<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to ______
Commission File Number 0-16011
USTMAN TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
CALIFORNIA 95-2873757
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
12265 W. BAYAUD AVE #300 80228
LAKEWOOD, CO
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number: (303) 986-8011
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO
PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
thereto. [X]
State issuer's revenues for its most recent fiscal year: $6,707,000
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold on September 27, 2000 was
$390,225. For purposes of the foregoing calculation only, all directors and
executive officers of the registrant have been deemed affiliates.
The number of shares outstanding of the issuer's common stock, as of September
27, 2000, was 22,298,598.
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
USTMAN Technologies, Inc. ("USTMAN" or the "Company") was incorporated
under California law in 1947. On January 28, 1998, the shareholders changed the
previous name of the Company from Watson General Corporation ("Watson") to
USTMAN Technologies, Inc. USTMAN is engaged in statistical inventory
reconciliation leak detection for underground storage tanks and product piping.
Statistical inventory reconciliation provides owners and operators of
underground storage tank systems with compliance for monthly monitoring leak
detection requirements as well as management of fuel inventory.
Prior to May 22, 1997, Watson operated through three wholly-owned
subsidiaries in three different businesses. Watson provided statistical
inventory reconciliation leak detection through Watson Systems, Inc. Watson
provided anti-freeze recycling through Toxguard Fluid Technologies, Inc. Watson
provided removal and installation of underground storage tanks through Toxguard
Systems, Inc.
On May 22, 1997, Watson acquired all of the outstanding capital stock
of USTMAN Industries, Inc., paying NDE Environmental Corporation $5,750,000. In
connection with this acquisition, Watson obtained $7,000,000 from Sagaponack
Partners, L.P., and Sagaponack International Partners, L.P. ("Sagaponack") in
exchange for Senior Subordinated Notes issued to Sagaponack in the aggregate
principal amount of $7,000,000 which were due and payable in five years, subject
to mandatory prepayment in certain circumstances. Interest on the notes was 10%
per annum for the first year, payable quarterly, and increased by one percent
each year during the term of the notes, subject to further adjustment in
specified instances. The notes were secured by substantially all of the assets
of the Company. In December 1998, the Investors agreed to convert all of the
Senior Subordinated Notes and accrued interest totaling $9,717,000 to Series A
Preferred Stock. The Preferred Stock has an aggregate allocation amount of
$15,000,000 for the purposes of liquidation priority and dividends. The
Preferred Stock will bear an annual 8% dividend, if and when, declared by the
Board of Directors. The Allocation Amount increases by the amount of any
dividends not declared for payment by the Company. The Preferred Stock has no
mandatory redemption or voting rights and is not convertible into common stock.
For the year ended June 30, 2000, the calculated allocation increase was
$1,375,000, and therefore, as of June 30, 2000, the Allocation Amount was
$17,575,000.
Beginning with Watson's May 22, 1997, acquisition of USTMAN
Industries, Inc., Watson's statistical inventory reconciliation business was
merged into the statistical inventory reconciliation business of USTMAN
Industries, Inc.
In August 1997, Toxguard Systems, Inc., filed for bankruptcy. The
bankruptcy of Toxguard Systems, Inc., did not have a material effect on the
Company.
On December 17, 1997, the Company acquired all of the outstanding
capital stock of Advanced Tank Certification, Inc. (ATC") for an aggregate of
approximately $3.4 million in cash and stock. ATC provided leak detection,
including statistical inventory reconciliation. In connection with the
acquisition, the Company secured term and acquisition financing from
BankBoston, N.A., by which the Company obtained $3.75 million in the form of a
term loan. The ATC statistical inventory reconciliation business has been
merged into the statistical inventory reconciliation business of the Company
and the assets of ATC have been sold.
In January 1998, the Company sold Toxguard Fluid Technologies, Inc.
<PAGE> 3
On September 21, 2000, the Company completed the sale of substantially
all of its assets to Veeder-Root Service Company ("Veeder-Root") a subsidiary of
Danaher Corporation, a publicly traded company, in accordance with the terms and
conditions of the definitive Asset Purchase Agreement that the Company entered
into with Veeder-Root on July 21, 2000. At closing, in accordance with the
adjustment to purchase price provision set forth in the Asset Purchase
Agreement, the original purchase price of $17,158,000 was adjusted to
$16,618,700, of which $1,500,000 is to be held back by Veeder-Root to secure
indemnity obligations of the Company. The Company expects to recognize a net
gain of approximately $9,400,000. The Company intends on using the proceeds of
the sale to repay indebtedness not assumed by Veeder-Root, pay transaction
expenses and income taxes on the transaction, and partially pay the liquidation
preference of its Series A Preferred Stock. It is not presently expected that
there will be funds available for distribution to common stockholders.
As a result of completing the sale to Veeder-Root, the Company no
longer has any business operations, and plans to terminate executive management
and employee positions. Since the proceeds from the sale are expected to be
insufficient to repay the entire amount of the Series A liquidation preference,
the Board of Directors, in accordance with the Plan of Liquidation, unanimously
adopted in August by the Board of Directors and the holders of the majority in
interest in of common stock (which holders also own all of the Series A
Preferred Stock) presently intend to wind up the affairs of the Company and
liquidate. Revenues and expenses are anticipated to consist primarily of
interest income earned on remaining cash balances and legal and accounting
expenses expected to be incurred in connection with corporate winding up and
liquidation. The Company believes that revenues and expenses subsequent to the
transaction will represent a minimal continuing impact to the Company.
(b) Business of the Issuer
Principal Services and Products and their Markets. USTMAN was
primarily engaged in providing leak detection services to owners and operators
of underground storage tanks by analyzing the inventory of a tank to determine
whether the tank is leaking. This was accomplished using proprietary, certified
software and highly trained individuals. This method of leak detection is known
as statistical inventory reconciliation, or "SIR". The Company's proprietary
software was also designed to assist with inventory management and regulatory
compliance. These services were provided on a recurring monthly fee basis under
annually renewable agreements. USTMAN also licensed the proprietary software
for larger customers. The customers could then perform the leak detection
analysis internally and submit the results to the Company for review.
In addition to providing statistical inventory reconciliation
services, the Company licensed fuel management software and sold related fuel
management products including in-tank automatic tank gauges, network data
gathering equipment and cathodic protection (a form of corrosion protection)
for underground storage tanks.
USTMAN marketed an automatic tank gauge system that (i) minimized the
human element in gathering tank volume data, and (ii) further automated the
analytical process to improve data processing efficiency. This automatic tank
gauge system was marketed as Extreme Fuel Management(TM) and provided the
Company's statistical inventory reconciliation service and on-line
capabilities.
The Company also marketed its regulatory compliance software,
Extreme(TM). Extreme(TM) was installed at the customer's home office and
automatically gathered data and generated custom reports for each underground
storage tank in the Extreme(TM) system. The software acted as an extension of
an inventory control system, transparently interpreting and analyzing
underground storage tank inventory data with no human intervention, then
transmitting the data to USTMAN for review.
<PAGE> 4
The international market for underground storage tank system
monitoring presents an opportunity for growth as some foreign governments begin
to follow the lead of the United States with respect to environmental
legislation. Additionally, in some foreign markets, the Company has observed an
economic interest in inventory management that is stronger than in the United
States. This economic interest in having accurate inventory information
regarding petroleum inventory drives a demand for the Company's products and
services because of the Company's ability to monitor changes in petroleum
inventory.
Distribution Methods. The Company employed full time regional sales
managers to sell its services and products. These employees were paid salary
and commission. Additionally, the Company had commission only arrangements with
trade associations and independent sales representatives by which groups of
tank owners or operators obtained the services and products of the Company. In
some of these arrangements the associations or representatives may provide some
statistical inventory reconciliation related service, such as, collecting data
from the owners or operators of underground storage tank systems, transmitting
data, or printing reports of the statistical inventory reconciliation analysis.
Sales are supported through trade publications, advertising, direct mail and
strategic trade show attendance.
Outside the United States, the Company used distributors and
affiliates to assist in generating sales. The Company sought organizations with
established industry presence and provided these organizations with the
opportunity to purchase a product license, share revenues and receive ongoing
quality control and sales support.
Competition. The Company competed with other providers of statistical
inventory reconciliation services as well as other methods of leak detection.
Many of the Company's competitors had and continue to have greater financial
resources. With the exception of the largest customers (which have other
considerations, such as, compliance redundancy, economies of scale, and
existing legacy of automatic tank gauges and public relations considerations),
cost and the ability to satisfy regulatory requirements are the key factors
influencing sales.
Customers. The Company had more than 3,000 customers and was not
dependent on sales to any principal customer.
Trademarks. The Company was the holder of United States Trademarks,
registration numbers 1,719,061; 1,730,019; 1,731,948; 2,163,138; and 1,790,965
which relate to the names USTMAN SIR SYSTEM, USTMAN INDUSTRIES, INC., USTMAN
INDUSTRIES, INC. & Design, EXTREME & Design, and SIRAS, respectively. In
addition the Company had rights in numerous unregistered trademarks which it
uses in interstate commerce and which are subject only to common law
protection.
Governmental Regulations and Environmental Laws. Compliance with
federal, state and local regulations did not have a material effect on the
capital expenditures, operations or competitive position of the Company.
