0000810130-95-000005.txt : 19950821
0000810130-95-000005.hdr.sgml : 19950821
ACCESSION NUMBER: 0000810130-95-000005
CONFORMED SUBMISSION TYPE: 10-K/A
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 19941231
FILED AS OF DATE: 19950818
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: U S TECHNOLOGIES INC
CENTRAL INDEX KEY: 0000810130
STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672]
IRS NUMBER: 731284747
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K/A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-15960
FILM NUMBER: 95565201
BUSINESS ADDRESS:
STREET 1: 1402 INDUSTRIAL BLVD BLDG 3
STREET 2: P O BOX 697
CITY: LOCKHEART
STATE: TX
ZIP: 78644
BUSINESS PHONE: 5123761040
FORMER COMPANY:
FORMER CONFORMED NAME: CAREAMERICA INC
DATE OF NAME CHANGE: 19890720
10-K/A
1
Form 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_______________________
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15960
U.S. TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter.)
State of Delaware 73-1284747
(State of other jurisdiction of (I.R.S. Employer
Identification No.)
incorporation or organization)
1402 Industrial Blvd
Lockhart, Texas
78644
(Address of principal executive offices.)
(Zip Code)
Registrant's telephone number, including area code: (512)
376-1040
_______________________
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 Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
The aggregate market value of voting stock held by non-affiliates
of the Registrant of the registrant at April 13, 1995 was
approximately $3,310,388.
The number of shares outstanding of the Registrant's Common
Stock, par value $0.02 per share, at March 31, 1995 was
15,145,363 shares.
TABLE OF CONTENTS
PART I
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security
Holders 10
PART II
Item 5. Market for Registrant's Common Equity and related
Stockholders matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements on Accounting and
Financial Disclosure 37
PART III.
Item 10. Directors and Executive Officers of the
Registrant 37
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners
and Management 41
Item 13. Certain Relationships and Related Transactions
43
PART IV.
Item 14. Exhibits, Financial Statement Schedules and
reports on Form 8-K 43
Schedules and Reports on Form 10-K:
Schedule VIII Valuation and Qualifying
Accounts 46
2
PART I
ITEM 1. BUSINESS.
General Development of Business
U. S. Technologies Inc. (the "Company") was
incorporated on September 9, 1986, in the State of Delaware
as CareAmerica Inc. From time to time the term "Company" as
used herein refers to U.S. Technologies Inc. by itself or to
collectively refer to U. S. Technologies Inc. and some or
all of its subsidiaries, past and present.The Company was
formed to furnish in-home medical care services. On April
14, 1987, the Company completed a public offering of 660,000
units, each unit consisting of one share of Common Stock and
one Redeemable Warrant, each separately transferable
immediately upon issuance. The foregoing reflects a 1 for 5
reverse split of the Registrant's Common Stock, Warrants and
Options which took place on February 8, 1993, and assumes no
additional shares issued in respect of any fractional shares
which may have resulted from the reverse split.
In 1987 the Company changed business direction from the
medical industry to electronics. On September 1, 1988, the
Company moved its corporate headquarters from Kansas City,
Missouri, to 1611 Headway Circle, Building 3, Austin, Texas
78754. The Company's decision to move itsheadquarters to
Austin, Texas, was made in order to more effectively monitor
the day-to-day activities of its Subsidiaries. The
management of the Company felt that maintaining offices in
Kansas City, Missouri, when its operating Subsidiaries were
in Austin, Texas, was an unnecessary expense for the
Company.
On July 14, 1989, the shareholders of the Company
approved a proposal to change the name of the Corporation
from CareAmerica Inc. to U.S. Technologies Inc. On July 14,
1989, the Company filed a Certificate of Amendment of
Certificate of Incorporation with the Secretary of State of
Delaware causing the name of the corporation to be changed
to U.S. Technologies Inc. Effective with the start of
business July 17, 1989, the trading symbol for the Company's
Common Stock traded on the over-the-counter market and
listed on the National Association of Securities Dealers
Automated Quotations (NASDAQ) System was changed to USXX.
Prior to June, 1994, the Company owned three (3)
additional subsidiaries which had been in operation for
several years: American Microelectronics Inc. ("AMI"),
Republic Technology Corporation ("Republic"), and U.S.
MicroLabs Inc. ("MicroLabs"). AMI was in the electronics
contract manufacturing business. Republic was in the
business of designing and marketing personal computers.
3
MicroLabs had been inactive for several years, but had at
one time been in the business of developing and marketing
software. AMI was the largest secured creditor of Republic.
The Company was the largest secured creditor of AMI. In
June, 1994, AMI foreclosed on its security interest in
Republic and accepted an assignment of all of Republic's
assets (all of which were covered by AMI's security
agreement) in satisfaction of Republic's debts to AMI.
Subsequent thereto the Company foreclosed on its security
interest in AMI and accepted an assignment of AMI's assets
(that were covered by the Company's security agreement) in
satisfaction of AMI's debts to the company. The Company
made a capital contribution of the foreclosed assets to the
newly formed company, Lockhart Technologies, Inc., "LTI" in
exchange for all of the capital stock of that company.
After the foreclosures, the Company sold all of its interest
in AMI, Republic, and MicroLabs for a total consideration of
$1,758.
The Company presently has two wholly owned
subsidiaries: Lockhart Technologies, Inc., a Texas
corporation ("LTI") and Newdat, Inc., an Arizona corporation
("Newdat"). Newdat owns an eighty percent (80%) interest in
SensonCorp Limited, an Arizona corporation ("Senson"). The
Company acquired Newdat on January 23, 1995, in exchange for
7,053,728 shares of the Company's common stock.
LTI was incorporated on June 29, 1994. LTI was
capitalized by the Company by the contribution of certain
assets, tangible and intangible, which the Company received
through its foreclosure of AMI. The assets were valued at
$1,764,580. LTI operates an electronics contract
manufacturing facility located inside a minimum security
prison facility located in Lockhart, Texas. LTI has an
Industry Work Program Agreement (the "IWPA"), which includes
a lease agreement, with Wackenhut Corrections Corporation,
The Texas Department of Criminal Justice, Division of
Pardons and Paroles and the City of Lockhart, Texas. The
IWPA and Lease were assigned to LTI by American
Microelectronics Inc., a corporation formerly owned by the
Company. Wackenhut Corrections Corporation has not yet
approved the assignment of the IWPA from American
Microelectronics Inc. to LTI. The Industry Work Program
Agreement provides and encourages LTI to recruit and hire
qualified employees from the 500 male residents presently in
this facility. Prospective resident employees will be
provided vocational and educational training by Wackenhut
and the Texas Department of Criminal Justice, Division of
Pardons and Paroles tailored to the Company's
specifications. The Company is required to pay resident
employees at a rate prevailing in the area for similar work,
but at no time less the Federal Minimum Wage rate. The
lease agreement provides for approximately 27,800 square
feet of manufacturing and office space through January 31,
4
1997 and provides for automatic three year extensions unless
notification is given by either party at least six months
prior to the expiration of each term. The lease provides
for annual rental rates of $1 per year for the primary term
and the first automatic three year extension.
Principal Products, Services and Revenue Sources
The Company furnishes administrative and consulting
services to its Subsidiaries.
LTI offers contract manufacturing services for
electronic circuit boards. LTI does not manufacture the
actual circuit boards; LTI purchases them from board
manufacturers. Electrical components placed on the boards
are furnished by LTI's customers in kit form or purchased
directly from electrical supply houses or parts
manufacturers. LTI places the components on the board,
solders the connections and, if requested, tests the
assembled board. LTI also performs electro-mechanical
assembly.
The electronic circuit board is the most element for
manufacturing electronic circuitrytoday. Individual
electrical components such as resistors, capacitors and
solid state devices are mounted on the board. Such
electrical components are "packaged" as "through-hole" or
"surface mount" devices. Through-hole components have wire
leads which are placed through holes on the board. The wire
leads are soldered to the board on the reverse side.
Surface mount components are smaller and have much shorter
leads or metallic ends which are soldered directly to small
metal pads on top of the board.
LTI's services may be used by any business that uses
electronic circuit boards. LTI presently assembles products
utilized in computers, computer peripherals, security and
communications systems, medical equipment and electronic
testing devices. LTI markets its services through two (2)
in-house salespeople.
Newdat is an Arizona corporation which has developed
and is now ready to market a device for measuring (in real
time during production) the thickness of coatings on wire,
e.g., measuring the thickness of the zinc coating on
galvanized wire. This device can also be used to detect
flaws in wire and cable during production or while in use,
e.g., elevator or ski lift cables. Newdat is also
developing a high speed tape backup unit for computers
utilizing a helical scan technology. Newdat owns an eighty
percent (80%) interest in SensonCorp Limted "Senson" which
is presently marketing a line of environmentally friendly
chemical coatings developed by a major Australian chemical
company. Senson has exclusive rights to manufacture and
5
market these products in North America. The coatings have a
variety of applications, including anti-corrosion coatings
using vapor phase corrosion inhibitors on metals.
6
Raw Materials
Some of the components and raw materials used by LTI
and Newdat are available from only one supplier and/or are
subject to unavailability due to general shortages. In some
instances, there may be lead times of several months or
longer to obtain and sustain an adequate supply of
components. While parts are generally available, delays in
obtaining some parts can jeopardize orders and increase the
cost of operations for LTI and Newdat. LTI and Newdat have
not experienced prolonged or significant shortages in the
past. However, from time to time parts shortages may be
expected to cause temporary delays in production of some
products. Senson's raw materials include chemical stocks
which are generally available and does not presently
anticipate any restrictions or delays in production due to
shortages of raw materials.
Patents, Trademarks, Licenses, Franchises and Concessions
The Company and LTI do not have any patents,
trademarks, licenses, franchises or concessions; however,
they may apply for some in the future. Because of the rapid
pace of technological change, the Company believes that
copyright, trademark and other legal protections are less
significant in its industry than such factors as innovative
skills, technological expertise and marketing abilities.
Newdat, Inc. holds U.S. and Canadian patents relating
to its wire measurement technology. These patents, covering
the same technology, reveal a new technology for measuring
the thickness of zinc and similar coatings on wire as well
as nondestructive electromagnetic testing of other
properties of wire. It is difficult to ascertain the value
of these patents. The novel parts of the device are its
ability to sense changes in external and internal
structures, including the on line measurement of metallic
coating being applied to wire. The Company believes that
the rapid pace of change in high technology fields today
makes the ability to continuously innovate and develop new
technologies more important in some instances than patents
themselves.
Senson's conformal coatings are widely protected by
patents, in particularly the "phased" emission of VPCI's
from the coatings.
Working Capital Practices
The Company's subsidiaries are not required to carry
excess quantities of raw materials or purchased parts
because products are produced to demand; therefore,
components and parts are ordered as needed. LTI has agreed
to let one of its suppliers purchase materials from LTI's
7
inventory when they have needs for certain items which
should result in an increase turn in inventory and result in
an overall reduction of the raw material inventory during
1995. LTI offers selected customers a 2% discount if bills
are paid within ten days. Normal terms are net 30. Newdat
and Senson currently offer net 14 day terms.
Dependence on Customers
LTI is largely dependent upon Intel Corporation and
Dell Computer Corporation for an aggregate amount in excess
of ten percent of the Company's consolidated revenues since
LTI began doing business in 1994. The loss of any one of
such customers would have a material adverse effect on LTI
and the Company. Management believes that this situation
will abate as LTI's customer base expands; however, LTI will
continue to be dependent on a few customers for the
foreseeable future. Newdat and Senson lack sufficient
operating experience to reveal dependence upon any
particular customer.
Backlog
At December 31, 1994, LTI's backlog (which represents
that portion of outstanding contracts not yet included in
revenue) was approximately $90,000 (LTI began doing business
on or about July 1, 1994. It is anticipated that 100% of
the backlog will be delivered before June 30, 1995.
At December 31, 1994, Newdat had no backlog as the wire
measurement device was not ready for production and the high
speed tape backup system is still in the reasearch and
development stage.
At December 31, 1994, Senson's backlog (which
represents that portion of outstanding contracts not yet
included in revenue) was approximately $24,000 (Senson began
selling product on or about September 1, 1994). It is
anticipated that 100% of the backlog will be delivered
before June 30, 1995.
Because LTI and Newdat receive price commitments from
their vendors, their costs normally do not increase relative
to backlog orders. Engineering changes in products by any
of LTI's customers or other events beyond the control of LTI
could result in the cancellation or suspension of some of
LTI's present backlog.
Competitive Conditions
LTI, Newdat and Senson are in competition with a large
number of firms. Most of their competitors are
substantially larger and have greater financial resources.
