<PAGE> 1
Form 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
--------------
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] 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.)
1130 Connecticut avenue, NW, Suite 700
Washington, DC 20036
(Address of principal executive offices)
Registrant's telephone number,
including area code: (202) 466-3100
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, as of July 31, 2000 was 29,133,286 shares.
This Amendment No. 1 on Form 10-Q/A amends Item 1 of the quarterly report on
Form 10-Q of U.S. Technologies, Inc. for the quarter ended June 30, 2000, to
revise our previously reported balances for goodwill and accrued liabilities on
our consolidated balance sheet as of June 30, 2000. This revision reflects an
adjustment to record an additional liability assumed in an acquisition. This
revision has no impact on our previously reported historical results of
operations for any periods presented.
In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, this
Amendment No. 1 sets forth the complete text to Item 1 of Part 1 of our Form
10-Q for the quarter ended June 30, 2000, as amended.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
U.S. TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,159,760 $ 9,451
Trade Accounts receivable, net of reserves of $206,000
at June 30, 2000 and December 31, 1999 422,655 195,289
Inventories 282,371 260,575
Prepaid expenses 32,155 39,340
------------ ------------
Total current assets 1,896,941 504,655
------------ ------------
Property and equipment, net of accumulated depreciation
of $1,402,417 and $1,329,988 at June 30, 2000 and
December 31, 1999 549,257 571,383
------------ ------------
Other assets:
Investment in internet businesses 13,304,395 --
Goodwill internet investments - net 4,405,134 --
Notes receivable 334,730 --
Other assets 898,306 16,058
------------ ------------
Total other assets 18,942,565 16,058
------------ ------------
Total assets $ 21,388,763 $ 1,092,096
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 26,875 $ 27,270
Accounts payable 2,254,860 1,004,237
Accrued expenses 2,334,924 267,587
------------ ------------
Total current liabilities 4,616,659 1,299,094
Long-term debt less current maturities 621,000 13,794
------------ ------------
Total liabilities 5,237,659 1,312,888
------------ ------------
Shareholders' equity:
Common stock; $.02 par value; 40,000,000 shares
authorized; 29,533,286 and 29,195,278 issued and outstanding
at June 30, 2000 and December 31, 1999, respectively 590,665 583,906
Series A convertible preferred stock: $0.02 par value;
10,000,000 shares authorized; 625,000 and 500,000 issued
and outstanding respectively 6,250,000 5,000,000
Series A convertible preferred stock subscribed but unissued -- 289,703
Series B mandatorily convertible preferred stock:
$0.02 par value; 10,000,000 shares authorized
1,120,000 shares issued and outstanding 11,200,000 --
Series C mandatorily convertible preferred stock:
$0.02 par value; 8,750 shares authorized;
5,184 issued and outstanding 4,571,914 --
Additional paid-in capital 13,058,271 12,275,655
Accumulated deficit (19,141,857) (17,992,167)
Stock receivable (150,205) (150,205)
Treasury stock, at cost, 400,000 shares held (227,684) (227,684)
------------ ------------
Total shareholders' equity 16,151,104 (220,792)
------------ ------------
Total liabilities and shareholders' equity $ 21,388,763 $ 1,092,096
============ ============
</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 Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 713,745 $ 820,470 $ 1,190,271 $ 2,690,754
Operating costs and expenses:
Cost of sales 675,940 1,206,292 1,303,217 3,242,933
Selling expense 14,385 7,290 30,308 25,679
General and administrative expense 910,787 514,276 1,121,786 1,209,247
------------ ------------ ------------ ------------
Total operating costs and expenses 1,601,112 1,727,858 2,455,311 4,477,859
------------ ------------ ------------ ------------
Income (loss) from operations (887,367) (907,388) (1,265,040) (1,787,105)
Other income (expense)
Gain on sale of subsidiary -- (236,840) -- 752,160
Other 48,036 (80,577) 65,053 (93,290)
Equity in loss of internet businesses (4,437) -- (4,437) --
Interest expense (4,771) (1,667) (4,791) (35,923)
------------ ------------ ------------ ------------
Total other income (expense) 38,828 (319,084) 55,825 622,947
------------ ------------ ------------ ------------
Net (loss) $ (848,539) $ (1,226,472) $ (1,209,215) $ (1,164,158)
Preferred dividend -- 336,484 -- 336,484