However, the imposition or relaxation of environmental regulations relating to
leak detection for underground storage tank systems could have affected the
need for the Company's services and products.
Employees. On August 21, 2000, the Company employed a total of 56
persons, 54 of whom were full time employees.
<PAGE> 5
ITEM 2. DESCRIPTION OF PROPERTY
At June 30, 2000 the Company operated out of leased office space
located at 12265 W. Bayaud Avenue Lakewood, Colorado. The Company leases
approximately 10,674 square feet. Monthly payments under the lease are $10,647
and will increase during the term of the lease until expiration on July 31,
2005.
ITEM 3. LEGAL PROCEEDINGS
On June 8, 2000, a class action complaint was filed by Stourbridge
Investments Ltd. against the Company, Barry S. Rosenstein, Marc A. Weisman, Dan
R. Cook, Danaher Corporation, Buyer and RSP Capital, L.L.C. alleging breach of
fiduciary duty in connection with the transactions completed by the Agreement.
On August 24, 2000, the complaint was amended to include the allegation of
corporate waste, and change the named plaintiffs and defendants. Specifically,
Joseph Dilillo and David L. Timmons replaced Stourbridge Investments, Ltd. as
the named plaintiffs, and David Shapiro, Michael Lerner, Sagaponack Partners,
L.P., Sagaponack International Partners, L.P. and Sagaponack International
Holdings, L.L.C. have been added as named defendants. Defendants are required
to answer the amended complaint by September 29, 2000. In addition, plaintiffs
filed a Motion for Preliminary Injunction on August 25, 2000. Defendants' filed
their opposition to this Motion on September 8, 2000, and the Plaintiffs' filed
their reply to Defendants' opposition on September 13, 2000. The preliminary
injunction hearing was held on September 18, 2000 in Los Angeles Superior
Court, and the motion for a Preliminary Injunction was denied in all respects.
The Company, Barry Rosenstein, Marc Weisman and RSP Capital LLC have filed a
demurrer to plaintiffs' first amended complaint contending that plaintiffs have
failed to state a valid cause of action. The demurrer asserts that plaintiffs'
direct claim on behalf of individual shareholders is barred as a matter of law
because they cannot pursue a claim on behalf of the Company. The demurrer
further asserts that plaintiffs lack standing to pursue their derivative claim,
or second cause of action, because they have not complied with the statutory
procedures for filing a derivative action on behalf of the Company; namely they
did not make a demand on the Board, and they did not demonstrate that such a
demand would be futile. The demurrer is currently set for a hearing on October
11, 2000. Additionally, the Court has set a status conference for October 11,
2000 at 10:00 a.m.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 21, 2000, Sagaponack, which owns all of the Company's Series A
Preferred Stock, executed and delivered to the Company a consent approving the
Asset Purchase Agreement to sell substantially all of the assets of the Company
(the "Proposed Sale") to Veeder-Root Service Company ("Veeder-Root"), a
wholly-owned subsidiary of Danaher Corporation. Sagaponack owns approximately
50.2%, or an aggregate of 11,189,461 shares, of the 22,298,598 issued and
outstanding shares of the Company's Common Stock. On August 16, 2000, Sagaponack
executed and delivered a consent to the Company approving the Plan of
Liquidation, which will result in the orderly dissolution and liquidation of the
Company and the payment of the net proceeds of the Proposed Sale pursuant to a
plan of liquidation. Sagaponack has also agreed, upon the closing of the Asset
Purchase Agreement, to cause the Company's Articles of Incorporation to be
amended to change the name of the Company to UST Liquidating Corporation. As the
holder of the majority of the outstanding shares of the Company's Common Stock,
Sagaponack has the power to approve or disapprove any corporate action that is
subject to a vote of the Company's shareholders, in each case, regardless of how
the other shareholders of the Company may vote.
<PAGE> 6
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the OTC Bulletin Board under
the symbol USTX.
The following table sets for the high and low bid and sales prices of
the shares of Common Stock of the company for each quarterly fiscal period
within the last two fiscal years. These prices do not include allowances for
retail markup or markdown, commissions, or other transaction costs and,
therefore, do not represent actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDING-- 6/30/00 3/31/00 12/31/99 9/30/99
<S> <C> <C> <C> <C>
HIGH BID PRICE $ 3/32 $ 3/8 $ 5/16 $ 1/8
LOW BID PRICE $ 3/32 $ 5/16 $ 5/16 $ 1/8
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDING-- 6/30/99 3/31/99 12/31/98 9/30/98
<S> <C> <C> <C> <C>
HIGH BID PRICE $ 11/32 $1-3/16 $ 1-1/2 $1-9/32
LOW BID PRICE $ 1/4 $ 5/16 $ 15/32 $ 7/8
</TABLE>
As of September 27, 2000, there were approximately 1,294 record holders
of the Company's Common Stock. This number does not include shareholders who
maintain their security positions with their security broker in street name.
The Company has never declared a cash dividend on its Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
This report contains certain statements which are "forward looking"
statements under federal securities laws that are based on the beliefs of
management as well as assumptions made by and information currently available
to management. Forward looking statements appear throughout "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
concerning USTMAN's Financial Condition and Liquidity. Certain factors could
cause actual results to differ materially from those in the forward-looking
statements including without limitation, (i) continuation of historical
patterns of demand for USTMAN's products and USTMAN's ability to meet demand,
(ii) actions by competitors, including without limitation new product
introductions (iii) and general economic conditions. USTMAN does not intend to
update these forward looking statements.
Results of operations
The Company reported net income of $2,762,000 for the year ended June
30, 2000 compared to a net loss of $2,557,000 for the year ended June 30, 1999.
The change in income is due to interest expense reductions related to debt
conversion in 2000, the recognition of a $2,710,020 deferred tax benefit in
2000, and the one time write off of deferred loan costs during the prior year.
Additionally, sales have increased while ongoing operating costs, in total, have
remained relatively consistent with prior year.
<PAGE> 7
The Company experienced an increase in sales of 4% compared to the
prior year. This increase is a result of large contracts which were entered
into during the prior fiscal year. The Company recognized twelve months of
revenue for these contracts during the fiscal year 2000. Additionally, during
the fiscal year management focused on increasing the average price per tank
resulting in an approximate $.50 increase over last year. No new products or
services were added during the last year; the Company concentrated on
increasing customer satisfaction for those products and services already
marketed. The Company's sales depend in part upon decisions of customers as to
when to implement measures to meet compliance requirements and to more
aggressively attempt to manage liquid petroleum inventory. Cost of sales
remained consistent with prior year, decreasing 1%. Management focused on
maintaining the efficiencies in operations achieved during the prior year.
Gross margins increased from 65% to 66% as a result of the increases in sales
and efficiencies in operations.
Selling, general and administrative expenses remained consistent with
prior year.
The Company's interest expense decreased 74% to $424,000 compared to
prior year. This decrease is a result of the conversion of Sagaponack debt to
Preferred Stock. In December 1998, Sagaponack agreed to convert all debt issued
to it by USTMAN to Series A Preferred Stock. As a result of the conversion,
interest that had been accruing at 29.76% was eliminated. Additionally,
amortization of deferred debt costs and original issue discount, which were
included in interest, were eliminated. The 2000 fiscal year was the first full
year of operations without the interest expense related to the debt which was
converted.
Liquidity and Capital Resources
At June 30, 2000, the Company's current assets exceeded current liabilities by
$1,258,000 compared to a working capital deficiency of $606,000 at June 30,
1999. On July 21, 2000, the Company executed a definitive Asset Purchase
Agreement with Veeder-Root to sell substantially all of the assets of the
Company, net of certain liabilities, to Veeder-Root for $17,158,000, subject to
adjustment based on the terms of the Agreement. Of the total purchase price,
$1,500,000 is to be held back by Veeder-Root to secure indemnity obligations of
the Company. One-half of the unused portion of the holdback is to be paid to the
Company on April 1, 2002, and the remaining unused portion is to be paid on
April 1, 2003. The Company expects to recognize a net gain of approximately
$9,400,000 on the sale, which occurred on September 21, 2000 (the "Closing
Date").
The assets sold by the Company pursuant to the Agreement include all assets of
the Company and its subsidiaries except for cash and cash equivalents, the
capital stock of the Company's subsidiaries, and the assets of Toxguard Systems
(which have no carrying value at June 30, 2000 or 1999). In addition,
Veeder-Root is to assume substantially all liabilities and obligations of the
Company, except those of Toxguard Systems, the unpaid principal and accrued
interest due under the Company's credit facility with BankBoston, N.A., the
obligation under the Series A Preferred Stock liquidation preference, and
certain other liabilities including transaction costs incurred in connection
with the Veeder-Root transaction, and income taxes.
<PAGE> 8
On the Closing Date, the total sales price, as adjusted, was determined to be
$16,618,700, of which $1,500,000 has been held back by Veeder-Root. Proceeds of
$15,118,700 were used to repay the outstanding term loan and accrued interest to
BankBoston, N.A. and transaction costs-proceeds will also be used to partially
pay the liquidation preference of the Series A Preferred Stock. It is not
expected that there will be funds available for distribution to common
stockholders. Any proceeds to be received upon the release of the held back
portion of the sales price are to be used to pay additional distributions under
the Series A Preferred Stock liquidation preference.
