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 June 30, 1996
[ ] 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 August 20, 1996,
was 21,257,263
U.S. TECHNOLOGIES INC.
Form 10-Q-For the Quarter Ended June 30, 1996
INDEX
Page No.
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Balance Sheets 4
Six Months Ended June 30, 1996 (unaudited)
and December 31, 1995 (audited)
Consolidated Statements of Operations
Six Months Ended June 30, 1996 and 1995 5
Consolidated Statements of Operations
Three Months Ended June 30, 1996 and 1995 6
Consolidated Statements of Changes in Stockholders'
Equity 7
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995 8
Notes to Financial Statements 9
Consolidated Porforma Balance Sheets 14
Six Months Ended June 30, 1996 (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and results of Operations. 15
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings 18
Item 2. Changes in the Rights of the Company's Security
Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
2
PART I.
Item 1. Financial Statements.
3
U.S. Technologies Inc.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1996 1995
Current assets:
Cash in bank $ 20,335 $ 25,860
Accounts receivable - trade 169,263 168,717
Accounts receivable - other 61,146 79,894
Inventories 880,081 919,970
Prepaid expenses 15,088 6,022
Total current assets 1,145,913 1,200,463
Property and equipment - net 185,683 236,190
Other assets:
Investment - NCL 265,000 265,000
Investment - Gem stones 270,000 270,000
Investment - new technologies 1,183,671 1,351,272
Other assets 4,352 3,612
Total other assets 1,723,023 1,889,884
Total assets $3,054,619 $3,326,537
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 391,430 $ 254,658
Accrued expenses 584,710 371,659
Total current liabilities 976,140 626,317
Long-term liabilities:
Notes payable 700,684 840,435
Commitments and contingencies: (Note 3)
Stockholders' equity:
Common stock - $.02 par value; 40,000,000 shares
authorized; 17,097,263 and 15,875,963 shares
issued and outstanding at June 30, 1996
and December 31, 1995, respectively 341,946 317,520
Additional paid-in capital 10,278,296 9,887,485
Accumulated deficit (9,242,447) (8,345,220)
Total stockholders' equity 1,377,795 1,859,785
Total liabilities and stockholders' equity$3,054,619 $3,326,537
The accompanying notes are an integral part
of the consolidated financial statements.
4
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six Months Ended June 30,
1996 1995
Net Sales $411,709 $880,073
Operating costs and expenses:
Cost of sales 848,302 1,218,075
Research and development expense 71,731
Selling expense 109,751 74,956
General and administrative expense 306,910 699,910
Allowance for doubtful accounts 9,249
__________ _________
Total operating costs and expense 1,264,963 2,073,921
__________ _________
Income (loss) from operations (853,254)(1,193,848)
Other income (expense)
Other income 5,125 156,444
Interest expense (47,044) (32,096)
Other expense (2,054) (646)
Total other income (expense) 43,973 123,702
Net income (loss) $ (897,227)$(1,070,146)
Earnings (loss) per common share
Net income (loss) $(0.06) $(0.08)
Cash dividends per common share $0.00 $0.00
Weighted-average common shares outstanding16,260,75614,155,606
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 June 30,
1996 1995
Net Sales $171,180 $479,412
Operating costs and expenses:
Cost of sales 453,612 489,350
Research and development expense 71,731
Selling expense 31,865 43,150
General and administrative expense 128,770 326,975
Allowance for doubtful accounts 9,249
__________ _________
Total operating costs and expense 614,247 940,455
__________ _________
Income (loss) from operations (443,067) (461,043)
Other income (expense)
Other income 1,181
Interest expense (25,752) (19,596)
Other expense (2,071) _______
Total other income (expense) (26,642) (19,596)
Net income (loss) $ (469,709)$(480,639)
Earnings (loss) per common share
Net income (loss) $(0.03) $(0.03)
Cash dividends per common share $0.00 $0.00
Weighted-average common shares outstanding17,097,26315,145,363
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, 19934,077,029$81,541$6,315,872$(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 services372,0007,440 198,083 205,523
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 14,612 260,113 274,725
Net (loss) __________________________ (1,816,088) (1,816,088)
Balance, December 31, 199515,875,963317,5209,887,485(8,345,220)1,859,785
Stock issued for note payable1,221,30024,426390,811 415,237
Net (loss) _________________ __________ (897,227) (897,227)
Balance, June 30, 199617,097,263$341,946$10,278,296$(9,242,447)$1,377,795
The accompanying notes are an integral part
of the consolidated financial statements.
