Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_______________________
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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 other jurisdiction of (I.R.S. Employer
Identification No.)
incorporation or organization)
1402 Industrial Blvd
Lockhart, Texas
78644
(Address of principal executive offices.)
(Zip Code)
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 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 aggregate market value of voting stock held by non-affiliates
of the Registrant at April 10, 1997 was approximately $4,567,775.
The number of shares outstanding of the Registrant's Common
Stock, par value $0.02 per share, at April 10, 1997 was
27,857,263 shares.
TABLE OF CONTENTS
PART I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security
Holders 9
PART II
Item 5 Market for Registrant's Common Equity and related
Stockholders matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements on Accounting and
Financial Disclosure 34
PART III.
Item 10. Directors and Executive Officers of the
Registrant 35
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Owners
and Management 39
Item 13. Certain Relationships and Related Transactions
39
PART IV.
Item 14. Exhibits, Financial Statement Schedules and
reports on Form 8-K 39
Schedules and Reports on Form 10-K:
Schedule II Valuation and Qualifying Accounts
41
2
PART I
ITEM 1. BUSINESS.
General Development of Business
U. S. Technologies Inc. (the "Company") was
incorporated on September 9, 1986, in the State of Delaware
as CareAmerica Inc. From time to time the term "Company" as
used herein refers to U.S. Technologies Inc. by itself or to
collectively refer to U. S. Technologies Inc. and some or
all of its subsidiaries, past and present. The Company was
formed to furnish in-home medical care services. On April
14, 1987, the Company completed a public offering of 660,000
units, each unit consisting of one share of Common Stock and
one Redeemable Warrant, each separately transferable
immediately upon issuance. The foregoing reflects a 1 for 5
reverse split of the Registrant's Common Stock, Warrants and
Options which took place on February 8, 1993, and assumes no
additional shares issued in respect of any fractional shares
which may have resulted from the reverse split.
In 1987 the Company changed business direction from the
medical industry to electronics. On September 1, 1988, the
Company moved its corporate headquarters from Kansas City,
Missouri to Austin, Texas. The Company's decision to move
its headquarters to Austin, Texas, was made in order to more
effectively monitor the day-to-day activities of its
Subsidiaries. The management of the Company felt that
maintaining offices in Kansas City, Missouri, when its
operating Subsidiaries were in Austin, Texas, was an
unnecessary expense for the Company.
On July 14, 1989, the shareholders of the Company
approved a proposal to change the name of the Corporation
from CareAmerica Inc. to U.S. Technologies Inc. On July 14,
1989, the Company filed a Certificate of Amendment of
Certificate of Incorporation with the Secretary of State of
Delaware causing the name of the corporation to be changed
to U.S. Technologies Inc. Effective with the start of
business July 17, 1989, the Company's Common Stock traded on
the over-the-counter market and listed on the National
Association of Securities Dealers Automated Quotations
(NASDAQ) System. The trading symbol was changed to USXX.
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
3
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 foreclosed assets to the
newly formed company, Lockhart Technologies, Inc., ("LTI")
in exchange for all of the capital stock of that company.
After the foreclosures, the Company sold all of its interest
in AMI, Republic, and MicroLabs for a total consideration of
$1,758.
The Company presently has two wholly owned
subsidiaries: Lockhart Technologies, Inc., a Texas
corporation ("LTI") and Newdat, Inc., an Arizona corporation
("Newdat"). Newdat owns an eighty percent (80%) interest in
SensonCorp Limited, an Arizona corporation ("Senson"). The
Company acquired Newdat on January 23, 1995, in exchange for
7,053,728 shares of the Company's common stock.
LTI was incorporated on June 29, 1994. LTI was
capitalized by the Company by the contribution of certain
assets, tangible and intangible, which the Company received
through its foreclosure of AMI. The assets were valued at
$1,764,580. LTI operated as a contract manufacturing
facility inside a minimum security prison facility located
in Lockhart, Texas, but subsequent to January 1, 1997, has
changed its focus to an outsourcing company that can
instantaneously supply massive quantities of dependable and
inexpensive labor to industry. LTI has an Industry Work
Program Agreement (the "IWPA"), which includes a lease
agreement, with Wackenhut Corrections Corporation, The Texas
Department of Criminal Justice, Division of Pardons, and
Paroles and the City of Lockhart, Texas. The IWPA and Lease
were assigned to LTI by American Microelectronics Inc., a
corporation formerly owned by the Company. The Industry
Work Program Agreement provides and encourages LTI to
recruit and hire qualified employees from the 500 male and
500 female residents presently in this facility.
Prospective resident employees are provided vocational and
educational training by Wackenhut and the Texas Department
of Criminal Justice, Division of Pardons and Paroles
tailored to the Company's specifications. The Company is
required to pay resident employees at a rate prevailing in
the area for similar work, but at no time less than the
Federal Minimum Wage rate. A new lease agreement is being
prepared in accordance with the terms of an oral agreement
between the parties that provides for approximately 27,800
square feet of manufacturing and office space through
4
January 31, 2000, and provides for an automatic three year
extension unless notification is given by either party at
least six months prior to the expiration of each term. The
amount of square footage may be increased or decreased
depending upon the number of residents employed by LTI as of
August 31, 1997. The lease provides for annual rental rates
of $1 per year for the primary term and the automatic three
year extension.
On August 19, 1996, the Company acquired an 85%
ownership interest in the QuakeAlarm technology. This fully
integrated early warning earthquake alarm 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.
Principal Products, Services and Revenue Sources
The Company furnishes direction, administrative and
consulting services to its Subsidiaries, and provides funds
as appropriate for their operation and expansion.
LTI offers contract manufacturing services for
electronic circuit boards. LTI does not manufacture the
actual circuit boards; LTI purchases them from board
manufacturers. Electrical components placed on the boards
are furnished by LTI's customers in kit form or purchased
directly from electrical supply houses or parts
manufacturers. LTI places the components on the board,
solders the connections and, if requested, tests the
assembled board. LTI also performs electro-mechanical
assembly.
The electronic circuit board is the basic element for
manufacturing electronic circuitry today. Individual
electrical components such as resistors, capacitors and
solid state devices are mounted on the circuit board. Such
electrical components are "packaged" as "through-hole" or
"surface mount" devices. Through-hole components have wire
leads which are placed through holes on the board. The wire
leads are soldered to the board on the reverse side.
Surface mount components are smaller and have much shorter
leads or metallic ends which are soldered directly to small
metal pads on top of the board.
LTI's services may be used by any business, not just
those that use electronic circuit boards. LTI presently
assembles products utilized in computers, computer
peripherals, security and communications systems, medical
equipment and electronic testing devices. LTI markets its
services through in-house sales personnel.
5
Newdat, Inc. is an Arizona corporation which has
developed a device for measuring (in real time during
production) the thickness of coatings on wire, e.g.,
measuring the thickness of the zinc coating on galvanized
wire. This device has wide ranging alternative
applications. For example it can also be used to detect
flaws in wire and cable during production or while in use,
e.g., elevator or ski lift cables. Newdat also owns an
eighty percent (80%) interest in SensonCorp Limited
("Senson") which has the rights to market a line of
environmentally friendly chemical coatings developed by a
major Australian chemical company. Senson has exclusive
rights to manufacture and market these products in North
America. The coatings have a variety of applications, all
with non toxic anti-corrosion capability using vapor phase
corrosion inhibitors. ("VCPI"). Over the past eighteen
months, the Company's management has consolidated much of
Newdat's business in Lockhart as control and cost saving
measures.
The Company has exclusive manufacturing and marketing
rights to the QuakeAlarm technology. The Company plans to
have LTI manufacture these units and Newdat, Inc. market the
units worldwide.
Raw Materials
Some of the components and raw materials used by LTI
are available from a limited number of suppliers and/or are
susceptible to non availability due to periodic shortages.
While component purchasing lead times are improving due to
greater competition, in some instances there may be lead
times of several months or longer to obtain and sustain an
adequate supply of components. While parts are generally
available, delays in obtaining some parts could jeopardize
orders and increase the cost of operations for LTI. LTI has
experienced prolonged or significant shortages in the past.
However, from time to time parts shortages may be expected
to cause temporary delays in production of some products.
Senson's raw materials are generally available and
management does not presently anticipate any restrictions or
delays in production due to shortages in raw materials when
the Company begins marketing the products again.
Patents, Trademarks, Licenses, Franchises and Concessions
The Company and LTI do not have any patents,
trademarks, licenses, franchises or concessions; however,
they may apply for some in the future. Because of the rapid
pace of technological change, the Company believes that
copyright, trademark and other legal protections are less
significant in its industry than such factors as innovative
skills, technological expertise and marketing abilities.
6
Newdat, Inc. holds U.S. and Canadian patents relating
to its wire measurement technology. These patents covering
the same technology, reveal a new technology for measuring
the thickness of zinc and similar coatings on wire as well
as nondestructive electromagnetic testing of other
properties of wire. It is difficult to ascertain the value
of these patents. The novel aspects of the device are its
ability to sense changes in external and internal
structures, including the on-line measurement of metallic
coating being applied to wire. The Company believes that
the rapid pace of change in high technology fields today
makes the ability to continuously innovate and develop new
technologies as important in some instances as the patents
themselves.
Senson's conformal coatings are widely protected by
patents, in particularly the "phased" emission of VPCI's
from the coatings.
Working Capital Practices
The Company's subsidiaries are discouraged from
carrying excess quantities of raw materials or purchased
parts because most of their products are produced to demand;
therefore, components and parts can usually be ordered as
needed. In a determined effort to limit inventory holdings,
LTI continually monitors its inventory quantities and values
and has provided for allowances for obsolesce and price
reductions in the amounts of $585,000 and $295,000 for the
years ended December 31, 1996 and 1995, respectively. LTI
also is determined to find buyers for slow moving items.
LTI offers selected customers a 2% discount if bills are
paid within ten days. Normal terms are net 30.
Dependence on Customers
LTI continues to broaden its customer base, however, it
is now seeking longer production runs than in the recent
past and if it is successful, dependence on one or more
customers is inevitable. The loss of any one of such
customers would have a material adverse effect on LTI and
the Company.
Backlog
At December 31, 1996, LTI's backlog (which represents
that portion of outstanding contracts not yet included in
revenue) was approximately $483,000. It is anticipated that
100% of the backlog will be delivered before March 31, 1997.
At December 31, 1996, Newdat had no backlog as the wire
measurement devices have not completed their Beta site
testing phases, and are therefore not offered for sale.