LTI's business is capital intensive, i.e., a significant
8
investment in equipment is necessary. The greater financial
resources of many of LTI's competitors gives those
competitors an advantage over LTI. Newdat and Senson have
products which face competition from other products. The
Company believes the products of Newdat and Senson have
features and qualities which give them a competitive
advantage. However, the existing control of the market
place by their competitors and the financial resources which
such competition can apply to their competitive marketing
efforts are significant negative factors against the ability
of Newdat and Senson to successfully complete in their
markets. Positive factors pertaining to LTI's competitive
position are the experience of LTI's operational management
and what LTI believes is its ability to address the growing
need for mixed technology circuit boards, i.e., circuit
boards containing both through-hole and surface mount
components. LTI has automated equipment for the assembly of
circuit boards using surface mount and through-hole
components. However, LTI's surface mount equipment is
limited in capacity. If LTI is able to sustain and increase
its volume of business, further investments in capital
equipment will be required. The Company will require
additional debt and/or lease financing to acquire additional
equipment and expanded receivables financing to fund any
growth in sales. Terms of possible lease agreements and/or
the cost of borrowed funds may be prohibitive in
relationship to the returns the Company would be able to
obtain through the use of such borrowed funds or leased
equipment for its operations.
Research and Development Activities
Newdat acquired products one of which had already been
developed. Newdat will continue to research and develop new
and improved hardware and related software products to
supplement or enhance its current products and complete
development of its other products.
Number of Persons Employed
As of December 31, 1994, the Company had one salaried
employees. Several employees of LTI devoted a significant
portion of their time to the affairs of the Company.
As of December 31, 1994, LTI had approximately 85
regular employees. LTI employees include residents from the
minimum security prison facility where the Company is
located.
As of December 31, 1994, Newdat had no regular
employees.
9
As of December 31, 1994, Senson had 2 regular
employees.
None of the Company's employees are represented by a
union. The Company believes that its relationship with its
employees is good.
Regulation
The Company is subject to Food and Drug Administration
("FDA") regulations relating to medically related devices
which its subsidiary, LTI manufactures. These regulations
are those generally applicable to companies producing
medical electronics. The products that are subject to FDA
regulation are not a significant portion of LTI's business.
10
ITEM 2. PROPERTIES.
Leases and Facilities
LTI's operations are located in a minimum security
prison facility under a lease agreement with Wackenhut
Corrections Corporation, The Texas Department of Criminal
Justice, Division of Pardons and Paroles and the City of
Lockhart, Texas, to lease approximately 27,800 square feet
of manufacturing and office space under an operating lease
through January 31, 1997 and provides for automatic three
year extensions unless notification is given by either party
at least six months prior to the expiration of each term.
The lease was originally in the name of AMI. AMI has
assigned all of its right title and interest in the lease to
LTI, but the assignment of the Lease has not yet been
accepted. The lease provides for annual rental rates of $1
per year for the primary term and the first automatic three
year extension. Rental expense at other locations for the
years ended December 31, 1994, 1993 and 1992, was $7,290,
$132,000, and $126,000 respectively. The rent expense for
1993 and 1992 was rent expense incurred by AMI, a former
subsidiary, at another location. Wackenhut Corrections
Corporation is not an affiliated party.
Senson has a lease agreement with Laura Investments
Ltd. ("Laura") whereby Laura provides approximately 3,700
and 2,100 square feet of office space in Chandler, Arizona
and Vancouver, British Columbia for a total monthly lease
payment of $1,940 and $2,300 respectively. The lease is for
the period beginning July 1, 1994 and terminating July 1,
1997. Under an Administrative Services Agreement between
Senson and Laura, Senson pays Laura $4,500 per month for
administrative and miscellaneous services. The agreement
terminates by its terms on July 1, 1997, but Senson may
terminate it earlier upon 90 days notice. John Allen,
Chairman of the Board of the Company, is a director of
Laura. Newdat is presently utilizing space provided it by
Senson.
11
ITEM 3. LEGAL PROCEEDINGS.
On March 22, 1995, the Company was served with a
citation in TTI Testron, Inc. vs. American Microelectronics,
Inc. and Lockhart Technologies, Inc., County Court at Law
No. 1, Travis County, Texas, Cause No. 221,094. The
petition alleges that Lockhart Technologies, Inc. received
assets of American Microelectronics Inc. without
consideration. The action seeks damages of $11,527. The
Company believes the claim is without merit.
On August 9, 1994, a party in an action styled Austin
Temporary Services, Inc. vs. U.S. Technologies, Inc., dba
American Microelectronics Inc., 345th Judicial District
Court, Travis County Texas, Cause No. 94-09813, alleges that
the Company was indebted to Austin Temporary Services, Inc.
("ATS") in the amount of $67,622 plus costs of court,
interest, and attorney's fees for temporary employee
services that ATS furnished to American Microelectronics
Inc. Subsequently, ATS has amended its petition to add Jack
D. Bryant, Ryan Corley, Leonard D. Hilt, American
Microelectronics, Inc., and Lockhart Technologies, Inc. as
additional named defendants. Under the present pleadings,
ATS is claiming breach of contract and fraud and is
attempting to pierce the corporate veil between the various
companies and the named individuals. Mr. Bryant is a
Director of the company. Mr. Corley is a Director and
President of the Company. Mr. Hilt is the President and the
Director of Lockhart Technologies, Inc. The Company
believes ATS's claims are without merit.
On January 24, 1995, an action styled SensonCorp
Systems, Inc., SensonCorp Pacific, SensonCorp Southeast,
SensonCorp West, Creative Media Resources vs. SensonCorp
Limited, William Meehan, Dugal Allen, John Allen, DOES 1
through 50, United States District Court Northern District
of California, Cause No. C-95-00282. The action seeks
equitable relief and damages for breach of contract, breach
of implied warranty of good faith and fair dealing, common
law fraud, negligent misrepresentation, unfair competition,
interference with contract, accounting, receiver/attachment,
and theft of trade secrets. The causes of action are
related to a marketing agreement between Senson and the
plaintiffs. Defendant John Allen is the Chairman of the
Board of the Company. Dugal Allen is John Allen's son and
is vice president of operations. Mr. Meehan is a business
associate of John Allen. The suit does not specify the
dollar amount of damages sought. The plaintiff's were
denied most of the equitable relief they sought, but have
obtained a temporary injunction requiring Senson to continue
selling them certain products on Senson's usual and
customary terms. On April 6, 1995, the Federal Court stayed
the plaintiffs case and ordered the case to arbitration as
had been sought by the Company. The court determined that
12
Mr. Allen personally be removed as a defendant in the
plaintiff's case. The Company believes the plaintiff's
claims are without merit and that Senson and the other named
defendants will ultimately prevail.
There were several lawsuits outstanding against AMI and
Republic at the time they were sold. AMI and Republic are
separate corporations, incorporated under the laws of the
State of Texas. Therefore, the Company believes it has no
liability arising out of or in connection with any lawsuits
against AMI or Republic.
13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
No matters were submitted to the stockholders for their
consideration during 1994.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-
counter market and listed on the National Association of
Securities Dealers Automated Quotations ("NASDAQ") System
under the "USXX" symbol. The following table sets forth the
high and low bid prices of the Common Stock in the over-the-
counter market for the years ended December 31, 1994, 1993,
1992, 1991, and 1990. Prices are as quoted on the NASDAQ
System. Quotations reflect interdealer prices without
retail mark-up, mark-down or commissions and may not
necessarily represent actual transactions.
Bid
High Low
1994
4th Quarter $.7812 $.2500
3rd Quarter $.8125 $.2500
2nd Quarter $1.1875 $.5625
1st Quarter $1.7500 $.8750
1993
4th Quarter $2.3125 $0.9375
3rd Quarter $2.3750 $1.3125
2nd Quarter $2.5625 $1.5000
1st Quarter $3.0000 $1.3750
1992
4th Quarter $1.8750 $1.2500
3rd Quarter $4.0625 $1.2500
2nd Quarter $9.3750 $3.1250
1st Quarter $9.6875 $5.0000
1991
4th Quarter $6.5625 $5.0000
3rd Quarter $6.5625 $3.7500
2nd Quarter $6.2500 $4.3750
1st Quarter $5.9375 $2.3440
1990
4th Quarter $4.5315 $2.1875
3rd Quarter $3.1250 $2.5000
2nd Quarter $3.1250 $1.8750
1st Quarter $2.8125 $2.0315
On April 13, 1995, the closing bid price of the Common
Stock, as quoted on the NASDAQ system, was $0.4375.
As of March 31, 1995, there were 385 holders of record
of the Company's Common Stock. This number is exclusive of
beneficial owners whose securities are held in street name.
15
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below for the years
ended December 31, 1994, 1993, 1992, 1991 and 1990 is
derived from the Company's audited financial statements.
This information should be read in conjunction with the
financial statements for 1994, 1993 and 1992 and notes
thereto included elsewhere herein and "Management's
Discussion and Analysis of Financial Condition and Results
of Operations" included in Item 7 which are incorporated
herein by reference.
Years Ended December 31,
1994 1993 1992 1991 1990
Operations statement
data:
Net sales $1,668,865$6,655,573$8,888,016
$8,368,471$7,730,091
Loss from operations $(2,230,710)$(2,448,096)
$(356,835) $(49,841)$(358,626)
Loss before income taxes and
extraordinary item $(847,016)$(2,352,572)$(463,423)
$(168,689)$(477,023)
Provision in lieu
of income taxes ______________________________
__________ 247,025
Loss before extraordinary item (847,016)(2,352,572)
(463,423) (168,689)(477,023)
Extraordinary item from utilization
of net operating loss carryforwards
247,025
___________________________________
________
Net income (loss) $(847,016)$(2,352,572)$(463,423)
$(168,689)$(477,023)
Per Share Data:
Loss per share $(0.16) $(0.62) $(0.16) $(0.06)
$(0.18)
Weighted-average
12
common shares outstanding 5,302,1473,794,6312,830,972
2,707,144 2,578,884
Cash dividends per common share -0- -0- -0-
-0- -0-
Balance sheet data:
Total assets $2,120,340$2,685,325$2,915,400
$3,160,281$4,390,890
Long-term debt
(including capital
lease obligations) $-0- $-0-$19,166$110,062$434,899
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in
conjunction with the Financial Statements and notes thereto
appearing elsewhere in this Form 10-K.
The Company incurred significant losses and in each of
the three years ended December 31, 1994, 1993 and 1992 and
had working capital deficiencies in each of the two years
ended December 31, 1993 and 1992. As a result, the Company
continues to experience liquidity problems and the Company's
auditors, Brown, Graham & Company P.C. have rendered a
"going concern" opinion in their reports. Additionally, the
Company failed to meet the NASDAQ requirement of minimum
total capital and surplus of $1,000,000 at December 31,
1993. This requirement was subsequently met. However, on
June 23, 1992, the price of the Company's stock fell below
the NASDAQ requirement of a minimum bid of $1.00 per share.
Under NASDAQ's rules, the Company must maintain a minimum
bid price of $1.00 per share unless the market value of the
public float and the Company's capital and surplus are at
least $2,000,000 and $1,000,000 respectively. In December,
1992 the Company was notified that it's stock would be
delisted from NASDAQ if these requirements were not met.
On February 8, 1993, at a special shareholders meeting, a
one for five reverse spilt was approved which raised the bid
price above the minimum $1.00 per share requirement, thereby
enabling the Company's stock to continue being traded on
NASDAQ.
The Company has been working to address its current
financial difficulties. (See "Liquidity and Capital
Resources" and Note 13 to the Notes to Financial Statements
which are incorporated herein by reference). The Company
believes there is a reasonable expectation that cash
generated from future operations (which the Company
recognizes are not assured), discontinuance of unprofitable
opertions (see note 16), the sale of additional common stock
through a private placement, or possible conversion by
certain creditors of debt obligation to equity may enable
the Company to alleviate its liquidity and working capital
deficit problems. During January and March 1994, 223,000
shares of non qualified stock options and 75,000 shares of
qualified stock options were exercised and 100,000 shares of
the Company's Rule 144 stock was sold which netted the
Company $322,000. On April 13, 1995, the closing bid price
of the Company's common stock was $0.4375. As of December
31, 1994, the Company had once again fallen below the
minimum capital requirement of $2,000,000 (the capital
requirement for stocks with a bid price below $1.00 for
continued listing on the NASDAQ market system). The Company
believes that it actually meets the necessary capital
requirements, but was required to write down certain assets
13
because of its inability to obtain an appraisal of such
assets (gem stones - see note 15) prior to the filing of
this Form 10K. The Company expects to obtain the necessary
appraisal which will aid in meeting the necessary capital
requirements. If the Company fails to establish that it
meets the minimum bid requirements, the Company will be
delisted from the NASDAQ system thereby resulting in the
owners of the Company's Common Stock and warrants being
unable to sell their securities in the open market. Even if
the Company establishes that it presently meets such capital
requirements ($1,000,000 of capital, $2,000,000 market value
of public float, and a minimum $2.00 per share price price;
or $2,000,000 in capital), there is no assurance the Company
will be able to continue to do so in the future; if the
Company fails to meet such capital requirements it could be
delisted from the NASDAQ system with the consequences to
stockholders outlined above.
The Company's continued existence is dependent upon its
ability to resolve its liquidity problems. While there is
no assurance that such problems can be resolved, the Company
believes there is a reasonable expectation of achieving that
goal through the plans and actions outlined above. See
"Business - General Development of Business," "Principal
Shareholders," "Certain Transactions" and "Description of
Capital Stock."
Additionally, the current and predecessor independent
accountants advised the Company of material weakness in the
internal control structure which effected interim financial
reporting. The Company took some corrective action during
1993 by establishing an audit committee of four senior
executives and officers of the Company and its subsidiaries.
