Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15960
U.S. Technologies Inc.
(Exact name of Registrant as specified in its charter.)
State of Delaware 73-1284747
(State of Incorporation) (I. R. S. Employer
Identification No.)
1402 Industrial Boulevard
Lockhart, Texas 78644
(Address of principal executive offices.)
Registrant's telephone number, including area code: (512)
376-1049
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and
(2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant's
common stock, par value $0.02, at May 15, 1997, was
27,112,263.
U.S. TECHNOLOGIES INC.
Form 10-Q-For the Quarter Ended March 31, 1997
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements 3
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 4
Consolidated Statements of Operations
Three months Ended March 31, 1997 and 1996 5
Consolidated Statements of Changes in Stockholders'
Equity 6
Consolidated Statements of Cash Flows
Three months Ended March 31, 1997 and 1996 7
Notes to Financial Statements 8-13
Item 2. Management's Discussion and Analysis of Financial
Condition and results of Operations 14-15
PART II. OTHER INFORMATION 16
Item 1. Legal Proceedings 16-17
Item 2. Changes in the Rights of the Company's Security
Holders 17
Item 4. Submission of Matters to a Vote of Security
Holders 17
Item 6.
Exhibits and Reports on Form 8-K 17
2
PART I.
Item 1. Financial Statements.
3
U.S. Technologies Inc.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1997 1996
Current assets:
Cash in bank $ 2,863 $
1,548
Accounts receivable - trade 284,658 238,647
Accounts receivable - related party 270,000 270,000
Inventories 512,218 472,227
Prepaid expenses 291 273
Total current assets 1,070,030 982,695
Property and equipment - net 141,374 146,118
Other assets:
Investment - technologies and goodwill 1,408,839 1,519,917
Other assets 3,952 3,952
Total other assets 1,412,791 1,523,869
Total assets $ 2,624,195 $ 2,652,682
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 740,682$ 806,204
Accrued expenses 604,552 613,958
Total current liabilities 1,345,234 1,420,162
Long-term liabilities:
Notes payable 144,000 144,000
Commitments and contingencies: (Note 3)
Stockholders' equity:
Preferred stock - $.02 par value; 10,000,000 shares authorized;
no shares issued - -
Common stock - $.02 par value; 40,000,000 shares
authorized; 24,752,263 and 21,857,263 shares
issued and outstanding at March 31, 1997
and December 31, 1996, respectively 495,046 437,146
Additional paid-in capital 11,961,411 11,729,811
Accumulated deficit (11,171,291) (10,928,232)
Stock receivable ( 150,205) ( 150,205)
Total stockholders' equity 1,134,961 1,088,520
Total liabilities and stockholders' equity$ 2,624,195 $
2,652,682
4
The accompanying notes are an integral part
of the consolidated financial statements.
5
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months Ended March 31
1997 1996
Net Sales $ 671,787$ 400,661
Operating costs and expenses:
Cost of sales 668,968 711,111
Selling expense 23,901 31,806
General and administrative expense 222,708 354,952
Total operating costs and expenses 915,577 1,097,869
(Loss) from operations ( 243,790)( 697,208)
Other income (expense)
Interest income - 8
Other income 4,501 156,436
Interest expense ( 3,770)( 17,476)
Other expense - ( 646)
Total other income 731 138,322
Net loss $( 243,059)$( 558,886)
Loss per common share $( 0.01)$( 0.04)
Cash dividends per common share $ 0.00 $
0.00
Weighted-average common shares outstanding 22,223,725 13,154,852
5
The accompanying notes are an integral part
of the consolidated financial statements.
6
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
$0.01 Par Value
Common Stock Additional
Number of Par Paid-In Accumulated
Shares Value Capital Deficit Total
Balance,
December 31, 199515,875,963$317,520$ 9,887,485$(8,345,220)$1,859,785
Stock options exercised3,536,00070,720481,780 - 552,500
Rule 144 stock issued1,845,30036,906534,331 - 571,237
Stock exchanged for services - - (150,205) -(150,205)
Stock issued - gems600,000 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, 199621,857,263437,14611,579,606(10,928,232) 1,088,520
Stock issued 2,895,000 57,900 231,600 - 289,500
Net loss _____________________________ (243,059) (243,059)
Balance March 31, 199724,752,263$495,046$11,811,206$(11,171,291)$1,134,961
7
The accompanying notes are an integral part
of the consolidated financial statements.