------------ ------------ ------------ ------------
Net (loss) available
to common shareholders $ (848,539) $ (1,562,956) $ (1,209,215) $ (1,500,642)
============ ============ ============ ============
Net earnings (loss) per share:
Basic $ (0.03) $ (0.05) $ (0.04) $ (0.05)
============ ============ ============ ============
Diluted $ (0.03) $ (0.05) $ (0.04) $ (0.05)
============ ============ ============ ============
Shares used in per share calculation:
Basic 28,966,342 28,795,278 29,032,529 28,795,278
============ ============ ============ ============
Diluted 28,966,342 28,795,278 29,032,529 28,795,278
============ ============ ============ ============
</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>
Six Months Ended June 30,
---------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(1,209,215) $(1,164,158)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 114,425 54,275
Gain on sale of Subsidiary -- (752,160)
Equity in loss of investees 4,437 --
Changes in certain assets and liabilities:
Accounts receivable (245,819) 29,182
Inventories (21,796) 292,430
Prepaid expense 25,648 (1,577)
Accounts payable (214,361) 17,316
Accrued expenses (99,441) (5,094)
----------- -----------
Net cash used in operating activities (1,646,122) (1,529,786)
----------- -----------
Investing activities:
Equipment purchases -- (63,092)
Advances, net of deficit in operating
results to subsidiary prior to sale -- (570,318)
Proceeds from sale of subsidiary -- 876,000
Investment in internet businesses (2,576,989) --
Increase in notes receivable (334,730) --
Change in other assets (12,811) 1,415
----------- -----------
Net cash provided by (used in) investing activities (2,924,530) 244,005
----------- -----------
Financing activities:
Proceeds from convertible preferred stock
subscriptions 5,532,211 1,196,677
Proceeds from exercise of stock options
and warrants 202,939 --
Proceeds from notes payable -- 28,628
Payments of notes payable (14,189) (14,920)
----------- -----------
Net cash provided by financing activities 5,720,961 1,210,385
----------- -----------
(Decrease) increase in cash 1,150,309 (75,396)
Cash, beginning of period 9,451 110,140
----------- -----------
Cash, end of period $ 1,159,760 $ 34,744
=========== ===========
</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. BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
This information reflects all adjustments, which are, in the opinion of
management, necessary for a fair presentation of the statement of financial
position of the Company as of June 30, 2000 and the results of operations and
cash flows for the three months and six months ended June 30, 2000. All
adjustments made have been of a normal recurring nature. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The Company believes that disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements are read in conjunction with the financial statements and the notes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1999.
The basis for presentation for investments the Company acquires are accounted
for under three methods: consolidation, equity method or cost method. The
applicable accounting method is determined based on the Company's voting
interest in an investment, degree of influence over the operations and
controlling positions.
2. NATURE OF OPERATIONS
OUTSOURCING OPERATIONS
U.S. Technologies Inc. (the "Company"), is an "outsourcing company" that
provides manufacturing, assembly, repair, kitting and fulfillment services to
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.
E2E ACQUISITION
On April 12, 2000, the Company acquired E2Enet, Inc. ("E2E"), a privately held
Internet incubator company. E2E has made early stage investments in several
development stage business-to-business (B2B) and business-to-consumer (B2C)
e-commerce businesses. The details of the purchase of E2E have been reported by
the Company in its Form 8-K filed on April 27, 2000.
The Company believes that its acquisition of E2E will provide the Company with a
platform to establish a position in the growing e-commerce industry. The Company
believes that the completion of the E2E Acquisition will enhance the Company's
opportunities for both investment in and creative development of associated
companies that are promising early stage B2B and B2C e-commerce ventures.
Further investments in this industry are intended primarily to comprise
controlled subsidiaries engaged in the development or operation of B2B business.
The Company also is in the process of expanding its management team to include
technology and e-commerce expertise.