Subsequent to the Closing Date, the Company will no longer have any business
operations, and the Company intends to terminate executive management and
employee positions. Accordingly, on August 16, 2000, the Company's board of
directors unanimously approved a Plan of Liquidation. The Plan of Liquidation
provides that after the sale, the Company will not engage in any business,
except for preserving the net value of the Company's remaining assets
(primarily proceeds from the sale) in order to make distributions to the Series
A Preferred shareholders and wind up the Company's business, at which time the
Company is to cease to exist as an operating entity.
Net cash provided by operating activities increased by $504,000 in 2000 as
compared to 1999. During 2000, the Company purchased $312,000 of furniture and
equipment as compared to purchases of $176,000 in 1999. Payments on long-term
debt were $625,000 in 2000, as compared to $1,250,000 in 1999, and in 2000,
there were no proceeds from debt issuances, as compared to $709,000 in 1999.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standard Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. This
statement, as amended, is effective for fiscal years beginning after June 15,
2000. Currently, the Company does not have any derivative financial instruments
and does not participate in hedging activities; therefore, management believes
that SFAS No. 133 will not impact the Company's financial statements.
<PAGE> 9
ITEM 7. FINANCIAL STATEMENTS
Consolidated Financial Statements
Years ended June 30, 2000 and 1999
Index
<TABLE>
<S> <C>
Report of Independent Auditors (Gelfond Hochstadt Pangburn, P.C.)......................F-1
Consolidated Financial Statements
Consolidated Balance Sheets.....................................................F-2
Consolidated Statements of Operations...........................................F-4
Consolidated Statements of Shareholders' Equity ................................F-5
Consolidated Statements of Cash Flows...........................................F-6
Notes to Consolidated Financial Statements......................................F-7
</TABLE>
<PAGE> 10
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
USTMAN Technologies, Inc.
We have audited the accompanying consolidated balance sheets of USTMAN
Technologies, Inc. and subsidiaries as of June 30, 2000 and 1999, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of USTMAN
Technologies, Inc. and subsidiaries as of June 30, 2000 and 1999, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, on July 21,
2000, the Company executed a definitive Asset Purchase Agreement to sell
substantially all of the assets of the Company, net of certain liabilities, for
$17,158,000, subject to adjustment based on the terms of the Asset Purchase
Agreement. On August 16, 2000, the Company's board of directors unanimously
approved a Plan of Liquidation pursuant to which the Company will wind up its
affairs and cease to exist as an operating company.
GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
August 25, 2000, except for Notes 2, 5, and 6,
as to which the date is September 21, 2000
F-1
<PAGE> 11
USTMAN Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
2000 1999
----------- -----------
ASSETS:
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 737,000 $ 411,000
Accounts receivable, less allowance for doubtful
accounts (2000, $115,000; 1999, $167,000) 1,094,000 1,079,000
Inventory 32,000 68,000
Prepaid expenses and other current assets 118,000 117,000
Deferred income taxes 1,949,000 --
----------- -----------
Total current assets 3,930,000 1,675,000
----------- -----------
Furniture and equipment:
Machinery and equipment 100,000 81,000
Computers and equipment 1,166,000 940,000
Furniture and fixtures 165,000 102,000
Leasehold improvements -- 4,000
----------- -----------
1,431,000 1,127,000
Accumulated depreciation 847,000 648,000
----------- -----------
584,000 479,000
----------- -----------
Deferred income taxes 786,000 --
Intangible and other assets, less accumulated
amortization (2000, $2,886,000; 1999, $1,922,000) 6,616,000 7,490,000
----------- -----------
7,402,000 7,490,000
----------- -----------
$11,916,000 $ 9,644,000
=========== ===========
</TABLE>
(Continued)
F-2
<PAGE> 12
USTMAN Technologies, Inc.
Consolidated Balance Sheets (Continued)
<TABLE>
<CAPTION>
June 30,
2000 1999
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
<S> <C> <C>
Current liabilities:
Accounts payable $ 187,000 $ 385,000
Accrued expenses:
Salaries and wages 78,000 50,000
Other 493,000 253,000
Income tax payable 25,000 --
Deferred revenue 139,000 218,000
Current portion of long-term debt 1,750,000 1,375,000
------------ ------------
Total current liabilities 2,672,000 2,281,000
Long-term debt, less current portion -- 1,750,000
Deferred employee benefits 426,000 432,000
------------ ------------
Total liabilities 3,098,000 4,463,000
------------ ------------
Commitments and contingencies
Shareholders' equity:
Series A preferred stock, no par value;
1,000,000 shares authorized; 9,717 shares
issued and outstanding; liquidation preference
$17,575,000 9,717,000 9,717,000
Common stock, no par value,
25,000,000 shares authorized;
issued and outstanding 22,298,598 shares (2000)
and 19,879,243 shares (1999) 13,576,000 12,826,000
Class A common stock, no par value,
15,000,000 shares authorized;
none issued and outstanding -- --
Class B common stock, no par value:
15,000,000 shares authorized;
none issued and outstanding -- --
Additional paid-in capital 1,259,000 1,134,000
Accumulated deficit (15,734,000) (18,496,000)
------------ ------------
Total shareholders' equity 8,818,000 5,181,000
------------ ------------
$ 11,916,000 $ 9,644,000
============ ============
</TABLE>
See accompanying notes
F-3
<PAGE> 13
USTMAN Technologies, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999
----------- -----------
<S> <C> <C>
Net sales $ 6,707,000 $ 6,420,000
Cost of sales 2,249,000 2,254,000
----------- -----------
Gross profit 4,458,000 4,166,000
Selling, general and administrative expenses 3,990,000 3,884,000
----------- -----------
468,000 282,000
----------- -----------
Other income (expense):
Interest expense (424,000) (1,630,000)
Interest income 8,000 2,000
----------- -----------
(416,000) (1,628,000)
----------- -----------
Income (loss) before income tax and extraordinary item 52,000 (1,346,000)
Income tax benefit 2,710,000 --
----------- -----------
Income (loss) before extraordinary item 2,762,000 (1,346,000)
Extraordinary item, loss on extinguishment of debt -- (1,211,000)
----------- -----------
Net income (loss) $ 2,762,000 $(2,557,000)
=========== ===========
Basic and diluted net income (loss) per share, applicable
to common shareholders (Note 3):
Income (loss) before extraordinary item $ 0.00 $ (.07)
Extraordinary item -- (.06)
----------- -----------
Net income (loss) $ 0.00 $ (.13)
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 14
USTMAN Technologies, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------- ------------------------ Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ---------- ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1998 -- -- 19,855,243 $12,810,000 $2,517,000 $(15,939,000) $ (612,000)
Common stock issued for
settlement of lawsuit -- -- 24,000 16,000 -- -- 16,000
Amortization of deferred
compensation cost -- -- -- -- 259,000 -- 259,000
Warrants to be issued under the
terms of the senior
subordinated note agreement -- -- -- -- 598,000 -- 598,000
Conversion of senior
subordinated notes to
preferred stock 9,717 $9,717,000 -- -- (2,240,000) -- 7,477,000
Net loss -- -- -- -- (2,557,000) (2,557,000)
----- ---------- ---------- ------------ ---------- ------------ ----------
Balances at June 30, 1999 9,717 9,717,000 19,879,243 12,826,000 1,134,000 (18,496,000) 5,181,000
Amortization of deferred
compensation cost -- -- -- -- 125,000 -- 125,000
Conversion of Investors' advance
to common stock -- -- 2,419,355 750,000 -- -- 750,000
Net income -- -- -- -- -- 2,762,000 2,762,000
----- ---------- ---------- ------------ ---------- ------------ ----------
Balances at June 30, 2000 9,717 $9,717,000 22,298,598 $13,576,000 $1,259,000 $(15,734,000) $ 8,818,000
===== ========== ========== =========== ========== ============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 15
USTMAN Technologies, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999
----------- -----------
<S> <C> <C>
Operating activities:
Net income (loss) $ 2,762,000 $(2,557,000)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 203,000 241,000
Amortization of intangible assets 909,000 909,000
Amortization of debt issue costs included in
interest expense 55,000 263,000
Amortization of deferred compensation cost 125,000 125,000
Warrants to be issued under Senior Subordinated Note
agreement -- 598,000
Deferred income taxes (2,735,000) --
Extraordinary item -- 1,211,000
Write-off of deferred costs 50,000 --
Issuance of common stock and stock options -- 16,000
Interest converted to long-term debt -- 360,000
(Gain) loss on disposal of equipment 4,000 (3,000)
Net changes in operating assets and liabilities (110,000) (404,000)
----------- -----------
Net cash provided by operating activities 1,263,000 759,000
----------- -----------
Investing activities:
Purchases of furniture and equipment (312,000) (176,000)
Proceeds from sale of equipment -- 3,000
----------- -----------
Net cash used in investing activities (312,000) (173,000)
----------- -----------
Financing activities:
Proceeds from issuance of long-term debt -- 709,000
Principal payments on long-term debt (625,000) (1,250,000)
----------- -----------
Net cash used in financing activities (625,000) (541,000)
----------- -----------
Increase in cash and cash equivalents 326,000 45,000
Cash and cash equivalents, beginning of year 411,000 366,000
----------- -----------
Cash and cash equivalents, end of year $ 737,000 $ 411,000
=========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 16
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements
Years Ended June 30, 2000 and 1999
1. ORGANIZATION
USTMAN Technologies, Inc. and subsidiaries (the "Company"), formerly Watson
General Corporation ("Watson General"), provides environmental services to
owners and operators of underground storage tanks in the United States and
abroad. These services include statistical inventory reconciliation and other
monitoring methods accepted by various regulatory authorities.
