-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F05UNgkYplxUPcoDN7XLUFctpLqFjcUNrYAlEr2Fj6WTeI9/f+++b3QXsEyQz+/M LOcYVUvzi06LVj287gJdUA== 0000810130-97-000007.txt : 19971113 0000810130-97-000007.hdr.sgml : 19971113 ACCESSION NUMBER: 0000810130-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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-Q SEC ACT: SEC FILE NUMBER: 000-15960 FILM NUMBER: 97715903 BUSINESS ADDRESS: STREET 1: ONE BUCHEAD PLAZA STREET 2: 3060 PEACHTREE N W SUITE 1890 CITY: ATLANTA STATE: GA ZIP: 30350 BUSINESS PHONE: 4048691633 FORMER COMPANY: FORMER CONFORMED NAME: CAREAMERICA INC DATE OF NAME CHANGE: 19890720 10-Q 1 Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ______________ [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-15960 U.S. Technologies Inc. (Exact name of Registrant as specified in its charter.) State of Delaware 73-1284747 (State of Incorporation) (I. R. S. Employer Identification No.) 1402 Industrial Boulevard Lockhart, Texas 78644 (Address of principal executive offices.) Registrant's telephone number, including area code: (512) 376-1049 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [..] The number of shares outstanding of the Registrant's common stock, par value at $0.02 November 11, 1997, was 27,921,063. U.S. TECHNOLOGIES INC. Form 10-Q-For the Quarter Ended September 30, 1997 INDEX Page No. PART I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheets September 30, 1997 and December 31, 1996 4 Consolidated Statements of Operations Nine months Ended September 30, 1997 and 1996 5 Consolidated Statements of Operations Three months Ended September 30, 1997 and 1996 6 Consolidated Statements of Changes in Stockholders' Equity 7 Consolidated Statements of Cash Flows Nine months Ended September 30, 1997 and 1996 8 Notes to Financial Statements 9-15 Item 2. Management's Discussion and Analysis of Financial Condition and results of Operations 16-17 PART II. OTHER INFORMATION 18 Item 1. Legal Proceedings 19-20 Item 2. Changes in the Rights of the Company's Security Holders 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 6. Exhibits and Reports on Form 8-K 20 2 PART I. Item 1. Financial Statements. 3 U.S. Technologies Inc. CONSOLIDATED BALANCE SHEETS ASSETS September 30, 1997 December 31, Unaudited 1996 Current assets: Cash in bank $ 117,944$ 1,548 Accounts receivable - trade 590,165 238,647 Accounts receivable - related party 270,000 270,000 Inventories 171,400 472,227 Prepaid expenses 17,899 273 Total current assets 1,167,408 982,695 Property and equipment - net (note 4) 213,370 146,118 Other assets: Investment - technologies and goodwill - net (note 5)1,183,6821,519,917 Other assets 8,170 3,952 Total other assets 1,191,852 1,523,869 Total assets $ 2,572,630 $ 2,652,682 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable - trade $ 932,761 $ 806,204 Accounts payable - related party 37,981 - - Accrued expenses 570,713 613,958 Obligations under capital leases 12,488 - Notes payable (note 6) 12,000 - Total current liabilities 1,565,943 1,420,162 Long-term liabilities: Notes payable - net (note 6) 164,569 144,000 Obligation under capital leases 49,761 - Total long-term liabilities 214,330 144,000 Commitments and contingencies: (Note 3) Stockholders' equity: Preferred stock - $.02 par value; 10,000,000 shares authorized; no shares issued - - Common stock - $.02 par value; 40,000,000 shares authorized; 27,907,263 and 21,857,263 shares issued and outstanding at September 30, 1997, and December 31, 1996, respectively 558,146 437,146 Additional paid-in capital 12,225,311 11,729,811 Accumulated deficit (11,777,508) (10,928,232) Stock receivable ( 213,592) ( 150,205) Total stockholders' equity 792,357 1,088,520 Total liabilities and stockholders' equity$ 2,572,630 $ 2,652,682 The accompanying notes are an integral part 4 of the consolidated financial statements. 5 U.S. Technologies Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Nine months Ended September 30, 1997 1996 Net Sales $ 2,964,764$ 707,713 Operating costs and expenses: Cost of sales 2,403,526 1,345,878 Loss on write-down of inventory 306,888 - Selling expense 76,456 128,614 General and administrative expense 1,083,264 501,988 Allowance for doubtful accounts 6,268 15,932 Total operating costs and expenses 3,876,402 1,992,412 (Loss) from operations ( 911,638)( 1,284,699) Other income (expense) Other income 81,316 6,965 Interest expense ( 18,953)( 52,639) Other expense - ( 3,532) Total other income 62,363( 49,206) Net loss $( 849,275)$( 1,333,905) Loss per common share $( 0.03) $( 0.08) Cash dividends per common share $ 0.00 $ 0.00 Weighted-average common shares outstanding 25,098,069 17,118,508 5 The accompanying notes are an integral part of the consolidated financial statements. 