<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, 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.)
<TABLE>
<S> <C>
State of Delaware 73-1284747
(State of Incorporation) (I. R. S. Employer
Identification No.)
</TABLE>
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.
(1) Yes [..] No [X]
(2) Yes [X] No [..]
The number of shares outstanding of the Registrant's common stock, par value
$0.02, as of October 31, 2000 was 29,583,286 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
2
<PAGE> 3
U.S. TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(Unaudited)
-----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 285,841 $ 9,451
Trade Accounts receivable, net of reserves of $206,000
at September 30, 2000 and December 31, 1999 600,008 195,289
Inventories 335,236 260,575
Prepaid expenses 914 39,340
----------- -----------
Total current assets 1,221,999 504,655
----------- -----------
Property and equipment, net of accumulated depreciation
of $1,434,122 and $1,329,988 at September 30, 2000 and
December 31, 1999 599,984 571,383
----------- -----------
Other assets:
Investment in internet businesses 12,708,431 --
Goodwill internet investments - net 3,879,752 --
Notes receivable 580,033 --
Other assets 786,902 16,058
----------- -----------
Total other assets 17,955,118 16,058
----------- -----------
Total assets $19,777,101 $ 1,092,096
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE> 4
U.S. TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(Unaudited)
-----------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 199,187 $ 27,270
Accounts payable 2,269,064 1,004,237
Accrued expenses 2,365,154 267,587
------------ ------------
Total current liabilities 4,833,405 1,299,094
Long-term debt less current maturities 621,000 13,794
------------ ------------
Total liabilities 5,454,405 1,312,888
------------ ------------
Shareholders' equity:
Common stock; $.02 par value; 40,000,000 shares
authorized; 29,983,286 and 29,195,278 issued and outstanding
at September 30, 2000 and December 31, 1999, respectively 599,666 583,906
Series A Convertible Preferred Stock: $0.02 par value;
1,000,000 shares authorized; 625,000 and 500,000 issued
and outstanding at September 30, 2000 and
December 31, 1999, 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; 112,000 shares authorized, issued and
outstanding 11,200,000 --
Series C Mandatorily Convertible Preferred Stock:
$0.02 par value; 8,750 shares authorized;
4,534 issued and outstanding, net of issuance costs 4,337,914 --
Convertible Preferred Stock, subscribed but unissued 913,700 --
Additional paid-in capital 12,469,083 12,275,655
Accumulated deficit (21,069,778) (17,992,167)
Stock receivable (150,205) (150,205)
Treasury stock, at cost, 400,000 shares held (227,684) (227,684)
------------ ------------
Total shareholders' equity 14,322,696 (220,792)
------------ ------------
Total liabilities and shareholders' equity $ 19,777,101 $ 1,092,096
============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE> 5
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 918,870 $ 600,232 $ 2,109,141 $ 3,290,986
Operating costs and expenses:
Cost of sales 896,282 670,910 2,199,499 3,913,843
Selling expense 16,995 4,314 47,303 29,994
General and administrative expense 1,729,401 130,560 2,851,187 1,339,806
------------ ------------ ------------ ------------
Total operating costs and expenses 2,642,678 805,784 5,097,989 5,283,643
------------ ------------ ------------ ------------
Income (loss) from operations (1,723,808) (205,552) (2,988,848) (1,992,657)
Other income (expense)
Gain on sale of subsidiary -- -- -- 752,160
Other 8,442 8,669 71,143 (84,621)
Equity in loss of internet businesses (149,684) -- (154,121) --
Interest expense (3,344) (2,411) (5,783) (38,334)
------------ ------------ ------------ ------------
Total other income (expense) (144,586) 6,258 (88,761) 629,205
------------ ------------ ------------ ------------
Net (loss) $ (1,868,394) $ (199,294) $ (3,077,609) $ (1,363,452)
Preferred dividend -- 111,705 -- 448,189
------------ ------------ ------------ ------------
Net (loss) available
to common shareholders $ (1,868,394) $ (310,999) $ (3,077,609) $ (1,811,641)
============ ============ ============ ============
Net (loss) per share:
Basic $ (0.06) $ (0.01) $ (0.10) $ (0.06)
============ ============ ============ ============
Diluted $ (0.06) $ (0.01) $ (0.10) $ (0.06)
============ ============ ============ ============
Shares used in per share calculation:
Basic 29,569,308 28,795,278 29,331,374 28,795,278
============ ============ ============ ============
Diluted 29,569,308 28,795,278 29,331,374 28,795,278
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
<PAGE> 6