The Company's consolidated operations for the years ended June 30, 2000 and
1999 were concentrated in a single business segment--the environmental services
industry. There were no customers that generated greater than 10% of net sales
for the years ended June 30, 2000 and 1999, and sales to customers outside the
United States were immaterial during 2000 and 1999.
The Company's wholly-owned subsidiaries include Watson Systems, Inc. ("Watson
Systems"), EnvirAlert, Inc. ("EnvirAlert"), and Advanced Tank Certification,
Inc. ("ATC"). The Company owns 87% of the outstanding preferred stock and 96%
of the outstanding common stock of Toxguard Systems, Inc. ("Toxguard Systems").
On August 27, 1997, Toxguard Systems voluntarily filed under Chapter 7 of the
United States Bankruptcy Code (Note 4).
2. SALE OF COMPANY ASSETS, PLAN OF LIQUIDATION, AND MANAGEMENT'S PLANS
On July 21, 2000, the Company executed a definitive Asset Purchase Agreement
(the "Agreement") with Veeder-Root Service Company ("Veeder-Root"), a
wholly-owned subsidiary of Danaher Corporation (a publicly traded company) to
sell substantially all of the assets of the Company, net of certain liabilities,
to Veeder-Root for $17,158,000, subject to adjustment based on the terms of the
Agreement. Of the total purchase price, $1,500,000 is to be held back by
Veeder-Root to secure indemnity obligations of the Company. One-half of the
unused portion of the holdback is to be paid to the Company on April 1, 2002,
and the remaining unused portion is to be paid on April 1, 2003. The Company
expects to recognize a net gain of approximately $9,400,000 on the sale, which
occurred on September 21, 2000 (the "Closing Date"). On September 1, 2000, the
Company filed a Definitive Information Statement relating to the transaction
that includes unaudited pro forma financial information reflecting the
transaction and other information about the sale.
The assets sold by the Company pursuant to the Agreement include all assets of
the Company and its subsidiaries except for cash and cash equivalents, the
capital stock of the Company's subsidiaries, and the assets of Toxguard Systems
(which have no carrying value at June 30, 2000 or 1999). In addition,
Veeder-Root is to assume substantially all liabilities and obligations of the
Company, except those of Toxguard Systems, the unpaid principal and accrued
interest due under the Company's credit facility with BankBoston, N.A. (Note 5),
the obligation under the Series A Preferred Stock liquidation preference (Note
7), and certain other liabilities, including transaction costs incurred in
connection with the Veeder-Root transaction, and income taxes.
F-7
<PAGE> 17
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
2. SALE OF COMPANY ASSETS, PLAN OF LIQUIDATION, AND MANAGEMENT'S PLANS
(CONTINUED)
On the Closing Date, the total sales price, as adjusted, was determined to be
$16,618,700, of which $1,500,000 has been held back by Veeder-Root. Proceeds of
$15,118,700 were used to repay the outstanding term loan and accrued interest to
BankBoston, N.A. and transaction costs. Proceeds will also be used to partially
pay the liquidation preference of the Series A Preferred Stock. Sagaponack
Partners, L.P., a private investment firm based in San Francisco and New York,
and its foreign affiliate, Sagaponack International Partners, L.P.
(collectively, "Sagaponack", or the "Investors") own all of the Series A
Preferred Stock and beneficially own greater than 50% of the Company's common
stock. It is not expected that there will be funds available for distribution to
common stockholders. Any proceeds to be received upon the release of the held
back portion of the sales price are to be used to pay additional distributions
under the Series A Preferred Stock liquidation preference.
Subsequent to the Closing Date, the Company will no longer have any business
operations, and the Company intends to terminate executive management and
employee positions. Accordingly, on August 16, 2000, the Company's board of
directors unanimously approved a plan of liquidation (the "Plan of
Liquidation"). The Plan of Liquidation provides that after the sale, the
Company will not engage in any business, except for preserving the net value of
the Company's remaining assets (primarily proceeds from the sale) in order to
make distributions to the Series A Preferred shareholders and wind up the
Company's business, at which time the Company is to cease to exist as an
operating entity. In addition, the Company intends to change the name of the
Company to UST Liquidating Corporation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Issues requiring significant assumptions include estimates of future
cash flows used in the evaluation of the recoverability of intangible and long
lived assets, and estimates made in establishing the allowance for doubtful
accounts and obsolete inventory.
INVENTORY
Inventory consists of tank gauge equipment and is stated at the lower of cost
or market. Cost is determined using the average cost method.
F-8
<PAGE> 18
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FURNITURE AND EQUIPMENT
Furniture and equipment are carried at cost and are depreciated under the
straight-line method over their estimated useful lives of five to seven years.
LONG LIVED ASSETS AND ASSET IMPAIRMENT
The Company recognizes impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. In such circumstances, those assets are written down to
estimated fair value. Long-lived assets include furniture and equipment,
identifiable intangible assets and goodwill. At each balance sheet date, the
Company evaluates goodwill and other intangible assets when the Company
evaluates other long-term assets for recoverability. The Company recognizes
impairment losses on intangible assets when undiscounted cash flows estimated
to be generated from the intangible assets are less than the amount of
unamortized assets. In such circumstances, the intangible asset is written down
to the benefit the Company expects to receive from the intangible asset. The
Company does not believe that any impairment has occurred as of June 30, 2000.
INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
June 30,
2000 1999
---------- ----------
<S> <C> <C>
Goodwill $5,946,000 $5,946,000
Acquired technology 3,300,000 3,300,000
Debt issuance costs 175,000 115,000
Deferred costs 80,000 50,000
Copyrights and other costs 1,000 1,000
---------- ----------
9,502,000 9,412,000
Less accumulated amortization 2,886,000 1,922,000
---------- ----------
$6,616,000 $7,490,000
========== ==========
</TABLE>
F-9
<PAGE> 19
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE AND OTHER ASSETS (CONTINUED)
Goodwill of $2,782,000 related to the USTMAN Industries and Watson Systems
acquisitions is amortized on a straight-line basis over 15 years, and goodwill
of $3,058,000 relating to the ATC acquisition is amortized on a straight-line
basis over 10 years. Other goodwill of $106,000 is amortized on a straight-line
basis over 20 years. Acquired technology is amortized on a straight-line basis
over eight years, and copyrights and other costs are amortized on a
straight-line basis over five years.
Deferred costs of $80,000 at June 30, 2000, represent legal, accounting and
other professional services costs incurred in connection with Veeder-Root
transaction. Costs incurred in connection with a proposed stock rights offering
were deferred through December 17, 1999, at which time $50,000 of deferred
costs were charged to expense due to the Company's withdrawal of the rights
offering.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, the Company capitalizes certain costs to develop software to be
licensed or otherwise marketed to customers. Capitalization of software
development begins upon the establishment of technical feasibility of the
product and ceases when the product is available for general release to
customers. Technological feasibility is established at the completion of
detailed program design and testing. Because the Company's current products
have a short period of time between technological feasibility and when the
product is available for general release, amounts capitalized and amortized for
computer software are not material as of and for the years ended June 30, 2000
and 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's cash and cash equivalents, accounts
receivable, and accounts payable and accrued expenses approximated their
carrying amounts due to the relatively short maturity of these items. The fair
values of the Company's long-term debt approximated its carrying amount at June
30, 2000, based on rates currently available to the Company for debt with
similar terms and remaining maturities.
REVENUE RECOGNITION
The Company primarily generates revenue through the testing of underground
storage tanks and related software (storage tank monitoring software) services.
Sales are recognized when services are performed. Prepaid contracts are
recorded as deferred revenue and recognized ratably over the related service
period. Revenues from up-front fees for software are recognized when the
software is provided to the customer. Revenues from license agreements are
recognized ratably over the term of the agreement as service is provided.
F-10
<PAGE> 20
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development expenses were approximately $62,000 and $72,000 for the years ended
June 30, 2000 and 1999, respectively.
ADVERTISING
Advertising costs are expensed as incurred and include trade shows, direct
mailings, and trade publications. Advertising expenses were $184,000 and
$156,000 for the years ended June 30, 2000 and 1999, respectively.
STOCK-BASED COMPENSATION
SFAS No. 123, Accounting for Stock-Based Compensation, allows companies to
choose whether to account for employee stock-based compensation on a fair value
method, or to continue accounting for such compensation under the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations ("APB
25"). The Company has chosen to continue to account for employee stock-based
compensation using APB 25. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
common stock at the date of the grant over the options' exercise price.
Compensation cost for performance shares issued to nonemployees is recorded
over the vesting period from the date the underlying stock options are
exercised, based on the fair market value of the Company's common stock on the
option exercise date.