7
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended June 30,
1996 1995
Cash flows from operating activities:
Income (loss) from operations $(897,227)$(1,070,146)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 352,363 602,020
Excess of market over issue price
of Rule 144 stock 145,181
Record secured note received for previous
writedown of gems (156,436)
Changes in certain assets and liabilities - net of effects
of Newdat, Inc. acquisition:
Accounts receivable 18,202 (182,172)
Inventories 39,889 67,975
Prepaid expense (9,066) 7,131
Accounts payable 136,772 106,617
Accrued expenses 213,051 118,378
________ ________
Net cash provided (used) by
operating activities (146,016) (361,645)
Cash flows from investing activities:
Equipment purchases (648)
Decrease in other assets 740 6,980
Net cash used in investing activities 740 6,332
Cash flows from financing activities:
Increase in notes payable 139,751 426,888
Proceeds from issuance of common stock 45,000
Principal payments on notes payable _______ (50,000)
Net cash provided by financing activities 139,751 421,888
Increase (decrease) in cash (5,525) 66,575
Cash, beginning of period 25,860 2,579
Cash, end of period $20,335 $69,154
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. 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 financial statements include the accounts
of U.S. Technologies Inc., and its subsidiaries, all of which are
wholly owned, except for SensonCorp which the Company owns eighty
percent of the outstanding stock. 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 four years in the
period ended December 31, 1995 and for the six months ended June
30, 1996.
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.
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
9
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.
10
Recent Pronouncements
The Company adopted the Statement of Position number 94-6
"disclosure of Certain Significant Risks and Uncertainties"
during the year ended December 31, 1995, which requires
disclosure of risks and uncertainties that could significantly
affect the amounts reported in the financial statements or the
near-term functioning of the Company and communicate to financial
statement users the inherent limitations in financial statements.
Revenue Recognition
Revenue is recognized from sales of products when the
product is shipped.
New Technologies
Acquired 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 June 30, 1996 and
December 31, 1995, is net of an allowance for doubtful accounts
in the amount of $45,292, and $59,059, respectively.
3. COMMITMENTS AND CONTINGENCIES
LTI's operations are located in a minimum security prison
facility under 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. LTI has been notified by Wackenhut that
it wishes to renegotiate its lease arrangement prior to January
31, 1997, because LTI has not been able to meets its employment
requirements pertaining to the number of residents employed.
This could mean that Lti would be forced to give of some of the
floor space with it presently has, or that LTI will be limited to
the number of residents available for future employment, or
possibly be asked to withdraw from the facility and program. The
Company presently believes that the net result of the
negotiations will be that LTI will be forced to give up some of
its current space. Wackenhut Corrections Corporation is not an
affiliated party.
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
11
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,
Dugald Allen, John Allen, DOES 1 through 50, in the 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. Dugald Allen is John Allen's son and was
Vice President of operations for Senson at the time. Mr. Meehan
is President of U.S. Technologies Inc., and was a founding member
of SensonCorp Limited. 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 ceased when
Senson subsequently cancelled the agreement on "Without Cause"
grounds in May 1995. The Company formally sought to participate
in arbitration during April 1996 and is awaiting a date for the
arbitration to be heard. The Company strongly believes that the
plaintiffs claims are without merit and that SensonCorp, Limited.
and the other defendants will prevail.
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 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 that 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
12
the Company is doing business as AMI. The petition seeks $24,482
in damages plus $8,000 in attorney's fees, interest and costs.
The Company believes that the complaint is without merit.
There were 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.
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. The
new Board of Directors has reversed the decision on severance pay
on the grounds that it was not in the best interest of the
shareholders.
4. SHAREHOLDERS EQUITY
On July 15, 1996, the Company exchanged 624,000 shares of
its Common stock in exchange for the retirement of a note in the
amount of $156,000 it had with Carlton Technologies & Services
Ltd.
On March 8, 1996, the Company exchanged 1,221,300 shares of
its Common stock in exchange for the retirement of a note in the
amount of $397,212 and $18,025 in accrued and unpaid interest it
had with Carlton Technologies & Services Ltd.
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 as funds become available, and an 80%
interest in another company which is marketing a line of
environmentally friendly chemical coatings for which the
technology is owned by a major Australian chemical company.