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended September 30,
-------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(3,077,609) $(1,208,811)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 628,506 91,405
Gain on sale of Subsidiary -- (752,160)
Equity in loss of investees 154,121 --
Changes in certain assets and liabilities:
Accounts receivable (404,719) 193,000
Inventories (74,661) 269,164
Prepaid expense 38,426 8,187
Accounts payable (169,987) 136,949
Accrued expenses (97,380) (292,496)
----------- -----------
Net cash used in operating activities (3,003,303) (1,554,762)
----------- -----------
Investing activities:
Equipment purchases (72,717) (219,535)
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 (3,163,937) --
Increase in notes receivable (68,932) --
Change in other assets 6,058 39,075
----------- -----------
Net cash provided by (used in) investing activities (3,299,528) 125,222
----------- -----------
Financing activities:
Proceeds from convertible preferred stock
subscriptions 6,211,911 1,351,318
Proceeds from exercise of stock options
and warrants 209,188 --
Proceeds from notes payable 175,000 28,628
Payments of notes payable (16,877) (27,868)
----------- -----------
Net cash provided by financing activities 6,579,222 1,352,078
----------- -----------
(Decrease) increase in cash 276,391 (77,462)
Cash, beginning of period 9,451 110,140
----------- -----------
Cash, end of period $ 285,842 $ 32,678
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
6
<PAGE> 7
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 September 30, 2000 and the results of operations
and cash flows for the three months and nine months ended September 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 is accounted for
under one of 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") has historically been 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.
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.
E2E AND RELATED ACQUISITIONS
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 ("associated companies"). The details of the purchase of
E2E have been reported by the Company in its Form 8-K filed on April 27, 2000.
Pro forma information for the E2E acquisition is to be presented in a Form
8-K/A filing which is currently in process.
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 acquisition of E2E 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. The Company's goal is to become an Internet enterprise developer of
early stage and emerging companies and a business-to-business technology
integrator. The Company seeks to integrate technologies of its associated
companies with those of established companies looking for opportunities to
market their Internet-based products and services.
7
<PAGE> 8
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)
approximately an additional $1,000,000 cash investment by the Company through
E2E. On April 26, 2000, the Company issued 23,008 shares of its common stock to
Lawrence Silverman, Buyline's founder, in exchange for Mr. Silverman's sale of
634,699 shares of Buyline's common stock to E2E. Simultaneous with entering into
the Buyline Agreement, the Company retained Michael Deale to serve as, but Mr.
Deale no longer is, Buyline's President and Chief Executive Officer. As a
result, the Company, through E2E, is 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 Promisemark Corporation
("Promisemark"), formerly known as Vipro Corporation to invest
through E2E an additional $1,000,000 in Promisemark, another E2E associated
company, for additional equity in the form of shares of Promisemark Series B
Convertible Preferred Stock.
On July 5, 2000, the Company completed the acquisition of approximately a 41%
interest in WebMilestones.com, LLC ("WebMilestones"), an Internet services
company that provided a site for publishing obituary notices that can be
accessed through the Internet's World Wide Web. The Company invested $400,000 in
WebMilestones, of which $100,000 is in the form of equity and $300,000 in a
note. The details of the purchase of WebMilestones have been reported by the
Company in its Form 8-K filed on July 5, 2000. See Item 5.
On October 16, 2000, the Company completed the acquisition of a 30.4% equity
interest in Portris, Inc. ("Portris"). Portris is a software company that is
developing an information management system that facilitates performance of
interactive team oriented projects over the internet. Under the terms of the
agreement the Company received a 30.4% equity interest in Portris for an
aggregate of $380,000, by cancelling $250,000 of debt, which is included in the
Company's notes receivable as of September 30, 2000 and providing additional
cash to Portris.
