Form 10-Q/A
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 March 31, 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)
339-0001
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 May 12, 1995, was
15,145,363.
U.S. TECHNOLOGIES INC.
Form 10-Q-For the Quarter Ended March 31, 1995
INDEX
Page No.
PART I. Financial Information.
Item 1. Financial Statements. 3
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994 4
Consolidated Statements of Operations
Three months Ended March 31, 1995 and 1994 5
Consolidated Statements of Changes in Stockholders'
Equity 6
Consolidated Statements of Cash Flows
Three months Ended March 31, 1995 and 1994 7
Notes to Financial Statements 8-12
Item 2. Management's Discussion and Analysis of Financial
Condition and results of Operations. 13-14
PART II. OTHER INFORMATION. 15
Item 1. Legal Proceedings 15-16
Item 2. Changes in the Rights of the Company's Security
Holders 16
Item 4. Submission of Matters to a Vote of Security
Holders 16
Item 5. Other information 16
Item 6. Exhibits and Reports on Form 8-K 16
2
PART I.
Item 1. Financial Statements.
3
U.S. Technologies Inc.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31,December 31,
1995 1994
Current assets:
Cash in bank $ 17,049 $ 2,579
Accounts receivable - trade 213,547 117,900
Accounts receivable - other 86,535 72,927
Inventories 1,212,153 1,042,306
Prepaid inventory 196,793
Prepaid expenses 34,715 31,112
Total current assets 1,760,792 1,266,824
Property and equipment - net 365,265 426,238
Other assets:
Investment - NCL 265,000 265,000
Investment - Gem stones 143,564 143,564
Investment - new technologies 1,604,613
Note receivable 156,436
Other assets 14,229 18,714
Total other assets 2,183,842 427,278
Total assets $4,309,899 $2,120,340
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - other $ 429,932 $ 50,000
Accounts payable 158,852 129,048
Accrued expenses 364,466 308,210
Total current liabilities 953,250 487,258
Long-term liabilitis:
Notes payable 500,000 ________
Commitments and contingencies: (Note 3)
Stockholders' equity:
Common stock - $.02 par value; 20,000,000 shares
authorized; 15,145,363 and 6,969,635 shares
issued and outstanding at March 31, 1995
and December 31, 1994, respectively 302,907 139,393
Additional paid-in capital 9,627,380 7,977,821
Accumulated deficit (7,073,638) (6,484,132)
Total stockholders' equity 2,856,649 1,633,082
Total liabilities and stockholders' equity$4,309,899$2,120,340
The accompanying notes are an integral part
of the consolidated financial statements.
4
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months Ended March 31
1995 1994
Net Sales $400,661 $884,462
Operating costs and expenses:
Cost of sales 711,111 819,900
Selling expense 31,806 56,775
General and administrative expense 373,252 289,737
_________ _________
Total operating costs and expenses 1,116,169 1,166,412
_________ _________
(Loss) from operations (715,508) (281,950)
Other income (expense)
Interest income 8
Other income 156,436 123,043
Interest expense (29,796) (14,357)
Other expense (646) (1,476)
________ ________
Total other income (expense) 126,002 7,210
________ ________
Net loss $(589,506)$(274,740)
Loss per common share $(0.04) $(0.07)
Cash dividends per common share $0.00 $0.00
Weighted-average common shares outstanding13,154,8524,198,874
The accompanying notes are an integral part
of the consolidated financial statements.
5
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.
acquistion 7,053,728 141,0741,269,675 1,410,749
Net (loss) ____________________________ (589,506) (589,506)
Balance, March 31, 199515,145,363$302,907$9,627,380$(7,073,638)$2,856,649
The accompanying notes are an integral part
of the consolidated financial statements.
6
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months Ended March 31,
1995 1994
Cash flows from operating activities:
(Loss) from continuing operations $(589,506) $(274,740)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 445,564 80,465
Excess of market over issue price
of Rule 144 stock 145,181 69,750
Record securd note received for prvious writedown
of gems (156,436)
Changes in certain assets and liabilities - net of effects
of Newdat, Inc. acquistion:
Accounts receivable (82,172) (59,698)
Inventories (3,866) 13,581
Prepaid expense (3,603) 3,035
Accounts payable 3,325 (58,773)
Accrued expenses 56,456 41,137
________ ________
Net cash provided (used) by
operating activities (185,057) (185,243)
Cash flows from investing activities:
Equipment purchases (648) (46,044)
Decrease in other assets 4,485 (301)
Net cash provided by (used in)
investing activities 3,838 (46,345)
Cash flows from financing activities:
Proceeds from issuance of common stock45,000 317,312
Proceeds from short term notes 150,689 _______
Net cash provided (used) by financing
activities 195,689 317,312
Increase in cash 14,470 85,724
Cash, beginning of period 2,579 40,911
Cash, end of period $17,049 $126,635
The accompanying notes are an integral part
of the consolidated financial statements.
