
received a fixed net profit per unit.
G. In addition to the offering outlined in paragraph E,
the Company plans to seek funding to further expand its
business front, to fund inventory for high tech products, to
sell into export markets, and possibly undertake
acquisitions as its growth necessitates. Should additional
funding not be forthcoming, the Company believes it can
sustain growth and profit, but at a slower rate.
The Company does not anticipate that increased inventory
levels will be required to meet present manufacturing needs for
the existing customer base.
On June 29, 1994, AMI foreclosed on Republic under a secured
note and security agreement. Under the terms of the security
agreement and the provision of the Texas Uniform Commercial Code,
AMI accepted an assignment from Republic of all of the property
described in the security agreement (being all of the tangible
and intangible assets) in satisfaction of Republic's secured debt
to AMI. Subsequently, on or about June 29, 1994, U.S.
Technologies Inc., foreclosed on AMI under a series of notes and
security agreements representing $1,871,069 in original
principal. Under the terms of the security agreements and the
provisions of the Texas Uniform Commercial Code, U.S.
Technologies Inc., accepted an assignment from AMI of all of the
property described in the security agreement (being substantially
16
all of AMI's tangible and intangible assets) in satisfaction of
AMI's secured debts to U. S. Technologies Inc.
The Company sold its interest in Republic, AMI and Microlabs
on June 30, 1994 for $1,758 which resulted in a gain on the sale
of these entities of $1,376,959. On July 1, 1994, U.S.
Technologies Inc. contributed the assets obtained from AMI for
all of the stock in a newly formed corporation named Lockhart
Technologies, Inc.
Another source of future working capital may be the 660,000
outstanding Redeemable Warrants issued in connection with the
Company's initial public offering together with the 60,000
underwriter Warrants. The Warrants, which were to expire on
December 31, 1992, which have been extended several times until
December 31, 1995, are exercisable at $10.00 per Warrant. If
exercised could generate, after offering expenses, approximately
$6,393,000. Management is evaluating alternative sources of
capital as there is no assurance the Common Stock trading in the
public market will ever trade at the required closing bid price
for the specified amount of time to enable the exercise of the
Redeemable Warrants.
The Company adapted Financial Accounting Standard ("FASB")
No. 109, "Accounting for Income Taxes" during the year ended
December 31,1 993, which establishes generally accepted
accounting principles for the financial accounting measurement
and disclosure principles for income taxes. The change had no
effect on any of the financial statements presented.
Results of Operations - Quarter Ended September 30, 1995
During the three month and nine month periods ended
September 30, 1995, the Company had a net income of $4,369 and a
net loss of $997,295 or $0.00 and $(0.07) per weighted-average
share, on net sales of $767,362 and $1,647,435 as compared to a
net loss of $309,375 and a net income of $438,038 or $(0.06) and
$(0.08) per weighted average share, on net sales of $234,547 and
$1,466,938 for the comparable periods in 1994. Net sales
increased approximately 327% for the three month period and
increased approximately 12.3% for the nine month period ended
September 30, 1995, over the comparable periods in 1994. For the
nine month period ended September 30, 1995, LTI accounted for
approximately $1,314,000 or approximately 80% of the total sales.
SensonCorp accounted for approximately $333,000 or 20% of the
total sales for the same period.
17
Gross margins for the three month and nine month periods
ended September 30, 1995, was 42.4% and 22.5%. For the
comparable periods in 1994, gross margins for the three month
period was (89.5)% and (24.0)%. The increase in gross margins
for the three month and nine month periods ended September 30,
1995, compared to the same periods in 1994 was due primarily to
realizing increased margins by LTI and the sales of the
SensonCorp products during 1995, which carry a higher profit
margin, that were not part of the Company during 1994. The
Company presently is attempting to increase its sales volume by
adding additional sales personnel and has engaged outside
marketing representatives along with seeking additional lines of
work.
Selling expenses represented approximately 8.2% and 8.4% of
sales during the three month and nine month periods ended
September 30, 1995, compared to 10.2% and 8.0% for the comparable
periods in 1994. The decrease in sales expense for 1995 was
primarily the result of the increased sales over which to
allocate base salary commitment to salespersons marketing the
Company's products.
Administrative expenses for the three month and nine month
periods ended September 30, 1995, was 22.3% and 72.1% of sales as
compared to 32.2% and 41.1% for the comparable periods in 1994.
The percentage increase for the nine months ended June 30, 1995,
is primarily due to the inclusion of $300,000 in administrative
expense for purchased technologies, in the NewDat, Inc.
acquisition, for a tape storage device which is in the final
development stage. Additionally, amortization of goodwill and
purchased technologies of approximately $177,000 and $145,181 in
compensation for the excess of market value over option grant
prices for nonqualifying stock options exercised during the
quarter ended March 31, 1995 was charged to administrative
expense.