6 U.S. Technologies Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months Ended September 30, 1997 1996 Net Sales $ 1,230,964$ 296,004 Operating costs and expenses: Cost of sales 891,210 497,576 Selling expense 23,829 18,863 General and administrative expense 417,571 195,078 Allowance for doubtful accounts 6,268 15,932 Total operating costs and expenses 1,338,878 727,449 (Loss) from operations ( 107,914)( 431,445) Other income (expense) Other income 384 1,840 Interest expense ( 7,005)( 5,595) Other expense - ( 1,478) Total other income (expense) ( 6,621)( 5,233) Net income (loss) $( 114,535)$( 436,678) Earnings (loss) per common share$( 0.01)$( 0.02) Net income (loss) Cash dividends per common share $ 0.00 $ 0.00 Weighted-average common shares outstanding 27,907,263 17,647,181 7 The accompanying notes are an integral part of the consolidated financial statements. 8 U.S. Technologies Inc. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) $0.02 Par Value Common Stock Additional Number of Par Paid-In Accumulated Shares Value Capital Deficit Total Balance, December 31, 199515,875,963$317,520$ 9,887,485$(8,345,221)$1,859,785 Stock options exercised3,536,00070,720481,780 - 552,500 Rule 144 stock issued1,845,30036,906534,331 - 571,237 Stock exchanged for services - - (150,205) -(150,205) Stock issued - gems600,000 12,000 78,000 - 90,000 Debt contributed to capital - - 748,215 -748,215 Net (loss) -_______ -(2,583,012)(2,583,012) Balance, December 31, 199621,857,263437,14611,579,606(10,928,233) 1,088,520 Stock issued 6,050,000121,000 495,499 - 616,499 Stock subscribed - -( 63,388) -( 63,388) Net loss - - -( 849,275) ( 734,740) Balance, September 30, 199727,907,263$558,146$12,011,717$(11,777,508)$ 906,891 9 The accompanying notes are an integral part of the consolidated financial statements. 10 U.S. Technologies Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine months Ended September 30, 1997 1996 Cash flows from operating activities: (Loss) from continuing operations$( 849,275)$( 1,333,905) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 390,815 322,999 Changes in certain assets and liabilities: Accounts receivable ( 351,518)( 48,847) Inventories 300,827( 78,932) Prepaid expense ( 17,626)( 9,802) Accounts payable 126,556 457,083 Accounts payable - other 37,981 - Accrued expenses ( 43,245) 355,489 ________ _______ Net cash provided (used) by operating activities ( 405,485) ( 335,915) Cash flows from investing activities: Equipment purchases ( 2,964) - Increase in other assets ( 4,218) ( 740) Net cash provided by (used in) investing activities ( 7,182) ( 740) Cash flows from financing activities: Proceeds from issuance of common stock553,111 - Increase (decrease) in obligations under capital leases and notes payable ( 24,048) 326,200 Net cash provided (used) by financing activities 529,063 326,200 Increase in cash 116,396( 10,455) Cash, beginning of period 1,548 25,860 Cash, end of period $ 117,944$ 15,405 Supplemental schedule of noncash investing and financing activities: 1997: Acquired equipment in the amount of $118,866 financed through capital leases and unsecured note payable amounting to $118,866. Common stock in the amount of 633,870 shares was acquired through a stock subscription receivable in the amount of $63,387. 8 The accompanying notes are an integral part of the consolidated financial statements. 9 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. LTI operations consist of contract manufacturing, prototyping and repair of printed circuit boards using surface mount, through-hole and mixed technology. Newdat, Inc. and its 80% owned subsidiary SensonCorp, Limited were acquired on January 23, 1995. U.S. Technologies Inc., together with its subsidiaries, are hereinafter referred to collectively as "the Company." Principles of Consolidation The consolidated balance sheets at December 31, 1996, and September 30, 1997, include the accounts of U.S. Technologies Inc., and its subsidiaries. The consolidated statements of operations, changes in stockholders' equity and cash flows include the accounts of U.S. Technologies Inc., and its subsidiaries for the nine months ended September 30, 1997, and 1996. 