<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] 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.)
2001 Pennsylvania Avenue, NW, Suite 675
Washington, DC 20006
(Address of principal executive offices.)
Registrant's telephone number,
including area code: (202) 466-2445
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 [..] No [X]
The number of shares outstanding of the Registrant's common stock, par value
$0.02, at November 8, 1999, was 28,795,278 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
U.S. TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
----------- ----
<S> <C> <C>
Current assets:
Cash in bank $ 32,678 $ 110,140
Trade Accounts receivable, net of reserves of $48,648
at September 30, 1999 and $140,000 December 31, 1998 379,975 572,975
Inventories 316,691 585,855
Prepaid expenses 21,644 29,831
----------- -----------
Total current assets 750,988 1,298,801
----------- -----------
Property and equipment, net of accumulated depreciation
of $1,300,396 and $1,208,991 at September 30, 1999 and
December 31, 1998 626,937 499,749
----------- -----------
Other assets:
Net investment in and advances to subsidiary to be sold -- 524,558
Note receivable - USV Partners 48,502 --
Note receivable - sale of subsidiary 319,126 --
Other assets 5,350 44,425
----------- -----------
Total other assets 372,978 568,983
----------- -----------
Total assets $ 1,750,903 $ 2,367,533
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 981,122 $ 844,173
Accrued expenses 380,136 626,937
Accrued severance expenses 78,774 124,469
Current portion of long-term debt and capital leases 17,066 16,050
----------- -----------
Total current liabilities 1,457,098 1,611,629
----------- -----------
Long-term debt and capital leases less current portion 30,086 31,862
----------- -----------
Total liabilities 1,487,184 1,643,491
----------- -----------
Stockholders' equity:
Series A convertible preferred stock (net):
$0.02 par value; 10,000,000 shares authorized;
500,000 subscribed, none issued or outstanding 5,000,000 3,648,682
Common stock; $.02 par value; 40,000,000 shares
authorized; 29,195,278 issued and 28,795,278
shares outstanding 583,906 583,906
Additional paid-in capital 12,605,029 12,605,029
Accumulated deficit (17,547,327) (15,735,686)
Stock receivable (150,205) (150,205)
Treasury stock (227,684) (227,684)
----------- -----------
Total stockholders' equity 263,719 724,042
----------- -----------
Total liabilities and stockholders' equity $ 1,750,903 $ 2,367,533
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2
<PAGE> 3
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
--------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 600,232 $ 930,202 $ 3,290,986 $ 3,594,913
Operating costs and expenses:
Cost of sales 670,910 784,741 3,913,843 2,575,846
Selling expense 4,314 31,397 29,994 97,799
General and administrative expense 130,560 518,883 956,890 1,369,544
Impairment of assets -- -- 416,834 --
Severance expenses -- -- 228,275 --
----------- ----------- -----------
Total operating costs and expenses 805,784 1,335,021 5,545,836 4,043,189
----------- ----------- ----------- -----------
Income (loss) from operations (205,552) (404,819) (2,254,850) (448,276)
Other income (expense)
Gain on sale of subsidiary -- -- 1,168,994 --
Other 8,669 99,547 (84,621) 218,222
Interest expense (2,411) (1,137) (38,334) (3,282)
----------- ----------- ----------- -----------
Total other income (expense) 6,258 98,410 1,046,039 214,940
----------- ----------- ----------- -----------
Net earnings (loss) $ (199,294) $ (306,409) $(1,208,811) $ (233,336)
Preferred dividend 111,705 -- 448,189 --
Accretive dividend -- -- 154,641 --
----------- ----------- -----------
Net earnings (loss) available
to common shareholders $ (310,999) $ (306,409) $(1,811,641) $ (233,336)
=========== =========== =========== ===========
Net earnings (loss) per share:
Basic $ (0.01) $ (0.01) $ (0.06) $ (0.01)
=========== =========== =========== ===========
Diluted $ (0.01) $ (0.01) $ (0.06) $ (0.01)
=========== =========== =========== ===========
Shares used in per share calculation:
Basic 28,795,278 29,085,061 28,795,278 29,037,069