For the nine month period ended September 30 1995, the
Company expended approximately $135,000 for research and
development of unannounced products being developed by NewDat,
Inc. and Senson. No expenditures were incurred for research and
development during the nine month period ended September 30,
1994.
Although the Company anticipates that there will be an
increases in demand for its products and services, its capacity
to meet these demands are presently limited by the availability
of funds to do turn key work and the lack of established major
credit lines with suppliers of components. The Company is
presently seeking additional working capital and working to
establish new and additional credit lines with suppliers
The Company does not anticipate that inflationary trends
will have a material impact on its results of operations because
of the short-term nature of its contracts.
18
19
Part II
Item 1. Legal Proceedings.
The Company relocated its operations to a minimum security
prison facility on December 29, 1993 and has a lease agreement
with Wackenhut Corrections Corporation, The Texas Department of
Criminal Justice, Division of Pardons and Paroles and the City of
Lockhart, Texas, to lease approximately 27,800 square feet of
manufacturing and office space under an operating lease through
January 31, 1997 and provides for automatic three year extensions
unless notification is given by either party at least six months
prior to the expiration of each term. The lease provides for
annual rental rates of $1 per year for the primary term and the
first automatic three year extension. The Company continues to
lease office space in Austin. Rental expense at other locations
for the years ended December 31, 1994 and 1993 was $7,290 and
$132,000, respectively.
On March 22, 1995, the Company was served with a citation in
TTI Testron, Inc. vs. American Microelectronics, Inc. and
Lockhart Technologies, Inc., County Court at Law No. 1, Travis
County, Texas, Cause No. 221,094. The petition alleges that
Lockhart Technologies, Inc. received the assets of American
Microelectronics Inc. without consideration. The action seeks
damages of $11,527. The Company believes the claim is without
merit.
On January 24, 1995, an action styled SensonCorp Systems,
Inc., SensonCorp Pacific, SensonCorp Southeast, SensonCorp West,
Creative Media Resources vs. SensonCorp Limited, William Meehan,
Dugal Allen, John Allen, DOES 1 through 50, United States
District Court Northern District of California, Cause No. C-95-
00282. The action seeks equitable relief and damages for breach
of contract, breach of implied warranty of good faith and fair
dealing, common law fraud, negligent misrepresentation, unfair
competition, interference with contract, accounting,
receiver/attachment, and theft of trade secrets. The causes of
action are related to a marketing agreement between SensonCorp
Ltd., plaintiffs. Defendant John Allen is the Chairman of the
Board of the Company. Dugal Allen is John Allen's son and is
vice president of operations for SensonCorp Ltd. Mr. Meehan is
president of U.S. Technologies Inc. The suit does not specify
the dollar amount of damages sought. The plaintiff's were denied
most of the equitable relief they sought, but obtained a
temporary injunction requiring Senson to continue selling them
certain products on Senson's usual and customary terms. This
temporary relief became redundant when a subsequent clause of
cancellation of contract without cause was effected. The
cancellation by SensonCorp Systems Inc. was accepted and a
cancellation fee of approximately $7,600 was paid to SensonCorp
Systems Inc. Subsequent determination by the Federal Court
stayed the plaintiff's case pending arbitration (in accordance
with contract obligations). The same determination, removed John
20
V. Allen from the case. The plaintiffs appealed this ruling, but
it was dismissed.
The Company expects to participate in arbitration during
December 1995, and believes that the plaintiffs claims are
without merit and that SensonCorp, Ltd. and the other defendants
will prevail.
On August 9, 1994, an action styled Austin Temporary
Services, Inc. vs. U.S. Technologies, Inc., dba American
Microelectronics Inc., 345th Judicial District Court, Travis
County Texas, Cause No. 94-09813, alleging that the Company was
indebted to Austin Temporary Services, Inc. ("ATS") in the amount
of $67,622 plus costs of court, interest, and attorney's fees for
temporary employee services that ATS furnished to American
Microelectronics Inc. Subsequently, ATS has amended its petition
to add Jack D. Bryant, Ryan Corley, Leonard D. Hilt, American
Microelectronics, Inc., and Lockhart Technologies, Inc. as
additional named defendants. This action has been dismissed with
prejudice. The terms of the settlement agreement are subject to
a confidentiality agreement, but reflect the Company's position
that the plaintiff's claims were without merit.