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 has incurred significant losses during each of the three years in the period ended December 31, 1996, and had working capital deficiencies at December 31, 1996. 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 cash generated from future operations, the introduction of new products into the market and the sale of additional common stock. The interim financial statements are unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Interim results are not necessarily indicative of results for a full year. Inventories Inventories are stated at the lower of cost or market utilizing the average cost method for raw materials and 10 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 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. 11 Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Revenue is recognized from sales of products when the product is shipped. Technologies and Goodwill Acquired technologies and goodwill are being amortized over a 60 month period. 2. ACCOUNTS RECEIVABLE Accounts receivable - trade at September 30, 1997, and December 31, 1996, is net of an allowance for doubtful accounts in the amount of $6,268 and $90,953, respectively. 3. INVENTORIES At September 30, 1997, and December 31, 1996, inventories consist of the following: 1997 1996 Raw materials $ 957,142 $ 984,811 Work in progress 106,146 72,416 1,063,288 1,057,227 Valuation allowance ( 891,888) ( 585,000) $ 171,400$ 472,227 During the nine months ended September 30, 1997, raw materials inventory was written-down to its estimated fair market value by increasing the valuation allowance and loss due to write-off of inventory in the amount of $306,888. 4. PROPERTY AND EQUIPMENT At September 30, 1997, and December 31, 1996, property and equipment consist of the following: 1997 1996 Equipment $ 1,058,716 $ 936,559 12 Furniture and fixtures 164,056 164,056 Leasehold improvements 123,520 123,520 1,346,292 1,224,135 Less accumulated depreciation (1,132,922) (1,078,017) $ 213,370$ 146,118 5. TECHNOLOGIES AND GOODWILL Technologies and goodwill at September 30, 1997, and December 31, 1996, consist of the following: 1997 1996 Technologies $ 1,692,500 $ 1,692,500 Goodwill 849,065 849,065 2,541,565 2,541,565 Accumulated amortization (1,357,883) (1,021,648) $ 1,183,682$ 1,519,917 6. NOTES PAYABLE Notes payable at September 30, 1997, and December 31, 1996, consist of the following: 1997 1996 Notes payable to individuals and a trust at rates from 12% to 14%, unsecured, due July 1, 1998, and January 1, 1999 $144,000 $ 144,000 Note payable to National Asset Placement Corporation at a rate of 5%, unsecured, due July 27, 2,000 32,569 - - 176,569 144,000 Current portion 12,000 - - Long-term debt $ 164,569 $ 144,000 13 Following are the long-term debt maturities for the above notes payable for each of the next five years: 1997 1996 1998 $ 12,000 $ - 1999 156,000 144,000 2000 8,569 - 2001 - - - 2002 - - - Total $ 176,569 $ 144,000 7. OBLIGATIONS UNDER CAPITAL LEASES On May 2, 1997, Kenneth Smith entered into a capital lease with payments totalling $26,161 to be paid in 24 monthly installments of $342.93 with a balloon payment due June 2, 1999, in the amount of $17,931 at an annual percentage rate of 4.513%. The capital lease is financing the acquisition of a 1997 Rodeo to be used as a delivery vehicle by Lockhart Technologies, Inc. The lease was assigned to LTI on May 23, 1997. The current maturity of this lease obligation totals $4,115 at September 30, 1997. On March 29, 1997, Kenneth Smith entered into a capital lease with payments totalling $64,205 to be in 35 monthly installments of 698.78 with a balloon payment due February 29, 2000, in the amount of $26,703 at an annual percentage rate of 9.313%. The capital lease is financing a 1997 Mercedes supplied to Mr. Smith under the terms of his employment agreement. The lease was assigned to U.S. Technologies Inc. on May 23, 1997. The current maturity of this lease obligation totals $8,373 at September 30, 1997. Following are the long-term debt maturities for the above obligations under