=========== =========== =========== ===========
Diluted 28,795,278 29,085,061 28,795,278 29,037,069
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE> 4
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended September 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(1,208,811) $ (233,336)
Adjustments to reconcile net earnings (loss)
to net cash used in operating
activities:
Depreciation and amortization 91,405 87,097
Gain on sale of Subsidiary (1,168,994)
Impairment of assets 416,834
Changes in certain assets and liabilities:
Accounts receivable 193,000 (345,601)
Inventories 269,164 (200,051)
Prepaid expense 8,187 (195,419)
Accounts payable 136,949 (175,488)
Accrued expenses (292,496) (162,969)
----------- -----------
Net cash used in operating activities (1,554,762) (1,225,767)
----------- -----------
Investing activities:
Equipment purchases (219,535) (304,380)
Purchase common stock for treasury -- (155,849)
Increase in notes receivable -- (840,917)
Advances, net of deficit in operating
results to subsidiary prior to sale (570,318)
Proceeds from sale of subsidiary 876,000
Change in other assets 39,075 (51,127)
----------- -----------
Net cash provided by (used in) investing activities 125,222 (1,352,273)
----------- -----------
Financing activities:
Proceeds from issuance of common stock -- 224,277
Proceeds from convertible preferred stock
subscriptions 1,351,318 3,350,000
Proceeds from notes payable 28,628 23,174
Payments of notes payable (27,868) (26,015)
----------- -----------
Net cash provided by financing activities 1,352,078 3,571,436
----------- -----------
(Decrease) increase in cash (77,462) 993,396
Cash, beginning of period 110,140 489
----------- -----------
Cash, end of period $ 32,678 $ 993,885
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
4
<PAGE> 5
U.S. Technologies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1998 Form 10-K as filed
with the Securities and Exchange Commission.
The results of operations for the periods presented are not necessarily
indicative of the operating results for the full year.
2. EARNINGS PER SHARE
The Company has adopted the provisions of Statements of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share", which was effective for
fiscal years ending after December 15, 1997. Basic earnings per common share is
based on the weighted average number of common shares outstanding during the
period. Diluted earnings per share would include the dilutive effect of common
stock equivalents. For the nine months ended September 30, 1999 and 1998,
diluted earnings per share have not been presented because stock options and
warrants which comprised common stock equivalents would have been
anti-dilutive.
<TABLE>
<CAPTION>
Per
(Loss) Shares share
(Numerator) (Denominator) amount
----------- ------------- ------
<S> <C> <C> <C>
Nine months ended September 30, 1999:
Net (loss) $ (1,811,641) 28,795,278 $ (0.06)
Effect of dilutive potential common shares:
Stock options -- --
Warrants -- --
------------ ----------
Diluted earnings (loss) per share:
Net earnings (loss) available to
common shareholders $ (1,811,641) 28,795,278 $ (0.06)
============ ========== =======
</TABLE>
5
<PAGE> 6
2. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Per
Earnings Shares share
(Numerator) (Denominator) amount
----------- ------------- ------
<S> <C> <C> <C>
Nine months ended September 30, 1998:
Net loss $(233,336) 29,037,069 $ (0.01)
Effect of dilutive potential common shares:
Stock options -- --
Warrants -- --
--------- ----------
Diluted earnings per share:
Net earnings available to common shareholders
plus assumed conversions $(233,336) 29,037,069 $ (0.01)
========= ========== =======
</TABLE>
3. INVENTORIES
At September 30, 1999, and December 31, 1998, inventories consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 195,991 $ 285,766
Work in progress 91,377 239,243
Finished Goods 29,323 60,846
---------- ----------
$ 316,691 $ 585,855
========== ==========
</TABLE>
4. NOTE RECEIVABLE - SALE OF SUBSIDIARY
The note receivable - sale of subsidiary at September 30, 1999, represents an
obligation of the former President and CEO of the Company, Mr. Kenneth H.