The Company has restructured some of E2E's investments in its associated
companies and provided these entities with additional working capital to
stimulate their further growth and expansion. E2E's initial investment in
Buyline.net, Inc. ("Buyline") has been restructured and increased so that
Buyline is a controlled operating subsidiary. On April 26, 2000, the Company
completed its acquisition of 20,700,005 shares of Buyline's common stock. The
Buyline Purchase Agreement provided for (1) the conversion to Buyline's common
stock of E2E's existing loans to Buyline (including accrued interest), (2)
acknowledgment of in kind services already rendered by E2E, and (3) an
additional $1,000,000 cash investment by the Company through E2E. Simultaneous
with entering into the Buyline Agreement, the Company hired a technology
executive who has become Buyline's President and Chief Executive Officer. As a
result, the Company, through E2E, will be the controlling shareholder of
Buyline, and will designate and supervise the Buyline management team. The
details of the purchase of Buyline have been reported by the Company in its Form
8-K filed on May 11, 2000.
On April 12, 2000, the Company closed an agreement with Vipro Corporation
("Vipro") to invest through E2E an additional $1,000,000 in Vipro, another E2E
portfolio company, for additional equity in the form of shares of Vipro's Series
B Convertible Preferred Stock.
5
<PAGE> 6
On April 12, 2000, the Company signed a letter of intent with Web
Milestones.com, LLC. ("Webmilestones") an internet services company that will
initially provide a site for publishing obituary notices that can be accessed
through the Internet's World Wide Web. On July 5, 2000 the Company completed the
acquisition of its 40% equity interest in Webmilestones for $400,000, including
the amount of $150,000, which is included in the Company's notes receivable as
of June 30, 2000. The Company completed its acquisition of Webmilestones on July
5, 2000. The details of the purchase of Webmilestones have been reported by the
Company in its Form 8-K filed on July 5, 2000.
On April 12, 2000, the Company signed a letter of intent with Portris, LLC
("Portris"). Portris is a software company that has developed an information
management system that facilitates performance of interactive team oriented
projects over the internet. Under the terms of the letter of intent the Company
will receive a 30.4% equity interest in Portris for $380,000, including the
amount of $180,000, which is included in the Company's notes receivable as of
June 30, 2000. As of the date of this Form 10-Q, the transaction with Portris
has not been completed.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
4. INVENTORIES
At June 30, 2000, and December 31, 1999, inventories consisted of the following:
2000 1999
-------- --------
Raw materials $253,834 $217,348
Work in progress 17,827 42,180
Finished Goods 10,710 1,047
-------- --------
$282,371 $260,575
======== ========
5. NOTES RECEIVABLE
During the six months ended June 30, 2000, the Company advanced cash, to be used
for working capital, to primarily Webmilestones and Portris. As of June 30,
2000, the Company had advanced $150,000 and $180,000 to Webmilestones and
Portris, respectively.
6. CONVERTIBLE PREFERRED STOCK
On April 12, 2000, the closing date of the E2E Acquisition, the Company sold, in
two private placement transactions, 125,000 shares of its Series A Convertible
Preferred Stock ("Series A Preferred") to USV Partners LLC ("USV") at a purchase
price of $10 per share and 5,184 shares of its Series C Mandatorily Convertible
Preferred Stock ("Series C Preferred") at a purchase price of $1,000 per share.
Of the 5,184 shares of Series C Preferred issued, USV purchased 2,120 shares for
$2,120,000. Gregory Earls, the Co-Chairman and the Co-Chief Executive Officer of
the Company, is the sole member of the management of USV.
The proceeds of $6,309,000 raised through the recent sales of the Series A
Preferred and Series C Preferred will be used primarily to finance additional
investments in new and existing internet businesses that focus on B2B and B2C
e-commerce, the payment of costs incurred and liabilities assumed in connection
with the E2E Acquisition and related business transactions and ongoing working
capital needs.
6
<PAGE> 7
When the E2E Acquisition closed, E2E's former stockholders were issued a total
of 1,120,000 shares of the Company's Series B Mandatorily Convertible Preferred
Stock (the "Series B Preferred"). Upon their mandatory conversion as described
below, these shares of Series B Preferred will be converted into 56,000,000
shares of the Company's common stock, par value $0.02 ("Common Stock").