capital leases for each of the next five years: 1997 1998 $ 12,488 1999 27,466 2000 22,295 2001 - 2002 - Total $ 62,249 14 8. INCOME TAXES Deferred income tax at September 30, 1997, and December 31, 1996, follows: 1997 1996 Deferred income tax asset $ 3,031,568 $ 2,820,409 Valuation allowance 3,031,568 2,820,409 Total deferred tax asset $ - $ - At December 31, 1996, the Company has available for federal income tax purposes unused operating losses which may provide future tax benefits expiring as follows: Year of Expiration Net Operating Loss 2003 $ 1,383,000 2005 379,903 2006 65,727 2007 363,554 2008 2,183,089 2009 894,689 2010 1,323,470 2011 1,703,884 $ 8,297,316 9. COMMITMENTS AND CONTINGENCIES LTI has 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 February 1, 1997 through January 31, 2000 and provides for an automatic three year extension 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 automatic three year extension. The amount of space under the lease is subject to be increased or decreased depending upon the number of residents employed by LTI on August 31, 1997. 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 15 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 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, in the 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. The suit does not specify the dollar amount of damages sought. The plaintiff's were denied most of the equitable relief they sought, but obtained a temporary injunction requiring Senson to continue selling them certain products on Senson's usual and customary terms. This ceased when Senson subsequently canceled the agreement on "Without Cause" grounds in May 1995. The company was notified that the plaintiff has dismissed all proceedings as of January 1997. On July 16, 1995, the Company was served with a citation in Elpac Electronics vs. U.S. Technologies Inc., in the 53rd District Court of Travis County, Texas. The petition alleges that the Company is liable for certain debts of a former subsidiary, American Microelectronics, Inc. ("AMI") on the basis of fraudulent transfer of assets from AMI to the Company. The petition seeks $101,461 in damages plus $35,000 in attorney's fees, interest and costs. The Company believes the complaint is without merit. On July 16, 1995, the Company was served with a citation in Evins Personnel Consultants vs. U.S. Technologies Inc., County Court at Law No. 1 of Travis County, Texas. The petition alleges that the Company is liable for certain debts of a former subsidiary, American Microelectronics, Inc. ("AMI") on the theory that the Company was doing business as AMI. The petition seeks $56,246 in damages plus $18,747 in attorney's fees, interest and costs. The Company believes that the complaint is without merit. On July 16, 1995, the Company was served with a citation in Texas Industrial Svcs. vs. U.S. Technologies Inc., in County Court at Law No. 2 Travis County, Texas. The petition alleges that the Company is liable for certain debts of a former subsidiary, American Microelectronics, Inc. ("AMI") on the theory the Company is doing business as 16 AMI. The petition seeks $24,482 in damages plus $8,000 in attorney's fees, interest and costs. The Company believes that the complaint is without merit. As a part of the agreement with GWP, Inc., William Meehan resigned his position as president and CEO of the Company effective January 6, 1997. Subsequent to his resignation, Mr. Meehan retained counsel in an effort to recover amounts he asserts are due him under certain provisions of his employment contract with the Company. The Company believes that the claims are without merit and intends to defend its position. During March 1997, LTI was notified that it, AMI and certain of AMI's former officers and directors are subject to litigation brought by the State of Texas over alleged sales tax underpayments by AMI. The alleged tax liabilities occurred prior to the Company's foreclosure of its security interest in AMI and the sale of AMI on June 30, 1994. All assertions brought by the State are denied and will be contested by the Company. Certain former officers and directors who were made a party to the State's legal action assert indemnification on the part of the Company in the event they are held personally liable for such underpayments. At this time the Company is not