13
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 was charged to expense during the
quarter ended March 31, 1995.
5. INCOME TAXES
At December 31, 1995, 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
2010 1,323,470
$6,535,470
6. NASDAQ MARKET LISTING
On August 7, 1996, The Company was notified by NASDAQ that
the Company's securities would be delisted from The Nasdaq Stock
Market effective with the close of business on August 14, 1996.
The Company was told that it would be denied continued listing
due to the Company's history of losses and that it believes there
is a reasonable basis to conclude that, based on the current plan
of financing, the Company does not presently meet the require $2
million in capital and surplus for the alternative bid price
criteria. The Company has requested an oral hearing regarding
continued listing on The Nasdaq SmallCap Market and has been
granted an oral hearing on August 29, 1996. The delisting has
been postponed until the outcome of the oral hearing. The
Company has subsequently met the minimum capital requirements as
14
is demonstrated by the Proforma consolidated balance sheets on
page 13 of this Form 10-Q. The Company plans to have in place,
prior to the hearing date, a plan for long-term compliance with
the minimum capital and surplus requirements and be able to
maintain its listing.
7. SUBSEQUENT EVENTS
On August 19, 1996, the Company acquired an 85% ownership
interest in the QuakeAlarm technology from Komen Holdings Pty.
Ltd., a New South Whales Holding Company. This technology, which
been has developed and prototyped, is a fully integrated early
warning earthquake alarm that can detect first signs of an
imminent earthquake. The QuakeAlarm can alert the user before
humans begin to feel the earthquake by sensing the quake's "P"
(primary) wave, which precedes the "S" (shock) waves which cause
the damage. The purchase of the majority ownership gives the
Company the exclusive manufacturing and marketing rights to the
product worldwide. The consideration in the amount of $552,500
given by the Company for this product was paid by the issuance of
3,536,000 shares of the Company's common stock. The Company
plans to commence production of the QuakeAlarm immediately and
market this product through several marketing representatives
worldwide.
15
U.S. Technologies Inc.
CONSOLIDATED PROFORMA BALANCE SHEETS
ASSETS
Proforma
June 30, June 30,
1996 1996
Current assets:
Cash in bank $ 20,335 $ 20,335
Accounts receivable - trade 169,263 169,263
Accounts receivable - other 61,146 61,146
Inventories 880,081 880,081
Prepaid expenses 15,088 15,088
Total current assets 1,145,913 1,145,913
Property and equipment - net 185,683 185,683
Other assets:
Investment - NCL 265,000 265,000
Investment - Gem stones 270,000 270,000
Investment - new technologies 1,183,671 1,736,171
Other assets 4,352 4,352
Total other assets 1,723,023 2,275,523
Total assets $3,054,619 $3,607,119
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 391,430 $ 391,430
Accrued expenses 584,710 584,710
Total current liabilities 976,140 976,140
Long-term liabilities:
Notes payable 700,684 544,684
Commitments and contingencies: (Note 3)
Stockholders' equity:
Common stock - $.02 par value; 40,000,000 shares
authorized; 17,097,263 and 15,875,963 shares
issued and outstanding at June 30, 1996
and December 31, 1995, respectively 341,946 425,146
Additional paid-in capital 10,278,296 10,903,596
Accumulated deficit (9,242,447) (9,242,447)
Total stockholders' equity 1,377,795 2,086,295
Total liabilities and stockholders' equity$3,054,619 $3,607,119
The accompanying notes are an integral part
of the consolidated financial statements.
14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
Working capital decreased by $404,373 to $169,773 at June
30, 1996, from $574,146 at December 31, 1995. As of June 30,
1996, 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.
however, a general decline in the electronic contract
manufacturing directly affected first quarter sales and
denied the Company profitable results for the third and
fourth quarters of 1995 and first quarter 1996. The
second quarter of 1996, was also quite but, the Company
has booked as many orders during the first 20 days of
august for production for the period of August through
October 1996, as it's total production was for the
first six months of 1996. The Company anticipates a
profitable third quarter.
B. The Company appointed a new president on June 30,
1995, who is experienced in company turnarounds,
production controls and management. 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 and productive
growth in business.
C. The Company is presently implementing a plan
expected to increase the traditional business at the
Lockhart facility from less than $100,000 a month to
approximately $700,000 per month over the next 24 month
period. To enable the Company to achieve this goal,
15
the permanent sales force is to be expanded from 2 and
a sales representative company to 3 persons in order to
adequately cover the Texas and surrounding markets.