The Company's capital stock is presently comprised of common stock, par value
$0.02 ("Common Stock"), Series A Preferred, Series B Preferred and Series C
Preferred. Except as explained below with respect to the Charter Amendment
(defined and discussed below), each holder of Series A Preferred is entitled to
vote as if converted to Common Stock on all matters that require a vote of the
holders of the Company's capital stock.
USV is the holder of all issued and outstanding shares of Series A Preferred.
Under the Certificate of Designations, Rights and Preferences, as amended,
setting forth the rights and preferences of the Series A Preferred, USV has the
right to convert its shares of Series A Preferred to Common Stock at any time.
Upon the conversion of all of the Series A Preferred, USV would be entitled to
receive 51,229,508 shares of Common Stock. USV and the Company entered into an
agreement, dated March 1, 2000, whereby USV waived its right to convert its
shares of Series A Preferred until an appropriate amendment is made to the
Company's Restated Certificate of Incorporation. This amendment will increase
the number of shares of Common Stock that the Company is authorized to issue to
an amount sufficient for all of the Company's outstanding convertible
securities, warrants and options to be converted or exercised (the "Charter
Amendment"). USV has committed to convert its Series A Preferred shares to
Common Stock once the Charter Amendment is effective.
Under the definitive agreement containing the terms and conditions of the E2E
Acquisition, the Company is required to call a meeting of its stockholders to
approve the Charter Amendment. Upon the acceptance of the Charter Amendment for
filing by the Secretary of State of the State of Delaware, the Series B
Preferred and the Series C Preferred will automatically be converted into shares
of Common Stock.
The terms of the Series B Preferred and the Series C Preferred do not permit the
holders thereof to vote on the Charter Amendment, but otherwise permit them to
vote as if the Series B Preferred and Series C Preferred were already converted
to Common Stock. Accordingly, the Charter Amendment will be presented for
approval by the holders of outstanding shares of Common Stock and Series A
Preferred, voting together as a single class.
The following table presents the dilution of the Company's common stock which
will result upon approval of the Company's Charter Amendment and conversion of
the previously described issuance's of the Company's convertible preferred
shares.
Common stock outstanding at July 31, 2000 29,133,286
Conversion of Series A Preferred Stock 51,229,508
Conversion of Series B Preferred Stock 56,000,000
Conversion of Series C Preferred Stock 3,526,531
-----------
139,889,325
===========
7. ACCRUED EXPENSES
Included in the Company's accrued expenses at June 30, 2000 is an amount of
approximately $2,000,000, which represents a contingent obligation of the
Company related to the Company's acquisition of E2E. The contingent obligation
involves the Company's potential indemnification of the obligation of Jonathan
Ledecky, a former principal stockholder of E2E, to purchase shares of E2E's
common stock under the terms of a Put Agreement, dated May 14, 1999, as amended
(the "Put Agreement"), between Ledecky and two other former stockholders of E2E.
The Company agreed to assume Ledecky's obligation under the Put Agreement in
connection with the merger of E2E into the Company. The two holders have not
consented to this assignment. The holders of the put have exercised their right
to put their shares of Series B Preferred Stock (approximately 53 shares of
Series B Preferred Stock each, which shares were received in exchange for their
shares of E2E common stock in connection with the merger of E2E into the
Company) to Ledecky. Each of the two stockholders' shares of Series B Preferred
Stock are mandatorily convertible into 26,892 shares of Company common stock
upon amendment of the Company's charter to increase the number of shares
authorized. Ledecky has disputed their right to exercise the put under the Put
Agreement.
The holders of the put have filed suit against Ledecky and Ledecky has filed an
answer. As of the date of this report, such dispute has not been resolved. The
Company has elected to record its contingent obligation related to the Put
Agreement.
8. 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 for the six and three months ended June 30,
2000. The four reportable segments are USXX (Washington, DC), LTI (Lockhart,
Texas) ("LTI Lockhart), LTI (Blythe, California) ("LTI Blythe") and E2E
(Washington, DC). USXX is the corporate office, LTI Lockhart is
7
<PAGE> 8
a prison-based manufacturer of computer circuit boards, LTI Blythe is a
prison-based manufacturer of modular office furniture components and E2E
represent the Company's recent investment in B2B and B2C e-commerce businesses.