Smith. This obligation resulted from the purchase by Mr. Smith, in February
1999, of the Company's wholly-owned subsidiary, GWP, Inc. ("GWP"), and GWP's
51% interest in Technology Manufacturing & Design, Inc. ("TMD"). The total
purchase price for GWP of approximately $2.64 million was paid with cash of
approximately $876,000 and a promissory note from Mr. Smith in the amount of
approximately $1.76 million. During the quarter ended June 30, 1999, Mr. Smith
tendered 3,000,000 shares of the Company's common stock. The market value of
these tendered shares, $1,050,000 was applied to Mr. Smith's promissory note to
the Company. These shares were simultaneously purchased by USV Partners, LLC
("USV Partners") by creation of a note receivable from USV Partners in the
amount of $1,050,000.
During the quarter ended June 30, 1999, the Company recorded a reserve of
$238,340 against the remaining value of the promissory note from Mr. Smith. The
reserve was recorded to recognize an impairment in the value of the collateral
securing the note, Mr. Smith's common stock representing his 51% ownership of
TMD. The net carrying value of the note receivable from Mr. Smith was $319,126
as of September 30, 1999.
6
<PAGE> 7
5. NOTE RECEIVABLE - USV PARTNERS
The note receivable - USV Partners at September 30, 1999, represents an
obligation of USV Partners to purchase all of the 3,000,000 shares of Mr.
Smith's common stock, which was tendered in partial payment of his promissory
note. During the quarter ended September 30, 1999, the note was reduced by
amounts received from USV Partners. As of September 30, 1999, the net amount,
including accrued interest, due to the Company from USV Partners was $48,502.
Gregory Earls the President and Chief Executive Officer of the Company, is the
sole member of USV Management, LLC, the manager of USV Partners. As of October
15, 1999 the note receivable - USV Partners has been fully satisfied.
6. CONVERTIBLE PREFERRED STOCK
In July 1998, the Company entered into an investment agreement with USV
Partners pursuant to which the Company is to issue 500,000 shares of Series A
Convertible Preferred Stock ("Preferred Stock") and a warrant to purchase
500,000 shares of the Company's common stock. The aggregate purchase price of
the Preferred Stock and warrants was $5 million. The Company has received the
final payment from USV Partners in connection with the sale of the Preferred
Stock. With the $5 million having now been invested, the Company will issue the
Preferred Stock and warrants. The aggregate net proceeds, of approximately $4.9
million (after payment of associated legal and professional fees), have been
used primarily for corporate purposes and working capital. Gregory Earls the
President and Chief Executive Officer of the Company, is the sole member of USV
Management, LLC, the manager of USV Partners.
The Preferred Stock has a dividend rate of nine percent, payable annually on
April 1, beginning retroactively in 1999. The dividend, at the discretion of
the Board of Directors of the Company, was accrued and applied to the "Note
Receivable - USV Partners" mentioned above, in the amount of $336,484, which
represented the accumulated dividend due to USV Partners, through June 30,
1999. During the quarter ended September 30, 1999, an additional $111,705,
representing the preferred dividend for that quarter, was accrued and applied
to the "Note Receivable - USV Partners" mentioned above. The dividend rate will
increase to 11% upon certain "triggering events", as defined, which are
generally events of default.
Shares of the Preferred Stock are convertible into shares of common stock from
issuance through January 12, 2004. The preferred shares can be converted into
that number of common stock shares determined by dividing the stated value of
$10.00 per share plus accrued and unpaid dividends, by a conversion price of
$.41 and multiplied by a Conversion Factor, as defined. The Conversion Factor
is initially 1.00, as adjusted from time to time, so as not to dilute the
number of shares of common stock that would be received upon conversion of the
Preferred Stock. The Company is required to reserve 12.2 million shares of
common stock for conversion of the Preferred Stock. The Company, at its option,
may redeem the Preferred Stock in the event that the daily average closing
price of the common stock is $2.50 or greater for 20 consecutive trading days.