INCOME (LOSS) PER SHARE
SFAS No. 128, Earnings Per Share, requires dual presentation of basic and
diluted earnings per share, with a reconciliation of the numerator and
denominator of the diluted income (loss) per share computation. Basic income
(loss) per share is computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the shares
issuable upon the exercise of stock options under the treasury stock method.
The number of weighted average shares outstanding for computing income (loss)
per share was 21,185,032 and 19,877,731 for the years ended June 30, 2000 and
1999, respectively. Stock options and warrants are not considered in the
calculation, as the impact of the potential common shares would be to increase
income per share and decrease loss per share.
F-11
<PAGE> 21
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME (LOSS) PER SHARE (CONTINUED):
For the year ended June 30, 2000, net income available to common shareholders,
used in calculating basic and diluted income (loss) per share, applicable to
common shareholders, is reduced to $0 due to the allocation of the Series A
Preferred Stock distributions in excess of the carrying value of the Preferred
Stock, which represents a return on investment to the preferred shareholders and
a reduction in earnings available to common shareholders.
INCOME TAXES
Deferred income taxes are provided based on the estimated future tax effects of
differences between financial statement carrying amounts and the tax bases of
existing assets and liabilities using statutory tax rates expected to be in
effect in the period in which the deferred tax item is expected to be settled.
Deferred tax assets are reduced by a valuation allowance if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the deferred tax assets may not be realized.
STATEMENTS OF CASH FLOWS
The Company considers highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents.
Changes in operating assets and liabilities as shown in the consolidated
statements of cash flows are as follows:
<TABLE>
<CAPTION>
Years ended June 30,
2000 1999
--------- ---------
<S> <C> <C>
Accounts receivable $ (15,000) $(253,000)
Inventory 36,000 44,000
Prepaid expenses and other current assets (1,000) (97,000)
Accounts payable (278,000) 58,000
Accrued expenses and deferred employee benefits 202,000 (244,000)
Income tax payable 25,000 --
Deferred revenue (79,000) 88,000
--------- ---------
$(110,000) $(404,000)
========= =========
</TABLE>
The Company paid no federal or state income taxes for the years ended June 30,
2000 and 1999. The Company paid interest of $304,000 and $508,000 for the years
ended June 30, 2000 and 1999, respectively.
F-12
<PAGE> 22
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STATEMENTS OF CASH FLOWS (CONTINUED)
Non-cash investing and financing activities include the conversion of a
$750,000 advance to 2,419,355 shares of common stock during the year ended June
30, 2000, and the conversion of senior subordinated notes and accrued interest,
and the cancellation of warrants for shares of the Company's preferred stock
during the year ended June 30, 1999, as follows:
<TABLE>
<S> <C>
Long-term debt $7,000,000
Original issue discount (700,000)
Accrued interest 1,177,000
Accrued interest payable as warrants 2,240,000
--------------
Total $9,717,000
==============
</TABLE>
BUSINESS RISK AND CONCENTRATION OF CREDIT RISK
The Company is subject to risks and uncertainties common to environmental
services companies, including significant potential liability if the Company's
leak detection software and systems fail to detect a leak. The Company attempts
to limit potential liability and maintains insurance coverage. There can be no
assurance however that this insurance coverage will continue to be available on
reasonable terms or will be available in sufficient amounts to cover one or
more large claims. The successful assertion of one or more large claims that
are uninsured or underinsured would materially affect the Company adversely.
The Company extends credit based on an evaluation of each customer's financial
condition, generally without requiring collateral. Exposure to losses on
receivables is principally dependent on each customer's financial condition.
The Company monitors is exposure for credit losses and maintains allowances for
anticipated losses. As of June 30, 2000 and 1999, three customers accounted for
approximately 20% of the net accounts receivable balance.
COMPREHENSIVE INCOME
During the years ended June 30, 2000 and 1999, the Company did not have any
components of comprehensive income to report.
F-13
<PAGE> 23
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. This
statement, as amended, is effective for fiscal years beginning after June 15,
2000. Currently, the Company does not have any derivative financial instruments
and does not participate in hedging activities; therefore, management believes
that SFAS No. 133 will not impact the Company's financial statements.
RECLASSIFICATIONS
Certain amounts reported in the 1999 consolidated financial statements have
been reclassified to conform to the 2000 presentation.
4. TOXGUARD SYSTEMS BANKRUPTCY
As a result of Toxguard Systems filing under Chapter 7 of the U.S. Bankruptcy
Code in August 1997, the Company wrote off its net investment in Toxguard
Systems at June 30, 1997. Toxguard systems owed $356,000 to its creditors at
the time of filing for bankruptcy. The bankruptcy proceedings for Toxguard
Systems have not yet been approved and settled by the U.S. Bankruptcy Court
and, accordingly, there is uncertainty as to the ultimate resolution of
creditors' claims. In management's opinion, the ultimate resolution of the
bankruptcy proceedings will not have a material effect on the consolidated
financial statements of the Company and its subsidiaries.
5. NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
2000 1999
---------- ----------
<S> <C> <C>
BankBoston N.A. term loan [A] $1,750,000 $2,375,000
Advance from Investors [B] -- 750,000
---------- ----------
1,750,000 3,125,000
Less current portion 1,750,000 1,375,000
---------- ----------
Long-term portion $ -- $1,750,000
========== ==========
</TABLE>
F-14
<PAGE> 24
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
5. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
[A] On December 17, 1997, the Company secured term and acquisition
financing from BankBoston, N.A. ("BankBoston"). The Company obtained
$3.75 million in the form of a term loan, originally bearing interest
at the BankBoston Base Rate plus 2%. In March 1999, the terms of the
loan were amended, requiring a $750,000 principal payment by June 30,
1999, and increasing the interest rate to the BankBoston Base Rate
plus 3%-3.5% (9.5% at June 30, 2000), depending upon the level of
earnings before interest, taxes, depreciation and amortization
("EBITDA") achieved by the Company. The BankBoston loan agreement
required the Company to make quarterly principal and interest payments
of $125,000 through March 2000, and quarterly payments of $250,000
through December 31, 2001.
The agreement also required the Company to pay additional interest
totaling the greater of $150,000 or 10% of the average consolidated
EBITDA during fiscal years 1999, 2000 and 2001. The Company accrues
the additional interest over the term of the loan using the effective
interest method, and has accrued $120,000 at June 30, 2000. The
agreement with BankBoston also provides that additional financing of
up to $2.25 million can be made available to the Company for approved
future acquisitions. As of June 30, 2000, the Company had not used any
of this additional acquisition financing.
The BankBoston agreement contains financial and restrictive covenants.
These covenants include minimum levels of EBITDA and consolidated net
worth, maximum levels of capital expenditures and ratios of funded
debt to EBITDA, EBITDA to interest charges, and operating cash flows
to debt service. The term loan is collateralized by substantially all
assets of the Company.
Due to the Company's sale of its assets to Veeder-Root, which were
pledged as collateral under the terms of the BankBoston term loan, the
term loan is callable at the Closing Date. As a result, the loan
payable to BankBoston is classified as a current liability in the
accompanying consolidated balance sheet. On the Closing Date, the
unpaid principal and interest to BankBoston were paid.
[B] On June 29, 1999, the Investors agreed to advance the Company
$750,000. These proceeds were used to pay down the BankBoston term
loan on that date. The Investors' advance was unsecured and
non-interest bearing. In December 1999, the Investors agreed to
convert the $750,000 advance to 2,419,355 shares of the Company's
common stock at $0.31 per share.
F-15
<PAGE> 25
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
6. INCOME TAXES
The provision (benefit) for income taxes for the years ended June 30, 2000 and
1999, consists of the following:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Current:
Federal $ 22,000 $ --
State and local 3,000 --
----------- -----------
25,000 --
----------- -----------
Deferred:
Federal $ 868,000 $ (529,000)
State and local 128,000 (78,000)
----------- -----------
996,000 (607,000)
----------- -----------
Change in valuation allowance for deferred tax
assets (3,731,000) 607,000
----------- -----------
Income tax expense (benefit) $(2,710,000) $ --
=========== ===========
</TABLE>
A reconciliation of income tax expense (benefit) computed at the statutory
federal income tax rate of 34% to effective income tax expense, (benefit) is as
follows:
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999
----------- -----------
<S> <C> <C>
Expected income tax provision (benefit) $ 18,000 ($ 457,000)
Nondeductible expense 171,000 176,000
Losses without tax benefit -- 281,000
Benefit of net operating loss carryforwards (2,924,000) --
Alternative minimum tax 25,000 --
----------- -----------
$(2,710,000) $ --
=========== ===========
</TABLE>
At June 30, 2000, the Company has net operating loss carryforwards for federal
income tax purposes of approximately $10,100,000, which expire from fiscal year
2007 through 2019. Approximately $7,400,000 of the net operating losses are
expected to be utilized to offset the taxable gain on the Veeder-Root
transaction.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
June 30,
2000 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 3,945,000 $ 4,900,000
Purchased technology 231,000 160,000
Deferred revenue 54,000 120,000
Other 81,000 127,000
----------- -----------
Total deferred tax assets 4,311,000 5,307,000
Valuation allowance (1,576,000) (5,307,000)
----------- -----------
Net deferred tax assets $ 2,735,000 $ --
=========== ===========
</TABLE>
F-16
<PAGE> 26
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
7. SHAREHOLDERS' EQUITY
SERIES A PREFERRED STOCK
In December 1998, the Investors agreed to convert senior subordinated notes
(accruing interest at 29.76%) and accrued interest totaling $9,717,000 to
Series A Preferred Stock (the "Preferred Stock"). Warrants previously issued to
the Investors for additional interest expense were also cancelled upon exchange
of the notes. As a result of this transaction, the Company recognized a
$1,211,000 extraordinary loss from extinguishment of debt, which represents the
write off of the unamortized balance of debt issue costs originally recorded in
connection with the issuance of the senior subordinated notes.