7
At December 31, 1996, Senson had no backlog as
marketing efforts relating to its products were suspended
during 1996.
Because LTI receives price commitments from its
vendors, costs normally do not increase relative to backlog
orders. Engineering changes in products by any of LTI's
customers or other events beyond the control of LTI could
result in the cancellation or suspension of some of LTI's
present backlog.
Competitive Conditions
LTI is competitive with a large number of firms. Most
of their competitors are substantially larger and have
greater financial resources. LTI's electronic circuit board
business is capital intensive, i.e., a significant
investment in equipment is necessary. The greater financial
resources of many of LTI's competitors gives those
competitors an advantage over LTI. Newdat and Senson have
products which face competition from other products. The
Company believes the products of Newdat and Senson have
features and qualities which give them a competitive
advantage. However, the existing control of the market
place by their competitors and the financial resources which
such competition can apply to their competitive marketing
efforts are significant negative factors against the ability
of Newdat and Senson to successfully compete in their
markets. Positive factors pertaining to LTI's competitive
position are the experience of LTI's new management team and
what LTI believes is its ability to address the growing need
for mixed technology circuit boards, i.e., circuit boards
containing both through-hole and surface mount components.
LTI has automated equipment for the assembly of circuit
boards using surface mount and through-hole components.
8
Research and Development Activities
Newdat is limiting further research and development to
support the latest possible entry of its proprietary
products into market, and then the support and enhancement
of those products in the field.
Number of Persons Employed
As of December 31, 1996, the Company had two salaried
employees. Several employees of LTI devoted a significant
portion of their time to the affairs of the Company.
As of December 31, 1996, LTI had approximately 140
employees. LTI employees include residents from the minimum
security prison facility where the Company is located.
As of December 31, 1996, Newdat had no employees.
As of December 31, 1996, Senson had no employees.
None of the Company's employees are represented by a
union. The Company believes that its relationship with its
employees is good.
Regulation
The Company previously has been subject to Food and
Drug Administration ("FDA") regulations relating to
medically related devices which its subsidiary, LTI
previously manufactured. These regulations generally apply
to companies producing medical electronics. The products
that were subject to FDA regulation were not a significant
portion of LTI's business. All of the Company's
subsidiaries are subject to OSHA.
ITEM 2. PROPERTIES.
Leases and Facilities
LTI's operations are located in a minimum security
prison facility under an agreement with Wackenhut
Corrections Corporation ("Wackenhut"). The Texas Department
of Criminal Justice, Division of Pardons and Paroles and the
City of Lockhart, Texas. A new operating lease is being
prepared in accordance with the terms of an oral agreement
between the parties that provides for approximately 27,800
square feet of manufacturing and office space through
January 31, 2000, and provides for an automatic three year
extension unless notification is given by either party at
least six months prior to the expiration of each term. The
amount of square footage may be increased or decreased
depending upon the number of residents employed by LTI as of
August 31, 1997. The lease provides for annual rental rates
9
of $1 per year for the primary term and the three year
extension.
Rental expense at other locations for the years ended
December 31, 1996, 1995 and 1994, was $3,300, $33,144, and
$7,290, respectively. Wackenhut Corrections Corporation is
not an affiliated party.
Senson had a lease agreement with Laura Investments
Ltd. ("Laura") whereby Laura provided approximately 3,700
and 2,100 square feet of office space in Chandler, Arizona
and Vancouver, British Columbia for a total monthly lease
payment of $1,940 and $2,300 respectively. The lease was
for the period July 1, 1994 to July 1, 1997. Under an
Administrative Services Agreement between Senson and Laura,
Senson pays Laura $4,500 per month for administrative and
miscellaneous services. The agreement was due to terminate
on July 1, 1997. During 1996, by mutual agreement between
the parties, the lease and service agreements were
terminated. John Allen, former Chairman of the Board of
the Company, is a director of Laura. Newdat is presently
utilizing space provided by LTI.
ITEM 3. LEGAL PROCEEDINGS.
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, 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. 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
10
1995. The company was notified that the plaintiff has
dismissed all proceedings as of January 1997.
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
$56,246 in damages plus $18,747 in attorney's fees, interest
and costs. The parties are in the discovery state, but 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.
As a part of the agreement with GWP, Inc., William
Meehan resigned his position as president and CEO of the
Company effective January 6, 1997. Subsequent to his
resignation, Mr. Meehan retained counsel in an effort to
recover amounts he asserts are due him under certain
provisions of his employment contract with the Company. The
Company believes that the claims are without merit and
intends to defend its position.
During March 1997, LTI was notified that it, AMI and
certain of AMI's former officers and directors are subject
to litigation brought by the State of Texas over alleged
sales tax underpayments by AMI. The alleged tax liabilities
occurred prior to the Company's foreclosure of its security
interest in AMI and the Sale of AMI on June 30, 1994. All
assertions brought by the State are denied and will be
contested by the Company. Certain of the former officers
and directors made a party to the State's legal action
assert indemnification on the part of the Company in the
event they are held personally liable for such
11
underpayments. At this time the Company is not aware of any
contingent liability relating to indemnification obligations
on the part of the Company, but will address such claims if
they arise.
AMI, Republic and certain of its former officers and
directors are subject to a federal tax claim relating to
alleged unpaid payroll taxes. The alleged tax liabilities
occurred prior to the Company's foreclosure of its security
interest in AMI and the Sale of AMI and Republic on June 30,
1994, and the ninety days following the sale of these former
subsidiaries. Certain former officers and directors who are
subject to the government's claim assert entitlement to
indemnification on the part of the Company in the event they
are held personally liable. At this time the Company is not
aware of any contingent liability relating to
indemnification obligations on the part of the Company, but
will address such claims if they arise.
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.
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 until the next annual meeting. All
three individuals received 9,281,459 votes for the
appointment, 1,659,778 votes against and 53,079
votes abstaining.
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
12
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.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock was traded in the over-the-
counter market and listed on the National Association of
Securities Dealers Automated Quotations ("NASDAQ") System
under the "USXX" symbol until its stock was delisted on
September 9, 1996. The Company's stock is now traded on the
OTC Bulletin Board under the same symbol.
The following table sets forth the high and low bid prices
of the Common Stock in the over-the-counter market for the
years ended December 31, 1996, 1995, 1994, 1993, and 1992.
Prices are as quoted on the NASDAQ System. Quotations
reflect interdealer prices without retail mark-up, mark-down
or commissions and may not necessarily represent actual
transactions.
Bid
High Low
1996
4th Quarter $.2200 $.0750
3rd Quarter $.2812 $.1250
2nd Quarter $.4375 $.2187
1st Quarter $.5312 $.2812
1995
4th Quarter $.5937 $.3437
3rd Quarter $.7187 $.5000
2nd Quarter $.7187 $.2812
1st Quarter $.7812 $.3750
1994
4th Quarter $.7812 $.2500
3rd Quarter $.8125 $.2500
2nd Quarter $1.1875 $.5625
1st Quarter $1.7500 $.8750
1993
4th Quarter $2.3125 $0.9375
3rd Quarter $2.3750 $1.3125
2nd Quarter $2.5625 $1.5000
1st Quarter $3.0000 $1.3750
1992
4th Quarter $1.8750 $1.2500
3rd Quarter $4.0625 $1.2500
2nd Quarter $9.3750 $3.1250
1st Quarter $9.6875 $5.0000
On April 10, 1997, the closing bid price of the Common
Stock, as quoted on the Bulletin Board system, was $0.36.
14
As of April 10, 1997, there were 417 holders of record
of the Company's Common Stock. This number is exclusive of
beneficial owners whose securities are held in street name.
15
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below for the years
ended December 31, 1996, 1995, 1994, 1993, and 1992 is
derived from the Company's audited financial statements.
This information should be read in conjunction with the
financial statements for 1996, 1995 and 1994 and notes
thereto included elsewhere herein and "Management's
Discussion and Analysis of Financial Condition and Results
of Operations" included in Item 7 which are incorporated
herein by reference.
Years Ended December 31,
1996 1995 1994 1993 1992
Operations statement
data:
Net sales $ 1,410,498$ 1,951,487$ 1,668,865 $
6,655,573 $8,888,016
Loss from operations $(2,309,601)$(1,861,474)
$(2,230,710)$(2,448,096)$ (356,835)
Net income (loss) $(2,583,012)$(1,861,088)$ (847,016)
$(2,352,572)$ (463,423)
Per Share Data:
Loss per share $ (.14)$ (0.12) $
(0.16)$ (0.62)$ (0.16)
Weighted-average
common shares outstanding 18,555,43914,997,532 5,302,147
3,794,631 2,830,972
Cash dividends per common
share -0- -0-
- -0- -0- -0-
Balance sheet data:
Total assets $2,652,682$3,326,537$2,120,340
$2,685,325$2,915,400
Long-term debt
(including capital
11
lease obligations) $ 144,000$ 840,435$ -0- $
19,166 $ 19,166
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in
conjunction with the Financial Statements and notes thereto
appearing elsewhere in this Form 10-K.
The Company incurred significant losses in each of the
three years ended December 31, 1996, 1995 and 1994 and had a
working capital deficiency at December 31, 1996. As a
result, the Company continues to experience liquidity
problems and the Company's auditors, Brown, Graham & Company
P.C. have rendered a "going concern" opinion in their
reports. Additionally, the Company failed to meet the
NASDAQ requirement of minimum total capital and surplus of
$2,000,000 as of June 30, 1996. Under NASDAQ's rules, the
Company must maintain a minimum bid price of $1.00 per share
unless the market value of the public float and the
Company's capital and surplus are at least $1,000,000 and
$2,000,000, respectively. The Company's Common Stock was
traded in the over-the-counter market and listed on the
National Association of Securities Dealers Automated
Quotations ("NASDAQ") System under the "USXX" symbol. On
September 9, 1996, its stock was delisted after a hearing
committee for NASDAQ was not convinced that the Company's
plan would solve its liquidity problems and enable it to
continue meeting the listing requirements. The Company's
stock is now traded on the OTC Bulletin Board under the same
symbol.
The Company has been working to address its current
financial difficulties. (See "Liquidity and Capital
Resources" and note 13 to the Notes to Financial Statements
which are incorporated herein by reference). The Company
believes there is a reasonable expectation that cash
generated from future operations (which the Company
recognizes are not assured), discontinuance of unprofitable
operations and the sale of additional common stock through a
private placement will increase liquidity and capital
resources.