The redemption price is equal to the stated value of $10.00 per share plus
accumulated and unpaid dividends.
As long as at least 45% of the Preferred stock that was issued remains
unconverted, the holders of the Preferred Stock have the right to elect at
least one member and up to one-third of the members of the board of directors.
The holders of Preferred Stock are also entitled to vote together as a single
class with the holders of common stock on certain corporate matters submitted
to a vote of stockholders. The holders of Preferred stock have one vote for
each share of common stock that could then be acquired on conversion of the
Preferred Stock.
7
<PAGE> 8
6. CONVERTIBLE PREFERRED STOCK (continued)
Upon any dissolution, liquidation or winding-up of the Company, before any
payments are made to any holders of common stock or any other class or series
of the Company's capital stock then outstanding, the holders of the Preferred
Stock are entitled to receive an amount equal to the stated value of $10.00 per
share of Preferred Stock plus accrued and unpaid dividends. There is no sinking
fund in respect to the Preferred Stock.
7. SEGMENT INFORMATION
During 1998, the Company adopted SFAS 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
their financial statements. The standard defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision makers in
deciding how to allocate resources and in assessing the performance. The
Company's chief operating decision makers aggregate operating segments based on
the location of the segment and whether it is prison-based or free-world. Based
on the quantitative thresholds specified in SFAS 131, the Company has
determined that it has four reportable segments. The four reportable segments
are USXX (Washington, DC), LTI (Lockhart, Texas) ("LTI Lockhart), TMD
(Georgetown, Texas) and LTI (Blythe, California) ("LTI Blythe"). USXX is the
corporate office, LTI Lockhart is a prison-based manufacturer of computer
circuit boards, TMD is a free-world manufacturer of computer circuit boards and
LTI Blythe is a prison-based manufacturer of modular office furniture
components. Segment amounts disclosed are prior to any elimination entries made
in the consolidation.
Summary information by segment as of and for the nine months ended September
30, 1999 and 1998 follow (in thousands):
<TABLE>
<CAPTION>
LTI
USXX Lockhart TMD (1) Blythe Other Total
---- -------- ------- ------ ----- -----
1999
<S> <C> <C> <C> <C> <C> <C>
Net sales $ -- $ 1,529 $ 948 $ 777 $ 37 $ 3,291
Operating Profit (loss) (1,151) (723) (66) (201) (114) (2,255)
Total Assets 2,958 620 -- 489 170 4,237
1998
Net sales $ -- $ 3,512 $ -- $ -- $ 83 $ 3,595
Operating Profit (loss) (874) 536 -- -- (110) (448)
Total Assets 4,873 944 -- 205 311 6,333
</TABLE>
(1) TMD was sold by the Company on February 12, 1999. The operating results
include activity through that date.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the consolidated
financial statements of the Company (including the notes thereto) included in
the Company's form 10-K for the year ended December 31, 1998.
General
The Company is an "outsourcing company" soliciting manufacturing, assembly,
repair, kitting and customer call center services from Fortune 1000 and other
select businesses. The Company performs its services utilizing prison labor
under the Prison Industry Enhancement Program ("PIE"). Congress created the PIE
program in 1979 to encourage states and local units of government to establish
employment opportunities for prisoners that approximate private sector work
opportunities. The program is designed to place inmates in a realistic working
environment, pay them the local prevailing wage for similar work, and enable
them to acquire marketable skills to increase their potential for successful
rehabilitation and meaningful employment upon release. The PIE Program has two
primary objectives:
To generate products and services that enable prisoners to make a
contribution to society, help offset the cost of their incarceration,
compensate crime victims, and provide inmate family support.
To provide a means of reducing prison idleness, increasing inmate job
skills, and improving the prospects for successful inmate transition
to the community upon release.