8
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months Ended March 31,
1997 1996
Cash flows from operating activities:
(Loss) from continuing operations$( 243,059)$( 558,886)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 124,746 427,444
Excess of market over issue price
of Rule 144 stock - 145,181
Changes in certain assets and liabilities:
Accounts receivable ( 46,011) ( 82,172)
Inventories ( 39,991)( 3,866)
Prepaid expense ( 18)( 3,603)
Accounts payable ( 65,522) 3,325
Accrued expenses ( 9,406) 43,956
______ ______
Net cash provided (used) by
operating activities (279,261) ( 185,057)
Cash flows from investing activities:
Equipment purchases ( 8,924)( 648)
Decrease in other assets - 4,485
Net cash provided by (used in) investing activities ( 8,924) 3,838
Cash flows from financing activities:
Proceeds from issuance of common stock289,500 45,000
Proceeds from short term notes - 150,689
Net cash provided (used) by financing
activities 289,500 195,689
Increase in cash 1,315 14,470
Cash, beginning of period 1,548 2,579
Cash, end of period $ 2,863$ 17,049
The accompanying notes are an integral part
of the consolidated financial statements.
7
U.S. Technologies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
U.S. Technologies Inc. furnishes administrative and
management services to its wholly owned subsidiaries.
Lockhart Technologies, Inc.("LTI") and Newdat, Inc. LTI
operations consist of contract manufacturing, prototyping
and repair of printed circuit boards using surface mount,
through-hole and mixed technology. Newdat, Inc. and its
80% owned subsidiary SensonCorp, Limited were acquired on
January 23, 1995. U.S. Technologies Inc., together with its
subsidiaries, are hereinafter referred to collectively as
"the Company."
Principles of Consolidation
The consolidated balance sheets at December 31, 1996
and March 31, 1997 include the accounts of U.S. Technologies
Inc., and its subsidiaries. The consolidated statements of
operations, changes in stockholders' equity and cash flows
include the accounts of U.S. Technologies Inc., and its
subsidiaries for the three months ended March 31, 1996 and
1995.
Presentation Basis
The Company's consolidated financial statements have
been presented on the basis that the Company is a going
concern which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of
business. The Company has incurred significant losses
during each of the three years in the period ended December
31, 1996, and had working capital deficiencies at December
31, 1996.
The Company's continued existence is dependent upon its
ability to resolve its liquidity problems. While there is
no assurance that such problems can be resolved, the Company
believes there is a reasonable expectation of achieving that
goal through the cash generated from future operations, the
introduction of new products into the market and the sale of
additional common stock.
The interim financial statements are unaudited but, in
the opinion of management, all adjustments necessary for a
fair presentation of such financial statements have been
included. Such adjustments consisted only of normal
recurring items. Interim results are not necessarily
indicative of results for a full year.
Inventories
Inventories are stated at the lower of cost or market
utilizing the average cost method for raw materials and
8
work-in-progress, and the first-in, first-out method for
finished goods.
Property and Depreciation
Property and equipment are stated at cost less
accumulated depreciation. Expenditures for additions,
renewals and improvements of property and equipment are
capitalized. Expenditures for repairs, maintenance and
gains or losses on disposals are included in operations.
Depreciation is computed using the straight-line method over
the following estimated lives:
Estimated Lives
Equipment 5-7 years
Furniture and fixtures 7 years
Vehicles 3 years
Leasehold Improvementsterm of building lease
Earnings per Share
Net loss per common share is based on the weighted
average number of common shares and common share equivalents
outstanding in each period. The shares reserved for stock
options and warrants are anti-dilutive for the purpose of
determining net income or loss per share.
9
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.
Revenue Recognition
Revenue is recognized from sales of products when the
product is shipped.
Technologies and Goodwill
Acquired technologies and goodwill are being amortized
over a 60 month period.
2. ACCOUNTS RECEIVABLE
Accounts receivable - trade at March 31, 1997 and
December 31, 1996 is net of an allowance for doubtful
accounts in the amount of $16,337 and $90,953,
respectively.
3. INVENTORIES
At March 31, 1997 and December 31, 1996, inventories
consist of the following:
1997 1996
Raw materials ...... $ 1,043,310
$ 984,811
Work in progress 53,908 72,416
1,097,218 1,057,227
Valuation allowance ...... ( 585,000)
( 585,000)
$ 512,218$ 472,227
4. PROPERTY AND EQUIPMENT
At March 31, 1997 and December 31, 1996, property and
equipment consist of the following:
1997
1996
Equipment $ 939,849
$ 936,559
Furniture and fixtures 164,056
164,056
10
Leasehold improvements 123,520
123,520
1,227,425 1,224,135
Less accumulated depreciation (1,086,051)
(1,078,017)
$ 141,374$ 146,118
5. TECHNOLOGIES AND GOODWILL
Technologies and goodwill at March 31, 1997 and
December 31, 1996 consist of the following:
1997
1996
Technologies $ 1,692,500
$ 1,692,500
Goodwill 849,065
849,065
2,541,565 2,541,565
Accumulated amortization
(1,132,726) (1,021,648)
$ 1,408,839$ 1,519,917
6. NOTES PAYABLE
Notes payable at March 31, 1997 and December 31, 1996,
consist of the following:
1997
1996
Notes payable to
individuals and a
trust at rates from
12% to 14%,
unsecured, due July
1, 1998 and
January 1, 1999 $144,000 $ 144,000
7. INCOME TAXES
Deferred income tax at March 31, 1997 and December 31,
1996 follows:
1997
1996
Deferred income tax asset $ 2,791,422
$ 2,708,782
11
Valuation allowance 2,791,422
2,708,782
Total deferred tax asset $
- - $ -
At December 31, 1996, the Company has available for
federal income tax purposes unused operating losses which
may provide future tax benefits expiring as follows:
Year of Expiration Net Operating Loss
2003 $ 1,383,000
2005 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
12
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
canceled 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
13
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 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
14
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
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. SHAREHOLDERS EQUITY
The following table reconciles the number of commons
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 three
months ended March 31, 1997 and 1996:
1997
1996
Common shares outstanding $ 24,752,263
$ 17,097,263
Effects of using weighted average
shares outstanding (
2,528,538) ( 3,942,411)
Shares used in computing earnings
per share $ 22,223,725 $
13,154,852
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.