This audit committee is to meet monthly to review all
financial aspects of the Company's operations. In addition,
the audit committee will systematically review the Company's
internal controls and make such changes as may be
appropriate. Some actions have already been taken to insure
compliance with existing controls and procedures. In
addition, the Company will, at the end of each fiscal
quarter, consistently perform control procedures, including
reconciliation of subledgers to general ledger account
balances, review allowance accounts for adequacy of
reserves, analyze account balances and net realizable values
where appropriate, perform analytical procedures and other
control procedures as deemed necessary to provide an
adequate internal control structure. Subsequent to the sale
of AMI, Republic and Microlabs and the formation of LTI the
audit committee has not met and will be reactivated during
1995. In addition, the Company implemented a policy
requiring a physical inventory to be taken at the end of
each fiscal quarter in addition to the physical inventory
taken at year end.
14
Liquidity and Capital Resources
At December 31, 1994, the Company has a positive
working capital balance of $779,566 compared to $(304,190)
at December 31, 1993. This increase in working capital was
due primarily to the sale of AMI, Republic and Microlabs as
current obligations in the amount of approximately
$1,500,000 were transferred to the new owner. Working
capital (deficit) for the Company was $(193,283) at December
31, 1992. The increase in working capital deficit from 1992
to 1993 was due primarily to the increase of accounts
payable and accrued expenses.
As of December 31, 1994, the Company had a cash balance
of $2,579 compared to a cash balance of $40,911 at December
31, 1993 and an overdraft cash balance of $165,152 at
December 31, 1992. The decrease or low balance of cash at
December 31, 1994 is due primarily due to the low volume of
sales in November and December 1994. The positive cash
balance at December 31, 1993 was principally the result of
stock sales which were offset by significant operating
losses and the Company trying to better manage its cash.
Cash declined during the year ended December 31, 1992
primarily due to the reduction of accounts payable,
equipment purchases, payment of capital lease obligations
and notes payable and to fund operating losses.
Accounts payable decreased approximately 90% to
$129,048 at December 31, 1994, from $1,299,417 at December
31, 1993 primarily due to the sale of AMI and Republic which
had outstanding accounts payable of approximately $1,500,000
at June 30, 1994, the date on which these entities were
sold. Payables increased approximately 51% to $1,299,417 at
December 31, 1993, from $858,617 at December 31, 1992
primarily due to the lack of available funds to timely pay
creditors and the decrease in production levels during 1993.
During 1992, the Company entered into several settlement
agreements to resolve litigation and threatened litigation.
The cash payments required by the settlements contributed
significantly to the reduction in accounts payable. The
settlements involved actions for monies past due on accounts
payable which were accrued as incurred in prior periods,
except for attorney's fees and interest which have not been
significant. Therefore, the settlements have not had any
significant effect on the Company's financial statements.
See legal proceedings incorporated herein by reference.
Inventories increased by approximately 6% to $1,042,306
at December 31, 1994 from $978,424 at December 31, 1993.
Inventories at December 31, 1992 were $1,053,836. The
inventory consists principally of electrical components and
raw materials utilized in the layout, design and assembly
process of electronic circuit boards. The decrease in
15
inventory from December 31, 1992 to December 31, 1993 was
primarily due to the lower levels of completed Republic
units on hand at December 31, 1993. The Company does not
presently anticipate significant writedowns for obsolescence
or reductions in net realizable value of product inventory
during 1995. The Company has an agreement with one of its
suppliers that it will let the supplier purchase components
from its existing inventory for its customers. This should
help reduce inventory values and give the Company additional
lines of credit for other components which it may need to
meet customer production requirements.
On June 29, 1994, AMI foreclosed on Republic under a
secured note and security agreement. Under the terms of the
security agreement and the provision of the Texas Uniform
Commercial Code, AMI accepted an assignment from Republic of
all of the property described in the security agreement
(being all of the tangible and intangible assets) in
satisfaction of Republic's secured debt to AMI.
Subsequently, on or about June 29, 1994, U.S. Technologies
Inc., foreclosed on AMI under a series of notes and security
agreements representing $1,871,069 in original principal.
Under the terms of the security agreements and the
provisions of the Texas Uniform Commercial Code, U.S.
Technologies Inc., accepted an assignment from AMI of all of
the property described in the security agreement (being
substantially all of AMI's tangible and intangible assets)
in satisfaction of AMI's secured debts to U. S. Technologies
Inc.
The Company sold its interest in Republic, AMI and Microlabs
on June 30, 1994 for $1,758 which resulted in a gain on the
sale of these entities of $1,376,959 (see note 16). On July
1, 1994, U.S. Technologies Inc. contributed the assets
obtained from AMI for all of the stock in a new coporation
new corporation, LTI.
The Company has entered into an agreement with one of
its suppliers to let them purchase components from LTI's
inventory when they have needs for certain items which
should result in an overall reduction of the raw material
inventory during 1995. The risk of obsolescence is inherent
due to the nature of the Company's business where designs
and components can become obsolete due to the rapid rate of
change in the electronics industry. The Company will
attempt to minimize this risk by planning its production and
inventory acquisition practices so as to minimize its
possible exposure. However, the rate of change is so rapid
that it is not possible to anticipate every possible risk.
Therefore, the risk of writedowns for future obsolescence
will be a continuing risk faced by the Company and will be
evaluated by management on an on going basis.
16
The Company is dependent on four customers for a major
portion of its sales. The sales of services to IBM
represented approximately 11%, 24% and 57% for the years
ended December 31, 1994, 1993, and 1992, respectively.
Trimble Navigation represented approximately 27%, 12% and
17% of sales during the years ended December 31, 1994, 1993
and 1992, respectively, Dell Computer Corporation
represented approximately 20% and 35% of the Company's sales
for the years ended December 31, 1994 and 1993 and Texas
Instruments accounted for approximately 14% of total sales
during the year ended December 31, 1994.
The business of LTI and former business of AMI is
capital intensive, i.e., significant investment in equipment
has been necessary. The Company acquired approximately,
$17,000, $197,000, and $363,000 of new and used equipment
during 1994, 1993 and 1992, respectively. At December 31,
1992 the Company had $115,812 of capital lease obligations,
all of which were related to equipment lease agreements.
During the year ended December 31, 1993, the Company
exercised all of the lease purchase options in the amount of
$78,695 on the capital leases which matured during 1993.
Additionally, the Company purchased software license rights
in the amount of $5,250 during 1992. The Company has funded
the capital expenditures of AMI through a mixture of
internal and external sources such as bank borrowings and
lease agreements.
AMI took possession during July, 1991 of a Philips
Surface Mount Pick and Place machine. This machine was
essential to AMI's operations in the surface mount line of
production. AMI attempted unsuccessfully to arrange
financing for the purchase of this machine over
approximately a 24 month period. On September 30, 1993,
Philips filed suit in the 98th Judicial District Court of
Travis County, Austin, Texas seeking judgment in favor of
Philips in the amount of $280,000; pre-judgment interest,
attorney's fees, cost of court and post-judgment interest.
On November 18, 1993, the parties reached an out of court
settlement in which AMI agreed to make a payment in the
amount of $9,000 and would relinquish possession of the
machine to Philips on December 3, 1993. The loss of this
particular piece of equipment has had an adverse impact on
AMI's and subsequently LTI's operations and has resulted in
a loss of approximately $200,000 in revenue per month since
then. Without a replacement machine being obtained in the
future, this could have a significant impact on the future
operations of LTI. LTI does plan to attempt to acquire
another surface mount pick and place machine, however, this
will be difficult given the current financial condition of
the Company. LTI's management believes the remaining
capital equipment is adequate for the foreseeable future as
it intends to seek more production which is labor intensive
17
to better utilize the available workforce within the prison
facilty.
AMI entered into an operating lease agreement with
Wackenhut Corrections Corporation, The Texas Department of
Criminal Justice, Division of Pardons and Paroles and the
City of Lockhart, Texas, to lease approximately 27,800
square feet of manufacturing and office space commencing
December 29, 1993 through January 31, 1997 and provides for
automatic three year extensions unless notification is given
by either party at least six months prior to the expiration
of each term. The lease provides for annual rental rates of
$1 per year for the primary term and the first automatic
three year extension. AMI made an assignment of this lease
to LTI on October 7, 1994. AMI has assigned all of its
right title and interest in the lease to LTI, but the
assignment of the Lease has not yet been accepted.
During the previous two years, the Company leased its
facilities at a cost of approximately $10,000 per month.
Republic was incorporated in November, 1988, and
introduced the Remote Processing Module systems (RPM) to the
microcomputer networking market in 1990. The RPM is a
diskless local area network workstation. No expenditures
were made during 1994 for research and development expenses
while approximately $76,000 and $128,000 were incurred for
the years ended December 31, 1993 and 1992, which
contributed to Republic operating losses of approximately
$212,000 and $938,000, respectively. Republic was sold on
June 30, 1994 and predominately all of the finished goods
inventory has subsequently been sold by LTI. The Company
does not intend to incur any more research and development
expense for this line of products or manufacture any more of
these systems.
During April 1993, the Company entered into an
uncollateralized note payable agreement with Mr. Leonard
Hilt, a former officer and director of the Company and
presently President of LTI, totaling $44,000. The loan was
payable on demand with an annual interest rate of 8%. On
June 18, 1993, Mr. Hilt exercised incentive stock options to
purchase 22,000 shares of the Company's Common Stock in
payment of this note.
During 1994 and 1993, 1,770,000 and 491,000 shares of
the Company's Rule 144 stock was sold for total
consideration of $412,500 and $214,860, respectively. The
excess of market price for the shares sold exceeded the
purchase price by $348,750 and $190,421 which has been
treated as compensation. The shares are "restricted
securities" as that term is defined in Rule 144 of the
Securities Act of 1933, as amended, and may only be resold
in compliance with said Rule 144. For a discussion of the
18
sale of these shares of Common Stock, see Note 12 to the
Notes to the Financial Statements which is incorporated
herein by reference. Additionally, 1,122,600, and 701,000
shares of the Company's qualified and non qualified stock
options were exercised which netted the Company $415,287 and
$808,531, for 1994 amd 1993, respectively.
On September 23, 1991, Ryan Corley, an officer and
director of the Company, acquired the outstanding principal
and accrued interest balance, line of credit agreement and
security interest held by First Interstate Bank of Texas,
N.A., Austin, Texas. In connection therewith, the Company
entered into a $17,969 loan agreement with Mr. Corley. In
addition, the Company entered into various additional loan
agreements with Mr. Corley during 1991 totalling $30,810,
which were additional extensions of credit under the loans
acquired by Mr. Corley from First Interstate Bank of Texas,
N.A., and secured by the same security interest The loans
were payable in full on or before April 10, 1992, and bear
interest of 8% per annum. These loans were paid in full
during 1993.
On January 29, 1992, AMI entered into two $50,000 line
of credit agreements with Liberty National Bank, Austin,
Texas. The first agreement bore interest of 10% per annum,
payable monthly, and was payable in full on August 1, 1992.
The second agreement matured and was renewed on May 21, 1992
and bore a variable index rate which was not to be more than
15% or less than 9% and matured September 21, 1992. On
October 22, 1992, both loans were consolidated into a new
loan in the amount of $80,000. The loan was a demand loan
which required monthly principal payments in the amount of
$10,000 and had a variable index rate which was not to be
more than 15% or less than 9% and required that the interest
be paid monthly. This loan matured and was paid in full
July 2, 1993.
From time to time during 1994, 1993, and 1992, the
Company has been delinquent or in default under all of its
loan and lease agreements with the exception of those loans
to the Company from its officers, directors and
shareholders. The Company's various lenders and leasing
companies have worked with the Company and provided it the
opportunity to bring the loans and lease obligations back
into performance. The leases matured in 1993 and AMI
exercised it's purchase option of the underlying equipment
for total cash outlay of $78,695 The Company did not enter
into any modification agreements as a result of any of the
past delinquencies or defaults with the exception of an
informal agreement with the FDIC with respect to those
certain loans having a principal balance of approximately
$158,681 at December 31, 1993 and June 30, 1994. These
loans were assigned to the FDIC following the closing of
Bank of the Hills. Following the assignment of the loans to
19
the FDIC the Company suspended payments thereon. In July,
1992, the Company entered into a verbal agreement to pay the
back interest that had accumulated on the notes in two
installments and to resume payments on the original terms.
Past due interest on these loans was paid to the FDIC in
September 1992. The Company also made principal payments of
approximately $19,000 during 1993 before payments were
discontinued due to lack of available funds. . (See Notes 6
and 8 to the Notes to Financial Statements which is
incorporated herein by reference.) On August 2, 1993 and
September 2, 1993, the FDIC Notified AMI that it considered
$43,251 and $115,430, respectively, of the loan in default
and demanded payment in full. These loans remained unpaid
as of June 30, 1994, the date on which AMI, Republic and
Microlabs were sold.