ON-SITE SOURCING
On September 27, 2000, the Company signed a definitive merger agreement to
acquire On-Site Sourcing, Inc. ("On-Site"), a provider of digital imaging,
document management and litigation reprographics services. On-Site is a publicly
traded company whose shares are listed on the NASDAQ Small Cap market. The
Company's acquisition of On-Site is in accordance with U.S. Technologies
strategic plan to combine Internet companies with more traditional established
companies to complement and integrate the technologies of the Company's
associated internet companies. Under the terms of the agreement, shareholders of
On-Site will receive $35 million in a combination of cash and the Company's
common stock. The Company expects to complete the acquisition of On-Site during
the first quarter of 2001. The details of the agreement to acquire On-Site have
been reported by the Company in its Form 8-K filed on July 28, 2000.
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.
8
<PAGE> 9
4. INVENTORIES
At September 30, 2000, and December 31, 1999, inventories consisted of the
following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Raw materials $258,441 $217,348
Work in progress 11,793 42,180
Finished Goods 65,002 1,047
------- ---------
$335,236 $260,575
======== ========
</TABLE>
5. NOTES RECEIVABLE
During the nine months ended September 30, 2000, the Company advanced cash, to
be used for working capital, primarily to WebMilestones and Portris. As of
September 30, 2000, the Company had advanced $300,000 and $250,000 to
WebMilestones and Portris, respectively.
6. CONVERTIBLE PREFERRED STOCK
On April 12, 2000, the closing date of the E2E Acquisition, the Company sold
125,000 shares of its Series A Convertible Preferred Stock ("Series A
Preferred") in a private placement transaction to USV Partners LLC ("USV") at a
purchase price of $10 per share. On the same day the Company had received
subscriptions for 5,184 shares of its Series C Mandatorily Convertible Preferred
Stock ("Series C Preferred") at a purchase price of $1,000 per share.
Ultimately, subscriptions for 4,534 of these shares of Series C Preferred were
fully funded. Of the 4,534 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 manager of USV.
The proceeds of $5,784,000 raised through the recent sales of the Series A
Preferred and Series C Preferred were 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.
When the E2E Acquisition closed, E2E's former stockholders were issued a total
of 112,000 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 is presently engaged in ongoing capital raising transactions to fund
the cash portion of the On-Site Sourcing, Inc. merger and other related capital
commitments in addition to funding the Company's ongoing capital needs. This
activity may result in the marketing of one, or more, series of convertible
preferred securities. Presently, the Company's Series B Preferred and Series C
Preferred are mandatorily convertible upon authorization of enough Company
common stock to effect their conversion. The Company plans to amend its charter
to increase the number of authorized shares of Company common stock and
eliminate the current limitation on the liquidation preference conferred upon
holders of the Company's preferred securities. The new convertible preferred
securities would be marketed as not being mandatorily convertible, once the
charter is amended, subject to a limitation on their liquidation preference. As
of September 30, 2000, the Company has received approximately $914,000 in cash
as subscriptions for preferred stock which may be attributed to a new series of
preferred stock. Included in the approximate $914,000 amount received as of
September 30, 2000 are amounts of $151,200 received from Beth E. Dozoretz, a
Director of the Company, and $100,000 received from Northwood Ventures, whose
President Peter G. Schiff and Managing Director Henry T. Wilson are both
Directors of the Company. Such shares have not been issued.
9
<PAGE> 10
USV is the holder of 564,340 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 its Series A Preferred, USV would be entitled to receive 46,257,369
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. On September 20, 2000, the waiver was extended to
include all other beneficial interests of Mr. Earls, including the Earls Family
Limited Partnership. This charter 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 agreed to call a meeting of its stockholders to approve
the proposed 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. Mr. Earls intends to cause USV to convert all of its Series A
Preferred at the same time.
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. 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 issuances of the Company's convertible preferred
shares.