Additional sales force expansion will take place if
sales objectives so demand.
D. 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 have had to be put on
temporary hold while it first makes LTI a profitable
concern or until it completes a current private
placement to raise additional working capital,
whichever comes first.
E. The 80% equity ownership in SensonCorp Inc. is
expected to contribute to the profitability of the
Company by the end of 1996. The Company has designed a
range of retail products to complement its industrial
range, and will launch these shortly after receipt of
private placement funds are received.
F. The Company is presently preparing an offering of
$1,100,000. The funds will be used to assist in the
launching of its proprietary technologies, and to cover
stock and cash flow gaps during its expansion program.
G. The Company participated in the development and
prototyping of an earthquake warning device over the
past twelve months and has now commenced production of
the devices. The product is priced to sell into the
consumer market and the Company expects to receive
strong revenues from its participation both from North
America and from export markets.
The Company does not anticipate that increased inventory
levels will be required to meet present manufacturing needs for
the existing customer base. In fact it has a program in place to
reduce its inventory holdings to a just-in-time system where
possible.
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, 1996, are executable 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.
16
Results of Operations - Quarter Ended June 30, 1996
During the three month and six month periods ended June 30,
1996, the Company had a net loss from operations of $469,709 and
$897,227 or $(0.03) and $(0.06) per weighted-average share, on
net sales of $171,180 and $411,709 as compared to net losses of
$480,639 and $1,070,146 or $(0.03) and $(0.08) per weighted
average share, on net sales of $479,412 and $880,073 for the
comparable periods in 1995. Net sales decreased approximately
58.4% for the three month period and decreased approximately
53.2% for the six month period ended June 30, 1996, over the
comparable periods in 1995. For the three month and six month
period ended June 30, 1996, LTI accounted for approximately 99%
of the total sales.
Gross margins for the three month and six month periods
ended June 30, 1996, was (165)% and (106)%. For the comparable
periods in 1995, gross margins for the three month period was
(2.1)% and (38.4)%. The decrease in gross margins for the three
month and six month periods ended June 30, 1996, compared to the
same periods in 1995 was due primarily the decrease in LTI's
sales to a level which would cover would not cover all of the
fixed overhead. The Company presently is attempting to increase
its sales volume by adding additional sales personnel and
contacting potential outside sales representatives along with
seeking additional lines of work which has resulted in generating
approximately $480,000 in bookings of work to be shipped prior to
November 15, 1996.
Selling expenses represented approximately 18.6% and 26.65%
of sales during the three month and six month periods ended June
30, 1996, compared to 8.5% and 7.6% for the comparable periods in
1995. The increase in sales expense for 1996 was primarily the
result of the decreased volume of sales for the three months and
six months ended June 30, 1996 over which to allocate base salary
commitment to salespersons marketing the Company's products.
Additionally, during the first four months of 1996 salaries were
paid for three sales personnel attempting to develop sales of the
Senson products which were not employed during the comparable
periods in 1995.
Administrative expenses for the three month and six month
periods ended June 30, 1996, was 75.2% and 74.5% of sales as
compared to 79.5% and 68.2% for the comparable periods in 1995.
The percentage decrease for the six months ended June 30, 1995.
For the six month period ended June 30 1995, the Company
expended approximately $71,731 for research and development of
unannounced products being developed by NewDat, Inc. No
expenditures were incurred for research and development during
the six month period ended June 30, 1996.
Although the Company anticipates that there will be an
increases in demand for its products and services, its capacity
17
to meet these demands are presently limited by the availability
of funds to do turn key work and the lack of established 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
Part II
Item 1. Legal Proceedings.
LTI's operations are located in a minimum security prison
facility under 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. LTI has been notified by Wackenhut that
it wishes to renegotiate its lease arrangement prior to January
31, 1997, because LTI has not been able to meets its employment
requirements pertaining to the number of residents employed.
This could mean that Lti would be forced to give up some of the
floor space with it presently has, or that LTI will be limited to
the number of residents available for future employment, or
possibly be asked to withdraw from the facility and program. The
Company presently believes that the net result of the
negotiations will be that LTI will be forced to give up some of
its current space. Wackenhut Corrections Corporation is not an
affiliated party.