To serve its clients the Company has established U.S. Technologies Inc. as the
parent organization to provide management and financial resources to its wholly
owned operating subsidiaries. The operating subsidiaries are Labor-to-Industry
Inc. ("LTI"), which operates the Company's manufacturing outsourcing
operations, and Service-to-Industry Inc. ("STI"), formed in March 1998, which
will operate the Company's service outsourcing operations. Each subsidiary
negotiates an agreement with a prison under which facilities and participants
are available to the Company.
In January 1997, the Company was acquired by a group of individuals led by the
Company's former Chairman and CEO, Mr. Kenneth H. Smith. As a part of the
acquisition the preceding management and Board of Directors resigned. During
1997 a new management team was assembled, the Company's mission statement was
revised, and the Company's operations were restructured.
On February 12, 1999, concurrent with his purchase of GWP and GWP's 51%
interest in TMD, Mr. Smith resigned his position as an officer and director of
the Company. On and since that date Mr. Smith has tendered or forfeited all of
his approximately 6.3 million shares of the Company's common stock in partial
payment for his purchase of GWP. Mr. Smith was replaced as the Company's
President and Chief Executive Officer by Gregory Earls. Mr. Earls is also
President of USV Partners, the company that has entered into an agreement with
the Company to purchase $5 million of the Company's preferred stock. Mr. Earls
is working with the Company's management personnel to further reorganize the
Company.
9
<PAGE> 10
Results of Operations
The following analysis compares the results of operations for the three-month
and nine-month periods ended September 30, 1999 to the comparable periods ended
September 30, 1998.
Net sales during the three months ended September 30, 1999 were $600,232,
compared to $930,202 during the three months ended September 30, 1998. The
decrease in net sales in the amount of $ 329,970, was due to a decline in
sales in the Company's LTI Lockhart facility, as a result of the
reorganization of the facility. This reorganization includes the hiring of a
new plant manager and the installation of equipment, which will replace
tasks, which were previously performed manually.
Net sales during the nine months ended September 30, 1999 were $3,290,986,
compared to $3,594,913 during the nine months ended September 30, 1998. The
decrease in net sales in the amount of $303,927, includes $948,176 from the
Company's interest in TMD, which was sold in February 1999. Without regard to
the sales from TMD, the Company's sales for the nine-month period ended
September 30, 1999, declined by $1,252,103, as a result of the reorganization
mentioned above.
In the three months ended September 30, 1999, cost of goods sold was
$670,910, which represented 112% of net sales. During the three months ended
September 30, 1998, cost of goods sold was $ 784,781, which represented 84%
of net sales. The increase in cost of goods sold was a result inventory
adjustments to reflect loss of certain customers and not reducing
manufacturing payroll and fixed costs to match the decline in sales.
In the nine months ended September 30, 1999, cost of goods sold was
$3,913,843, which represented 119% of net sales. During the nine months ended
September 30, 1998, cost of goods sold was $ 2,575,846, which represented 72%
of net sales. The increase in cost of goods sold was a result inventory
adjustments to reflect loss of certain customers and not reducing
manufacturing payroll and fixed costs to match the decline in sales.
Selling expenses during the three months ended September 30, 1999 were
$4,314, representing 1% of net sales. During the three months ended September
30, 1998, selling expenses in the amount of $31,397 represented 3% of net
sales. These expenses decreased primarily due to the decrease in sales
revenue mentioned above.
Selling expenses during the nine months ended September 30, 1999 were
$29,994, representing 1% of net sales. During the nine months ended
September 30, 1998, selling expenses in the amount of $97,799 represented 3%
of net sales. These expenses decreased primarily due to the decrease in sales
revenue mentioned above.
General and administrative expenses during the three months ended
September 30, 1999 were $130,560, which represented 22% of net sales. During
the three months ended September 30, 1998, general and administrative expenses
were $518,883 , which represented 56% of net sales. The decrease in general
and administrative expenses is the result of the downsizing of the Company's
corporate staff, which occurred in the quarter ended March 31, 1999. The
downsizing resulted in the recognition of $228,275 in severance costs in the
quarter ended March 31, 1999.