<TABLE>
<S> <C>
Common stock outstanding at October 31, 2000 29,583,286
Conversion of Series A Preferred Stock 51,229,508
Conversion of Series B Preferred Stock 56,000,000
Conversion of Series C Preferred Stock 3,126,895
-----------
139,939,689*
===========
</TABLE>
* Does not include conversion of subscribed but unissued preferred stock which
is not determinable at the date of this report.
7. ACCRUED EXPENSES
Included in the Company's accrued expenses at September 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
10
<PAGE> 11
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 nine and three months ended
September 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 a
prison-based manufacturer of computer circuit boards, LTI Blythe is a
prison-based manufacturer of modular office furniture components and E2E
represents 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 nine and three months
ended September 30, 1999. In addition to 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.
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<PAGE> 12
Summary information by segment as of and for the nine months and three months
ended September 30, 2000 and 1999 follow (in thousands):
<TABLE>
<CAPTION>
LTI LTI (2)
USXX Lockhart TMD(1) Blythe E2E Other Total
---- -------- ------ ------ --- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Nine months ended
September 30
2000
Net sales $ -- $1,627 $ -- $ 398 $ -- $ 84 $ 2,109
Operating (loss) (1,810) (211) -- (2) (946) (20) (2,989)
Total Assets 19,663 1,008 -- 370 15,772 163 36,976
1999
Net sales $ -- $1,529 $948 $ 777 $ -- $ 37 $ 3,291
Operating (loss) (889) (723) (66) (201) -- (114) (1,993)
Total Assets 2,958 620 -- 489 -- 170 4,237
Three months ended
September 30
2000
Net sales $ -- $ 764 $ -- $ 125 $ -- $ 30 $ 919
Operating profit (loss) (932) 15 -- (5) (768) (34) (1,724)
Total Assets 19,663 1,008 -- 370 15,772 163 36,976
1999
Net sales $ -- $ 194 $ -- $ 399 $ -- $ 7 $ 600
Operating profit (loss) (42) (199) -- 56 -- (21) (206)
Total Assets 2,958 620 -- 489 -- 170 4,237
</TABLE>
(1) TMD was sold by the Company on February 12, 1999. The operating results
include activity through that date.
(2) Total assets do not agree to the respective balance sheets since segment
amounts are presented before eliminating entries.
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 nine months and three months ended September 30, 2000 and
1999 because stock options and warrants which comprised common stock equivalents
would have been anti-dilutive.
12
<PAGE> 13
<TABLE>
<CAPTION>
Per
(Loss) Shares share
(Numerator) (Denominator) amount
----------- ------------- ------
<S> <C> <C> <C>
Nine months ended September 30, 2000:
Net (loss) $(3,077,609) 29,331,374 $(0.10)
Effect of dilutive potential common shares:
Stock options -- --
Warrants -- --
----------- -----------
Diluted net (loss) $(3,077,609) 29,331,374 $(0.10)
=========== =========== ======
Nine months ended September 30, 1999:
Net (loss) available to common shareholders $(1,811,641) 28,795,278 $(0.06)
Effect of dilutive potential common shares:
Stock options -- --
Warrants -- --
----------- -----------
Diluted net (loss) available to common shareholders $(1,811,641) 28,795,278 $(0.06)
=========== =========== ======
Three months ended September 30, 2000:
Net (loss) $(1,868,394) 29,569,308 $(0.06)
Effect of dilutive potential common shares:
Stock options -- --
Warrants -- --
----------- -----------
Diluted net (loss) $(1,868,394) 29,569,308 $(0.06)
=========== =========== ======
Three months ended September 30, 1999:
Net (loss) available to common shareholders $ (310,999) 28,795,278 $(0.01)
Effect of dilutive potential common shares:
Stock options -- --
Warrants -- --
----------- -----------
Diluted net (loss) available to common shareholders $ (310,999) 28,795,278 $(0.01)
=========== =========== ======
</TABLE>
10. RECENT ACCOUNTING PRONOUNCEMENTS
None.
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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 nine-month periods ended September 30, 2000 to the comparable periods ended
September 30, 1999.
Net sales during the three months ended September 30, 2000 were $ 918,870,
compared to $ 600,232 during the three months ended September 30, 1999. The
increase in net sales in the amount of $ 318,638 was primarily due to an
increase in sales in the Company's LTI Lockhart facility, due to the 1999
reorganization of the facility, which has resulted in increased sales in 2000.