15
As a part of the agreement with GWP, Inc. 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.
16
10. RELATED PARTIES
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.
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.
11. SUBSEQUENT EVENTS
Subsequent to March 31, 1997, K. H. Smith and James V.
Warren purchased 2,360,000 shares of Rule 144 common stock
at $0.10 per share which management believes is market
value.
17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
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 and/or its designee (K.H. Smith and James
V. Warren) would purchase 1,500,000 shares of the
Company's common stock upon execution of the
letter of intent on January 6, 1997.
3. That SWG and/or its designee (K. H. Smith and
James V. Warren) could purchase an additional
maximum 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.
Working capital, while still negative, improved by
$162,263 at March 31, 1997. This was made possible by an
injection of new equity from new management. The equity was
used to fund increased sales volume during this same
18
quarter. The increased sales volume resulted in an increase
in inventory and accounts receivable. At the same time,
accounts payable decreased by $65,522, or 8%. As of March
31, 1997 and 1996, the company had no short term financing
from lending institutions. 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. New management believes the
Company's continued existence will be accomplished by
solving its liquidity problem through profitable operations,
with financing provided by equity.
Results of Operations - Quarter Ended March 31, 1997
During the three month period ended March 31,
1997, the Company had a net loss of $243,058 or
$(0.008) per weighted-average share, on net sales of
$671,787 as compared to a net loss of $558,886 or
$(0.04) per weighted average share, on net sales of
$400,661 for the comparable period in 1996. Net sales
increased approximately 67.7% for the three month
period ended March 31, 1997 over the comparable period
in 1996 primarily due to the increase of production
jobs from key customers and the Company's ability to
purchase the necessary components to do turnkey jobs
because of the new injection of equity from new
management.
Gross margin for the three month period ended
March 31, 1997 was 0.4%. While this is a totally
unacceptable gross margin, it represents an increase
over the comparable period in 1996 of a (77.5)%
(negative) gross margin. This tremendous improvement
was the result of increased efficiency from new
management's redesign of the plant layout as well as a
reduction in cost of purchases due to improved
relationships with old vendors or better prices from
new vendors.
Selling expenses represented only 3.6% of sales
during the three month period ended March 31, 1997,
compared to 7.9% for the comparable period in 1996.
The significant decrease in sales expense for 1997 was
the direct result of policy changes implemented
immediately by new management. This included sales
personnel being placed on a commission only basis, and
being held accountable for certain minimum sales
volume.
Administrative expenses for the three month period
ended March 31, 1997, was only 33.2% of sales as
compared to 88.68% for the comparable period in 1996.
The tremendous percentage decrease is due to new
management's immediate and aggressive cost cutting
19
measures primarily in the reduction of staff.
Corporate staff in the Company's LTI subsidiary was
reduced by 60%. More efficient systems were
implemented and duties reassigned to handle the
increased sales volume with fewer people.
No expenditures were made during the periods
reported on for research and development in 1997 and
1996.
While the Company anticipates a continued
increase in demand for its products and services, the
capacity to meet these demands are limited by
equipment, personnel and working capital.
The Company does not anticipate that inflationary
trends will have a material impact on its results of
operations because of the short-term nature of its
contracts.
20
Part II
Item 1. 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
canceled 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
21
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
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
22
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 2. Changes in the Rights of the Company's Security
Holders
No changes in the rights of the Company's Security
holders occurred during the period covered by this Form 10-
Q.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Security holders
during the period covered by this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K.
A Form 8-K was filed on January 10, 1997 reporting
changes in the board of directors of the Company.
23
Signatures
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
U.S. TECHNOLOGIES INC.
DATE: May 14, 1997 BY: s/K. H. Smith
K. H. Smith
President and CEO
24
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