Based on the quantitative thresholds specified in SFAS 131, the Company has
determined that it had four reportable segments during the six and three months
ended June 30, 1999. In addition to the three of the reportable segments
identified above, the Company owned, until its sale in February 1999, a
controlling interest in Technology Manufacturing & Design, Inc. ("TMD"). Segment
amounts disclosed are prior to any elimination entries made in the
consolidation.
Summary information by segment as of and for the six months and three months
ended June 30, 2000 and 1999 follow (in thousands):
<TABLE>
<CAPTION>
LTI LTI
USXX Lockhart TMD (1) Blythe E2E Other Total
---- -------- ------- ------ --- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Six months ended June 30
2000
Net sales $ -- $ 863 $ -- $ 273 $ -- $ 54 $ 1,190
Operating profit (loss) (878) (226) -- 3 (178) 14 (1,265)
Total Assets 19,957 682 -- 416 16,790 56 37,901
1999
Net sales $ -- $ 1,335 $ 948 $ 378 $ -- $ 30 $ 2,691
Operating (loss) (847) (524) (66) (257) -- (93) (1,787)
Total Assets 3,445 465 -- 435 -- 183 4,528
Three months ended June 30
2000
Net sales $ -- $ 504 $ -- $ 172 $ -- $ 38 $ 714
Operating profit (loss) (727) (26) -- 22 (178) 22 (887)
Total Assets 19,957 682 -- 416 16,790 56 37,901
1999
Net sales $ -- $ 586 $ -- $ 205 $ -- $ 30 $ 821
Operating (loss) (445) (284) -- (121) -- (57) (907)
Total Assets 3,445 465 -- 435 -- 183 4,528
</TABLE>
(1) TMD was sold by the Company on February 12, 1999. The operating results
include activity through that date.
8
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9. LOSS 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 are based
on the weighted average number of common shares outstanding during the period.
Diluted earnings per share does not include the dilutive effect of common stock
equivalents for the six months and three months ended June 30, 2000 and 1999
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>
Six months ended June 30, 2000:
Net (loss) $(1,209,215) 29,032,529 $(0.04)
=========== ========== ======
Effect of dilutive potential common shares:
Stock options -- --
Warrants -- --
----------- ----------
Diluted net (loss) $(1,209,215) 29,032,529 $(0.04)
=========== ========== ======
Six months ended June 30, 1999:
Net (loss) available to common shareholders $(1,500,642) 28,795,278 $(0.05)
Effect of dilutive potential common shares:
Stock options -- --
Warrants -- --
----------- ----------
Diluted net (loss) available to
common shareholders $(1,500,642) 28,795,278 $(0.05)
=========== ========== ======
Three months ended June 30, 2000:
Net (loss) $ (848,539) 28,966,342 $(0.03)
Effect of dilutive potential common shares:
Stock options -- --
Warrants -- --
----------- ----------
Diluted net (loss) $ (848,539) 28,966,342 $(0.03)
=========== ========== ======
Three months ended June 30, 1999:
Net (loss) available to common shareholders $(1,562,956) 28,795,278 $(0.05)
Effect of dilutive potential common shares:
Stock options -- --
Warrants -- --
----------- ----------
Diluted net (loss) available to
common shareholders $(1,562,956) 28,795,278 $(0.05)
=========== ========== ======
</TABLE>
10. RECENT ACCOUNTING PRONOUNCEMENTS
None.
9
<PAGE> 10
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, 1999.
RESULTS OF OPERATIONS
The following analysis compares the results of operations for the three-month
and six-month periods ended June 30, 1999 to the comparable periods ended June
30, 1999.
Net sales during the three months ended June 30, 2000 were $713,745, compared
to $820,470, during the three months ended June 30, 1999. The decrease in net
sales in the amount of $106,725, was primarily due to a decline in sales in
the Company's LTI Lockhart facility, as a result of the reorganization of the
facility. This reorganization included 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 six months ended June 30, 2000 were $1,190,271, compared
to $2,690,754 during the six months ended June 30, 1999. The decrease in net
sales in the amount of $1,500,483, 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 six-month period ended June 30, 1999,
declined by $552,307, as a result of the reorganization mentioned above.