On March 24, 1992, the Company announced that it had
signed an Investment Banking Agreement with Thomas James
Associates, Inc., ("Thomas James") an investment banking
firm, to provide investment banking, research and consulting
services. In addition, Thomas James was to assist in future
financing for the Company. Terms of the one year agreement
called for the payment of consulting fees of $5,000 per
month plus reasonable expenses. In addition, the Company
granted to Thomas James a warrant, exercisable for 5 years,
to purchase 30,000 shares of the Company's Common Stock at
$8.4375. During the two year period from the date of the
agreement, Thomas James had the right of first refusal to
participate as underwriter, co-underwriter or placement
agent for any public or private offering of the Company's
securities. In December 1992, the Company proposed in
writing to Thomas James to terminate the agreement at that
time, with Thomas James retaining the original $5,000
payment and the warrant referenced above to which Thomas
James verbally agreed.
A future source of additional working capital may be
the 660,000 outstanding Redeemable Warrants issued in
connection with the Company's initial public offering and
60,000 redeemable warrants issued on April 14, 1987, The
Warrants are exercisable at $10.00 per Warrant and could
generate, after offering expenses, approximately $6,393,000.
The warrants were to expire April 14, 1992, however, the
Board of Directors of the Company have extended the
expiration date several times to September 30, 1995.
Management will be evaluating alternative sources of capital
as there is no assurance the Common Stock trading in the
public market will ever trade at the required closing bid
price for the specified amount of time to enable the
exercise of the Redeemable Warrants. It appears unlikely
that the warrants will be exercised unless the Company
should reduce the exercise price of the warrants, an action
which may not be practical.
20
On May 10, 1993, AMI executed a factoring Agreement
with Richards Capital Corporation "Richards" of Dallas,
Texas, to replace prior agreements with another factoring
company. The agreement provides for the sale of eligible
accounts receivables with and without recourse and for which
Richards will advance funds of 80% of such eligible
receivables. Additionally, Richards will charge a factoring
fee of 3% of the face amount of all invoices purchased and
an interest rate for funds advanced at an annualized rate of
3.5% above the prime rate of American Federal Bank of
Dallas. This agreement was cancelled by LTI in July 1994
after the assumption of accounts receivables from AMI by
U.S. Technologies and the assignment of them to LTI. LTI
presently has no lines of credit for accounts receivable and
carries its own receivables.
The discount and management fees of $44,167, $154,834 and
$106,062 were incurred during the three years ended December
31, 1994, 1993 and 1992, respectively, and are included in
the Consolidated Statements of Operations in general and
administrative expense. The estimated allowance for
doubtful accounts pursuant to the recourse provision was
reported as a provision for uncollectible accounts
receivable in the Consolidated Statement of Operations.
Total funding received during the years ended December 31,
1994, 1993 and 1992 from the sale of receivables was
$837,923, $4,517,891 and $6,254,371, respectively.
On July 16, 1993, Republic entered into a OEM Agreement
with Datapoint Corporation. Under the OEM agreement
Republic was to manufacture and deliver 386 and 486 versions
of its RPM computers to Datapoint for resale under the
Datapoint label. Due to production delays during 1993 in
Hong Kong and subsequent AMI production problems, only a
small number of units were delivered to Datapoint during
1993 and 1994. During the first three months of 1994
Republic tried to have AMI manufacture these units for
Datapoint, but experienced manufacturing problems and
component purchasing problems due to long lead times and the
lack of credit lines with suppliers. LTI has elected not to
continue on with this contract due to the lack of sufficient
credit lines and personnel to source the various components.
Additionally Datapoint's requirements were not as great as
initially projected.
On July, 23, 1993, The Company purchased a National
Cycle League (NCL) Team Membership which included a $5,000
membership fee to NCL Properties for the total purchase
price of $265,000, represented by a cash payment of $14,250
and 118,000 shares of its Restricted Rule 144 Common Stock.
The team membership gives the Company the option of
establishing a team in either within Germany or Spain if the
NCL doesn't sell a team membership in either country. If a
team membership is sold by the NCL in either of these
21
countries, the Company will have the right to establish a
team in the other country. During the year ended December
31, 1994, there have been sales of teams which help
establish market value greater than the carrying value of
the investment by the Company. Also, the league owners
association has established a minimum offering price for any
new teams in excess of the carrying value of this
investment. This franchise is transferable to a new
prospective owner should the Company desire to dispose of
the investment. The disposal of this investment would be a
source of future cash funds. Until the franchise is
activated, there presently are no cash requirements to
maintain the francise.
On May 31, 1994, The Company exchanged 300,000 shares
of its common stock with Paris Fashion Ltd. for gem stones
with a purported value, based on an appraisal, of
approximately $300,000. After the Company obtained a second
appraisal of the stones it was determined that the value was
approximately $143,000. The Company contacted Paris Fashion
Ltd. and demanded that the difference in appraised value be
corrected. Paris Fashion Ltd., immediately issued a note
payable to the Company in the amount of $160,000 with an
alleged value of an additional $170,000 in gem stones as
collateral. As of the date of this report, the Company has
been unable to obtain a qualified appraisal as to the value
of the additional collateral and as a result has provided
for a valuation reserve and a charge against operations in
the amount of $160,000 for the note receivable. The future
sale of these stones would be another source of cash funds.
The Company has guaranteed severance pay to four
individuals in the event of any merger or acquisition by the
Company. In such event the company has guaranteed severance
pay of four mounts each to Ryan Corley and Jack Bryant and
two months each for Leonard Hilt and Neil Ginther if their
employment with the Company or any subsidiary is termiated
voluntarily or involuntarily for any reason (with or without
cause) within six months following the closing of any
acquisiton or merger.
The Company and certain of its Subsidiaries are parties
to several legal proceedings that management considers to
have occurred during the normal course of business or as a
direct result of its inability to repay vendors on a timely
basis. See legal proceedings herein incorporated by
referrence.
Results of Operations
During the Year ended December 31, 1994 the Company had
a net loss of $(847,046) or $(0.16) per weighted-average
share, on consolidated net sales of $1,668,865 as compared
to a net loss of $(2,352,572) or, $(0.62) per weighted-
22
average share, on consolidated net sales of $6,655,573 in
1993. In 1992, the Company had a net loss of $(463,243) or
$(0.16) per weighted-average share, on consolidated net
sales of $8,888,016. AMI's 1993 sales decreased by
approximately 25% from 1992. The decrease in sales during
1994 was due primarily to the loss of a number of customer
orders after AMI moved into the prison facility. Many of
these orders were lost due to poor quality of work being
produced by the residents. After the quality was brought
under control the Company was in such poor financial
position that it was having severe difficulties in meeting
its payroll obligations and vendor commitments. The Company
was on a COD basis for virtually all purchases and did not
reduce its existing staffing levels quickly enough the help
curtail the problem. The decrease in sales from 1992 to
1993 was due primarily to unavailability of certain
components during the first four months of 1993 that AMI
needed to fill certain customer orders. During the year
ended December 31, 1993, Republic accounted for
approximately 6.5% of consolidated sales. MicroLabs and
Republic combined accounted for less than 2% of the
consolidated sales during the two years ended December 31,
1992.
The Company incurred a negative gross profit of
approximately $364,000 and $206,000 for the years ended
December 31, 1994 and 1993, respectively. Gross profit for
the year ended December 31, 1992 was $1,771,000 or 19.9%
The decrease in gross margin from 1992 to 1993 was due
partially to the decline in sales and management not
reducing overhead and expenses soon enough. The decrease in
gross margin in 1992 was due primarily to more competitive
conditions and the writedown to net realizable value of the
286SX units of approximately $159,000 and the writedown of
approximately $143,000 of AMI's inventory for materials
considered to be partially or completely obsolete.
Management anticipates gross margins to improve due to the
decrease in labor cost, the decrease in employee benefits
required for the resident employees and reduced facilities
cost in the future.
The increase in other income during 1993 compared to
1992 was due to a negotiated settlement on an accounts
payable incurred during the year ended December 31, 1992 and
settled in 1993.
Selling expenses represented approximately 9.7% of
sales in 1994 compared to 6.2% of sales in 1993 compared to
8.1% in 1992. The increase of selling expense in 1994
compared to 1993 is due primarily to a decrease in sales
volumes and sales personnel having fixed minimum
compensation. The decrease in sales expense during 1993 was
due primarily to the loss of one sales person and their
related sales expense.
23
Administrative expenses were approximately $1,499,036
or 89.8% of sales during 1994 compared to 26.2% and 11.8% in
1993 and 1992, respectively. The increase in administrative
expense for 1994 and 1993 was almost exclusively to the
charge to administrative expense in the amount of $869,000
and $689,000, respectively for the difference in the
exercise price for non-qualified stock options compared to
the market price on the date of the grant. The increase in
administrative expenses during 1992 is primarily due to the
Company's hiring of additional middle management personnel
in AMI and approximately $106,000 of discount and management
fees paid for receivables sold during 1992. Continued
attempts are being made to control both selling and
administrative costs.
No expenditures were made during 1994 for research and
development while approximately $76,000, and $128,000 was
spent during the years December 31, 1993 and 1992,
respectively. The Company does anticipate incurring
expenditures for research and development during 1995 in
completing the high speed tape back up system being
developed by Newdat, Inc. (see note 16).
While LTI anticipates continuing increases in demand
for its services, the capability to meet these demands are
limited by equipment, personnel and working capital.
Management does not anticipate a lower level of sales for
LTI than that realized during 1994.
The Company adopted Financial Accounting Standard
("FASB") No. 109, "Accounting for Income Taxes" during the
year ended December 31, 1993, which establishes generally
accepted accounting principles for the financial accounting
measurement and disclosure principles for income taxes that
are payable or refundable for the current year and for the
future tax consequences of events that have been recognized
in the financial statements of the Company and past and
current tax returns. The change had no effect on prior year
results.
The FASB issued Statement No. 106, "Employers'
Accounting for Post Retirement Benefits other than
Pensions", and Statement No. 112, "Employers' Accounting for
Post Employment Benefits" effective for fiscal years
beginning after December 15, 1992 and December 15, 1993,
respectively. The Company currently has no Post Retirement
plans and provides no material post employment benefits, and
management does not anticipate such a plan or post
employment benefits in the immediate future. Accordingly,
FASB Nos. 106 and 112 have had no immediate impact on the
Company's financial statements.
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
U.S. Technologies Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets
of U.S. Technologies Inc. and Subsidiaries as of December
31, 1994 and 1993, and the related consolidated statements
of operations, changes in stockholders' equity 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 audit. The financial statements of
U.S. Technologies Inc. and Subsidiaries for the years ended
December 31, 1992 were audited by other auditors whose
report dated April 29, 1993, on those statements included an
explanatory paragraph that described conditions that raised
substantial doubt about the Company's ability to continue as
a going concern.
We conducted our audit 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 audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of U.S. Technologies Inc. and
Subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for the
years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As discussed in Note 1 to the financial statements, the
Company suffered significant losses from operations during
each of the three years in the period ended December 31,
1994, 1993 and 1992 and had working capital deficiencies at
December 31, 1993 that raise substantial doubt about its
ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1.
21
The financial statements do not include any adjustments that
might result from this uncertainty.
BROWN, GRAHAM AND COPMANY P.C.
Georgetown, Texas
April 15, 1995
22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
U.S. Technologies Inc. and Subsidiaries
We have audited the accompanying consolidated statements of
operations, changes is stockholders' equity, and cash flows
of U.S. Technologies Inc. and Subsidiaries for the year
ended December 31, 1992. 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 audit.
We conducted our audit 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 audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
results of operations and cash flows of U.S. Technologies
Inc. and Subsidiaries for the year ended December 31, 1992
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As discussed in Note 1 to the financial statements, the
Company suffered significant losses from operations during
the year ended December 31, 1992 and has a working capital
deficiency at December 31, 1992 that raise substantial doubt
about its ability to continue as a going concern.
Management's plans in regard to these matters are also
described in Note 1. The consolidated financial statements
do no include any adjustments that might result from this
uncertainty.
COOPERS & LYBRAND L.L.P.