aware of any contingent liability relating to indemnification obligations on the part of the Company, but will address such claims if they arise. AMI, Republic and certain of its former officers and directors are subject to a federal tax claim relating to alleged unpaid payroll taxes. The alleged tax liabilities occurred prior to the Company's foreclosure of its security interest in AMI and the sale of AMI and Republic on June 30, 1994, and the ninety days following the sale of these former subsidiaries. Certain former officers and directors who are subject to the government's claim assert entitlement to indemnification on the part of the Company in the event they are held personally liable. At this time, the Company is not aware of any contingent liability relating to indemnification obligations on the part of the Company, but will address such claims if they arise. 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. 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 has maintained pretax income of 10%, 15% and 20% of sales, respectively. The performance 17 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, if any, of the individual bonuses. No bonuses were declared during the three years ended December 31, 1996. The Company's Board of Directors, during the year ended December 31, 1994, guaranteed severance pay to four individuals, including themselves, in the event of any merger or acquisition by the Company. In such event the company guaranteed severance pay of four months each to the then Chairman Ryan Corley and the then Director Jack Bryant; and two months each for Leonard Hilt and Neil Ginther, if their employment with the Company or any subsidiary was terminated voluntarily or involuntarily for any reason (with or without cause) within six months following the closing of any acquisition or merger. The same conditions applied if any of the parties resigned before the designated date. Mr. Ginther resigned from the Company during February 1995 and Mr. Corley and Mr. Bryant resigned from the Company during July 1995. Mr. Ginther has stated that he did not wish to claim the severance, while Messieurs Corley and Bryant have requested payment. During 1995, the new Board of Directors questioned the legality of this form of compensation. The severance pay of $46,000 has not been recorded in the accompanying financial statements due to the uncertainty. On July 25, 1997, Brian J. McCluskey filed a complaint in the Supreme Court of the State of New York, county of Nassau, claiming breach of an alleged employment contract supposedly entered into on September 3, 1996. Management does not believe that an employment contract existed between the Company and Mr. McCluskey, an investment banker in New York City, or that Mr. McCluskey was, otherwise, an employee of the Company. Management intends to vigorously defend this case. On July 14, 1997, Ryan Corley filed a petition in the District Court of Travis County, Texas, claiming breach of a contract established by a Board resolution adopted by the Board of Directors of U.S. Technologies Inc. on October 27, 1994, wherein, the Board allegedly guaranteed Ryan Corley four (4) months severance pay in the event of a voluntary termination of his employment within six (6) months following the close of any merger or acquisition by the Company. Management does not believe that this Board resolution created an employment contract nor that, in fact, any merger or acquisition by the Company, in fact, occurred which would, in any event, give rise to a severance pay obligation of the Company. Management intends to vigorously defend this case. 18 Included in accrued liabilities of the Company is $215,000 representing accrued but unpaid compensation to Mr. William Meehan, the former president and CEO of the Company. The Company accrued the compensation on a monthly basis under the terms of an employment contract between the Company and Mr. Meehan. In 1997, Mr. Meehan initiated an administrative proceeding before the Texas Workforce Commission which ordered the payment of approximately $56,000 to Mr. Meehan. The Company believes that it has no liability to Mr. Meehan because of, among other things, the breach of his employment contract. The Company intends to vigorously contest this ruling by way of an appeal of the ruling of the Texas Workforce Commission to a Texas state court of competent jurisdiction and shall assert against Mr. Meehan certain claims, defenses and offsets in excess of the accrued but unpaid salary recorded on the books of the Company, including breach of fiduciary duty and illegality. 