In the three months ended June 30, 2000, cost of goods sold was $675,940,
which represented 95% of net sales. During the three months ended June 30,
1999, cost of goods sold was $1,206,292, which represented 147% of net
sales. The reduction in cost of sales is a result of more effective
management of operations in the Company's Lockhart, Texas, electronics
facility, resulting in significant reductions in labor and materials cost.
The re-engineering process is continuing with the intent of seeking business
in which the customer supplies materials.
In the six months ended June 30, 2000, cost of goods sold was $1,303,217,
which represented 109% of net sales. During the six months ended June 30,
1999, cost of goods sold was $3,242,933, which represented 120% of net
sales. The reduction in cost of sales is a result of more effective
management of operations in the Company's Lockhart, Texas, electronics
facility, resulting in significant reductions in labor and materials cost.
The re-engineering process is continuing with the intent of seeking business
in which the customer supplies materials.
Selling expenses during the three months ended June 30, 2000 were $14,385,
representing 2% of net sales. During the three months ended June 30, 1999,
selling expenses in the amount of $7,290 represented 1% of net sales. These
expenses increased primarily due to more sales being generated through
outside commission sales personnel, rather than in-house sales.
Selling expenses during the six months ended June 30, 2000 were $30,308,
representing 3% of net sales. During the six months ended June 30, 1999,
selling expenses in the amount of $25,679 represented 1% of net sales. These
expenses increased primarily due to more sales being generated through
outside commission sales personnel, rather than in-house sales.
General and administrative expenses during the three months ended June 30,
2000 were $910,787, which represented 128% of net sales. During the three
months ended June 30, 1999, general and administrative expenses were
$514,276, which represented 63% of net sales. The increase in general and
administrative expenses is primarily the result of increasing corporate staff
at the Company's Washington, DC headquarters, to support the Company's
investment activities. General and administrative expenses during the three
months ended June 30, 2000 includes approximately $200,000 related to the
consolidation of the operations of E2E and Buyline from April 12 and April
26, 2000, the respective dates of their acquisitions by the Company.
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General and administrative expenses during the six months ended June 30, 2000
were $1,121,786, which represented 94% of net sales. During the six months
ended June 30, 1999, general and administrative expenses were $1,209,247,
which represented 45% of net sales. The decrease in general and
administrative expenses was primarily the result of severance and other costs
incurred during the reorganization of the Company's corporate staff during
the six months ended June 30, 1999, which were offset by increasing corporate
staff at the Company's Washington, DC headquarters, to support the Company's
investment activities and the above mentioned consolidation of the operating
results of E2E and Buyline.
During the three months ended June 30, 2000, the Company had a net loss
available to common shareholders of $848,539 or $(0.03) per weighted-average
share. During the three months ended June 30, 1999 the company reported a net
loss available to common shareholders of $1,562,956 or $(0.05) per
weighted-average share. The loss for the three months ended June 30, 2000,
includes a loss of $4,437, which represents the Company's share of losses
from internet business accounted for under the equity method. The loss for
the three months ended June 30, 1999, includes a $336,484 dividend on the
Company's convertible preferred stock and a reserve of $236,840 against a
note taken during the quarter ended March 31, 1999, related to the sale of
the Company's interest in TMD.
During the six months ended June 30, 2000 the Company had net loss available
to common shareholders of $1,209,215 or $(0.04) per weighted-average share.
During the six months ended June 30, 1999, the Company reported a net loss
available to common shareholders of $1,500,642 or $(0.05) per
weighted-average share. The loss for the six months ended June 30, 2000,
includes a loss of $4,437, which represents the Company's share of losses
from internet business accounted for under the equity method. The loss for
the six months ended June 30, 1999, includes a $336,484 dividend on the
Company's convertible preferred stock and a reserve of $236,840 against a
note taken during the quarter ended March 31, 1999, related to the sale of
the Company's interest in TMD.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2000 and 1999, the Company experienced
negative operating cash flows of $1,646,122 and $1,529,786 respectively.
Negative operating cash flows in the six months ended June 30, 2000 resulted
principally from the $(1,209,215) net loss incurred during that period, an
increase in accounts receivable of $245,819 and a decrease in accounts payable
of $214,361. Negative operating cash flows in the six months ended June 30, 1999
resulted principally from the $(1,164,158) net loss incurred during that period.