Further to help the Company overcome its liquidity and
operational problems, the Company has completed the
following:
a. Redefined the mission statement of the Company's
wholly owned subsidiary, LTI, from that of a
contract circuit board manufacturer to an
outsourcing company that can instantaneously
supply massive quantities of dependable and
inexpensive labor to industry.
b. Changed the plant layout and flow of work to
increase efficiency and productivity.
12
c. Mended and reestablished relationships with key
vendors. The result to date has been a steady and
sufficient supply of parts to operate at a higher
level of sales.
d. Mended and reestablished the relationship with
Wackenhut Corrections Corporation, the manager of
the prison facility where LTI conducts business.
Such a significant improvement has taken place in
this relationship during the first quarter of
1997, that Wackenhut has invited the Company to
expand into other Wackenhut managed prison
facilities in other states.
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
is confident that it will achieve its goals through the
plans and actions outlined above and subsequently detailed.
See "Business - General Development of Business,"
"Principal Shareholders," "Certain Transactions" and
"Description of Capital Stock."
Additionally, the Company's independent accountants
advised the Company of material weakness in the internal
control structure which affected interim financial
reporting. Some actions have already been taken to insure
compliance with existing controls and procedures. In
addition, the Company will, at the end of each fiscal
quarter, consistently perform control procedures, including
reconciliation of subledgers to general ledger account
balances, review allowance accounts for adequacy of
reserves, analyze account balances and net realizable values
where appropriate, perform analytical procedures and other
control procedures as deemed necessary to provide an
adequate internal control structure. A major change in
management personnel during January 1997 resulted in new
attention being paid to monthly reviews of profit and loss
statements and other financial indications of the Company's
status. The effects of regular utilization of these
judgmental management tools are still the main focus,
realizing the need for additional accounting personnel and
stronger monthly manufacturing figures. In 1994, the
Company implemented a policy requiring a physical inventory
to be taken periodically during each fiscal quarter. This
has resulted in a satisfactory control system being
evidenced.
Liquidity and Capital Resources
At December 31, 1996, the Company had a negative
working capital balance of $437,467 compared to a positive
13
balance of $574,146 at December 31, 1995. This decrease in
working capital was due primarily to the a significant
inventory writedown and an increase in accounts payable and
accrued expenses.
As of December 31, 1996, the Company had a cash balance
of $1,548 compared to a cash balance of $25,860 and $2,579
at December 31, 1995 and 1994, respectively. The low cash
balances at December 31, 1996, are due primarily to the
increased requirements for materials, many of which had been
placed on a COD basis, to support increased production
demands.
Accounts payable increased approximately 217% or
$551,546 to $806,204 at December 31, 1996, primarily due to
the lack of available funds to timely pay creditors and an
increase in production requirements for which the Company
had to purchase materials in the last quarter of 1996.
Accounts payable increased approximately 97% or $125,610
from December 31, 1994 to December 31, 1995 primarily due to
the lack of available funds to timely pay creditors and a
decrease in production in the last quarter of 1995.
Inventories decreased by approximately 49% to $472,227
at December 31, 1996, from $919,970 at December 31, 1995.
Inventories at December 31, 1994 were $1,042,306. The
inventory consists principally of electrical components and
raw materials utilized in the layout, design and assembly
process of electronic circuit boards. During the years
ended December 31, 1996 and 1995, an additional allowance of
$290,000 and $262,000, respectively was charged to income
for obsolescence and reduction in net realizable value. The
Company does not presently anticipate significant writedowns
for obsolescence or reductions in net realizable value of
product inventory during 1997, however, the risk of
inventory 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.
On August 7, 1996, the Company acquired an 85%
ownership interest in the QuakeAlarm technology from Komen
Holdings Pty., Ltd. This technology, which has been
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
14
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
market this product through several marketing
representatives worldwide.
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 and an 80% interest in another company which has
the marketing rights to a line of environmentally friendly
chemical coatings developed by a major Australian chemical
company.
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 (see note
14). On July 1, 1994, U.S. Technologies Inc. contributed
the assets obtained from AMI for all of the stock in a new
corporation, LTI.
The Company is dependent on seven customers for a major
portion of its sales. The sales of services to IBM
represented approximately 55%, 11%, and 24% for the years
ended December 31, 1996, 1995, and 1994, respectively.
Trimble Navigation represented approximately 27% sales
during the year ended December 31, 1994. Dell Computer
Corporation represented approximately 3%, 9%, and 20% of the
Company's sales for the years ended December 31, 1996, 1995,
and 1994, respectively; Texas Instruments accounted for
approximately 8%, 15% and 14% of total sales during the
15
years ended December 31, 1996, 1995 and 1994, respectively.
Sales to Crystal Semiconductor accounted for 13% of sales
during the year ended December 31, 1995. Micronics Computer
and Intel Corporation each accounted for 9% of total sales
during the year ended December 31, 1995.
The Company is attempting to develop a broader customer
base so that the Company will not rely on any one customer
for more that 10% of its business in the future.
The competitiveness of LTI's quotes derived through
improved controls and efficiencies have enabled LTI to
increase its contract manufacturing business over the last
quarter, to broaden its scope of job bidding, and to achieve
a healthy blend of contract manufacturing work.
The electronic circuit board business of LTI is capital
intensive, as was the former business of AMI, i.e.,
significant investment in equipment had been necessary. The
Company had funded the capital expenditures through a
mixture of internal and external sources such as bank
borrowings and lease agreements.
LTI has a verbal agreement for a new operating 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 commencing February 1, 1997 through January 31, 2000
and provides for an automatic three year extension 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 three year extension. The amount of space under the
lease is subject to be increased or decreased depending upon
the number of residents employed by LTI on August 31, 1997.
Republic was incorporated in November, 1988, and
introduced the Remote Processing Module systems (RPM) to the
microcomputer networking market in 1990. The RPM is a
diskless local area network workstation. No expenditures
were made during 1994 for research and development expenses.
Republic was sold on June 30, 1994 and predominately all of
the finished goods inventory has subsequently been sold by
LTI. The Company does not intend to incur any more research
and development expense for this line of products or
manufacture any more of these systems.
During 1994, 1,770,000 shares of the Company's Rule 144
stock was sold for total consideration of $412,500. The
excess of market price for the shares sold exceeded the
purchase price by $348,750 which has been treated as
compensation. The shares are "restricted securities" as
that term is defined in Rule 144 of the Securities Act of
16
1933, as amended, and may only be resold in compliance with
said Rule 144. For a discussion of the sale of these shares
of Common Stock, see note 13 to the notes to the Financial
Statements which is incorporated herein by reference.
Additionally, 1,122,600 shares of the Company's qualified
and non qualified stock options were exercised which netted
the Company $415,287 during 1994.
During 1995, 375,000 shares of the qualified and non-
qualified stock options were exercised which netted the
Company $56,725. The excess of market price for the shares
sold exceeded the purchase price by $147,181 which has been
treated as compensation.
During 1996, 600,000 shares of the Company's non-
qualifying stock options were exercised, at market value,
which netted the Company $90,000.
From time to time during 1995 and 1994, the Company was
delinquent or in default under all of its loan and lease
agreements with the exception of those loans to the Company
from its officers, directors and shareholders. The
Company's various lenders and leasing companies have worked
with the Company and provided it the opportunity to bring
the loans and lease obligations back into performance. The
Company did not enter into any modification agreements as a
result of any of the past delinquencies or defaults with the
exception of an informal agreement with the FDIC with
respect to those certain loans having a principal balance of
approximately $158,681 at December 31, 1993 and June 30,
1994. These loans were assigned to the FDIC following the
closing of Bank of the Hills. Following the assignment of
the loans to the FDIC, the Company suspended payments
thereon. The Company also made principal payments of
approximately $19,000 during 1993 before payments were
discontinued due to lack of available funds. On August 2,
1993 and September 2, 1993, the FDIC Notified AMI that it
considered $43,251 and $115,430, respectively, of the loan
in default and demanded payment in full. These loans
remained unpaid as of June 30, 1994, the date on which AMI,
Republic and Microlabs were sold.
Prior to December 31, 1996, the Company had 660,000
outstanding Redeemable Warrants issued in connection with
the Company's initial public offering and 60,000 redeemable
warrants issued on April 14, 1987, The Warrants are
executable at $10.00 per Warrant and could generate, after
offering expenses, approximately $6,393,000. The warrants
were to expire April 14, 1992, however, the Board of
Directors of the Company extended the expiration date
several times to December 31, 1996. During 1996, the Board
of Directors made a decision not to extend the warrants
beyond December 31, 1996, and as a result the warrants
expired on that date.
17
For the first six months of 1994, one of the Company's
former subsidiaries had a factoring arrangement which
provided for the sale of eligible accounts receivables with
and without recourse to the factoring company which advanced
funds equal to 80% of such eligible receivables.
Additionally, the factoring company charged a factoring fee
of 3% of the face amount of all invoices purchased and an
interest rate for funds advanced at an annualized rate of
3.5% above the prime rate of American Federal Bank of
Dallas. Under the terms of the agreement, the factoring
company retained a continuing security interest in the
factored accounts receivables and inventory.
The interest and factoring fees discussed above of
$44,167 were incurred during the year ended December 31,
1994 and are included in the Consolidated Statements of
Operations in general and administrative expense. The
estimated allowance for doubtful accounts pursuant to the
recourse provision was reported as a provision for
uncollectible accounts receivable in the Consolidated
Statement of Operations. Total funding received during the
year ended December 31, 1994 from the sale of receivables
was $837,923.
On July 16, 1993, Republic entered into a OEM Agreement
with Datapoint Corporation. Under the OEM agreement
Republic was to manufacture and deliver 386 and 486 versions
of its RPM computers to Datapoint for resale under the
Datapoint label. Due to production delays during 1993 in
Hong Kong and subsequent AMI production problems, only a
small number of units were delivered to Datapoint during
1993 and 1994. During the first three months of 1994,
Republic tried to have AMI manufacture these units for
Datapoint, but experienced manufacturing problems and
component purchasing problems due to long lead times and the
lack of credit lines with suppliers. LTI has elected not to
continue with this contract due to the lack of sufficient
credit lines and personnel to source the various components.
Additionally, Datapoint's requirements were not as great as
initially projected.
On July 23, 1993, the Company purchased a National
Cycle League (NCL) Team Membership which included a $5,000
membership fee to NCL Properties for the total purchase
price of $265,000, represented by a cash payment of $14,250
and 118,000 shares of its Restricted Rule 144 Common Stock.