The Preferred Stock has an aggregate allocation amount (the "Allocation
Amount") of $15,000,000 for the purposes of liquidation priority and dividends.
The Preferred Stock bears an annual 8% dividend (based on the Allocation
Amount), if and when declared by the board of directors. The effective dividend
rate is 8.92% for the year ended June 30, 2000. The Allocation Amount increases
by the amount of any dividends not declared for payment by the Company. The
Preferred Stock has no mandatory redemption or voting rights and is not
convertible into common stock. For the year ended June 30, 2000, the calculated
allocation increase was $1,375,000, and therefore, as of June 30, 2000, the
Allocation Amount was $17,575,000.
STOCK OPTIONS
Prior to July 1, 1998, the Company granted to certain key employees, options to
purchase 1,651,518 shares of the Company's common stock at exercise prices
ranging from $1.53 to $1.75 per share. These options expire in April 2002. As
of June 30, 2000, 1,398,518 options are outstanding.
In connection with the USTMAN Industries acquisition on May 22, 1997, the
Company issued options to purchase 600,000 shares of the Company's common stock
to a key employee. The options become exercisable, subject to continued
employment, over four years at a rate of 25% per year beginning one year from
the grant date. The options expire three years from the vesting date. The
exercise price is $1.00 per share. As of June 30, 2000, none of these options
had been exercised. The company recorded compensation expense of approximately
$125,000 in 2000 and 1999.
F-17
<PAGE> 27
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
7. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
In connection with the ATC acquisition, in December 1997, the Company issued
options to purchase 90,000 shares of the Company's common stock to key
employees. The options become exercisable subject to continued employment, at a
rate of 33% per year beginning on the grant date and expire at a rate of 33%
each year beginning five years after the grant date. The exercise price is
$1.47 per share, the market value of the Company's common stock at the date of
grant. As of June 30, 2000, none of these options had been exercised and 60,000
of these options had been forfeited.
During the 1998 fiscal year, the Company adopted a stock option plan
authorizing the issuance of options for up to 2,000,000 shares of the Company's
common stock to selected employees. Under the terms of the plan, the options
may be either incentive or nonqualified. The exercise price per share,
determined by a committee of the board of directors, may not be less than the
fair market value of the Company's common stock on the grant date. On January
30, 1998, the Company granted 195,000 options under the plan with an exercise
price of $1.50 per share. The options become exercisable, subject to continued
employment, at the rate of 33% per year beginning on the grant date. The
options have a term of ten years. As of June 30, 2000, none of these options
had been exercised and 60,000 had been forfeited.
On November 19, 1999, the Company granted options to a key employee to purchase
up to 1,200,000 shares of the Company's common stock at an exercise price of
$0.25 per share, the market value of the Company's common stock at the date of
grant. The options become exercisable, subject to continued employment, at the
rate of 25% per year beginning on the grant date. The options have a term of
four years. As of June 30, 2000 none of these options had been exercised.
On December 9, 1999, the Company granted options to certain employees to
purchase up to 980,000 shares of the Company's common stock at an exercise
price of $0.31 per share, the market value of the Company's common stock at the
date of grant. The options become exercisable, subject to continued employment,
at the rate of 25% per year beginning on the grant date. The options have a
term of ten years. As of June 30, 2000 none of these options had been exercised
and 100,000 had been forfeited.
F-18
<PAGE> 28
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
7. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
The following table summarizes stock option activity for the years ended June
30, 2000 and 1999:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
---------- --------------
<S> <C> <C>
Outstanding on July 1, 1998 2,599,852 $1.58
Granted -- --
Exercised -- --
Expired or forfeited (179,334) 1.73
---------- -----
Outstanding at June 30, 1999 2,420,518 1.57
Granted 2,180,000 .29
Exercised -- --
Expired or forfeited (357,000) 1.87
---------- -----
Outstanding at June 30, 2000 4,243,518 .89
========== =====
Exercisable 1,818,518 $1.52
========== =====
</TABLE>
Exercise prices for the majority of the options outstanding as of June 30, 2000
range from $.25 to $2.63 per share.
The weighted-average remaining contracted life of options outstanding is one
year.
In calculating pro forma information regarding net income (loss) per share
under the provisions of SFAS No. 123, the fair value of the options granted was
estimated at the date of grant using a Black-Scholes option-pricing model
utilizing the following assumptions:
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999
------ --------
<S> <C> <C>
Expected dividend yield 0% 0%
Expected stock price volatility 150% 75%
Risk-free interest rate 6.25% 5.25%
Expected life of options 1 year 4.9 years
</TABLE>
F-19
<PAGE> 29
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
7. SHAREHOLDERS' EQUITY (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Pro forma information
for the years ended June 30, 2000 and 1999, is summarized below:
<TABLE>
<CAPTION>
Year ended June 30
2000 1999
------------- -------------
<S> <C> <C>
Net income (loss) as reported $ 2,762,000 $ (2,557,000)
Net income (loss), pro forma $ 2,557,000 $ (2,755,000)
Net income (loss) per share applicable to
common shareholder, as reported $ 0.00 $ (.19)
Net income (loss) per share applicable to
common shareholder, pro forma $ 0.00 $ (.20)
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
DEFERRED EMPLOYEE BENEFIT AGREEMENT
In July 1991, the Company entered into a deferred compensation agreement with
the Company's former president. The benefits, as defined under the agreement,
require the Company to pay $2,700 per month throughout the former president's
lifetime, with a minimum ten-year guaranteed payment. Upon his death, benefits
may continue to his beneficiaries as defined under the agreement. Monthly
payments are to be adjusted annually based on the Department of Labor Consumer
Price Index. As of the effective date of the agreement, the benefits are fully
vested, but not funded.
LEASES
The Company leases its office facilities and certain equipment under
noncancelable operating leases. During the year ended June 30, 2000, the
Company extended the term of its office lease from 2001 to 2005. Future
minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year ending
June 30
---------------
<S> <C>
2001 $ 137,000
2002 183,000
2003 194,000
2004 205,000
2005 215,000
Thereafter 19,000
-----------
$ 953,000
===========
</TABLE>
F-20
<PAGE> 30
USTMAN Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Years Ended June 30, 2000 and 1999
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASES (CONTINUED)
Rent expense totaled $140,000 and $128,000 for the years ended June 30, 2000
and 1999, respectively. Pursuant to the terms of the Agreement with
Veeder-Root, lease obligations of the Company are to be assumed by Veeder-Root,
however, the leases remain a contractual commitment of the Company until
transfer has occurred.
TRANSACTIONS WITH INVESTORS
The Company has agreed to pay the Investors $160,000 per year for board of
director and management fees, which were recorded as expense during the years
ended June 30, 2000 and 1999. At June 30, 2000 and 1999, $118,000 and $133,000,
respectively, has been accrued to the Investors.
LITIGATION
On June 8, 2000, a complaint was filed against the Company and certain other
parties, on behalf of certain common shareholders of the Company, alleging that
the Company and other parties breached their fiduciary duty to the Company's
common shareholders in connection with the Veeder-Root sale. A hearing is
scheduled for October 2000. The Company intends to contest this case vigorously,
and in the opinion of management, the ultimate resolution of this matter is not
expected to have a material adverse effect on the Company's financial position,
results of operations, or cash flows.
EMPLOYEE BENEFIT PLAN
The Company sponsors an employee savings plan under Section 401(k) of the
Internal Revenue Code. Under the plan, all employees are eligible to
participate after six months of service. Employees may defer up to 15% of their
salary subject to limits set annually by the Internal Revenue Service and, at
the Company's discretion, it can match annually. No expense for matching
contributions was recorded in 2000 or 1999.
F-21
<PAGE> 31
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
EXECUTIVE OFFICERS AND DIRECTORS
BARRY S. ROSENSTEIN, 41, has served as Co-Chairman of the Board since May 1997.
Mr. Rosenstein is a director of Marisa Christina, Inc. (NASDAQ: MRSA),
Waterworks, Ustman Technologies, Inc. (NASDAQ: USTX), TestAmerica, Inc., Tuneup
Masters, Inc., Signs USA, Revtech, Inc., Pacific Wireless, Inc., and Princeton
Photo Network, Inc.
MARC A. WEISMAN, 46, has served as Co-Chairman of the Board since May 1997. Mr.
Weisman is a director of TestAmerica, Inc., Tuneup Masters, Inc., Signs USA,
Revtech, Inc., Pacific Wireless, Inc., Princeton Photo Network, Inc., Superior
Bank, FSB of Oakbrook Illinois and Product Resources, Inc.
DAN R. COOK, 49, has served as a Director and the President of the Company
since May 1997. Mr. Cook was appointed President of USTMAN in May 1997. Mr.