Austin, Texas
April 29, 1993
22
U.S. Technologies Inc.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1994 1993
Current assets:
Cash in bank $ 2,579 $ 40,911
Accounts receivable:
Trade, net 117,900 468,791
Officers, directors and employees 72,927 31,027
Notes receivable - related parties 48,805
Inventories, net 1,042,306 978,424
Prepaid expenses 31,112 52,880
Total current assets 1,266,824 1,620,838
Property and equipment - net 426,238 770,832
Other assets:
Licenses - net 26,500
Investment - NCL 265,000 265,000
Investment - Gem stones 143,564
Other assets 18,714 2,155
Total other assets 427,278 293,655
Total assets $2,120,340 $2,685,325
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 50,000 $ 158,681
Obligations under capital leases 49,053
Accounts payable 129,048 1,299,417
Accrued expenses 308,210 417,877
Total current liabilities 487,258 1,925,028
Commitments and contingencies: (Note 8)
Stockholders' equity:
Common stock - $.02 par value; 20,000,000 shares authorized;
6,969,635 and 4,077,029 shares issued and outstanding
at December 31, 1994 and 1993, respectively 139,393 81,541
Additional paid-in capital 7,977,821 6,315,872
Accumulated deficit (6,484,132) (5,637,116)
Total stockholders' equity 1,633,082 760,297
Total liabilities and stockholders' equity $2,120,340 $2,685,325
The accompanying notes are an integral part
of the consolidated financial statements
23
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1994 1993 1992
Net Sales $1,668,865$6,655,573$8,888,016
Operating costs and expenses:
Cost of sales 2,032,521 6,861,981 7,116,841
Research and development expense 76,419 127,689
Selling expense 161,752 416,479 716,101
General and administrative expense 1,499,036 1,742,160 1,044,949
Provision for doubtful receivables 206,266 6,630 239,271
______________________________
Total operating costs and expense3,899,575 9,103,669 9,244,851
______________________________
Loss from operations (2,230,710)(2,448,096)(356,835)
Other income (expense)
Interest income 1,655 7,680
Interest expense (20,016) (62,093) (96,139)
Gain on sale of subsidiaries 1,376,959
Other income 29,748 169,139 35,039
Other expense (2,997) (13,177) (53,168)
________________________________
Total other income (expense) 1,383,694 95,524 (106,588)
________________________________
Net Loss $(847,016)$(2,352,572)$(463,423)
Loss per common share $ ( .16)$ (0.62) $ (0.16)
Cash dividends per common share $ -0- $ -0- $ -0-
Weighted-average common shares outstanding 5,302,1473,794,6312,830,972
24
The accompanying notes are an integral part
of the consolidated financial statements
25
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
$0.02 Par Value
Common StockAdditional
Number of Par Paid-InAccumulated
Shares ValueCapital Deficit Total
Balance, January 1, 19922,710,629$54,213$3,740,907$(2,821,121)$973,999
Stock options exercised 41,700 834 125,322 126,156
Warrant exercised - April 14, 199260,000 1,200 214,800 216,000
Stock issued for debt - July 30, 1992108,7002,174 242,401 244,575
Net loss __________ ________________ (463,423) (463,423)
Balance, December 31, 19922,921,02958,4214,323,430(3,284,544)1,097,307
Stock options exercised 340,000 6,800 709,231 716,031
Rule 144 stock issued 373,000 7,460 450,696 458,156
Stock exchanged for services325,0006,500 584,125 590,625
Stock issued - investment NCL118,0002,360248,390 250,750
Net loss _________ _________________ (2,352,572)(2,352,572)
Balance, December 31, 19934,077,029 81,541 6,315,872 (5,637,116) 760,297
Stock options exercised 171,606 3,432 125,718 129,150
Rule 144 stock issued 1,470,000 29,400 556,850 586,250
Stock exchanged for services951,00019,020685,381 704,401
Stock issued - gems 300,000 6,000 294,000 300,000
Net loss ________ ________________ (847,016) (847,016)
Balance, December 31, 19946,969,635$139,393$7,977,821$(6,484,132)$1,633,082
The accompanying notes are an integral part
of the consolidated financial statements.
26
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1994 1993 1992
Cash flows from operating activities:
Net loss $(847,016)$(2,352,572) $(463,423)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 297,698 371,392 362,547
Allowance for writedown of gem stones156,436
Loss on retirement of assets 15,917
Excess of market over issue price
non qualified stock options and Rule 144 stock869,452 688,546
Gain on sale of subsidiaries (1,376,959)
Changes in certain assets and liabilities:
Accounts receivable (785,655) 169 107,058
Inventory (80,341) 75,412 86,657
Notes receivable 48,805 378 (49,183)
Prepaid expense (8,713) (50,242) 20,279
Accounts payable 858,745 440,800 (342,334)
Accrued expenses 406,753 241,582 (135,461)
________ ________ ________
Net cash used in
operating activities (460,795) (584,535) (397,943)
________ ________ ________
Cash flows from investing activities:
Proceeds from sale of subsidiaries 1,758
Proceeds from release of
deposit on capital leases 46,184
Equipment purchases (37,607) (197,989) (4,057)
Decrease (increase) in other assets 25 601 40,993
Cost of Licenses purchased (5,250)
Investment in NCL _______ (14,250) _______
Net cash used in investing activities (35,824) (165,454) 31,686
Cash flows from financing activities:
Proceeds from issuance of common stock458,2871,076,266 242,156
Principal payments for obligation under capital leases
and notes payable (120,214) (384,719)
Increase in notes payable 361,000
Proceeds payments - overdrafts (165,152) 147,820
_______ _______ _______
Net cash provided by financing activities458,287 790,900 366,257
Increase (decrease) in cash (38,332) 40,911 -0-
Cash, beginning of period 40,911 -0 -0-
Cash, end of period $ 2,579 $40,911 $ -0-
Supplemental disclosure of cash flow information:
Cash paid for interest during the years ended December 31, 1994,
1993 and 1992 was $20,016, $62,093 and $101,888 respectively.
Supplemental schedule of noncash investing and financing activities:
The accompanying notes are an integral part
of the consolidated financial statements.
27
1994: Issued 300,000 shares of stock for investment in gem
stones.
Sold three subsidiaries for $1,758 of cash. Purchaser received
$214,159 in current assets, $94,419
in fixed assets and the assumption of $1,589,360 in current
liabilites.
1993: Issued 118,000 shares of stock for investment in NCL
Capital lease obligations of $222,167 were relieved for lease
equipment returned to lessor.
Deposits on capital leases in the amount of $67,914 were
applied to capital lease obligations.
1992: Purchase of equipment for a note in the amount of
$330,080.
Deposit on capital lease reduced in the amount of $28,695 for
purchase of equipment.
Issued 130,400 shares of stock to retire $344,575 of notes
payable to a stockholder.
The accompanying notes are an integral part
of the consolidated financial statements.
28
U.S. Technologies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
U.S. Technologies Inc. furnishes administrative and management
services to its wholly owned subsidiaries. Lockhart
Technologies, Inc.("LTI") and Newdat, Inc., and furnished the
same services to its formerly wholly owned subsidiaries American
Microelectronics Inc., "AMI" Republic Technology Corporation
"Republic", Microlabs, Inc. "Microlabs" LTI operations consist of
contract manufacturing, prototyping and repair of printed circuit
boards using surface mount, through-hole and mixed technology.
This technology accounted for approximately 99% of the
consolidated net sales. Newdat, Inc. and its 80% owned
subsidiary SensonCorp, Limited were acquired on January 23, 1995
(see note 18). U.S. Technologies Inc., together with its
subsidiaries, are hereinafter referred to collectively as "the
Company."
Principles of Consolidation
The consolidated balance sheet at December 31, 1994 includes
the accounts of U.S. Technologies Inc., and Lockhart
Technologies, Inc. The consolidated balance sheet at December
31, 1993 includes U.S. Technologies Inc. and its formerly wholly
owned subsidiaries AMI, Republic and Microlabs. The consolidated
statements of operations, changes in stockholders' equity and
cash flows include the accounts of U.S. Technologies Inc.,
Lockhart Technologies, Inc., from inception on June 29, 1994
through December 31, 1994, and its formerly wholly owned
subsidiaries American Microelectronics Inc., Republic Technology
Corporation and U.S. Microlabs Inc., (see note 19) for all years
reported thereon through June 30, 1994. The operating results
for Newdat, Inc. and its 80% equity in Sensoncorp, Limited are
not reflected in accompanying consolidated financial statements
(see note 16) as the acquisition has been accounted for in 1995.
All significant intercompany transactions have been eliminated.
Presentation Basis
The Company's consolidated financial statements have been
presented on the basis that the Company is a going concern which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company
incurred significant losses during each of the three years in the
period ended December 31, 1994, and had working capital
deficiencies at December 31, 1993. Additionally, at various
times during 1994 and 1993, the Company was in default
(delinquent payments) on its debt obligations.
The Company's continued existence is dependent upon its
ability to resolve its liquidity problems. While there is no
assurance that such problems can be resolved, the Company
believes there is a reasonable expectation of achieving that goal
27
through the cash generated from future operations, the
introduction of new products into the market (see note 16) and
the sale of additional common stock through a private placement.
Inventories
Inventories are stated at the lower of cost or market
utilizing the average cost method for raw materials and work-in-
progress, and the first-in, first-out method for finished goods.
Property and Depreciation
Property and equipment are stated at cost less accumulated
depreciation. Expenditures for additions, renewals and
improvements of property and equipment are capitalized.
Expenditures for repairs, maintenance and gains or losses on
disposals are included in operations. Depreciation is computed
using the straight-line method over the following estimated
lives:
Estimated Lives
Equipment 5-7 years
Furniture and fixtures 7 years
Vehicles 3 years
Leasehold Improvementsterm of building lease
Licenses
The cost of obtaining the rights to copy certain proprietary
software for use in the Remote Processing Module ("RPM") are
being amortized over five years using the straight line method.
28
Earnings per Share
Net loss per common share is based on the weighted average
number of common shares and common share equivalents outstanding
in each period. The shares reserved for stock options and
warrants are anti-dilutive for the purpose of determining net
income or loss per share.
Recent Pronouncements
The Company adopted Financial Accounting Standard ("FASB")
No. 109, "Accounting for Income Taxes" during the year ended
December 31, 1993, which establishes generally accepted
accounting principles for the financial accounting measurement
and disclosure principles for income taxes that are payable or
refundable for the current year and for the future tax
consequences of events that have been recognized in the financial
statements of the Company and past and current tax returns. The
change had no effect on prior year results.
Product Warranties
Under the Company's product warranty program, the Company
has agreed to replace certain products during the one year
warranty program. Expected warranty costs, if any, are provided
for in the period in which products are sold. To date accrued
warranty costs are immaterial.
Revenue Recognition
Revenue is recognized from sales of products when the
product is shipped.
2. ACCOUNTS RECEIVABLE - TRADE
During 1991, AMI entered into an Accounts Management
Agreement and an Accounts Financing Agreement with Lightship
Financial Group, Inc., Philadelphia, Pennsylvania, ("Lightship")
whereby AMI sold "eligible" accounts receivable to Lightship
which also managed the collection of all of AMI's accounts
receivable. The terms of the agreements required AMI to insure
its eligible accounts receivable against bankruptcy and to direct
customer remittances to a lockbox designated by Lightship.
Lightship funded 75% of each eligible receivable invoiced on a
daily basis. The balance of each receivable was funded upon the
receipt of payment by Lightship. The agreements provided for a
discount fee on funds advanced at an annualized rate of Citibank
prime plus 2%. The discount fee was charged from the date of
advance until payment was received and was calculated for a
period of not less than thirty days. A management fee of .5% of
the face amount of all AMI accounts receivable was also charged
to the Company.
On May 10, 1993, AMI executed a factoring Agreement with Richards
Capital Corporation "Richards" of Dallas, Texas, to replace the
accounts management agreement and the accounts financing
agreement with Lightship. The agreement provides for the sale of
eligible accounts receivables with and without recourse to
29
Richards which will advance funds equal to 80% of such eligible
receivables. Additionally, Richards will charge a factoring fee
of 3% of the face amount of all invoices purchased and an
interest rate for funds advanced at an annualized rate of 3.5%
above the prime rate of American Federal Bank of Dallas. Under
the terms of the agreement, Richards has a continuing security
interest in AMI's accounts receivables and inventory.
The discount and management fees discussed above of $44,167,
$154,834 and $106,062 were incurred during the three years ended
December 31, 1994, 1993 and 1992, respectively, and are included
in the Consolidated Statements of Operations in general and
administrative expense. The estimated allowance for doubtful
accounts pursuant to the recourse provision is reported as a
provision for uncollectible accounts receivable in the
Consolidated Statement of Operations. Total funding received
during the years ended December 31, 1994, 1993 and 1992 from the
sale of receivables was $837,923, $4,517,891 and $4,254,371
respectively.
Accounts receivable - trade at December 31 is net of an
allowance for doubtful accounts as follows:
1994 $49,830
1993 129,044
30
3. INVENTORIES
At December 31, inventories consist of the following:
1994 1993
Raw Materials $1,005,380 $703,602
Work in progress 7,122 85,110
Finished goods 29,804 189,712
$1,042,306 $978,424
The Company provided an allowance for obsolete raw materials of
$33,000, $15,000 and $148,193, which was charged against cost of
sales, during the years ended December 31, 1994, 1993 and 1992,
respectively. Additionally the Company recorded, and charged to
cost of sales, a writedown to net realizable value its carrying
cost of finished goods inventory in the approximate amounts of
$46,000, $26,000 and $160,000 during the years ended December 31,
1994, 1993 and 1992, respectively.
4. PROPERTY AND EQUIPMENT
At December 31, property and equipment consists of:
1994 1993
Equipment $1,566,634 $1,807,054
Furniture and fixtures 179,721 201,606
Vehicles 12,873 12,873
Leasehold improvements 204,865 184,157
1,964,093 2,205,690
Less accumulated depreciation1,537,8551,434,858
$ 426,238 $ 770,832
Depreciation expense for the years ended December 31, 1994,
1993 and 1992 was $287,782, $346,594 and $334,028, respectively.
5. LICENSES
During 1989, 1990 and 1992, the Company entered into license
agreements totaling $160,250 with certain software vendors for
the right to reproduce and distribute 10,000 copies of certain
BIOS and operating system software used in its RPM units.
Amortization is computed using the straight-line method over 5
years. Amortization expense for 1994, 1993 and 1992 totaled
$9,917, $24,798 and $28,519 respectively. Accumulated
amortization at December 31, 1994, 1993 and 1992 was $95,475,
$87,688 and $60,760, respectively.