The team membership gave the Company the option of
establishing a team in either Germany or Spain if the NCL
did not sell a team membership in either country. If a team
membership was sold by the NCL in either of those countries,
the Company had the right to establish a team in the other
country. During the year ended December 31, 1996, the
National Cycle League was reorganized and the Company
18
believes that it will be given the right to exercise its
option to establish a team in the new cycle league. Due to
the uncertainty of the value of the new franchise, the
Company has elected not to continue to carry the franchise
as an asset and has included the original investment in
expense in current operations for the year ended December
31, 1996.
On May 31, 1994, the Company exchanged 300,000 shares
of its common stock with Paris Fashion Ltd. for gem stones
with a purported value of approximately $300,000. During
the year ended December 31, 1994, the Company obtained an
appraisal of the stones which determined the value to be
approximately $143,000. The Company contacted Paris Fashion
Ltd. and demanded that the difference in appraised value be
corrected. During the year ended December 31, 1995, Paris
Fashions, Ltd provided the Company with additional gem
stones with a purported value of $170,000. The gem stones
were appraised during 1996 at a value of $270,000. The
Company has provided for a valuation reserve and a charge
against operations in the amount of $30,000 and $160,000 for
the years ended December 31, 1995 and 1994, respectively.
On December 31, 1996, the stones were exchanged with GWP,
Inc. for $270,000.
The Company and certain of its subsidiaries are parties
to several legal proceedings that management considers to
have occurred during the normal course of business or as a
direct result of its inability to pay vendors on a timely
basis. See "Legal Proceedings", Item 3 herein incorporated
by reference.
Results of Operations
During the Year ended December 31, 1996, the Company
had a net loss of $(2,583,012) or $(0.14) per weighted-
average share, on consolidated net sales of $1,410,498 as
compared to a net loss of $(1,861,088) or $(0.12) per
weighted-average share, on consolidated net sales of
$1,951,487 in 1995. In 1994, the Company had a net loss of
$(847,016) or $(0.16) per weighted-average share, on
consolidated net sales of $1,668,865. The main reason for
the decrease in sales during 1996 is that Senson sales were
approximately $340,000 less during 1996 than they were
during 1995. The increase in sales for 1995 is mainly due to
sales of the company's new products obtained through the
purchase of Newdat. The decrease in sales during 1994 was
due primarily to the loss of a number of customer orders
after AMI moved into the prison facility. Many of these
orders were lost due to poor quality of work being produced
by the residents. After the quality was brought under
control the Company was in such poor financial position that
it was having severe difficulties in meeting its payroll
obligations and vendor commitments. The Company was on a
19
COD basis for virtually all purchases and did not reduce its
existing staffing levels quickly enough to help curtail the
problem.
The Company incurred a negative gross profit of
approximately $(1,103,000) during the year ended December
31, 1996. For the year ended December 31, 1995, the Company
had a positive gross profit of approximately $270,000. For
the year ended December 31, 1994, the company incurred a
negative gross profit of approximately $(364,000).
Management anticipates gross margins will improve due to the
continued decreased labor cost and reduced facilities cost
in the future.
Selling expenses represented approximately 10.8% of
sales in 1996 compared to 11.6% of sales in 1995, compared
to 9.7% in 1994. The increase of selling expense in 1995
compared to 1994 was due primarily to the additional sales
personnel involved with efforts expended in trying to market
the Senson Products.
Administrative expenses were approximately $961,195 or
68% of sales during 1996 compared to 91.0% and 89.8% in 1995
and 1994, respectively. The decrease in administrative
expense from 1995 to 1996 was due to the write off of the
cost of the wire measurement device in 1995 and the
reduction of expenses by closing of the Vancouver and
Phoenix offices and the decrease in compensation for excess
of market over purchase of the Company's common stock
No expenditures were made during 1996 and 1994 for
research and development while approximately $82,750 was
spent during the year ended December 31, 1995.
While LTI anticipates continuing increases in demand
for its services, the capability to meet these demands are
limited by equipment and working capital. Management
anticipates a higher level of sales for LTI than that
realized during 1996.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
U.S. Technologies Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets
of U.S. Technologies Inc. and Subsidiaries "the Company" as
of December 31, 1996 and 1995, and the related consolidated
statements of operations, changes in stockholders' equity
and cash flows for the years ended December 31, 1996, 1995
and 1994. These financial statements are the responsibility
of the Company's management. Our responsibility is to
express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of U.S. Technologies Inc. and
Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the
years ended December 31, 1996, 1995 and 1994 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As discussed in note 1 to the financial statements, the
Company suffered significant losses from operations during
each of the three years ended December 31, 1996, 1995 and
1994, and had a working capital deficiency at December, 31,
1996, that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard
to these matters are also described in note 1. The
financial statements do not include any adjustments that
might result from this uncertainty.
BROWN, GRAHAM AND COMPANY P.C.
18
Georgetown, Texas
April 8, 1997
19
U.S. Technologies Inc.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1996 1995
Current assets:
Cash in bank $ 1,548 $ 25,860
Accounts receivable:
Trade, net 238,647 168,717
Related party 270,000 79,894
Inventories, net 472,227 919,970
Prepaid expenses 273 6,022
Total current assets 982,695 1,200,463
Property and equipment - net 146,118 236,190
Other assets:
Investment - NCL 265,000
Investment - gem stones 270,000
Investment - new technologies, net 1,519,917 1,351,272
Other assets 3,952 3,612
Total other assets 1,523,869 1,889,884
Total assets $2,652,682 $3,326,537
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 806,204 $ 254,658
Accrued expenses 613,958 371,659
Total current liabilities 1,420,162 626,317
Long term Liabilities:
Notes payable 144,000 840,435
Commitments and contingencies: (note 8)
Stockholders' equity:
Preferred stock - $.02 par value; 10,000,000 shares authorized;
no shares issued
Common stock - $.02 par value; 40,000,000 shares authorized;
21,857,263 and 15,875,963 shares issued and outstanding
at December 31, 1996 and 1995, respectively 437,146 317,520
Additional paid-in capital 11,729,811 9,887,485
Accumulated deficit (10,928,232) (8,345,220)
Stock receivable (150,205) __________
Total stockholders' equity 1,088,520 1,859,785
Total liabilities and stockholders' equity$2,652,682 $3,326,537
The accompanying notes are an integral part
of the consolidated financial statements.
19
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1996 1995 1994
Net Sales $ 1,410,498$ 1,951,487$1,668,865
Operating costs and expenses:
Cost of sales 2,513,672 1,681,371 2,032,521
Research and development expense 82,750
Selling expense 153,023 227,034 161,752
General and administrative expense 961,195 1,777,934 1,499,036
Provision for doubtful receivables 92,209 43,872 206,266
__________ _________ _________
Total operating costs and expense3,720,099 3,812,961 3,899,575
__________ _________ _________
Loss from operations (2,309,601)(1,861,474)(2,230,710)
Other income (expense)
Interest income 1,610
Interest expense (20,277) (113,997) (20,016)
Gain on sale of subsidiaries 1,376,959
Other income 20,604 126,596 29,748
Other expense (273,738) (13,823) (2,997)
_____________________ _________
Total other income (expense) (273,411) 386 1,383,694
_____________________ _________
Net Loss $(2,583,012)$(1,861,088)$(847,016)
Loss per common share $ (.14)$ (0.12)$ (0.16)
Cash dividends per common share$ -0-$ -0-$ -0-
Weighted-average common shares outstanding 18,555,439 14,997,532 5,302,147
20
The accompanying notes are an integral part
of the consolidated financial statements.
21
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
$0.02 Par Value
Common Stock Additional
Number of Par Paid-in Accumulated
Shares Value Capital Deficit Total
Balance, January 1, 19944,077,029 $81,541$6,315,872$(5,637,116)$760,297
Stock options exercised171,606 3,432 125,718 129,150
Rule 144 stock issued1,470,000 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 services372,0007,440198,083 205,523
Stock issued for new product750,00015,000181,793 196,793
Stock options exercised730,600 14,612 260,113 274,725
Stock issued for Newdat, Inc.
acquisition 7,053,728 141,0751,269,675 1,410,750
Net loss _________ __________________ (1,861,088) (1,861,088)
Balance, December 31, 199515,875,963317,520 9,887,485(8,345,220)1,859,785
Stock issued for new product3,536,00070,720481,780 552,500
Stock issued to retire debt1,845,30036,906534,331 571,237
Stock receivable (150,205) (150,205)
Stock options exercised600,000 12,000 78,000 90,000
Debt contributed to capital 748,215 748,215
Net loss _____________________________ (2,583,012) (2,583,012)
Balance, December 31, 199621,857,263$437,146$11,579,606$(10,928,232)$1,088,520
The accompanying notes are an integral part
of the consolidated financial statements.
22
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
Cash flows from operating activities:
Net loss $(2,583,012) $(1,861,088)$(847,016)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 473,927 852,297 297,698
Loss on disposal of asset 265,000
Allowance for writedown of gem stones (126,436) 156,436
Excess of market over issue price of non
qualified stock options and Rule 144 stock 147,181869,452
Gain on sale of subsidiaries (1,376,959)
Changes in current assets and liabilities:
Accounts receivable 19,990 (28,470) (785,655)
Inventory 447,743 288,317 (80,341)
Notes receivable 48,805
Prepaid expense 5,749 25,090 (8,713)
Accounts payable 551,546 91,890 858,745
Accrued expenses 341,043 63,441 406,753
Net cash used in operating activities (478,014)(547,778)(460,795)
Cash flows from investing activities:
Proceeds from sale of subsidiaries 1,758
Equipment purchases (3,294) (37,607)
Decrease (increase) in other assets (340) (1,482) 25
Net cash used in investing activities (340) (4,776) (35,824)
Cash flows from financing activities:
Proceeds from issuance of common stock90,000 45,000 458,287
Principal payments on notes payable(15,000) (50,000)
Increase in notes payable 379,042 580,835 ________
Net cash provided by financing activities 454,042575,835 458,287
Increase (decrease) in cash (24,312) 23,281 (38,332)
Cash, beginning of period 25,860 2,579 40,911
Cash, end of period $ 1,548 $ 25,860 $ 2,579
Supplemental disclosure of cash flow information:
Cash paid for interest during the years ended December 31, 1996, 1995
and 1994 was $19,333, $12,411 and $20,016 respectively.