Cook served as Chief Operating Officer of USTMAN Industries from 1992 until it
was merged into USTMAN in May 1997, and additionally served as its President
from January 1994 until its merger into USTMAN. Mr. Cook is also a certified
public accountant. Mr. Cook has an employment agreement with USTMAN that
expires May 20, 2001. Mr. Cook's base salary is $150,000 per year.
David Shapiro, 49, has served as a Director since July 2000. Mr. Shapiro is a
Portfolio Manager for Senaca Capital Management, a $14 billion money management
firm. Mr. Shapiro is also engaged in the real estate finance and development
business for his own account. In 1993, Mr. Shapiro founded Asset Holdings
Group, a real estate finance company which originates and funds senior and
mezzanine commercial real estate loans. Mr. Shapiro serves as an advisor to and
was a former Director of First Mortgage Network (now Mortgage.com), a NASDAQ
listed internet technology provider to the mortgage industry. Mr. Shapiro
graduated from Columbia University with a B.A. in History and Economics and
holds a Juris Doctorate from the University of Arizona College of Law. Mr.
Shapiro is a member of the Urban Land Institute and serves on the UDMUC
Council, and the National Association of Real Estate Investment Trusts.
Michael Lerner, 55, has served as a Director since July 2000. Mr. Lerner joined
Marisa Christina, Inc. (MRSA) in August 1986, and has served as Chief Executive
Officer, President and Chairman of the Board since that time. Prior to joining
Marisa Christina, Mr. Lerner was President of TFM Industries, Inc. ("TFM"), a
maker of moderate sportswear. He is also a director of Apparel Ventures, Inc.,
an affiliate of the Jordan Company as well as director of Educational Housing
Services, Inc.
James B. Grant, 49, Vice President, Corporate Development since December 1997.
Prior to employment at USTMAN, Mr. Grant served as President of Advanced Tank
Certification, Inc.
<PAGE> 32
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation
provided to the Company's executive officers.
<TABLE>
<CAPTION>
Annual Compensation Long term Compensation
---------------------------- -----------------------------------
Awards Payouts
-----------------------------------
Name and principal Fiscal Salary Bonus Other Restricted Securities LTIP All Other
position Year Stock Awards Underlying Payouts Compensation
Options/
SARS
----------------- ------ -------- ------- ---- ------------ ---------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dan R. Cook
President and CEO 1999 $130,000 -- -- -- -- -- --
2000 $150,000 $98,000 -- -- -- -- --
James B. Grant
Vice President, $57,156
Corporate (Production
Development 1999 $ 90,000 -- -- -- -- -- Bonus)
$35,047
(Production
2000 $ 90,000 -- -- -- -- -- Bonus)
</TABLE>
OPTIONS/SARS GRANTED DURING THE YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Potential Realized Alternative
Value at Assumed to (f) and
Annual Rates of Stock (g): Grant
Price Appreciation Date Value
Individual Grants for Option Term
(a) (b) (c) (d) (e) (f) (g) (f)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or Grant Date
Options/SARs Employees in Base Price Expiration Present Value
Name Granted (#) Fiscal Year ($/Sh) Date 5% 10% $
--------------- ------------- ------------- ----------- ----------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dan R.Cook 1,200,000 55% 0.25 6/30/03 $300,000
James B. Grant 120,000 6% 0.31 6/30/10 $ 37,200
</TABLE>
<PAGE> 33
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of July 21, 2000 of persons (other than officers
or directors of the Company) known to the Company to own more than 5% of the
Company's outstanding Common Stock. Unless otherwise indicated in the footnotes
following the table, the persons as to whom the information is given have sole
voting and investment power over the shares shown as beneficially owned,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
Number of Shares Percent of Outstanding
Name Beneficially Owned Shares
---- ------------------ ----------------------
<S> <C> <C>
Sagaponack Partners, L.P.
536 Pacific Avenue
San Francisco, CA 94133 10,973,461 49.2%
Sagaponack Partners International, L.P.
536 Pacific Avenue
San Francisco, CA 94133 216,000 1.0%
</TABLE>
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of July 21, 2000 of (i) each director during the
fiscal year ended June 30, 2000, (ii) the chief executive officer of the
Company, and (iii) all directors and executive officers of the Company as a
group. Unless otherwise indicated in the footnotes following the table, the
persons as to whom the information is given have sole voting and investment
power over the shares shown as beneficially owned, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
Number of Shares Percent of Outstanding
Name Beneficially Owned Shares
---- ------------------ ----------------------
<S> <C> <C>
Dan R. Cook
12265 W. Bayaud Avenue, #300
Lakewood, CO 80228 1,050,000(1) 4.5%
Barry S. Rosenstein
536 Pacific Avenue
San Francisco, CA 94133 11,189,461(2) 47.9%
Marc A. Weisman
645 Fifth Avenue, 8th Floor
New York, NY 10022 11,189,461(2) 47.9%
All current executive officers and directors
as a group (5 persons)(3) 12,239,461(4) 52.4%
</TABLE>
(1) Includes options granted by the Company to purchase up to 1,050,000
shares of common stock, which are exercisable within 60 days.
(2) Includes 10,973,461 shares of Common Stock owned by Sagaponack
Partners, L.P. and 216,000 shares of Common Stock owned by Sagaponack
Partners International, L.P., both of which may be deemed to be
beneficially owned by Messrs. Rosenstein and Weisman as co-managing
partners of each of Sagaponack Partners, L.P. and Sagaponack Partners
International, L.P.
(3) Includes David Shapiro and Michael Lerner, who became directors in
July, 2000.
(4) Includes options granted by the Company to purchase an aggregate of
1,050,000 shares of common stock which are exercisable within 60 days.
<PAGE> 34
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In consideration of the purchase by Sagaponack of the Senior
Subordinated Notes, the Company issued to Sagaponack Partners, L.P., 7,304,520
shares of the Company's Common Stock, which represented in the aggregate 40% of
the issued and outstanding shares of the Company's Common Stock immediately
after issuance of the Common Stock. Warrants were issued to Sagaponack
Partners, L.P., to purchase shares of Common Stock in an amount sufficient,
upon the exercise of any outstanding options and warrants, for Sagaponack
Partners, L.P., to maintain 40% ownership of the outstanding Common Stock of
the Company. Such warrants will be at the same price and on the same terms as
the options or warrants exercised by third parties.
In December 1998, Sagaponack agreed to convert all of the Senior
Subordinated Notes and accrued interest totaling $9,717,000 to Series A
Preferred Stock ("Preferred Stock") effective July 1, 1998. Warrants previously
issued to Sagaponack for additional interest expense were also canceled upon
exchange of the notes. The Preferred Stock will have an aggregate allocation
amount (the "Allocation Amount") of $15,000,000 for the purposes of liquidation
priority and dividends. The Preferred Stock will bear an annual 8% dividend, if
and when, declared by the Board of Directors. The effective dividend rate is
8.92%. The Allocation Amount will increase by the amount of any dividends not
declared for payment by the Company. The Preferred Stock has no mandatory
redemption or voting rights and is not convertible into Common Stock.
<PAGE> 35
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3.1 Certificate of Amendment of Articles of Incorporation dated
February 14, 1991 is incorporated herein by reference to Form
10-K for fiscal year 1991.
3.2 Certificate of Amendment of the Articles of Incorporation
dated February 14, 1991(2).
3.3 Certificate of Amendment of the Articles of Incorporation
dated February 3, 1998(3).
3.4 Bylaws, as amended, of the Company(1).
4.1 See Exhibits 3.1, 3.2, and 3.4 for provisions of the Articles
of Incorporation and Bylaws defining the rights of holders of
common stock.
10.1 Watson General Corporation Retirement Plan(4).
10.2 Stock Option agreement dated May 22, 1997 between the Company
and Dan R. Cook(5)
10.3 Employment agreement dated May 22, 1997 between the Company
and Dan R. Cook(5)
10.4 Securities purchase agreement dated May 22, 1997 between the
Company and Sagaponack Partners, L.P. and Sagaponack
International Partners, L.P.(6).
10.5 Warrant agreement dated May 22, 1997 between the Company and
Sagaponack Partners, L.P.(6).
10.6 Stock pledge agreement dated May 22, 1997 between the Company
and Sagaponack Partners, L.P. and Sagaponack International
Partners, L.P.(6).
10.7 Security agreement dated May 22, 1997 between the Company and
Sagaponack Partners, L.P. and Sagaponack International
Partners, L.P.(6).
10.8 Financial advisory agreement dated May 22, 1997 between the
Company and Sagaponack Management Company(6).
10.9 Company agreement dated May 22, 1997 between the Company and
Sagaponack Partners, L.P. and Sagaponack International
Partners, L.P.(6).
10.10 Shareholder agreement dated May 22, 1997 between Sagaponack
Partners, L.P., Sagaponack International Partners, L.P. and
certain shareholders of the Company(6).