This reorganization included the hiring of a new plant manager and the
installation of equipment to perform tasks, which were previously performed
manually.
Net sales during the nine months ended September 30, 2000 were $ 2,109,141,
compared to $3,290,986 during the nine months ended September 30, 1999. The
decrease in net sales in the amount of $ 1,181,845, 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, 2000 declined by $233,669. The decrease of $233,669 was primarily
due to a sales decrease of approximately $379,000 at the Company's LTI Blythe
facility resulting from the loss of Blythe's primary customer in November 1999.
In the three months ended September 30, 2000, cost of goods sold was $ 896,282,
which represented 98% of net sales. During the three months ended September 30,
1999, cost of goods sold was $ 670,910, which represented 112% 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 high percentage of cost
to sales is primarily a function of insufficient sales volume to offset the
fixed components of manufacturing overhead.
In the nine months ended September 30, 2000, cost of goods sold was $ 2,199,499,
which represented 104% of net sales. During the nine months ended September 30,
1999, cost of goods sold was $ 3,913,843, which represented 119% 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 high percentage of cost
to sales is primarily a function of insufficient sales volume to offset the
fixed components of manufacturing overhead.
Selling expenses during the three months ended September 30, 2000 were $ 16,995,
representing 2% of net sales. During the three months ended September 30, 1999,
selling expenses in the amount of $4,314 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 nine months ended September 30, 2000 were $ 47,303,
representing 2% of net sales. During the nine months ended September 30, 1999,
selling expenses in the amount of $29,994 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 September 30,
2000 were $1,729,401, which represented 188% of net sales. During the three
months ended September 30, 1999, general and administrative expenses were $
130,560 , which represented 22% of net sales. The increase in general and
administrative expenses is primarily the result of increasing corporate staff at
the Company's Washington, DC
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headquarters to support the Company's investments in its associated companies.
General and administrative expenses during the three months ended September 30,
2000 includes approximately $750,000 related to the consolidation of the
operations of E2E and Buyline for the three months ended September 30, 2000.
General and administrative expenses during the nine months ended September 30,
2000 were $2,851,187, which represented 135% of net sales. During the nine
months ended September 30, 1999, general and administrative expenses were $
1,339,806, which represented 41% 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 investments
in its associated companies. General and administrative expenses during the nine
months ended September 30, 2000 includes approximately $950,000 related to the
consolidation of the operations of E2E and Buyline for the three months ended
September 30, 2000.
During the three months ended September 30, 2000, the Company had a net loss
available to common shareholders of $ 1,868,394 or $ (0.06) per weighted-average
share. During the three months ended September 30, 1999, the Company reported a
net loss available to common shareholders of $310,999 or $(0.01) per
weighted-average share. The loss for the three months ended September 30, 2000,
includes $750,000 related to the consolidation of the operations of E2E and
Buyline and $149,684, which represents the Company's share of losses from
internet businesses accounted for under the equity method. 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, 2000, the Company had a net loss
available to common shareholders of $ 3,077,609 or $(0.10) per weighted-average
share. During the nine months ended September 30, 1999, the Company reported a
net loss available to common shareholders of $1,811,641 or $(0.06) per
weighted-average share. The loss for the nine months ended September 30, 2000
includes $950,000 related to the consolidation of the operations of E2E and
Buyline and $154,121, which represents the Company's share of losses from
internet businesses accounted for under the equity method. The loss for the nine
months ended September 30, 1999, includes a $448,189 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 nine months ended September 30, 2000 and 1999, the Company
experienced negative operating cash flows of $ 3,003,303 and $ 1,554,762
respectively. Negative operating cash flow in the nine months ended September
0, 2000 resulted principally from the $(3,077,609) net loss incurred during
that period, an increase in accounts receivable of $404,719 and a decrease in
accounts payable of $169,987, offset by depreciation and amortization of
$628,506. The depreciation and amortization of $628,506 is primarily the result
of the amortization of goodwill and legal expenses associated with the Company's
acquisition activities. Negative operating cash flows in the nine months ended
September 30, 1999 resulted principally from the $(1,208,811) net loss incurred
during that period and a decrease in accrued expenses.