6. NOTES PAYABLE
Notes payable and long-term debt at December 31, 1994 and
1993, consist of the following:
1994 1993
31
AMI had notes payable to a
bank for financing of
equipment. The notes carried
interest rates of 8.145% and
8.98% and were collateralized
by the related equipment.
Payments of $2,203 and $5,511
were due monthly until
December, 1994, and February,
1995
including interest (see Note 9) $158,681
Note payable to Coopers &
Lybrand, the Company's former
independent accountants in the
amount of $50,000. The loan
is a demand loan which
requires monthly principal
payments in the amount of
$5,000 and bears an interest
rate at prime as stated in the
Wall Street Journal and
requires that the interest be
paid
monthly maturing June 21, 1994.
$50,000 _________
Total maturities $50,000 $158,681
32
7. INCOME TAXES
Deferred federal income tax at December 31, 1994 follows:
Deferred federal income tax asset $1,772,010
Valuation allowance (1,772,010)
Total deferred tax asset $ -
0-
The Company has available for federal income tax purposes
unused operating losses which may provide future tax benefits
which expire as follows:
Year of Expiration Net Operating Loss
2003 $1,383,000
2005 390,000
2006 165,000
2007 147,000
2008 2,291,000
2009 836,000
$5,212,000
8. COMMITMENTS AND CONTINGENCIES
The Company relocated its operations to a minimum security
prison facility on December 29, 1993. AMI, a formerly wholly
owned subsidiary of the Company, had a lease agreement with
Wackenhut Corrections Corporation, The Texas Department of
Criminal Justice, Division of Pardons and Paroles and the City of
Lockhart, Texas, to lease approximately 27,800 square feet of
manufacturing and office space under an operating lease through
January 31, 1997. The lease provides for automatic three year
extensions unless notification is given by either party at least
six months prior to the expiration of each term. This lease was
assigned by AMI to Lockhart Technologies, Inc. on October 7,
1994, however the assignment has not been approved by Wackenhut
Corrections Corporation. The lease provides for annual rental
rates of $1 per year for the primary term and the first automatic
three year extension. The Company continues to lease office
space in Austin. Rental expense for the years ended December 31,
1994, 1993 and 1992, was $7,290, $132,000 and $126,000,
respectively.
On March 22, 1995, the Company was served with a citation in
TTI Testron, Inc. vs. American Microelectronics, Inc. and
Lockhart Technologies, Inc., County Court at Law No. 1, Travis
County, Texas, Cause No. 221,094. The petition alleges that
Lockhart Technologies, Inc. received the assets of American
Microelectronics Inc. without consideration. The action seeks
damages of $11,527. The Company believes the claim is without
merit.
On August 9, 1994, an action styled Austin Temporary
Services, Inc. vs. U.S. Technologies, Inc., dba American
33
Microelectronics Inc., 345th Judicial District Court, Travis
County Texas, Cause No. 94-09813, alleging that the Company was
indebted to Austin Temporary Services, Inc. ("ATS") in the amount
of $67,622 plus costs of court, interest, and attorney's fees for
temporary employee services that ATS furnished to American
Microelectronics Inc. Subsequently, ATS has amended its petition
to add Jack D. Bryant, Ryan Corley, Leonard D. Hilt, American
Microelectronics, Inc., and Lockhart Technologies, Inc. as
additional named defendants. Under the present pleadings, ATS is
claiming breach of contract and fraud and is attempting to pierce
the corporate veil between the various companies and the named
individuals. Mr. Bryant is a Director of the company. Mr.
Corley is a Director and President of the Company. Mr. Hilt is
the President and the Director of Lockhart Technologies, Inc.
The Company believes ATS's claims are without merit.
On January 24, 1995, an action styled SensonCorp Systems,
Inc., SensonCorp Pacific, SensonCorp Southeast, SensonCorp West,
Creative Media Resources vs. SensonCorp Limited, William Meehan,
Dugal Allen, John Allen, DOES 1 through 50, United States
District Court Northern District of California, Cause No. C-95-
00282. The action seeks equitable relief and damages for breach
of contract, breach of implied warranty of good faith and fair
dealing, common law fraud, negligent misrepresentation, unfair
competition, interference with contract, accounting,
receiver/attachment, and theft of trade secrets. The causes of
action are related to a marketing agreement between Senson and
the plaintiffs. Defendant John Allen is the Chairman of the
Board of the Company. Dugal Allen is John Allen's son and is
vice president of operations. Mr. Meehan is a business associate
of John Allen. The suit does not specify the dollar amount of
damages sought. The plaintiff's were denied most of the
equitable relief they sought, but have obtained a temporary
injunction requiring Senson to continue selling them certain
products on Senson's usual and customary terms. The Company
believes the plaintiff's claims are without merit and that Senson
and the other named defendants will ultimately prevail.
On July 14, 1989, Registrant's Board of Directors adopted a
bonus plan that sets aside 1%, 2% and 3% of sales as long as the
Company has maintained pretax income of 10%, 15% and 20% of
sales, respectively. The performance standards will be based on
a three month period of time. Bonuses will be accrued quarterly
and determined as of the end of each calendar year. No employees
will have vested rights in the bonus plan. The Board of
Directors will act as a committee to determine who participates
and the actual amount of the individual bonuses. No bonuses were
declared during 1994 and 1993. $5,250 of bonuses were declared
and charged against earnings in 1992.
On March 21, 1994, The District Court, 98th Judicial
District, Travis County, Texas granted a judgment to Travis
County, et al. in the amount of $78,732 plus interest in the
amount of $13,397 and attorney's fees in the amount of $13,819
34
against AMI for delinquent taxes for the years of 1992 and 1993.
The total Judgment was accrued at December 31, 1993 and 1992 in
the amounts of $57,940 and $48,008, respectively and was recorded
as an expense. The Company is not liable for the judgment, but
has reflected these amounts in accrued liabilities because the
judgments remain unpaid and are a lien on certain equipment owned
by LTI that was previously owend by AMI.
For the months of February, March and the period of July 1
through September 3, 1993, the Company's health, life and dental
insurance coverage for its employees lapsed with its insurance
carrier. The Company has assumed the position of self-insuring
all risks associated with those policies for such periods which
management estimates will not exceed $44,000 and which has been
charged against earnings during 1993.
There were several lawsuits outstanding against AMI and
Republic at the time they were sold. AMI and Republic are
separate corporations, incorporated under the laws of the State
of Texas. Therefore, the Company believes it has no liability
arising out of or in connection with any lawsuits against AMI or
Republic.
The Company has guaranteed severance pay to four individuals
in the event of any merger or acquisition by the Company. In
such event the company has guaranteed severance pay of four
mounts each to Ryan Corley and Jack Bryant and two months each
for Leonard Hilt and Neil Ginther if their employment with the
Company or any subsidiary is termiated voluntarily or
involuntarily for any reason (with or without cause) within six
months following the closing of any acquisiton or merger.
9. ESCROW AGREEMENT
Dr. R. E. Woody, a shareholder; Mr. Ryan Corley, a
shareholder, Chairman of the Board of Directors, President and
Chief Executive Officer and Mr. Neil E. Ginther, a shareholder of
less than 5% of the outstanding shares of Common Stock of the
Company escrowed 693,360, 405,533 and 56,700 shares of their
stock, respectively, pursuant to an escrow agreement required by
the state of Texas which, among other things, provided that if in
the first twelve (12) months following the effective date of the
Registration Statement (April 14, 1987), the closing bid price
for the Company's Common Stock was not at least $10.00 for a
period of twenty (20) consecutive trading days, an aggregate of
200,000 shares of Common Stock would be released from the escrow
and contributed back to the Company. On April 14, 1988, pursuant
to the escrow agreement, Mr. Ryan Corley, Mr. Neil Ginther and
Dr. R. E. Woody released an aggregate of 200,000 shares of Common
Stock from escrow and contributed the shares back to the Company
and such shares were cancelled. Additionally, if in the second
twelve (12) months following such effective date, the closing bid
price was not at least $15.00 for a period of twenty (20)
consecutive trading days, an additional 200,000 shares of Common
35
Stock in the aggregate would be released from the escrow and
delivered to the Company. On April 14, 1989, pursuant to the
escrow agreement, Mr. Ryan Corley, Mr. Neil Ginther and Dr. R. E.
Woody released an aggregate of 200,000 shares of Common Stock
from escrow and contributed the shares back to the Company which
cancelled them.
The escrow agreement provided for the release of the
remaining shares over the four year period following the April
14, 1987 anniversary date if earnings and trading price per share
reached certain levels. These levels were not attained;
therefore, pursuant to the agreement, the escrowed shares shall
be released on a pro-rata basis by the escrow agent to each of
the three shareholders yearly commencing April 15, 1993 through
April 15, 1998 at the rate of 20% of their respective shares
remaining in escrow at April 15, 1993. The number of shares
released from escrow on April 14, 1994 and 1993 to Dr. R.E.
Woody, Ryan Corley and Neil E. Ginther was 138,672, 81,106 and
11,340, respectively in each of the two years.
All of the escrowed shares have been treated as issued and
outstanding shares in all references to the number of shares
outstanding and have been included in the weighted average number
of shares outstanding in all references to earnings per share
during the time periods in which they were outstanding.
36
10. CUSTOMERS
During the years ended December 31, 1994, 1993 and 1992, IBM
represented approximately 11%, 24% and 57%, respectively, of the
Company's sales. Trimble Navigation, represented 27%, 12% and
17% of the Company's revenues during the years ended December 31,
1994, 1993 and 1992, respectively and Dell Computer Corporation
represented approximately 20% and 35% of the Company's sales for
the years ended December 31, 1994 and 1993, respectively and
Texas Instruments accounted for approximately 14% of sales for
the year ended December 31, 1994.
11. STOCK OPTION PLANS - QUALIFIED
The 1988 Employee Stock Option Plan (the "1988 Plan") was
approved at the Annual Meeting of Shareholders on March 16, 1989.
The 1988 Plan reserves 300,000 shares of the Company's Common
Stock to be granted to officers and employees at the discretion
of the Board of Directors.
The 1990 Employee Stock Option Plan (the "1990" Plan") was
approved at the Annual Meeting of Shareholders on June 8, 1990.
The 1990 Plan reserves 300,000 shares of the Company's Common
Stock to be granted to officers and employees at the discretion
of the Board of Directors.
Both plans provide that all options must be granted at not
less than the market price at the time of the grant. The term of
the options will be selected by the Board of Directors, but in no
event will such term exceed ten years from the date of the
granting of the option. All options are nontransferable, except
upon death, and, during the lifetime of the optionee, are
exercisable only by the optionee.
The following table contains information on stock options:
Average Option
Shares Price per Share
Granted:
1989 182,600 $2.00
1990 358,560 $2.50
1991 110,100 $5.10
1992 230,720 $4.41
1993 220,000 $1.64
1994 224,700 $0.60
Exercised:
1989 3,800 $1.90
1990 40 $2.20
1991 118,980 $3.20
1992 162,520 $3.28
1993 153,000 $1.99
1994 171,600 $0.75
Forfeited/cancelled:
1989 122,460 $4.20
1990 176,880 $3.60
37
1991 139,540 $3.10
1992 133,760 $4.97
1993 91,000 $3.16
1994 87,920 $3.03
Outstanding at year end:
1988 238,760 $4.95
1989 295,820 $3.30
1990 477,460 $2.90
1991 329,040 $3.60
1992 341,820 $3.79
1993 281,500 $2.86
1994 182,580 $3.41
Exercisable at year end:
1989 155,800 $4.85
1990 109,080 $3.60
1991 131,707 $3.10
1992 166,320 $3.84
1993 124,700 $1.98
1994 110,655 $3.80
Options for a total of 6,840 shares are available for
grant to officers and key employees under the 1988 and 1990
plans, under which grants may be made until August 2, 1998 and
October 6, 1999, respectively.
38
12. STOCK OPTION PLANS - NONQUALIFIED
On May 4, 1993, September 3, 1993 and April 15, 1994, the
Company adopted the 1993, 1993A and 1994 nonqualifying stock
option plans, respectively. The plans reserve 500,000, 800,000
and 800,000 shares of the Company's Common Stock to be granted to
non-employees, directors, and/or other persons associated with
the Company whose services have benefited the Company.
The following table contains information on the nonqualified
stock options:
Average Option
Shares Price per Share
Granted:
1993 1,025,000 $1.56
1994 710,000 $.20
Exercised:
1993 512,000 $.98
1994 951,000 $.41
Outstanding at year end:
1993 513,000 $2.13
1994 272,000 $.05
Exercisable at year end:
1993 513,000 $2.13
1994 272,000 $.05
Some of the options were granted at less than market value
at the date of the grant. The excess of the market value over
the option price in the amount of $188,694 and $498,125 has been
included in expense in the accompanying financial statements as
compensation for the years ended December 31, 1994 and 1993,
respectively.
There are 90,000 shares available to grant as of December
31, 1994 under these plans.
13. STOCKHOLDERS' EQUITY
At December 31, 1994, the Company has outstanding 660,000
warrants which entitle the holder to purchase one share of common
stock at $10 per warrant. The warrants expire on September 30,
1995.