7
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 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 its 80% owned
subsidiary for the three months ended March 31, 1995. For
the three month period ended March 31, 1994, the
consolidated statements of operations, changes in
stockholders' equity and cash flows include the accounts of
U.S. Technologies Inc., and its formerly wholly owned
subsidiaries American Microelectronics Inc., Republic
Technology Corporation and U.S. Microlabs Inc. All
significant intercompany transactions have been eliminated.
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
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.
8
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.
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
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.
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,
9
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 March 31,
1995 and December 31, 1994 is net of an allowance for
doubtful accounts in the amount of $49,830.
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.
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
10
related to a marketing agreement between Senson and the
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. Mr. Meehan is a business
associate of John Allen. The suit does not specify the
dollar amount of damages sought. The plaintiff's were
denied most of the equitable relief they sought, but have
obtained a temporary injunction requiring Senson to continue
selling them certain products on Senson's usual and
customary terms. The Company believes the plaintiff's
claims are without merit and that Senson and the other named
defendants will ultimately 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. Under the present pleadings, ATS is claiming
breach of contract and fraud and is attempting to pierce the
corporate veil between the various companies and the named
individuals. Mr. Bryant is a Director of the company. Mr.
Corley is a Director and President of the Company. Mr. Hilt
is the President and the Director of Lockhart Technologies,
Inc. The Company believes ATS's claims are 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 liabale for the judgment, but
has reflected these amount in accured 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
separage 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
11
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, 1994.
The Company has guaranteed severance pay to four
individuals in the event of any merger or acquisition by the
Company. In such event the company has guaranteed severance
pay of four mounts each to Ryan Corley and Jack Bryant and
two months each for Leonard Hilt and Neil Ginther if their
employment with the Company or any subsidiary is termiated
voluntarily or involuntarily for any reason (with or without
cause) within six months following the closing of any
acquisiton or merger.
3. 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 second
quarter 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 1,140,000
Goodwill 849,065
Accounts payable and accrued expenses(33,720)
Notes payable (729,243)
$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 has been 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
12
Texas, Arizona and California. The Board of directors
approved the issuance of 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.
4. 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
13
5. 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
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 the three subsidiaries sold as of June 30, 1994,
and for the the three months ended March 31, 1994
June 30 March 31
Total Assets $ 214,159
Total liabilities 1,589,360
Net assets (liabilities)$1,375,201
Sales and other income$1,255,437 $884,462
Operating cost and other expense 1,783,733 1,166,412
Net income (loss $(528,296) $(274,740)
14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
Working capital increased by $40,476 to $820,042 at
March 31, 1995, from $779,566 at December 31, 1994,
primarily from the increase in accounts receivables and from
the sales of common stock. As of March 31, 1995 and 1994,
there were 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 liquidity
problems, principally from profitable operations, accounts
receivable based borrowing long-term debt or equity
financing and the continued support and forbearance of its
vendors and creditors.
The Company had a cash balance of $17,049 at March 31,
1995 compared to $2,579 at December 31, 1994. The improved
cash position is due primarily the use of better cash
management procedures and short term borrowings.
Inventories increased by approximately 16% to
$1,212,153 from $1,042,306 at December 31, 1994, primarily
due to inventory acquired in the Newdat acquistion.
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 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
13
for all of the stock in a newly formed coporation named
Lockhart Technologies, Inc.
The Company has entered into an agreement with one of
its suppliers to let them purchase components from LTI's
inventory when they have needs for certain items which
should result in an overall reduction of the raw material
inventory during 1995. The risk of obsolescence is inherent
due to the nature of the Company's business where designs
and components can become obsolete due to the rapid rate of
change in the electronics industry. The Company will
attempt to minimize this risk by planning its production and
inventory acquisition practices so as to minimize its
possible exposure. However, the rate of change is so rapid
that it is not possible to anticipate every possible risk.
Therefore, the risk of writedowns for future obsolescence
will be a continuing risk faced by the Company and will be
evaluated by management on an on going basis.
A future source of additional 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 to September 30, 1995, are
exercisable at $10.00 per Warrant. If exercised could
generate, after offering expenses, approximately $6,393,000.