Net cash used in investing activities of $2,924,530 during the six months ended
June 30, 2000, was primarily the result of the acquisition of E2E by the Company
and cash advances to our associated companies. Net cash provided by investing
activities of $244,005 during the six months ended June 30, 1999, was primarily
the result of cash advances to TMD offset by cash proceeds from the sale of TMD.
Net cash provided by financing activities of $5,720,961 during the six months
ended June 30, 2000 was primarily due to the receipt of net proceeds from the
subscription of preferred stock of $5,532,211 and proceeds from the exercise of
common stock options and warrants of $202,939. Net cash provided by financing
activities of $1,210,385 during the six months ended June 30, 1999 was primarily
due to the receipt of net proceeds from the subscription of preferred stock.
FORWARD-LOOKING INFORMATION
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 concerning prospective future events and results.
Such prospective events include acquisitions and investments, and prospects for
such acquisitions and investments. U.S. Technologies cautions that actual
developments and results may differ materially from its prospective future
events. There can be no assurance that the conditions necessary to completing
any prospective event will occur. Additional investments in the Company or by
the Company or an unrelated person in any of the Company's associated companies
provide no assurance that the Company or such associated company will succeed
or that the Company's investments will be recovered or that the Company or any
of its associated companies will be profitable. The Company's assets and
operations, including results of operations, would be affected materially by
either occurrence of any such event or the failure of any such event to occur,
by the extent to which it and its associated companies continue to have access
to financing sources on reasonable terms in order to pursue its and their
business plans, by the success or failure of the business plans of its
associated companies, by economic conditions generally and particularly in the
developing e-commerce market, by competition and technological changes in its
and its associated companies' industries and businesses, and by the results of
its and its associated companies' operations if and when operating. The
Company's assembly and other outsourcing business activities involve a limited
number of facilities serving a limited number of customers, all of which are
subject to material changes outside the Company's control.
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PART II. OTHER INFORMATION
ITEM 1. THROUGH ITEM 4. Not applicable.
ITEM 5. OTHER INFORMATION.
During March 2000, the Company began staffing the facility it will manage for
American Quantum Cycles in the Wackenhut Corrections Corporation facility
located in South Bay, Florida. Using a combination of free-world employees and
prisoners the Company will perform the functions 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. Due to delays in the preparation
of the facility, significant production activities under this agreement are not
expected to commence during the fourth quarter of 2000, with the first phase
consisting of the polishing of aluminum and stainless steel motorcycle parts.
On July 31, 2000, the Company announced that it has decided to initiate efforts
to divest its current prison-based outsourcing services business so that it may
focus exclusively on its transformation into a distributive Internet operating
company.
On July 31, 2000, the Company announced that it entered into an Agreement in
Principle to acquire On-Site Sourcing, Inc. ("On-Site"), a publicly held digital
imaging, document and facilities management company. The proposed cost of the
acquisition is approximately $35 million. The Company expects to enter into a
definitive agreement regarding the acquisition of On-Site by September 2000.
Once the Company has signed the definitive agreement, it expects to file the
appropriate proxy statements and registration statement with the SEC,
accordingly the transaction would be completed by December 30, 2000. The details
of the purchase of On-Site have been reported by the Company in its Form 8-K
filed on July 28, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
A list of exhibits included as part of this report is
set forth in the Exhibit Index appearing elsewhere in
this report, and is incorporated by reference.
(b) Reports on form 8-K
During the quarter for which this report is filed,
Registrant filed a Current Report on form 8-K dated
April 27, 2000, describing the Company's acquisition
of E2E.
During the quarter for which this report is filed,
Registrant filed a Current Report on form 8-K dated
May 11, 2000, describing the Company's acquisition of
Buyline.
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule, submitted to the Commission in
electronic format
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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 duly authorized officers.
U.S. TECHNOLOGIES INC.
(Registrant)
Date: September 27, 2000 /s/ Gregory Earls
--------------------------------
Gregory Earls
Co-Chief Executive Officer
Date: September 27, 2000 /s/ James V. Warren
--------------------------------
James V. Warren
Co-Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
---------- -----------
27.1 Financial Data Schedule (for SEC use only)
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