On February 8, 1993, at a special shareholders meeting, the
shareholders approved a one for five reverse split of the
Company's common stock and to change the authorized number of
shares and par value from 40,000,000 shares at $.01 par to
20,000,000 shares at $.02 par value. All share and per share
amounts included in the accompanying financial statements and
39
related notes thereto have been retroactively restated to reflect
this event.
During 1994 and 1993, 1,770,000 and 491,000 shares of the
Company's Rule 144 stock was sold for total consideration of
$412,500 and $214,860, respectively. The excess of market price
for the shares sold exceeds the purchase price by $348,750 in
1994 and $190,421 in 1993 has been treated as compensation and
included in the accompanying financial statements in
administrative expenses.
The following table reconciles the number of common shares
shown as outstanding on the balance sheet with the weighted-
average number of common and common equivalent shares used in
computing earnings per share for the years ended December 31,
after giving effect to the one for five reverse stock split
effective February 9, 1993:
1994 1993 1992
Common shares outstanding at December 316,969,6354,077,029 2,921
,029
Effect of using weighted
average common
shares outstanding (1,667,488) (282,398) (93,057)
_________ _________ _________
Shares used in computing
earnings per share 5,302,147 3,794,631 2,830,972
On May 31, 1994, The Company exchanged 300,000 shares of its
common stock with Paris Fashion Ltd. for gem stones with a
purported value, based on an appraisal, of approximately
$300,000. After the Company obtained a second appraisal of the
stones it was determined that the value was approximately
$143,000. The Company contacted Paris Fashion Ltd. and demanded
that the difference in appraised value be corrected. Paris
Fashion Ltd., immediately issued a note payable to the Company in
the amount of $160,000 with an alleged value of an additional
$170,000 in gem stones as collateral. As of the date of this
report, because the events only recently transpired, the Company
has been unable to obtain a qualified appraisal as to the value
of the additional collateral and as a result has provided for a
valuation reserve and a charge against operations in the amount
of $160,000 for the note receivable.
On July, 23, 1993, The Company purchased a National Cycle
League (NCL) Team Membership which included a $5,000 membership
fee to NCL Properties for the total purchase price of $265,000,
represented by a cash payment of $14,250 and 118,000 shares of
its Restricted Rule 144 Common Stock. The team membership gives
the Company the option of establishing a team in either within
Germany or Spain if the NCL doesn't sell a team membership in
either country within one year. If a team membership is sold by
40
the NCL in either of these countries, the Company will have the
right to establish a team in the other country.
During the year ended December 31, 1993, the Company issued
100,000 shares of its Rule 144 stock to Chandler, Church &
Company for an agreement for future promotional services.
Chandler, Church & Company advised the Company that it did not
consider that the stock was to have been issued by the Company
and advised the Company that they did not have a contract with
the Company. On December 21, 1993, The Company advised the stock
transfer agent to cancel the stock certificate and that if the
shares were presented for transfer that the purchaser thereof
could not be a bona fide purchaser. The Company has not included
the shares in the shares outstanding as of December 31, 1993 and
1994 or included them in the weighted average shares in the per
share computation.
14. SALE OF SUBSIDIARIES
Prior to June, 1994, the Company owned three (3) additional
subsidiaries which had been in operation for several years:
American Microelectronics Inc. ("AMI"), Republic Technology
Corporation ("Republic"), and U.S. MicroLabs Inc. ("MicroLabs").
AMI was in the electronics contract manufacturing business.
Republic was in the business of designing and marketing personal
computers. MicroLabs had been inactive for several years, but
had at one time been in the business of developing and marketing
software. AMI was the largest secured creditor of Republic. The
Company was the largest secured creditor of AMI. In June, 1994,
AMI foreclosed on its security interest in Republic and accepted
an assignment of all of Republic's assets (all of which were
covered by AMI's security agreement) in satisfaction of
Republic's debts to AMI. Subsequent thereto the Company
foreclosed on its security interest in AMI and accepted an
assignment of AMI's assets (that were covered by the Company's
security agreement) in satisfaction of AMI's debts to the
company. The Company made a capital contribution of the assets
thus obtained to the newly formed company, Lockhart Technologies,
Inc., in exchange for all of the capital stock of that company.
On June 30, 1995, all of the common stock of AMI, Republic
and Microlabs were sold to an unrelated party for cash totaling
$1,758. The transaction resulted in a gain of $1,376,959 which
has been included in operations in 1994.
Following is a summary of net assets and results of
operations the three subsidiaries sold as of June 30, 1994,
December 31, 1993, and 1992, and for the the six months ended
June 30, 1994 and the years ended December 31, 1993 and 1992.
1994 1993 1992
Total Assets $ 214,159 $3,274,346
Total liabilities 1,589,360 4,663,284
41
Net assets (liabilities)$1,375,201$(1,388,938)
Sales and other income$1,255,437$6,926,368 $8,930,644
Operating cost and other expense 1,783,733 8,432,324
9,320,563
Net income (loss $(528,296)$(1,505,956) $(389,919)
15. FOURTH QUARTER ADJUSTMENTS
Significant adjustments increasing the fourth quarter loss
of 1994 and 1993 are as follows:
1994 1993
Increase of allowance for doubtful accounts $156,436
Unrecorded compensation on Rule 144 stock20,142 $190,
421
Physical inventory adjustments 57,183
Writedown of inventory for obsolete raw materials 33,00
0
Decrease in gain on sale of subsidiaries224,000
Accrual of penalties and interest on
Travis County Tax Judgment__26,712 18,180
Aggregate adjustment $460,290$265,784
16. SUBSEQUENT EVENTS
On January 23, 1995, the Company acquired all of the
outstanding capital stock of Newdat, Inc., in exchange for
7,053,728 shares of the Company's common stock. As a result of
the acquisition, the Company has available two new products which
will go into production during the second quarter and an 80%
interest in another company which is marketing a line of
environmentally friendly chemical coatings developed by a major
Australian chemical company.
The acquisition was accounted for by the purchase method of
accounting, and accordingly, the purchase price has been
allocated to assets acquired and liabilities assumed based on
their fair market value at the date of acquisition. The excess
of purchase price over the fair values of net assets acquired has
been recorded as goodwill. The fair values of these assets and
liabilities are summarized as follows:
Cash $ 2,846
Accounts receivable 11,243
Inventory 165,981
Property and equipment 4,578
Purchased technologies 1,167,500
Goodwill 314,324
Accounts payable and accrued expenses(26,479)
Notes payable (229,243)
42
$1,410,750
Included in the purchased technologies is $300,000 of
technologies for a tape storage device that is still in the
development stage. That amount has been charged to expense in
1995.
Pro Forma Results of Operations, including the expense of
the tape storage device, had the acquisition been effective at
the beginning of 1994 are as follows:
Net sales $1,700,965
Net loss $(1,225,329)
Earnings per share $(.90)
Weighted average common shares outstanding 5,302,147
On December 2, 1994, the Company entered into an master
distribution agreement with Carlton Technologies & Services Ltd.,
for a master distributorship of plastic shrink tubing materials.
The distribution agreement gives the Company the exclusive
territories of distribution in the states of Texas, Arizona and
California. The Board of directors approved the issuance of
750,000 shares of common stock to Carlton Technologies & Services
Ltd., in exchange for shrink wrap material valued at $196,793.
Shrink wrap is a plastic material widely used in the electronics
industry as an electrical insulator which shrinks when exposed to
heat. The Company acquired the material primarily for resale
through its contacts in the electronics industry. The stock was
not actually issued until January 24, 1995, and, therefore, not
booked by the Company for accounting purposes until that date.
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES.
During 1994, the Company had no disagreements with its
accountants on accounting and financial disclosures.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company
suffered significant losses from operations during each of the
three years in the period ended December 31, 1994 and has working
capital deficiencies at December 31, 1993 and 1992 that raise
substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any
adjustments that might result from this uncertainty.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Name Age Position
John V. Allen 59 Chairman of the Board
Ryan Corley 51 Director and President and Chief
Executive Officer of the Company.
Jack Bryant 46 Director
Directors of the Company are elected at the annual meeting
of shareholders to serve for one year or until their successors
are elected and have qualified. Vacancies on the Board of
Directors of the Company and its Subsidiaries are filled by the
Board of Directors of the Company. Officers serve at the
discretion of the Board of Directors. There are no family
relationships between any of the directors or officers of the
Company.
John V. Allen - Chairman of the board of directors.
John V. Allen, became a member and chairman of the board of
directors on January 23. 1995, when U.S. Technologies acquired
Newdat, Inc. Mr. Allen has been chairman of the board of Newdat,
Inc. since its inception in 1994. Mr. Allen was a founder and
chairman of the board of Pan Pacific Gold Corporation, a Canadian
resources company with activities in British Columbia, Vietnam
and China conducting mining operations primarily for gold. Mr.
Allen is the founder of and chairman of the board of Laura
Technologies Inc., an Arizona technology corporation devoting its
efforts to research and development of electronic products.
During the period of 1984 through 1989 Mr. Allen served as the
founder and Chairman of Superburn Systems Ltd., A Canadian public
44
company involved in environmental and waste management with
offices in Canada, United States, United Kingdom, Germany and
other European countries. Mr. Allen is a member of the board of
directors of Laura Investments a wholly owned multi-national
investment holding company with a diverse range of high technolgy
businesses
Ryan Corley - founder, President and a member of the Board of
Directors.
Ryan Corley is a founder of the Company and has served as
President and a member of the Board of Directors since its
inception. Mr. Corley served as Chief Operating Officer from
inception until September 1987, when he was named Chief Executive
Officer and also elected as Chairman of the Board of Directors.
Since March 1992, Mr. Corley was a Director and Secretary of YR
Incorporated, a New Jersey corporation until his resignation in
June, 1993. YR Incorporated is in the business of selling an
information video and hair care products. Mr. Corley was a
Director of AMI since its acquisition until his resignation on
March 16, 1994; Mr. Corley served as President and Chairman of
AMI's Board of Directors from April 1990 until May 1991. Mr.
Corley had been Chief Executive Officer and a Director of
Republic since its activation as well as being a Director of
MicroLabs since its inception and Chairman of its Board of
Directors since April 11, 1989. Mr. Corley resigned from all
positions as an officer and director of Republic and Microlabs in
April 1994. Mr. Corley was the President and owner of the Dallas
Roadrunners, Inc. of the National Cycle League since its
inception in March 1989 until May 1990, when Mr. Corley resigned
his position and returned the franchise to the League. In
October 1990, Mr. Corley helped found and is currently the
President and principal stockholder of the Houston Outlaws, Inc.
of the National Cycle League. Mr. Corley also served as
Treasurer of the Company until August 1987. Mr. Corley served as
President of American Microelectronics Inc. from November 1987 to
February 1988. Mr. Corley is a founder, President and Chairman
of the Board of Directors of Charge, Inc., a Washington state
public company, as well as President and Chairman of the Board of
Charge Entertainment Corporation, a wholly owned subsidiary of
Charge, Inc. Charge, Inc. was formed in 1986 primarily to
acquire an interest in one or more business opportunities. Mr.
Corley is a founder and former Chairman of the Board of Directors
of Direct Pharmaceutical Corporation. Direct Pharmaceutical
Corporation markets and sells prepackaged pharmaceuticals to
dispensing physicians. Mr. Corley is a former Chief Operating
Officer, Executive Vice President and Secretary/Treasurer of
Direct Pharmaceutical Corporation. Mr Corley has been a director
of National Power Systems, Inc. since 1994. Mr. Corley graduated
from the University of Tulsa in 1970 with an MBA in management.
Mr. Corley received a Bachelor of Science in Business
Administration from the University of Tulsa in 1966.
Jack Bryant - founder and a member of the board of directors.
45
Jack Bryant was a founder and is a director of the Company.
Since its inception in October 1990, Mr. Bryant has been
Secretary of the Houston Outlaws of the National Cycle League.
Mr. Bryant served as President of AMI from February 1988 to April
1988. Mr. Bryant was a full time employee of AMI from March 1988
until December 15, 1988, returning to full time employ effective
June 16, 1989. From December 15, 1988, until June 16, 1989, Mr.
Bryant was in private practice in Texas. On June 16, 1989, Mr.
Bryant was elected President of MicroLabs to replace Mr. James
Burns who had resigned. Mr. Bryant is an attorney licensed to
practice law in Texas (since 1973) and Oklahoma (since 1977).
Mr. Bryant served as Secretary of the Company from inception to
August 2, 1988, when he resigned that position and was elected
Vice President and Assistant Secretary. Mr. Bryant was again
elected to the position of Secretary of the Company on June 8,
1992. Mr. Bryant resigned as an officer of the Company and as an
officer and director of all of its subsidiaries effective
December 23, 1993.
Michael E. Stamm - member of the Board of Directors resigned
January 23, 1995.
Michael E. Stamm, Ph.D. had been a Director of the Company
from March 16, 1989 through January 23, 1995. Dr. Stamm has been
a consultant/advisor to the Company since October 1987. From
December 1983 to the present time, Dr. Stamm has been President
and Chief Executive Officer for AirBorne Pipeline Services, Inc.,
a Utah corporation, Redmond, Washington. Since June 1986, Dr.
Stamm has also served as the Chairman of the Board of Directors.