Supplemental schedule of noncash investing and financing activities:
1996: Issued 3,536,000 shares of stock for a new product valued at
$552,500.
Purchase of gem stones with $270,000 accounts receivable.
Issued 1,845,300 shares of stock for debt in the amount of
$571,237.
Debt, accrued expenses and accounts receivable in the amount of
$748,215
contributed to capital.
1995: Issued 750,000 shares of stock for new product.
Issued 7,053,728 shares of stock for purchase of Newdat, Inc.
1994: Issued 300,000 shares of stock for investment in gem stones.
The accompanying notes are an integral part
of the consolidated financial statements.
23
Sold three subsidiaries for $1,758 of cash. Purchaser received
$214,159 in current
assets, $94,419 in fixed assets and the assumption of $1,589,360
in current liabilities.
The accompanying notes are an integral part
of the consolidated financial statements.
24
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., ("Newdat") and
furnished the same services to its formerly wholly owned
subsidiaries American Microelectronics Inc. ("AMI"), Republic
Technology Corporation ("Republic"), and Microlabs, Inc.
"Microlabs". LTI operations consist of contract manufacturing,
prototyping and repair of printed circuit boards using surface
mount, through-hole and mixed technology. This technology
accounted for approximately 99% of the consolidated net sales.
Newdat, Inc. and its 80% owned subsidiary SensonCorp, Limited
were acquired on January 23, 1995 (see note 16). U.S.
Technologies Inc., together with its subsidiaries, are
hereinafter referred to collectively as "the Company."
Principles of Consolidation
The consolidated balance sheets at December 31, 1996 and
1995 include the accounts of U.S. Technologies Inc., and its
wholly owned subsidiaries, Lockhart Technologies, Inc., Newdat,
Inc. and its 80% owned subsidiary SensonCorp, Limited. The
consolidated statements of operations, changes in stockholders'
equity and cash flows for the years ended December 31, 1996 and
1995, include the accounts of U.S. Technologies Inc., Lockhart
Technologies, Inc., Newdat, Inc., and the operations of
SensonCorp, Limited. The consolidated statements of operations,
changes in stockholders' equity and cash flows for the year ended
December 31, 1994 include the accounts of U.S. Technologies Inc.,
Lockhart Technologies, Inc. from its inception on June 29, 1994,
and its formerly wholly owned subsidiaries American
Microelectronics Inc., Republic Technology Corporation and U.S.
Microlabs Inc., (see note 14).
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
incurred significant losses during each of the three years in the
period ended December 31, 1996 and has a working capital
deficiency at December 31, 1996. Additionally, at various times
during 1995 and 1994, 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 (see notes 16 and
23
18) and the sale of additional common stock through a private
placement.
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 Improvements 6 years
24
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 are anti-
dilutive for the purpose of determining net income or loss per
share.
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.
Risks and Uncertainties
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
2. ACCOUNTS RECEIVABLE - TRADE
For the first six months of 1994, one of the Company's former
subsidiaries had a factoring arrangement which provided for the
sale of eligible accounts receivables with and without recourse
to the factoring company which advanced funds equal to 80% of
such eligible receivables. Additionally, the factoring company
charged a factoring fee of 3% of the face amount of all invoices
purchased and an interest rate for funds advanced at an
annualized rate of 3.5% above the prime rate of American Federal
Bank of Dallas. Under the terms of the agreement, the factoring
company retained a continuing security interest in the factored
accounts receivables and inventory.
The interest and factoring fees discussed above of $44,167
incurred during the year ended December 31, 1994, and are
included in the Consolidated Statements of Operations in general
and administrative expense. The estimated allowance for doubtful
accounts pursuant to the recourse provision was reported as a
provision for uncollectible accounts receivable in the
Consolidated Statement of Operations. Total funding received
during the year ended December 31, 1994 from the sale of
receivables was $837,923.
Accounts receivable - trade at December 31, is net of an
allowance for doubtful accounts as follows:
1996 $90,953
25
1995 68,434
3. INVENTORIES
At December 31, inventories consist of the following:
1996 1995
Raw Materials $984,811 $1,186,863
Work in progress 72,416 28,107
1,057,227 1,214,970
Allowance for obsolescence 585,000 295,000
$472,227 $ 919,970
The Company provided an additional allowance for obsolete raw
materials of $290,000, $262,000 and $33,000, which was charged
against cost of sales, during the years ended December 31, 1996,
1995 and 1994, respectively. Additionally, the Company recorded,
and charged to cost of sales, a writedown to net realizable value
its carrying cost of finished goods inventory in the approximate
amount of $46,000 during the year ended December 31, 1994.
As a result of recent changes in the Company's market for certain
products, carrying amounts for those inventories were reduced by
approximately $585,000 and $295,000 at December 31, 1996 and
1995, respectively due to quantities in excess of current
requirements. Management believes that this reduces inventory to
its lower of cost or market, and no additional loss will be
incurred upon disposition of the excess quantities. While it is
at least reasonably possible that the estimate will change
materially in the near term, no estimate can be made of the range
of additional loss that is at least reasonably possible.
4. PROPERTY AND EQUIPMENT
At December 31, property and equipment consists of:
1996 1995
Equipment $936,559 $1,572,663
Furniture and fixtures 164,056 165,362
Leasehold improvements 123,520 204,865
1,224,135 1,942,890
Less accumulated depreciation1,078,0171,706,700
$ 146,118 $ 236,190
Depreciation expense for the years ended December 31, 1996,
1995 and 1994 was $90,072, $197,920 and $287,782, respectively.
5. LICENSES
Prior to 1993, the Company entered into license agreements
totaling $160,250 with certain software vendors for the right to
reproduce and distribute 10,000 copies of certain BIOS and
operating system software used in its RPM units. Amortization
was computed using the straight-line method over 5 years and was
fully amortized as of December 31, 1995. Amortization expense
for 1995 and 1994 totaled $16,538 and $9,917 respectively.
26
6. NOTES PAYABLE
Notes payable and long-term debt at December 31, 1996 and
1995, consist of the following:
1996 1995
10% unsecured note payable to Carlton Technologies
Limited; due on December 15, 1997. (see note 17) $397,
212
10% secured note payable to Laura Technologies
Limited; due on December 15, 1997; secured by the
investment in gemstones. (see note 17) 210,774
10% unsecured note payable to Tintagel Limited;
due on December 15, 1997. (see note 17) 232,449
12% unsecured note payable to an individual;
due on July 1, 1998 $ 50,000
14% unsecured note payable to an individual;
due on January 1, 1999 44,000
12% unsecured note payable to a certain profit sharing
plan; due on July 1, 1998 50,000 ________
Total Maturities $144,000 $840,435
Current maturities of long-term debt are as follows:
December 31, 1996 1997
1996 $ -$ -
1997 840,435
1998 100,000
1999 44,000 ________
$144,000 $840,435
27
7. INCOME TAXES
Deferred federal income tax at December 31, 1996 follows:
Deferred federal income tax asset $2,708,782
Valuation allowance (2,708,782)
Total deferred tax asset $ -
0-
The Company has available for federal income tax purposes
unused operating losses which may provide future tax benefits
which expire as follows:
Year of Expiration Net Operating Loss
2003 $1,383,000
2005 379,903
2006 65,727
2007 363,554
2008 2,183,089
2009 894,689
2010 1,323,470
2011 2,240,937
$8,834,369
8. COMMITMENTS AND CONTINGENCIES
LTI has a verbal agreement for a new operating 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 commencing February
1, 1997 through January 31, 2000 and provides for an automatic
three year extension 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 automatic three year extension. The amount
of space under the lease is subject to be increased or decreased
depending upon the number of residents employed by LTI on August
31, 1997.
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, in the United States
District Court Northern District of California, Cause No. C-95-
00282. The action seeks equitable relief and damages for breach
28
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. 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 was notified that the plaintiff has
dismissed all proceedings as of January 1997.
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
$56,246 in damages plus $18,747 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.
As a part of the agreement with GWP, Inc., William Meehan
resigned his position as president and CEO of the Company
effective January 6, 1997. Subsequent to his resignation, Mr.
Meehan retained counsel in an effort to recover amounts he
asserts are due him under certain provisions of his employment
contract with the Company. The Company believes that the claims
are without merit and intends to defend its position.
During March 1997, LTI was notified that it, AMI and certain
of AMI's former officers and directors are subject to litigation
brought by the State of Texas over alleged sales tax
underpayments by AMI. The alleged tax liabilities occurred prior
to the Company's foreclosure of its security interest in AMI and
29
the Sale of AMI on June 30, 1994. All assertions brought by the
State are denied and will be contested by the Company. Certain
former officers and directors who were made a party to the
State's legal action assert indemnification on the part of the
Company in the event they are held personally liable for such
underpayments. At this time the Company is not aware of any
contingent liability relating to indemnification obligations on
the part of the Company, but will address such claims if they
arise.
AMI, Republic and certain of its former officers and
directors are subject to a federal tax claim relating to alleged
unpaid payroll taxes. The alleged tax liabilities occurred prior
to the Company's foreclosure of its security interest in AMI and
the sale of AMI and Republic on June 30, 1994, and the ninety
days following the sale of these former subsidiaries. Certain
former officers and directors who are subject to the government's
claim assert entitlement to indemnification on the part of the
Company in the event they are held personally liable. At this
time the Company is not aware of any contingent liability
relating to indemnification obligations on the part of the
Company, but will address such claims if they arise.
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.
On July 14, 1989, the Company's Board of Directors adopted a
bonus plan 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, if any, of the individual bonuses. No
bonuses were declared during the three years ended December 31,
1996.
The Company's Board of Directors, during the year ended
December 31, 1994, 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 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
30
July 1995. Mr. Ginther has stated that he did not wish to claim
the severance, while Messers Corley and Bryant have requested
payment. During 1995, the new Board of Directors questioned the
legality of this form of compensation. The severance pay of
$46,000 has not been recorded in the accompanying financial
statements due to the uncertainty.