10.11 Term Loan and Acquisition Line Agreement dated December 16,
1997 between the Company and BankBoston, N.A.(7)
10.12 First Amendment to Term Loan and Acquisition Line Agreement
between the Company and BankBoston, N.A.(9)
10.13 Second Amendment to Term Loan and Acquisition Line Agreement
between the Company and BankBoston, N.A.(9)
10.14 Stock Pledge Agreement dated December 16, 1997 between the
Company and BankBoston, N.A.(7)
<PAGE> 36
10.15 Security Agreement dated December 16, 1997 between the
Company and BankBoston, N.A.(7)
10.16 Intercreditor and Subordination Agreement dated December 16,
1997 between the Company and BankBoston, N.A.(7)
10.17 Primary Stock Purchase Agreement dated December 17, 1997
between the Company and Erica Bengtson Grant and James B.
Grant(7).
10.18 Contingent Stock Purchase Agreement dated December 17, 1997
between the Company and Environmental Systems Corporation(7)
10.19 Stock Option Agreement dated January 16, 1998(8).
10.20 Amendment to Securities Purchase Agreement among the Company,
Sagaponack Partners, L.P. and Sagaponack International
Partners, L.P.(9).
10.21 Purchase Agreement between the Company and Veeder-Root
Service Corporation(10)
10.22 Plan of Liquidation(10)
21.0 Subsidiaries of Registrant
<TABLE>
<S> <C> <C> <C>
A-Accurate Moving, Inc. California Inactive
EnvirAlert, Inc. Delaware Inactive
Three Generations Moving, Inc. California Inactive
Watson Systems, Inc. Missouri Inactive
Watson Value Assets, LLC California Inactive
Advanced Tank Certification, Inc. Tennessee Inactive
</TABLE>
27.0 Financial Data Schedule
(B) REPORTS ON FORM 8-K
On June 12, 2000, the Company filed a Report on Form 8-K reporting in
Item 2 the execution of a letter of intent with Danaher Corporation
pursuant to which the Company agreed to sell substantially all of its
assets to Veeder-Root Company, a wholly-owned subsidiary of Danaher.
The Form 8-K also included exhibits required by Item 7. These included
a press release issued by the Company of June 6, 2000 and the Letter
of Intent between the Company and Danaher Corporation dated June 6,
2000.
On July 21, 2000, the Company filed a Report on Form 8-K reporting in
Item 2 the execution of a definitive Asset Purchase Agreement with
Veeder-Root Service Company to sell substantially all of its assets to
Veeder-Root for $17.158 million in cash.
The Form 8-K also included exhibits required by Item 7. These included
a press release issued by the Company on July 21, 2000 and the Asset
Purchase Agreement by and between the Company and Veeder-Root Service
Company dated July 21, 2000.
<PAGE> 37
------------
(1) Incorporated by reference to the Company's Quarterly Report on From
10-Q for the Quarter ended March 31, 1989
(2) Incorporated by reference to the Company's Annual Report on From 10-K
for the fiscal year ended December 31, 1991
(3) Incorporated by reference to the Company's Quarterly Report on From
10-Q for the Quarter ended March 31, 1998
(4) Incorporated by reference to the Company's Annual Report on From 10-K
for the fiscal year ended December 31, 1992
(5) Incorporated by reference to the Company's Annual Report on From
10-KSB for the fiscal year ended June 30, 1997 (File No. 000-16011).
(6) Incorporated by reference to the Company's Current Report on From 8-K
filed on June 6, 1997 (File No. 000-16011).
(7) Incorporated by reference to the Company's Current Report on From 8-K
filed on December 30, 1997 (File No. 000-16011).
(8) Incorporated by reference to the Company's Annual Report on From
10-KSB for the fiscal year ended June 30, 1998 (File No. 000-16011).
(9) Incorporated by reference to the Company's Registration Statement No.
333-82425 on Form SB-2 filed under the Securities Act of 1933 on July
7, 1999 (File No. 000-16011).
(10) Incorporated by reference to the Company's Schedule 14C filed on
September 1, 2000.
<PAGE> 38
(B) DURING THE REGISTRANT'S QUARTER ENDED JUNE 30, 2000, THE REGISTRANT
FILED THE FOLLOWING CURRENT REPORTS ON FORM 8-K:
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned hereunto duly authorized.
USTMAN TECHNOLOGIES, INC.
By: /s/ Dan R. Cook
---------------------------------------
Dan R. Cook, President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Barry S. Rosenstein Co-Chairman of Board of Directors, September 27, 2000
------------------------------------
(Barry S. Rosenstein)
/s/ David Shapiro Director September 28, 2000
------------------------------------
(David Shapiro)
/s/ Dan R. Cook President, Chief Executive Officer, September 28, 2000
------------------------------------ and Director
(Dan R. Cook)
</TABLE>
<PAGE> 39
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
NUMBER DESCRIPTION
-------- -----------
<S> <C>
3.1 Certificate of Amendment of Articles of Incorporation dated
February 14, 1991 is incorporated herein by reference to Form
10-K for fiscal year 1991.
3.2 Certificate of Amendment of the Articles of Incorporation
dated February 14, 1991(2).
3.3 Certificate of Amendment of the Articles of Incorporation
dated February 3, 1998(3).
3.4 Bylaws, as amended, of the Company(1).
4.1 See Exhibits 3.1, 3.2, and 3.4 for provisions of the Articles
of Incorporation and Bylaws defining the rights of holders of
common stock.
10.1 Watson General Corporation Retirement Plan(4).
10.2 Stock Option agreement dated May 22, 1997 between the Company
and Dan R. Cook(5)
10.3 Employment agreement dated May 22, 1997 between the Company
and Dan R. Cook(5)
10.4 Securities purchase agreement dated May 22, 1997 between the
Company and Sagaponack Partners, L.P. and Sagaponack
International Partners, L.P.(6).
10.5 Warrant agreement dated May 22, 1997 between the Company and
Sagaponack Partners, L.P.(6).
10.6 Stock pledge agreement dated May 22, 1997 between the Company
and Sagaponack Partners, L.P. and Sagaponack International
Partners, L.P.(6).
10.7 Security agreement dated May 22, 1997 between the Company and
Sagaponack Partners, L.P. and Sagaponack International
Partners, L.P.(6).
10.8 Financial advisory agreement dated May 22, 1997 between the
Company and Sagaponack Management Company(6).
10.9 Company agreement dated May 22, 1997 between the Company and
Sagaponack Partners, L.P. and Sagaponack International
Partners, L.P.(6).
10.10 Shareholder agreement dated May 22, 1997 between Sagaponack
Partners, L.P. ,Sagaponack International Partners, L.P. and
certain shareholders of the Company(6).
10.11 Term Loan and Acquisition Line Agreement dated December 16,
1997 between the Company and BankBoston, N.A.(7)
10.12 First Amendment to Term Loan and Acquisition Line Agreement
between the Company and BankBoston, N.A.(9)
10.13 Second Amendment to Term Loan and Acquisition Line Agreement
between the Company and BankBoston, N.A.(9)
10.14 Stock Pledge Agreement dated December 16, 1997 between the
Company and BankBoston, N.A.(7)
10.15 Security Agreement dated December 16, 1997 between the
Company and BankBoston, N.A.(7)
10.16 Intercreditor and Subordination Agreement dated December 16,
1997 between the Company and BankBoston, N.A.(7)
10.17 Primary Stock Purchase Agreement dated December 17, 1997
between the Company and Erica Bengtson Grant and James B.
Grant(7).
10.18 Contingent Stock Purchase Agreement dated December 17, 1997
between the Company and Environmental Systems Corporation(7)
10.19 Stock Option Agreement dated January 16, 1998(8).
10.20 Amendment to Securities Purchase Agreement among the Company,
Sagaponack Partners, L.P. and Sagaponack International
Partners, L.P.(9).
10.21 Purchase Agreement between the Company and Veeder-Root
Service Corporation(10)
10.22 Plan of Liquidation(10)
21.0 Subsidiaries of Registrant
A-Accurate Moving, Inc. California Inactive
EnvirAlert, Inc. Delaware Inactive
Three Generations Moving, Inc. California Inactive
Watson Systems, Inc. Missouri Inactive
Watson Value Assets, LLC California Inactive
Advanced Tank Certification, Inc. Tennessee Inactive
27.0 Financial Data Schedule
</TABLE>
---------------------
(1) Incorporated by reference to the Company's Quarterly Report on From
10-Q for the Quarter ended March 31, 1989
(2) Incorporated by reference to the Company's Annual Report on From 10-K
for the fiscal year ended December 31, 1991
(3) Incorporated by reference to the Company's Quarterly Report on From
10-Q for the Quarter ended March 31, 1998
(4) Incorporated by reference to the Company's Annual Report on From 10-K
for the fiscal year ended December 31, 1992
(5) Incorporated by reference to the Company's Annual Report on From
10-KSB for the fiscal year ended June 30, 1997 (File No. 000-16011).
(6) Incorporated by reference to the Company's Current Report on From 8-K
filed on June 6, 1997 (File No. 000-16011).
(7) Incorporated by reference to the Company's Current Report on From 8-K
filed on December 30, 1997 (File No. 000-16011).
(8) Incorporated by reference to the Company's Annual Report on From
10-KSB for the fiscal year ended June 30, 1998 (File No. 000-16011).
(9) Incorporated by reference to the Company's Registration Statement No.
333-82425 on Form SB-2 filed under the Securities Act of 1933 on July
7, 1999 (File No. 000-16011).
(10) Incorporated by reference to the Company's Schedule 14C filed on
September 1, 2000.