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,
Dugald Allen, John Allen, DOES 1 through 50, in the 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. Dugald Allen is John Allen's son and was
Vice President of operations for Senson at the time. Mr. Meehan
is President of U.S. Technologies Inc., and was a founding member
of SensonCorp Limited. 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 ceased when
19
Senson subsequently cancelled the agreement on "Without Cause"
grounds in May 1995. The Company formally sought to participate
in arbitration during April 1996 and is awaiting a date for the
arbitration to be hear. The Company strongly believes that the
plaintiffs claims are without merit and that SensonCorp, Limited.
and the other defendants will prevail.
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 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 that 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
the Company is doing business as AMI. The Petition seeks $24,482
in damages plus $8,000 in attorney's fees, interest and costs.
The Company believes that the complaint is without merit.
On July 15, 1996, LTI was served with a citation in Gentron
Corporation vs Lockhart Technologies, Inc. in superior court in
and for the County of Maricopa, Arizona. The petition seeks
payment of certain sums of money totaling $7,588 plus attorney's
fees and court costs. The Company believes that it will be
liable for the amount of the claim.
There were 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.
The Company's Board of Directors guaranteed severance pay to
four individuals, including themselves, in the event of any
merger or acquisition by the Company. In such event the Company
guaranteed severance pay of four months each to the then Chairman
Ryan Corley and the then Director Jack Bryant; and two months
20
each for Leonard Hilt and Neil Ginther., if their employment with
the Company or any subsidiary was terminated voluntarily or
involuntarily for any reason (with or without cause) within six
months following the closing of any acquisition or merger. The
same conditions applied if any of the parties resigned before the
designated date. Mr. Ginther resigned from the Company during
February 1995 and Mr. Corley and Mr. Bryant resigned from the
Company during July 1995. Mr. Ginther has stated that he did not
wish to claim the severance, while Messers Corley and Bryant have
requested payment. The present Board of Directors question the
legality of this form of compensation and obtained a legal
opinion. The present Board of Directors has subsequently
reversed the earlier decision on the basis that it was not in the
best interest of the Shareholders of the Company. The questioned
severance pay of $46,000 has not been recorded in the financial
statements due to the uncertainty.
21
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
The annual meeting of shareholders was held on July 25,
1996. The following four items were voted upon by the
shareholders at the meeting:
1. Reelection of John V. Allen, William Meehan, and James
Chen, being all of the members, to the board of
directors to until the next annual meeting. All three
individuals received 9,281,459 votes for the
appointment, 1,659,778 votes against and 53,079
abstaining votes.
2. Proposal to Approve the Adoption of the Company's 1996
Stock Option Plan setting aside 600,000 shares of the
Company's common stock for employee incentive stock
options. 9,481,415 votes were cast for, 1,511,393
against and 1,508 abstained.
3. Proposal to approve a 5 for 1 reverse stock split of
the Company's common shares. This item was defeated by
the following votes of 1,229,837 votes for, 9,755,651
votes against, and 8,428 votes abstaining.
4. Ratification of appointment of Brown, Graham and
Company as Independent Certified Public Accountants to
conduct the examination of the Company's financial
records for the year ended December 31, 1996.
10,916,531 Votes were cast for, 23,417 votes were cast
against and 4,368 votes abstained on this proposal.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 27 - Financial Data Schedule is filed with this
report.
No reportable items were filed on a Form 8-K for the period
covered during this quarter.
22
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: August 20, 1996 BY: s/William Meehan_____
WILLIAM MEEHAN,
President
21
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: August 20, 1996 BY:
______________________
WILLIAM MEEHAN,
President
21
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000810130
<NAME> U.S. TECHNOLOGIES INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 20,335
<SECURITIES> 0
<RECEIVABLES> 214,555
<ALLOWANCES> 45,292
<INVENTORY> 880,081
<CURRENT-ASSETS> 1,145,913
<PP&E> 1,955,815
<DEPRECIATION> 1,770,132
<TOTAL-ASSETS> 3,054,619
<CURRENT-LIABILITIES> 976,140
<BONDS> 700,684
0
0
<COMMON> 341,946
<OTHER-SE> 10,278,296
<TOTAL-LIABILITY-AND-EQUITY> 3,054,619
<SALES> 411,709
<TOTAL-REVENUES> 0
<CGS> 848,302
<TOTAL-COSTS> 848,302
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,044
<INCOME-PRETAX> (897,227)
<INCOME-TAX> 0
<INCOME-CONTINUING> (897,227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (897,227)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