21
On July 16, 1995, the Company was served with a citation in
Elpac Electronics Vs. U.S. Technologies Inc., in the 53rd
District Court of Travis County, Texas. The petition alleges
that the Company is liable for certain debts of a former
subsidiary, American Microelectronics, Inc. ("AMI") on the basis
of a fraudulent transfer of assets from AMI to the Company. The
petition seeks $101,461 in damages plus $35,000 in attorney's
fees, interest, and costs. The Company believes the complaint is
without merit.
On July 16, 1995, the Company was served with a citation in
Evins Personnel Consultants vs. U.S. Technologies Inc., County
Court at Law No. 1 of Travis County, Texas. The petition alleges
that the Company is liable for certain debts of a former
subsidiary, American Microelectronics, Inc. ("AMI") on the theory
that the Company was doing business as AMI. The petition seeks
$40,818 in damages plus $13,500 in attorney's fees, interest, and
costs. The Company believes the complaint is without merit.
22
On July 16, 1995, the Company was served with a citation in
Texas Industrial Svcs. vs. U.S. Technologies Inc., in County
Court at Law No. 2 Travis County, Texas. The petition alleges
that the Company is liable for certain debts of a former
subsidiary, American Microelectronics, Inc. ("AMI") on the theory
that the Company was doing business as AMI. The petition seeks
$24,842 in damages plus $8,000 in attorney's fees, interest and
costs. The Company believes that the complaint is without merit.
On March 21, 1994, The District Court, 98th Judicial
District, Travis County, Texas granted a judgment to Travis
County, et al. in the amount of $78,732 plus interest in the
amount of $13,397 and attorney's fees in the amount of $13,819
for delinquent personal property tax for the years of 1992 and
1993. The total Judgment has been accrued at December 31, 1993
and $57,940 and $48,008 was recorded in expense. The Company is
not liable for the judgment, but has reflected these amount in
accrued liabilities because the judgments remain unpaid and are a
lien on certain equipment owned by LTI that was previously owned
by AMI.
There are several lawsuits outstanding against AMI and Republic
at the time they were sold. Ami and Republic are separate
corporations, incorporated under the laws of the State of Texas.
Therefore, the Company believes it has no liability arising out
of or in connection with any lawsuits against AMI or Republic.
On July 14, 1989, Company's Board of Directors adopted a
bonus plan for certain employees that sets aside 1%, 2% and 3% of
sales as long as the Company has maintained pretax income of 10%,
15% and 20% of sales, respectively. The performance standards
will be based on a three month period of time. Bonuses will be
accrued quarterly and determined as of the end of each calendar
year. No employees will have vested rights in the bonus plan.
The Board of Directors will act as a committee to determine who
participates and the actual amount of the individual bonuses. No
bonuses were declared during the three months ended March 31,
1994 or during the year ended December 31, 1993.
The previous Board of Directors guaranteed severance pay to
four individuals in the event of any merger or acquisition by the
Company. In such event the company guaranteed severance pay of
four months each to Ryan Corley and Jack Bryant, who served as
directors of the Company until October 30, 1995, if their
employment with the Company is terminated voluntarily or
involuntarily for any reason (with or without cause) within six
months following the closing of any acquisition or merger.
23
Item 2. Changes in the Rights of the Company's Security Holders
On July 21, 1995, the Board of directors approved the
amendment of the Company's Certificate of incorporation to
increase the Company's total authorized capital stock from twenty
million (20,000,000) shares of $.02 par value Common Stock to
forty million (40,000,000) shares of $.02 par value Common Stock
and the creation of ten million (10,000,000) shares of a new
class of $.02 par value Preferred stock. The Preferred stock may
be issued in one or more series with rights and privileges to be
set by the board of directors.
Item 4. Submission of Matters to a Vote of Security Holders
By solicitation of consent of the shareholders of the Company, on
July 21, 1995. the required number of consents from shareholders
had been received approving the amendment of the Company's
Certificate of incorporation to increase the Company's total
authorized capital stock from twenty million (20,000,000) shares
of $.02 par value Common Stock to forty million (40,000,000)
shares of $.02 par value Common Stock and the creation of ten
million (10,000,000) shares of a new class of $.02 par value
Preferred stock. The Preferred stock may be issued in one or
more series with rights and privileges to be set by the board of
directors.
When was the authorization of preferred stock and the change of
the number of authorized shares voted on by security holders ?
Item 6. Exhibits and Reports on Form 8-K.
No exhibits are filed with this report.
No reportable items were filed on a Form 8-K for the period
covered during this quarter.
24
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.
U.S. TECHNOLOGIES INC.
DATE: November 14, 1995 BY: ____
WILLIAM MEEHAN,
President
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