9. ESCROW AGREEMENT
Dr. R. E. Woody, a shareholder; Mr. Ryan Corley, a
shareholder, a former Chairman of the Board of Directors,
President and Chief Executive Officer and Mr. Neil E. Ginther, a
shareholder of less than 5% of the outstanding shares of Common
Stock of the Company escrowed 693,360, 405,533 and 56,700 shares
of their stock, respectively, pursuant to an escrow agreement
required by the state of Texas which, among other things,
provided that if in the first twelve (12) months following the
effective date of the Registration Statement (April 14, 1987),
the closing bid price for the Company's Common Stock was not at
least $10.00 for a period of twenty (20) consecutive trading
days, an aggregate of 200,000 shares of Common Stock would be
released from the escrow and contributed back to the Company. On
April 14, 1988, pursuant to the escrow agreement, Mr. Ryan
Corley, Mr. Neil Ginther and Dr. R. E. Woody released an
aggregate of 200,000 shares of Common Stock from escrow and
contributed the shares back to the Company and such shares were
cancelled. Additionally, if in the second twelve (12) months
following such effective date, the closing bid price was not at
least $15.00 for a period of twenty (20) consecutive trading
days, an additional 200,000 shares of Common Stock in the
aggregate would be released from the escrow and delivered to the
Company. On April 14, 1989, pursuant to the escrow agreement,
Mr. Ryan Corley, Mr. Neil Ginther and Dr. R. E. Woody released an
aggregate of 200,000 shares of Common Stock from escrow and
contributed the shares back to the Company which cancelled them.
The escrow agreement provided for the release of the
remaining shares to each of the three shareholders yearly
commencing April 15, 1993 through April 15, 1998 at the rate of
20% of their respective shares remaining in escrow at April 15,
1993. The number of shares released from escrow on April 14,
1996, 1995 and 1994 to Dr. R.E. Woody, Ryan Corley and Neil E.
Ginther was 138,672 in each of the three years.
All of the escrowed shares have been treated as issued and
outstanding shares in all references to the number of shares
outstanding and have been included in the weighted average number
of shares outstanding in all references to earnings per share
during the time periods in which they were outstanding.
10. CUSTOMERS
The Company is dependent on seven customers for a major
portion of its sales. The sales of services to IBM represented
approximately 55%, 11%, and 24% for the years ended December 31,
31
1996, 1995, and 1994, respectively. Trimble Navigation
represented approximately 27% sales during the year ended
December 31, 1994. Dell Computer Corporation represented
approximately 3%, 9%, and 20% of the Company's sales for the
years ended December 31, 1996, 1995, and 1994, respectively.
Texas Instruments accounted for approximately 8%, 15% and 14% of
total sales during the years ended December 31, 1996, 1995 and
1994, respectively. Sales to Crystal Semiconductor accounted for
13% of sales during the year ended December 31, 1995. Micronics
Computer and Intel Corporation each accounted for 9% of total
sales during the year ended December 31, 1995.
11. STOCK OPTION PLANS - QUALIFIED
The 1988 Employee Stock Option Plan (the "1988 Plan") was
approved at the Annual Meeting of Shareholders on March 16, 1989.
The 1988 Plan reserves 300,000 shares of the Company's Common
Stock to be granted to officers and employees at the discretion
of the Board of Directors.
The 1990 Employee Stock Option Plan (the "1990" Plan") was
approved at the Annual Meeting of Shareholders on June 8, 1990.
The 1990 Plan reserves 300,000 shares of the Company's Common
Stock to be granted to officers and employees at the discretion
of the Board of Directors.
The 1996 Employee Stock Option Plan (the "1996" Plan") was
approved at the Annual Meeting of Shareholders on July 25, 1996.
The 1996 Plan reserves 600,000 shares of the Company's Common
Stock to be granted to officers and employees at the discretion
of the Board of Directors.
All of the plans provide that all options must be granted at
not less than the market price at the time of the grant. The
term of the options will be selected by the Board of Directors,
but in no event will such term exceed ten years from the date of
the granting of the option. All options are nontransferable,
except upon death, and, during the lifetime of the optionee, are
executable only by the optionee.
The following table contains information on stock options:
Average Option
Shares Price per Share
Granted:
1989 182,600 $2.00
1990 358,560 $2.50
1991 110,100 $5.10
1992 230,720 $4.41
1993 220,000 $1.64
1994 224,700 $0.60
1995 3,000 $0.63
1996 0 $.00
Exercised:
1989 3,800 $1.90
32
1990 40 $2.20
1991 118,980 $3.20
1992 162,520 $3.28
1993 153,000 $1.99
1994 171,600 $0.75
1995 3,000 $0.63
1996 0 $.00
Forfeited/cancelled:
1989 122,460 $4.20
1990 176,880 $3.60
1991 139,540 $3.10
1992 133,760 $4.97
1993 91,000 $3.16
1994 87,920 $3.03
1995 45,000 $6.68
1996 24,000 $1.57
Outstanding at year end:
1988 238,760 $4.95
1989 295,820 $3.30
1990 477,460 $2.90
1991 329,040 $3.60
1992 341,820 $3.79
1993 281,500 $2.86
1994 182,580 $3.41
1995 137,580 $2.34
1996 113,580 $2.50
Executable at year end:
1989 155,800 $4.85
1990 109,080 $3.60
1991 131,707 $3.10
1992 166,320 $3.84
1993 124,700 $1.98
1994 110,655 $3.80
1995 137,580 $2.34
1996 113,580 $2.50
Options for a total of 672,840 shares are available for
grant to officers and key employees under the 1988 and 1990
plans, under which grants may be made until August 2, 1998,
October 6, 1999 and April 29, 2006, respectively.
12. STOCK OPTION PLANS - NONQUALIFIED
On May 4, 1993, September 3, 1993, April 15, 1994 and
November 13, 1996, the Company adopted the 1993, 1993A, 1994 and
1996 nonqualifying stock option plans, respectively. The plans
reserve 500,000, 800,000, 800,000 and 800,000 shares of the
Company's Common Stock to be granted to non-employees, directors,
and/or other persons associated with the Company whose services
have benefited the Company.
33
The following table contains information on the nonqualified
stock options:
Average Option
Shares Price per Share
Granted:
1994 710,000 $.20
1995 0 $.00
1996 600,000 $.15
Exercised:
1994 951,000 $.41
1995 272,000 $.05
1996 600,000 $.15
Outstanding at year end:
1994 272,000 $.05
1995 0 $.00
1996 0 $.00
Executable at year end:
1993 513,000 $2.13
1994 272,000 $.05
1995 0 $.00
1996 0 $.00
Some of the options granted during 1995 and 1994 were
granted at less than market value at the date of the grant. The
excess of the market value over the option price in the amount of
$147,181 and $188,694 has been included in expense in the
accompanying financial statements as compensation for the years
ended December 31, 1995 and 1994, respectively.
There are 290,000 shares available to grant as of December
31, 1996 under these plans.
Additionally, the Company has granted options to four other
parties for the exercise of nonqualified options to purchase
200,000 shares of the Company's Rule 144 stock at $.50 per share
at various times through May 17, 2001 and a former board member
the option to purchase 150,000 shares at $.125 per share through
May 25, 1999.
13. STOCKHOLDERS' EQUITY
Previously, the Company had outstanding 660,000 warrants
which entitle the holder to purchase one share of common stock at
$10 per warrant. These warrants expired on December 31, 1996.
The following table reconciles the number of common shares
shown as outstanding on the balance sheet with the weighted-
average number of common and common equivalent shares used in
computing earnings per share for the years ended December 31:
1996 1995 1994
34
Common shares outstanding at December 3121,857,26315,875,963
6,969,635
Effect of using weighted
average common
shares outstanding (3,301,824) (878,431)(1,667,488)
____________________ _________
Shares used in computing
earnings per share 18,555,43914,997,532 5,302,147
During 1994, 1,770,000 shares of the Company's Rule 144
stock was sold for total consideration of $412,500. The excess
of market price for the shares sold exceeded the purchase price
by $348,750 has been treated as compensation and included in the
accompanying financial statements in administrative expenses.
On May 31, 1994, the Company exchanged 300,000 shares of its
common stock with Paris Fashion Ltd. for gem stones with a
purported value of approximately $300,000. During the year ended
December 31, 1994, the Company obtained an appraisal of the
stones which determined the value to be approximately $143,000.
The Company contacted Paris Fashion Ltd. and demanded that the
difference in appraised value be corrected. During the year ended
December 31, 1995, Paris Fashions, Ltd provided the Company with
additional gem stones with a purported value of $160,000. The
gem stones have been appraised during 1996, at a value of
$270,000. The Company has provided for a valuation reserve and a
charge against operations in the amount of $30,000 and $170,000
for the years ended December 31, 1995 and 1994, respectively.
During 1996, the stones were exchanged for an accounts receivable
from GWP, Inc., in the amount of $270,000.
On July 23, 1993, the Company purchased a NCL International
LTD., (formerly the National Cycle League (NCL)), team membership
which included a $5,000 membership fee to NCL Properties for the
total purchase price of $265,000, represented by a cash payment
of $14,250 and 118,000 shares of its Restricted Rule 144 Common
Stock. The team membership gives the Company the option of
establishing a team in either Germany or Spain if the NCL doesn't
sell a team membership in either country within one year. During
the year ended December 31, 1996, the National Cycle League was
reorganized and the Company believes that it will be given the
right to exercise its option to establish a team within the new
cycle league. But, due to the uncertainty of the value of the
new franchise, the Company has elected not to continue to carry
the franchise as an asset and has included in expense the
original investment for the year ended December 31, 1996.
During the year ended December 31, 1993, the Company issued
100,000 shares of its Rule 144 stock to Chandler, Church &
Company for an agreement for future promotional services.
Chandler, Church & Company advised the Company the stock should
not have been issued by the Company. They also advised the
Company that they did not have a contract with the Company. On
December 21, 1993, the Company advised the stock transfer agent
35
to cancel the stock certificate and that if the shares were
presented for transfer that the purchaser thereof could not be a
bona fide purchaser. The Company has not included the shares in
the shares outstanding as of December 31, 1996, 1995 and 1994 or
included them in the weighted average shares in the per share
computation.
On August 7, 1996, the Company purchased an 85% interest in
the QuakeAlarm technology for $552,500 by an exchange of
3,536,000 shares of the Company's common stock. This fully
integrated early warning earthquake alarm can detect first signs
of an imminent earthquake by sensing the quakes "P" (primary)
wave. The purchase of the majority ownership gives the Company
the exclusive manufacturing and marketing rights to the product
worldwide. The purchased technology is being amortized over 5
years on the straight line method. Amortization in the amount of
$46,042 has been charged to expense during the year ended
December 31, 1996.
As a part of the agreement with GWP, Inc. (note 18) certain
accounts receivables, accrued expenses and notes payable from
Tintagel, Ltd., Laura Investments, Ltd., and Laura Technologies,
Ltd. in the amount of $748,215 was contributed to additional paid
in capital effective December 31, 1996.