AirBorne Pipeline Services, Inc. used helicopters as aerial
mapping platforms to "see" underground to aid in more economical
pipeline construction and monitoring. Other services offered by
AirBorne Pipeline Services, Inc. included monitoring oil and gas
pipelines for early signs of leaks or corrosion. AirBorne
Pipeline Services, Inc.'s systems were first developed by Applied
Science, Inc., a subsidiary of Northwest Energy Company, Salt
Lake City, Utah, under the direction of Dr. Stamm. At that time,
Dr. Stamm was vice president of Applied Science, Northwest
Pipeline Company, also a subsidiary of Northwest Energy Company,
and Northwest Energy Company. Applied Science was acquired by
AirBorne Pipeline Services, Inc. in 1983, and Dr. Stamm became
president of the latter firm. Airborne Pipeline Services, Inc.
and Applied Science filed for Chapter 11 bankruptcy as
consolidated cases in August 1986. On August 7, 1987, as the
result of a request for dismissal filed by Airborne Pipeline
Services, Inc. and Applied Science as debtor, an order dismissing
the debtor from Chapter 11 bankruptcy was signed by the Clerk of
the Bankruptcy Court for the Western District of Washington, at
Seattle. Dr. Stamm is currently serving on the Boards of
Directors for Zuritek, S.A., Zurich, Switzerland, Schweizerischer
Finanzverein, Zurich, Switzerland and Vernon Research and
Development Co., Rome, New York and, since 1971, has served as an
independent consultant to a number of government agencies. In
46
1968, Dr. Stamm received a Doctor of Philosophy degree from the
University of Munich and a Bachelor of Science in Physics degree
from the University of California at Los Angeles in 1967.
Significant Employees
The Company relies on the services of certain key employees.
Set forth below is certain information describing such persons.
ITEM 11. EXECUTIVE COMPENSATION.
The table below sets forth all cash and cash equivalent
remuneration paid by the Company and its subsidiaries during the
year ended December 31, 1994 to each of the Company's executive
officers and to a group consisting of all three executive
officers of the Company.
Name Capacities in which serves Cash
Compensation
John V. Allen Chairman of the Board
$0
Ryan Corley Director and President
$69,000
Jack D. Bryant [1] Director and attorney
$39,250
Michael E. Stamm [2] Director
$0
All Executive Officers
and Directors as a $108,250
Group (4 persons)
[1] Mr. Bryant resigned as Vice President effective December 23,
1993, and later rejoined the Company on October 22, 1994, as an
employee of one of the Company's subsidiaries.
[2] Mr. Stamm resigned as a director of the Company on January
23, 1995.
Compensation of Directors
Directors of the Company are reimbursed for travel expenses
incurred in serving on the Board of Directors. Directors who are
not executive officers of the Company receive $150 a month for
their services. An additional $50 per meeting is paid when the
Company holds more than two Board meetings during any calendar
month.
47
Stock Option Plans
The Company's Employee Incentive Stock Option Plan of 1988
and 1990 (the "Plans") were adopted by the Board of Directors and
approved by Shareholders on March 16, 1989 and June 8, 1990,
respectively. The purpose of the Plans is to attract and retain
qualified personnel. The Plans provide that the aggregate fair
market value of the shares of Common Stock for which any
participant may be granted incentive stock options in any
calendar year shall not exceed $100,000 plus any "unused limited
carryover" as determined under Section 422A(c) of the Internal
Revenue Code of 1954, as amended. No options may be granted
under the Plans after August 1, 1998 and October 5, 1999,
respectively.
The Plans are administered by the Board of Directors of the
Company who determine, subject to the provisions of the Plans, to
whom options are granted and the number of shares of the Common
Stock subject to option. The exercise price of such options
granted under the Plans must at least equal 100% of the fair
market value of the Common Stock on the date the option is
granted.
The Plans also provide that no option shall be exercisable
more than three months after termination of an optionee's
employment with the Company unless such termination of employment
occurs by reason of death or permanent and total disability. In
the event of the death or disability of a recipient of options
while an employee of the Company, the options which were
otherwise exercisable by the optionee or his legal representative
or beneficiary of his estate at any time prior to the expiration
of one year from the date of his death or disability. In no
event, however, shall an option be exercisable after 10 years
from the date it was granted.
As of December 31, 1994, a total of 105,440 and 103,600
options have been issued to Executive Officers, of the Company
and executive officers of the Company's subsidiaries pursuant to
the 1988 and 1990 Plans, respectively, at an average option price
of $3.11 and $4.54 per share, respectively. The foregoing
reflects a 1 for 5 reverse split of the Registrant's Common
Stock, Warrants and Options which took place on February 8, 1993,
and assumes no additional shares issued in respect of any
fractional shares which may have resulted from the reverse split.
As of December 31, 1994, options for 442,340 shares had been
exercised at a total price of approximately $1,231,500.
On May 4, 1993, September 3, 1993 and April 14, 1994 the
Company adopted the 1993, and 1993A nonqualifying stock option
plans, respectively. The plans reserve 500,000, and 800,000
shares of the Company's Common Stock to be granted to non-
employees, directors, and/or other persons associated with the
Company whose services have benefited the Company.
48
On April 14, 1994, the Company adopted the 1994
Nonqualifying Stock Option Plan. The plans reserved 800,000
shares of the Company's Common Stock to be granted and issued to
its officers, directors, employees and or consultants whose
services have benefited the Company.
Bonus Plan
On July 14, 1989, the Company's Board of Directors adopted a
bonus plan that sets aside 1%, 2%, and 3% of sales as long as the
Company maintains a pre-tax income of 10%, 15%, and 20% of sales,
respectively. The performance standards will be based on
quarterly operating periods. Bonuses are accrued quarterly and
allocated as the end of each calendar year. No employees have
vested rights in the bonus plan. The Board of Directors of the
Company acts as a committee to determine who participates and the
actual amount of the individual bonuses. No bonuses were paid
during 1994, 1993 or 1992 under this plan. During 1992 $5,250 in
bonuses (not determined under the foregoing bonus plan) were paid
to officers of the Company and its subsidiaries.
49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Mr. Ryan Corley, a shareholder, Chairman of the Board of
Directors, President and Chief Executive Officer; Dr. R. E.
Woody, a shareholder of more than 5% of the outstanding shares of
the Common Stock of the Company and Mr. Neil E. Ginther, a
shareholder of less than 5% of the outstanding shares of Common
Stock of the Company escrowed 405,533, 693,360 and 56,700 shares
of their stock, respectively, pursuant to an escrow agreement
required by the State of Texas which, among other things,
provided that if in the first twelve months following the
effective date of the initial prospectus (April 14, 1987), the
closing bid price for the Company's Common Stock was not at least
$10.00 for a period of twenty consecutive trading days, an
aggregate of 200,000 shares of Common Stock would be released
from the escrow and contributed back to the Company. On April
14, 1988, pursuant to the escrow agreement, Mr. Corley, Dr. Woody
and Mr. Ginther released an aggregate of 200,000 shares of Common
Stock from escrow and contributed the shares back to the Company.
Furthermore, if in the second twelve months following such
effective date, such closing bid price was not at least $15.00
for a period of twenty consecutive trading days, an additional
200,000 shares of Common Stock in the aggregate would be so
released from the escrow and delivered to the Company. On April
14, 1989, pursuant to the escrow agreement, Mr. Corley, Dr. Woody
and Mr. Ginther released an aggregate of 200,000 shares of Common
Stock from escrow and contributed the shares back to the Company.
The foregoing reflects a 1 for 5 reverse split of the
Registrant's Common Stock, Warrants and Options which took place
on February 8, 1993, and assumes no additional shares issued in
respect of any fractional shares which may have resulted from the
reverse split.
50
The following table sets forth certain information regarding
ownership of Common Stock of the Company as of the date of this
Prospectus by each officer and director, all officers and
directors as a group and each beneficial owner of more than 5% of
the outstanding shares of Common Stock of the Company.
Number of Percentage
Name and Address Shares of Common Stock
of Beneficial
of Beneficial Owner Beneficially Owned [1]
Ownership
Ryan Corley [2][3] 476,035 [4] 3.14%
1402 Industrial Blvd
Lockhart, TX 78664
Jack D. Bryant [3] 54,600 .36%
7404 Napier Trail
Austin, TX 78729
Dr. Michael E. Stamm [3] 4,000
.03%
P.O. Box 3094
Redmond, WA 98073
All Officers and Directors
as a Group (3 individuals) 664,035 [6]
4.38%
Tintagel, Ltd. [2] 7,053,728 46.57
%
P.O. Box 273, Station A
Vancouver, B.C. Canada V6C2M7
[1] Shares are considered beneficially owned, for purposes of
this table, only if held by the person indicated, or if such
person, directly or indirectly, through any contract arrangement,
understanding, relationship or otherwise has or shares the power
to vote, to direct the voting of and/or to dispose of or to
direct the disposition of, such security, or if the person has
the right to acquire beneficial ownership within 60 days, unless
otherwise indicated in the notes below.
[2] Beneficial owner of more than 5% of the outstanding shares
of the Company's Common Stock.
[3] These individuals are officers and/or directors of the
Company.
[4] Includes options to purchase 39,000 shares of the Company's
Common Stock.
51
[5] Includes options to purchase 39,000 shares of the Company's
Common Stock.
52
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On September 23, 1991, Ryan Corley, an officer and director
of the Company, acquired the outstanding principal and accrued
interest balance, line of credit agreement and security interest
held by First Interstate Bank of Texas, N.A., Austin, Texas. In
connection therewith, the Company entered into a $17,969 loan
agreement with Mr. Corley the terms of which were at least as
favorable as or less favorable than could have been obtained from
independent third parties. The loan was payable on demand and
provided for interest of 8% per annum. The agreement is
collateralized by AMI's inventory and includes provisions for the
extension and/or renewal of loan terms. This loan was paid in
full during 1993.
On September 30, 1991, the Company borrowed $30,810 from Mr.
Corley. This collateralized loan was payable on demand and
provided for interest of 8% per annum. The agreement included
provisions for the extension and/or renewal of loan terms. The
note represented an additional extension of credit and was
collateralized by AMI's inventory as noted above with respect to
the Company's indebtedness to Mr. Corley in the amount of
$17,969. The terms of the loan were no less favorable than could
have been obtained from independent third parties. This loan was
paid in full during 1993.
On December 30, 1992, the Company borrowed $8,000 from Mr.
Corley. The note was payable on demand and provided for interest
at 8% per annum. The note represented an additional extension of
credit and was collateralized by AMI's inventory as noted above
with respect to the Company's indebtedness to Mr. Corley in the
amount of $17,969. The terms of the loan were no less favorable
than could have been obtained from independent third parties.
This loan was paid in full during 1993.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS
ON FORM 8-K.
No reports on Form 8-K have been filed during the last
quarter for which this Form 10-K is filed.
53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
U.S. Technologies Inc. and Subsidiaries
Our report on the consolidated financial statements of U.S.
Technologies Inc. and Subsidiaries is included on page 21 of
this Form 10-K. In connection with our audit of such
financial statements, we have also audited the related
financial statement schedule listed in the index on page 2
of this Form 10-K. The financial statements of U.S.
Technologies Inc. and Subsidiaries for the year ended
December 31, 1992 and were audited by other auditors whose
report is referred to on page 21 of this Form 10-K. In
connection with their audit, they also audited the 1992
financial statement schedules listed in the index on page 2
of this Form 10-K.
In our opinion, the 1994 and 1993 financial statement
schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present
fairly, in all material respects, the information required
to be included therein.
BROWN, GRAHAM AND COMPANY
P.C.
Georgetown, Texas
April 15, 1994
44
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
U.S. Technologies Inc. and Subsidiaries
Our report on the consolidated financial statements of U.S.
Technologies Inc. and Subsidiaries is included on page 22 of
this Form 10-K. In connection with our audit of such
financial statements, we have also audited the related
financial statement schedule listed in the index on page 2
of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND
L.L.P.
Austin, Texas
April 29, 1993
45
U.S. Technologies Inc.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1994, 1993 and 1992
Column A Column B Column C Column DColumn E
Additions
(1) (2)
Balance atCharged toCharged to Balance at
beginning cost and other end of
Classificationof periodexpensesaccounts Deductions period
1994:
Accounts receivable -
bad debt reserve$129,04449,830 $129,044 $49,830
Inventory
Obsolescence$170,363$33,000 $170,363 $33,000
1993:
Accounts receivable -
bad debt reserve$297,874 - $168,830 $129,044
Inventory
Obsolescence$148,193$22,170 $170,363
1992:
Accounts receivable -
bad debt reserve$246,276$51,598 $297,874
Inventory
Obsolescence$ - $148,193 $ - $ - $148,193
NOTE: These valuation and qualifying accounts were deducted
from the assets to which they apply.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, U.S. Technologies Inc. has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 16th day of April, 1995.
U.S. TECHNOLOGIES INC.
BY:s/ John V. Allen
John V. Allen
Chairman of the Board,
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 date indicated:
Signature Title Date
s/Jack Bryant Director April 16, 1995
Jack Bryant
s/Ryan Corley President April 16, 1995
Ryan Corley Acting Controller
Acting Principal Accounting Officer
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