General and administrative expenses during the nine months ended
September 30, 1999 were $956,890, which represented 29% of net sales. During
the nine months ended September 30, 1998, general and administrative expenses
were $1,369,544, which represented 38% of net sales. Decreases in general and
administrative staffing costs during the nine months ended September 30, 1999
were offset by legal and accounting expenses related to the reorganization and
the write-off of certain costs associated with the proposed acquisition of
Affordable Interior Systems.
10
<PAGE> 11
During the nine months ended September 30, 1999, the Company recognized
operating expenses of $416,834, due to the impairment of certain assets. The
expenses consisted of a $238,340 reserve against collectability the note
receivable - sale of subsidiary and a write off of $178,494 of goodwill which
had been recognized as a result of purchasing certain production assets for
the LTI Blythe facility at less than their fair value. There were no
comparable charges during the nine months ended September 30, 1998.
During the nine months ended September 30, 1999, the Company recognized
$228,275, in severance costs related to the downsizing of the Company's
corporate staff. There were no comparable charges during the nine months
ended September 30, 1998.
During the three months ended September 30, 1999, the Company had a net loss
available to common shareholders of $(310,999) or $(0.01) per
weighted-average share. During the three months ended September 30, 1998 the
company reported a net loss available to common shareholders of $(306,409)
or $(0.01) per weighted-average share. The loss for the three months ended
September 30, 1999, includes a $111,705 dividend on the Company's convertible
preferred stock.
During the nine months ended September 30, 1999 the Company had net loss
available to common shareholders of $(1,811,641) or $(0.06) per
weighted-average share. During the nine months ended September 30, 1998, the
Company reported a net loss of $(233,336) or $(0.01) per weighted-average
share. The loss for the nine months ended September 30, 1999, includes a
$448,189 dividend on the Company's convertible preferred stock and an
accretive dividend of $154,641 as a result of completion of the subscription
of the Company's convertible preferred stock.
Liquidity and Capital Resources
During the nine months ended September 30, 1999 and 1998, the Company
experienced negative operating cash flows of $1,554,762 and $1,225,767
respectively. Negative operating cash flows in the nine months ended
September 30, 1999 resulted principally from the operating loss incurred during
that period and reductions in accrued expenses of $292,496, offset by a non-cash
charge of $416,834 due to impairment of certain assets, reductions in
inventories of $269,164 and reduction of $193,000 in accounts receivable.
Negative operating cash flows in the nine months ended September 30, 1998
resulted primarily from an operating loss and increase in accounts receivable of
$345,601, inventory of $200,051 and prepaid expenses of 195,419, attributable to
increased sales volume.
Net cash provided by investing activities of $125,222 during the nine months
ended September 30, 1999, was primarily the result of cash advances to TMD
offset by cash proceeds from the sale of TMD and equipment purchases of
$219,535. Net cash used of $1,352,273 during the nine months ended
September 30, 1998 was to purchase the 51% interest in TMD and to make equipment
purchases.
Net cash provided by financing activities of $1,352,078 during the nine months
ended September 30, 1999 was primarily due to the receipt of net proceeds from
the subscription of preferred stock. Net cash provided by financing activities
of $3,571,436, during the nine months ended September 30, 1998 was primarily
due to the receipt of net proceeds from the subscription of preferred stock and
the issuance of common stock.
11
<PAGE> 12
As identified by the above discussion and analysis, regardless of the
impairment of assets charge, the Company did not produce a profit from
operations in the quarter ended September 30, 1999. Management has initiated
steps to further reorganize the Company, increase sales and reduce unnecessary
costs. However, to return the Company to profitability will require additional
working capital. To provide for this working capital, the Company is
negotiating with private investors to raise $2 to $3 million through a
convertible preferred stock subscription, similar to the $5 million convertible
preferred stock subscription completed with USV Partners in the quarter ended
June 30, 1999. While the Company is using its best efforts to complete the
negotiations for this investment, a successful outcome can not be assured.
Inflation
Inflation has not had a material impact on the Company's operations.