During the year ended December 31, 1996, the Company issued
1,845,300 shares of common stock to retire outstanding notes
payable to Carlton Technologies Limited in the amount of
$571,237. At the time the stock was issued to Carlton
Technologies Limited only $421,032 of notes payable was due;
therefore a receivable for $150,205 has been recorded as a
reduction of stockholders equity.
36
14. 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 which
has been included in operations in 1994.
Following is a summary of net assets and results of
operations for the three subsidiaries sold as of June 30, 1994:
1994
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) $(528,296)
15. FOURTH QUARTER ADJUSTMENTS
Significant adjustments increasing the fourth quarter loss
of 1996, 1995 and 1994 are as follows:
1996 1995 1994
Increase of allowance for doubtful accounts$ 21,700
$ 55,268 $156,436
Unrecorded compensation on Rule 144 stock
20,142
37
Writedown of inventory for obsolete raw materials
339,372 60,703 33,000
Decrease in gain on sale of subsidiaries
224,000
Increase in goodwill in acquisition of Newdat, Inc.
500,000
Amortization of goodwill 40,042100,000
Accrued expenses 130,911 84,519
26,712
Aggregate adjustment $532,025$800,490$460,290
16. ACQUISITION OF SUBSIDIARY
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 and
an 80% interest in another company which has the marketing rights
to a line of environmentally friendly chemical coatings developed
by a major Australian chemical company.
The acquisition has been 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 for tape
storage device technology that is still in the development stage.
That amount has been charged to expense in 1995. Goodwill and
purchased technologies are being amortized over 5 years on the
straight line method. Amortization in the amount of $337,813 and
$337,793 has been charged to expense during the years ended
December 31, 1996 and 1995, respectively.
Pro Forma Results of Operations, for the year ended December
31, 1994, including the expense of the tape storage device, had
the acquisition been effective at the beginning of 1994 are as
follows:
Net sales $1,700,965
Net loss $(1,225,329)
38
Earnings per share $(.90)
Weighted average common shares outstanding 5,302,147
17. RELATED PARTIES
Mr. John V. Allen, former Chairman of the Board, is also
Chairman of the Board of Directors of Laura Technologies, Inc.
with whom the Company and/or its subsidiaries have a loan in the
amount of $210,774 as of December 31, 1995.
Carolyn Meehan, wife of William Meehan, president and CEO of
the Company until his resignation on January 6, 1997, is
president of Carlton Technologies Limited with whom the Company
had various loans during 1995 and 1996 and had a loan in the
amount of $397,212 as of December 31, 1995. Many of these loans
were retired by the issuance of the Company's common stock in
exchange for the debt. At December 31, 1996, the Company had a
receivable of $150,205 from the issuance of common stock in
excess of debt to Carlton.
Tintagel, Ltd., a major shareholder until its interest was
sold pursuant to the agreement with GWP, Inc., during January
1997, see note 18, with whom the Company and or its subsidiaries
have a loan in the amount of $232,449 at December 31, 1995.
Mr. K. H. Smith and Mr. James V. Warren are majority
shareholders in GWP, Inc., ("GWP") from which the Company has an
account receivable in the amount of $270,000 as of December 31,
1996. Effective January 7, 1997, Mr. Smith became President, CEO
and Director of the Company. Mr. Warren became a director
effective January 7, 1997 and Chairman of the Board effective
January 20, 1997.
18. SUBSEQUENT EVENTS
On January 6, 1997, an agreement was entered into between
GWP, Tintagel, LTD., Komen Holdings Pty., Ltd., Laura
Investments, Ltd., and Laura Technologies, Ltd., whereby GWP
would acquire approximately 42% of the outstanding common stock
of the Company as of December 31, 1996, from Tintagel, LTD and
Komen Holdings Pty., Ltd., contingent upon the following
conditions being met prior to final closing on April 7, 1997:
1. The Company would grant an option to SWG Partners,
("SWG"), a Georgia partnership of which Mr. James V.
Warren and Mr. K. H. Smith are general partners, to
purchase up to 6,000,000 shares of its common stock at
$0.10 per share prior to closing on April 7, 1997.
2. That SWG would purchase 1,500,000 shares of the
Company's common stock upon execution of the letter of
intent on January 6, 1997.
39
3. That SWG could purchase an additional minimum of
4,500,000 shares of the Company's common stock by April
7, 1997.
4. That William Meehan would resign as President, CEO and
director of the Company and K. H. Smith be named
President, CEO and director effective as of January 7,
1997, upon William Meehan's resignation.
5. That James Chen would resign as a director of the
Company and James Warren would be named as a director
of the Company to fill his position effective as of
January 7, 1997, upon James Chen's resignation.
6. That all notes payable, accrued expenses and accounts
receivable from Tintagel, Laura Investments Ltd., and
Laura Technologies Ltd., be contributed to the Company
as additional paid in capital.
On April 1, 1997, Newdat, Inc., entered into a ten year
distribution agreement between Newdat Inc., and China Harbin S.W.
Enterprise Development Limited Co, ("China Co"). The terms of
the agreement give exclusive distribution rights of the
QuakeAlarm in the geographic region of China (including Hong
Kong, Macao, and Taiwan (the "Chinas")) and Russia to China Co.
The agreement further provides that China Co. may sell the
QuakeAlarm on a non exclusive basis to Japan, the Philippines,
Indonesia, and other Asian markets subject first to China Co.
demonstrating success in the Chinas and Russia. The agreement
requires that approximately $600,000 for production or the first
4,000 units be manufactured and packaged by the Company in its
facilities.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES.
During 1996, the Company had no disagreements with its
accountants on accounting and financial disclosures.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in note 1 to the financial statements, the Company
suffered significant losses from operations during each of the
three years in the period ended December 31, 1996, and had a
working capital deficiency at December 31, 1996, which raise
substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also
described in note 1. The financial statements do not include any
adjustments that might result from this uncertainty.
40
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Name Age Position
James V. Warren 63 Director effective January 7, 1997
Chairman of the Board effective January
20, 1997
John V. Allen 60 Chairman of the Board through
January 20, 1997
Board member through April 7, 1997
K. H. Smith 50 Director, President and Chief
Executive Officer of the Company
effective January 7, 1997
William Meehan 51 Director, President and Chief
Executive Officer of the Company .
through January 6, 1997
James C. Melton, Sr. 52 Director effective April 8,
1997
James Chen __ Director through January 6, 1997
Directors of the Company are elected at the annual meeting
of shareholders to serve for one year or until their successors
are elected and have qualified. Vacancies on the Board of
Directors of the Company and its subsidiaries are filled by the
Board of Directors of the Company. Officers serve at the
discretion of the Board of Directors. There are no family
relationships between any of the directors or officers of the
Company.
James V. Warren - Chairman of the Board of Directors.
James V. Warren became a member of the Board of Directors on
January 7, 1997, and Chairman of the Board of Directors on
January 20, 1997. Mr. Warren's career involves more than 30
years in executive management, management controls and
construction management for both the design, engineering,
construction, and operations of utility power plants, government
facilities, NASA projects, and private projects. He is a
founder, Chairman of the Board, and President of The Spear Group,
Inc., a national consulting and contract services company that
was established in January 1982. In addition to serving as
President of the Spear Group, Inc., he serves as President of its
affiliated companies: Law/Spear, L.L.C., Secore, L.L.C., Winter
Resources, L.L.C., and Russell Personnel Management, L.L.C. He
also serves on the Board of Directors of Secore, L.L.C., Winter
Resources, L.L.C., and MedQuip, a medical supply company.
John V. Allen
41
John Allen became a member and Chairman of the Board of
Directors on January 23, 1995, when U.S. Technologies Inc.
acquired Newdat, Inc. and served as Chairman until his
resignation on January 20, 1997 and as a board member until his
resignation on April 7 1997. Mr. Allen has been Chairman of the
Board of Newdat, Inc. since its inception in 1994. Mr. Allen
resigned his position as Chairman of the Board of the Company and
Newdat, Inc. on January 6, 1997. Mr. Allen was a founder and
Chairman of the Board of Pan Pacific Gold Corporation since July
1994, a Canadian resources company with activities in British
Columbia, Vietnam and China conducting mining operations
primarily for gold. Mr. Allen is the founder of and Chairman of
the Board of Laura Technologies Inc., an Arizona technology
corporation devoting its efforts to research and development of
principally electronic products. During the period of 1984
through 1989, Mr. Allen served as the founder and Chairman of
Superburn Systems Ltd., a Canadian public company involved in
environmental and waste management with offices in Canada, United
States, United Kingdom, Germany and other European countries.
Mr. Allen is a member of the Board of Directors of Laura
Investments Ltd., a wholly owned multinational investment holding
company with a diverse range of high technology businesses.
K. H. Smith - President, Chief Executive Office and member of the
Board of Directors.
K. H. Smith was appointed to the Board of Directors and the
position of President and Chief Executive Officer of the Company
on January 7, 1997. Prior to forming GWP, Inc., he was co-
founder, President & CEO, and director of Capital South Financial
Services, Inc., a privately owned lending company headquartered
in Atlanta. Mr. Smith currently devotes all his time to USXX and
serves on no other boards. His education includes a Bachelor's
degree in Industrial Management from the Georgia Institute of
Technology, and a Masters's degree in Business from Auburn
University. Mr. Smith has 23 years of experience in finance,
consulting and business turnarounds.
William Meehan
William Meehan was appointed President and Chief Executive
Officer of the Company on June 1, 1995, and appointed to the
Board of Directors on October 30, 1995 and served in these
positions until his resignation on January 6, 1997. Mr Meehan
has served as President, Chief Executive Officer and a member of
the Board of Directors of SensonCorp Limited since July 1994.
Mr. Meehan served from October 1992 as President and as a member
of the Board of Directors of Clarion Environmental Technologies
Inc., a Vancouver Stock Exchange public company, specializing in
environmental pollution eradication until his resignation in June
1994. Mr. Meehan has been President and a member of the Board
of Directors of Pan Pacific Gold Corporation, a Canadian public
Company trading on the Vancouver Stock exchange since August
1994. Pan Pacific conducts mining and extraction activities in
42
British Columbia, Vietnam and China. Mr. Meehan was appointed as
the Australian Consul General to Western Canada, based in
Vancouver, in December 1989 and served in that position until
October 1992. Mr. Meehan has a degree in civil engineering and
has written a fellowship in International Marketing. He has
worked extensively in Europe, the Middle East, Asia, Australia
and North America during his career.