Net cash used in investing activities of $3,299,528 during the nine months ended
September 30, 2000 was primarily the result of the acquisition of E2E by the
Company and cash advances to associated companies. 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 and equipment purchases, offset
by cash proceeds from the sale of TMD.
Net cash provided by financing activities of $6,579,222 during the nine months
ended September 30, 2000 was primarily due to the receipt of net proceeds from
the subscription of preferred stock of $6,211,911 and proceeds from the exercise
of common stock options and warrants of $209,188. 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.
As described in "Note 6." the Company is presently engaged in ongoing capital
raising transactions to fund acquisitions, related capital commitments and
ongoing capital needs.
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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 by 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 technology 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 companies, 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 the quarter ended September 30, 2000, the Company ceased management of
the American Quantum Cycles facility located in a Wackenhut Corrections
Corporation facility in South Bay, Florida. The Company took this action because
of financial problems encountered by American Quantum Cycles, which resulted in
their inability to start production at the facility. The closing of the facility
could result in a loss of approximately $64,000 to the Company if funds due to
the Company and secured by a promissory note from American Quantum Cycles are
not received. On October 27, 2000, American Quantum Cycles' three largest
creditors petitioned the U. S. Bankruptcy Court in Orlando, Florida, to force
the company to file for Chapter 11 bankruptcy protection.
Although WebMilestones.com, LLC's ("WebMilestones") website is no longer
operational and WebMilestones does not have any cash, WebMilestones and holders
of membership units of WebMilestones, including U.S. Technologies, entered into
a non-binding agreement with an Internet-based portal and application service
provider for funeral directors, pursuant to which the parties agreed to an
exchange of all of the membership units of WebMilestones for an equity interest
in the acquiring company. The agreement also provides for U.S. Technologies'
outstanding $300,000 loan to WebMilestones to be converted into equity in the
acquiring company and for U.S. Technologies to invest an additional $1,000,000
equity in the acquiring company at closing. After the closing of the exchange
and U.S. Technologies' additional $1,000,000 investment, U.S. Technologies will
have a five percent interest in the surviving company. This transaction is
subject to the negotiation of definitive agreements and USXX obtaining the
necessary financing to consummate the transaction.
On November 2, 2000, Urban Box Office ("UBO") announced that it was filing
bankruptcy due to the withdrawal of a significant funding offer from an
investor. The Company through E2E holds an approximately 3.4% ownership interest
in UBO. The carrying value of the Company's investment in UBO is approximately
$2.4 million, of which approximately $1.0 million was a cash investment and the
balance represented common stock of E2E issued to UBO or its founders, which was
converted to shares of the Company's Series B Preferred when the Company
acquired E2E in April 2000. Since this bankruptcy event occurred after the close
of the September 30, 2000 reporting period and since, at this time, the Company
does not have sufficient information on which to evaluate the loss on the value
of its investment in UBO, the Company has elected not to reduce the carrying
value of its UBO investment in this report. The Company will evaluate the
carrying value of its investment in UBO and recognize any impairment loss during
the fourth quarter of the year-ended December 31, 2000.
On November 7, 2000, Gomembers.com purchased MEI Software Systems, Inc ("MEI"),
one of the Company's associated companies. MEI and Gomembers.com valued the
transaction at $27 million. The Company had approximately a 3.9% interest in MEI
and will have a 0.48% interest in Gomembers.com. The carrying value of the
Company's investment in MEI was approximately $1.2 million, which was a cash
investment. As of the date of this report, the Company has not determined the
value of its 0.48% interest in Gomembers.com and whether an adjustment of its
carrying value in this investment will be required.
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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
July 28, 2000, describing the Company's Agreement in
Principle to acquire On-Site.
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: November 14, 2000 /s/ Gregory Earls
-----------------------------
Gregory Earls
Co-Chief Executive Officer
Date: November 14, 2000 /s/ James V. Warren
-----------------------------
James V. Warren
Co-Chief Executive Officer
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Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
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