New Accounting Pronouncements
None applicable.
Year 2000
In 1999, the Company assessed its computer systems and those of its
subsidiaries and determined that much of the software used for order entry,
billing, inventory management, job costing and other accounting functions would
either need to be upgraded or replaced in order to be year 2000 compliant. To
date, the Company has incurred expenses of approximately $2,000 in connection
with software upgrades. Although the Company is still in the process of
determining the most cost-effective means of upgrading or replacing its
remaining non-year 2000 compliant software, it anticipates that these
additional expenses will not exceed $10,000. The Company estimates that all of
its critical software will be year 2000 compliant before the end of the fourth
quarter of 1999. Should the Company not be able to successfully convert its
computer hardware and operating systems to be year 2000 compliant, the Company
would be able to operate manually for some period of time without experiencing
a significant negative impact on its operations.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995
Certain statements in this quarterly report on form 10-Q contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which statements can generally be identified by
use of forward-looking terminology, such as "may," "will," "expect,"
"estimate," "anticipate," "believe," "target," "plan," "project," or "continue"
or the negatives thereof or other variations thereon or similar terminology,
and are made on the basis of management's plans and current analyses of the
Company, its business and the industry as a whole. These forward-looking
statements are subject to risks and uncertainties, including, but not limited
to, economic conditions, competition, interest rate sensitivity and exposure to
regulatory and legislative changes. The above factors, in some cases, have
affected, and in the future could affect, the Company's financial performance
and could cause actual results for 1999 and beyond to differ materially from
those expressed or implied in such forward-looking statements, even if
experience or future changes make it clear that any projected results expressed
or implied therein will not be realized.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. THROUGH ITEM 4. Not applicable.
ITEM 5. OTHER INFORMATION.
On October 27, 1999, the Company entered into an agreement with Wackenhut
Corrections Corporation and American Quantum Cycles under which modifications
will be made to correctional facilities located in South Bay and Moore Haven,
Florida for the purposes of fabricating, painting and polishing motorcycle
parts. The Company will manage various aspects of the manufacturing process for
American Quantum, while American Quantum will retain responsibility for
monitoring quality control. Production activities under this agreement are
expected to commence in December 1999, with the first phase consisting of the
polishing of aluminum and stainless steel motorcycle parts.
Effective November 6, 1999, the sole customer of the Company's LTI Blythe
facility, cancelled their production contract. Currently the Company does not
have other production work to locate in this facility. The Company is actively
seeking other customers for the facility, however, the length of time the
facility will remain idle cannot be estimated at this time. The out of pocket
costs of keeping the facility open until additional customers can be located is
less than $20,000 per month.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The following exhibit is filed with this report:
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
During the quarter ended September 30, 1999, there were no reports filed on
Form 8-K.
13
<PAGE> 14
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
U.S. TECHNOLOGIES INC.
DATE: November 12, 1999 BY: /s/ Gregory Earls
-----------------
Gregory Earls
President and CEO
14
<PAGE> 15
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1999, UNAUDITED FINANCIAL STATEMENTS OF U.S. TECHNOLOGIES, INC.,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS IN
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 32,678
<SECURITIES> 0
<RECEIVABLES> 428,623
<ALLOWANCES> 48,648
<INVENTORY> 316,691
<CURRENT-ASSETS> 750,988
<PP&E> 1,927,333
<DEPRECIATION> 1,300,396
<TOTAL-ASSETS> 1,750,903
<CURRENT-LIABILITIES> 1,457,098
<BONDS> 0
0
5,000,000
<COMMON> 583,906
<OTHER-SE> (5,320,187)
<TOTAL-LIABILITY-AND-EQUITY> 1,750,903
<SALES> 3,290,986
<TOTAL-REVENUES> 3,290,986
<CGS> 3,913,843
<TOTAL-COSTS> 3,913,843
<OTHER-EXPENSES> (1,084,373)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,334
<INCOME-PRETAX> (1,811,641)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,811,641)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,811,641)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