Management will be 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 nature and availability of future sources of long-
term capital cannot presently be determined; however, these
sources may include any of the aforementioned sources as
well as new product sales.
The Company adapted 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. The
change had no effect on any of the financial statements
presented.
Results of Operations - Quarter Ended March 31, 1995
During the three month period ended March 31, 1995, the
Company had a net loss of $558,886 or $(0.04) per weighted-
average share, on net sales of $400,661 as compared to a net
loss of $274,740 or $(0.07) per weighted average share, on
net sales of $884,462 for the comparable period in 1994.
Net sales decreased approximately 54.7% the three month
14
period ended March 31, 1995 over the comparable period in
1994 primarily due to the loss of production jobs from key
customers and the Company's inability to purchase the
necessary components to do turnkey jobs because of the lack
of available credit lines with certain vendors.
Gross margins for the three month period ended March
31, 1995 was 7.8%. For the comparable period in 1994, gross
margins for the three month period was 7.3%. The decrease
in gross margin for the three months ended March 31, 1995
compared to the same period in 1994 was due primarily to the
inclusion of $300,000 charged to current operations for
purchased technologies which were still in the development
stage in the NewDat acquisiton. Also, a contributing factor
is additional amortization in the amount of $59,091 for
other purchased technologies and goodwill being charged
against operations during this period.
Selling expenses represented approximately 7.9% of
sales during the three month period ended March 31, 1995,
compared to 6.4% for the comparable period in 1994. The
increase in sales expense for 1995 was primarily the result
of sales personnel being on a fixed minimum compensation and
the sales volume being much lower than in 1994.
Administrative expenses for the three month period
ended March 31, 1995, was 88.6% of sales as compared to
32.8% for the comparable period in 1994. The percentage
increase is due primarily to the inclusion of $145,181 in
the valuation difference of market price over the issue
price of a non qualified stock options exercised being
treated as compensation during the 1995 reporting period and
the low lever of sales incurred during the period ended
March 31, 1995.
No expenditures were made during the periods reported
on for research and development in 1995 and 1994.
While the Company anticipates an increase in demand for
its products and services, the capacity to meet these
demands are limited by equipment, personnel and working
capital.
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.
15
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 Senson and the
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. Mr. Meehan is a business
associate of John Allen. The suit does not specify the
dollar amount of damages sought. The plaintiff's were
denied most of the equitable relief they sought, but have
obtained a temporary injunction requiring Senson to continue
selling them certain products on Senson's usual and
customary terms. The Company believes the plaintiff's
claims are without merit and that Senson and the other named
defendants will ultimately prevail.
16
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. Under the present pleadings, ATS is claiming
breach of contract and fraud and is attempting to pierce the
corporate veil between the various companies and the named
individuals. Mr. Bryant is a Director of the company. Mr.
Corley is a Director and President of the Company. Mr. Hilt
is the President and the Director of Lockhart Technologies,
Inc. The Company believes ATS's claims are 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 liabale for the judgment, but
has reflected these amount in accured 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
separage 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 Company has guaranteed severance pay to four
individuals in the event of any merger or acquisition by the
Company. In such event the company has guaranteed severance
17
pay of four mounts each to Ryan Corley and Jack Bryant and
two months each for Leonard Hilt and Neil Ginther if their
employment with the Company or any subsidiary is termiated
voluntarily or involuntarily for any reason (with or without
cause) within six months following the closing of any
acquisiton or merger.
Item 2. Changes in the Rights of the Company's Security
Holders
No changes in the rights of the Company's Security
holders occurred during the period covered by this Form 10-
Q.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Security holders
during the period covered by this Form 10-Q.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
No exhibits are filed with this report.
A Form 8-K was filed on January 23, 1995, announcing
that U.S. Technologies (USXX) entered into an acquisition
agreement with Tintagel Limited, a Company organized unter
the laws the Turks and Caicos Islands, whereby USXX acquired
all of the issued and outstanding shares of NewDat, Inc., in
exchange for 7,053,728 shares of rule 144 common stock of
USXX.
A Form 8-K was filed on January 28, 1995, announcing
that Dr. Michael E. Stamm, a director, of U.S. Technologies
Inc., resigned his position. The resignation was for
personal reasons and was not the result of any disagreements
with the Company relating to the Copmany's operations,
policies or practices.
18
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: May 19, 1995 BY: s/Jack D. Bryant
JACK D. BRYANT
Director
19
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