James C. Melton, Sr. - Director.
James Melton joined the Company on March 1, 1997, as
Executive Vice President of the Company and President of Newdat,
Inc. Mr. Melton served as President of Family Safety Products,
Inc. (FSPI), a consumer goods manufacturer from May 1, 1996 until
February 28, 1997. Mr. Melton served as executive Vice President
of FSPI from August 1993 until April 30, 1996. During the period
of November 15, 1992 to August 1993, Mr. Melton served as
National Sales Manager of Plus III Software, Inc., a civil
engineering software firm. Mr. Melton holds a Bachelor's Degree
in Physics from North Georgia College and a Master's degree in
Industrial Management from the Georgia Institute of Technology.
Mr. Melton has 20 years of sales, sales management and executive
management experience.
James Chen
James Chen, Ph.d.. (Engineering) was appointed to the Board
of Directors on May 28, 1996, to fill the vacant position created
by the resignation of Norman Frank on April 30, 1996 and served
in that position until his resignation on January 6, 1997. Dr.
Chen has provided technical assistance to the Company over the
past year. Dr. Chen is Vice President (International
Engineering) for Laura Technologies Ltd., a Vancouver based
company. From October 1994 until September 1995, Dr. Chen was
Vice President of research and a member of the Board of Directors
of Clarion Environmental Systems Ltd. Prior to that he spent two
and a half years as a post doctoral fellow at the University of
British Columbia, specializing in air pollution technology and
energy utilization.
Significant Employees
The Company relies on the services of certain key employees.
Set forth below is certain information describing such persons.
Leonard Hilt - President of Lockhart Technologies, Inc., through
January 6, 1997.
Mr. Hilt is the founding officer of LTI, the manufacturing
subsidiary of the Company. Mr Hilt has had a direct or indirect
association with the Company since 1987. Mr Hilt is a CPA and
graduated from Kansas State University with a degree in business
administration.
43
Walter Stierhoff - General Manager of Lockhart Technologies,
Inc., through January 10, 1997.
Mr. Stierhoff joined LTI in September 1995. Mr. Stierhoff
is a specialist in electronics and electro-mechanical production.
He has structured all key elements of the factory and recruited
top personnel as section heads in preparation for increased
contract manufacturing and for production of the Company's
proprietary products. Mr. Stierhoff has a degree in electrical
engineering from Texas A & M University.
ITEM 11. EXECUTIVE COMPENSATION.
The table below sets forth all cash and cash equivalent
remuneration paid by the Company and its subsidiaries during the
year ended December 31, 1996 to each of the Company's executive
officers and to a group consisting of all` executive officers of
the Company.
Name Capacities in which serves Cash
Compensation
John V. Allen Chairman of the Board
$0
William Meehan Director, President and
Chief Executive Officer $120,
000
James Chen Director $0
All Executive Officers
and Directors as a $120,000
Group (3 persons)
Compensation of Directors
Directors of the Company are reimbursed for travel expenses
incurred in serving on the Board of Directors. Directors who are
not executive officers of the Company receive $150 a month for
their services. An additional $50 per meeting is paid when the
Company holds more than two Board meetings during any calendar
month.
Stock Option Plans
The Company's Employee Incentive Stock Option Plan of 1988,
1990, and 1996 (the "Plans") were adopted by the Board of
Directors and approved by Shareholders on March 16, 1989, June 8,
1990, and July 25, 1996, respectively. The purpose of the Plans
is to attract and retain qualified personnel. The Plans provide
that the aggregate fair market value of the shares of Common
Stock for which any participant may be granted incentive stock
options in any calendar year shall not exceed $100,000 plus any
44
"unused limited carryover" as determined under Section 422A(c) of
the Internal Revenue Code of 1954, as amended. No options may be
granted under the Plans after August 1, 1998, October 5, 1999,
and April 29, 2006, respectively.
The Plans are administered by the Board of Directors of the
Company who determine, subject to the provisions of the Plans, to
whom options are granted and the number of shares of the Common
Stock subject to option. The exercise price of such options
granted under the Plans must at least equal 100% of the fair
market value of the Common Stock on the date the option is
granted.
The Plans also provide that no option shall be executable
more than three months after termination of an optionee's
employment with the Company unless such termination of employment
occurs by reason of death or permanent and total disability. In
the event of the death or disability of a recipient of options
while an employee of the Company, the options which were
otherwise executable by the optionee or his legal representative
or beneficiary of his estate, may at any time prior to the
expiration of one year from the date of his death or disability
exercise an option. In no event, however, shall an option be
executable after 10 years from the date it was granted.
As of December 31, 1996, no options have been issued to
Executive Officers of the Company and Executive Officers of the
Company's subsidiaries pursuant to the 1988, 1990, and 1996
Plans, respectively.
On May 4, 1993, September 3, 1993 the Company adopted the
1993, and 1993A Nonqualifying Stock Option Plans, respectively.
The plans reserved 500,000, and 800,000 shares of the Company's
Common Stock to be granted to non-employees, directors, and/or
other persons associated with the Company whose services have
benefited the Company.
On April 14, 1994, the Company adopted the 1994
Nonqualifying Stock Option Plan. The plans reserved 800,000
shares of the Company's Common Stock to be granted and issued to
its officers, directors, employees and/or consultants whose
services have benefited the Company.
During November 1996, the Company adopted the 1996
Nonqualifying Stock Option Plan. The plan reserved 800,000 shares
of the Company's Common Stock to be granted and issued to its
officers, directors, employees and/or consultants whose services
have benefited the Company.
Bonus Plan
On July 14, 1989, the Company's Board of Directors adopted a
bonus plan that sets aside 1%, 2%, and 3% of sales as long as the
Company maintains a pre-tax income of 10%, 15%, and 20% of sales,
respectively. The performance standards will be based on
45
quarterly operating periods. Bonuses are accrued quarterly and
allocated as of the end of each calendar year. No employees have
vested rights in the bonus plan. The Board of Directors of the
Company acts as a committee to determine who participates and the
actual amount of the individual bonuses. No bonuses were paid
during 1996, 1995, or 1994 under this plan.
46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information regarding
ownership of Common Stock of the Company as of the date of this
Prospectus by each officer and director, all officers and
directors as a group and each beneficial owner of more than 5% of
the outstanding shares of Common Stock of the Company.
Number of Percentage
Name and Address Shares of Common Stock of
Beneficial
of Beneficial Owner Beneficially Owned [1]
Ownership
James V. Warren [1] [2]
The Spear Group
Suite 300
6525 The Corners Parkway
Atlanta, GA 30092 7,584,500 27.22%
K. H. Smith [1] [2]
Suite 1890
One Buckhead Plaza
3060 Peachtree Rd. N.W.
Atlanta, GA 30305 7,584,500 27.22%
James C. Melton, Sr. [1]
Suite 1890
One Buckhead Plaza
3060 Peachtree Rd. N.W.
Atlanta, GA 30305
All Officers and Directors
as a Group (3 individuals) 15,169,000
54.44% 0%
[1] These individuals are officers and/or directors of the
Company.
[2] Beneficial owner of more than 5% of the outstanding shares
of the Company's Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. John Allen, former Chairman of the Board, is also
Chairman of the Board of Directors of Laura Technologies, Inc.
with whom the Company and/or its subsidiaries had a loan in the
amount of $210,774 as of December 31, 1995.
Carolyn Meehan, wife of William Meehan, president and CEO of
the Company until his resignation on January 6, 1997, is
president of Carlton Technologies Limited with whom the Company
had various loans during 1995 and 1996 and had a loan in the
amount of $397,212 as of December 31, 1995. Many of these loans
were retired by the issuance of the Company's common stock in
exchange for the debt. At December 31, 1996, the Company had a
47
receivable of $150,205 from the issuance of common stock in
excess of debt to Carlton.
Mr. K. H. Smith and James V. Warren are majority
shareholders in GWP, Inc.,("GWP") from which the Company has an
account receivable in the amount of $270,000 as of December 31,
1996. Effective January 7, 1997, Mr. Smith became President, CEO
and Director of the Company. Mr. Warren became a director
effective January 7, 1997 and Chairman of the Board effective
January 20, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS
ON FORM 8-K.
No reports on Form 8-K have been filed during the last
quarter for which this Form 10-K is filed.
48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
U.S. Technologies Inc. and Subsidiaries
Our report on the consolidated financial statements of U.S.
Technologies Inc. and Subsidiaries is included on page 18 of
this Form 10-K. In connection with our audit of such
financial statements, we have also audited the related
financial statement schedule listed in the index on page 2
of this Form 10-K.
In our opinion, the 1996 and 1995 financial statement
schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present
fairly, in all material respects, the information required
to be included therein.
BROWN, GRAHAM AND COMPANY
P.C.
Georgetown, Texas
April 8, 1997
40
U.S. Technologies Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1996, 1995 and 1994
Column A Column B Column C Column DColumn E
Additions
(1) (2)
Balance atCharged toCharged to Balance at
beginningcost and other end of
Classificationof periodexpensesaccounts Deductions period
1996:
Accounts receivable -
bad debt reserve$ 68,434$ 90,953 $ 68,434 $ 90,953
Inventory
Obsolescence$295,000$427,060 $137,060 $585,000
1995:
Accounts receivable -
bad debt reserve$ 49,830$ 43,872 $ 25,268 $ 68,434
Inventory
Obsolescence$ 33,000$262,000 $295,000
1994:
Accounts receivable -
bad debt reserve$129,044$ 49,830 $129,044 $ 49,830
Inventory
Obsolescence$170,363$ 33,000 $170,363 $ 33,000
NOTE: These valuation and qualifying accounts were deducted
from the assets to which they apply.
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, U.S. Technologies Inc. has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 14th day of April, 1997.
U.S. TECHNOLOGIES INC.
BY:s/ K. H. Smith
K. H. Smith
President & CEO
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the date indicated:
Signature Title Date
s/K. H. Smith President & CEO April 14, 1997
K. H. Smith Director
Acting Controller
Acting Principal Accounting Officer
s/James C. Melton, Sr. DirectorApril 14,
1997
James C. Melton, Sr.
42
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM-1OK FOR THE YEAR ENDED DECEMBER 31, 1996 FOR U.S. TECHNOLOGIES INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<NAME> U. S. TECHNOLOGIES INC.
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