10. SHAREHOLDERS EQUITY The following table reconciles the number of commons 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 nine months ended September 30, 1997, and 1996: 1997 1996 Common shares outstanding 27,907,263 21,257,263 Effects of using weighted average shares outstanding ( 2,809,194) ( 4,138,755) Shares used in computing earnings per share 25,098,069 17,118,508 On August 7, 1996, the Company purchased an 85% interest in the QuakeAlarm technology for $552,500 by an exchange of 3,536,000 shares of the Company's common stock. This fully integrated early warning earthquake alarm can detect first signs of an imminent earthquake by sensing the quake's "P" (primary) wave. The purchase of the majority ownership gives the Company the exclusive manufacturing and marketing rights to the product worldwide. The purchased technology is being amortized over 5 years on the straight line method. Amortization in the amount of $46,042 has been charged to expense during the year ended December 31, 1996. As a part of the agreement with GWP, Inc. certain accounts receivables, accrued expenses and notes payable 19 from Tintagel, Ltd., Laura Investments, Ltd., and Laura Technologies, Ltd. in the amount of $748,215 was contributed to additional paid in capital effective December 31, 1996. During the year ended December 31, 1996, the Company issued 1,845,300 shares of common stock to retire outstanding notes payable to Carlton Technologies Limited in the amount of $571,237. At the time the stock was issued to Carlton Technologies Limited only $421,032 of notes payable was due; therefore a receivable for $150,205 has been recorded as a reduction of stockholders equity. 11. RELATED PARTIES Carolyn Meehan, wife of William Meehan, president and CEO of the Company until his resignation on January 6, 1997, is president of Carlton Technologies Limited with whom the Company had various loans during 1995 and 1996 and had a loan in the amount of $397,212 as of December 31, 1995. Many of these loans were retired by the issuance of the Company's common stock in exchange for the debt. At December 31, 1996, the Company had a receivable of $150,205 from the issuance of common stock in excess of debt to Carlton. Mr. K. H. Smith and Mr. James V. Warren are majority shareholders in GWP, Inc., ("GWP") from which the Company has an account receivable in the amount of $270,000 as of December 31, 1996. Effective January 7, 1997, Mr. Smith became President, CEO and Director of the Company. Mr. Warren became a director effective January 7, 1997, and Chairman of the Board effective January 20, 1997. 12. SUBSEQUENT EVENTS On October 1, 1997, the Board of Directors voted to retire notes payable and interest accrued thru October 1, 1997, in exchange for shares of common stock that transferred on October 29, 1997. The total debt retired amounts to $122,766. 20 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources Working capital, while still negative, improved by $108,933 at September 30, 1997, ending at $(398,535) as compared to $(507,468) at December 31, 1996. This improvement was made possible by an injection of additional equity from new management. The Company still has not taken advantage of any bank debt at this time, choosing instead to fund itself through cash flows from operations and additional equity. Funds provided under this method funded the large increases in net sales and accounts receivable while accounts payable increased only $126,556 or 15.7% for the nine month period ending September 30, 1997. 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. New management believes that the Company's continued existence will be accomplished by solving its liquidity problem through profitable operations and with financing provided by additional equity. The Company adapted 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. The change had no effect on any of the financial statements presented. Results of Operations - Quarter Ended September 30, 1997 During the three month and nine month periods ended September 30, 1997, the Company had a net loss of $114,535 and $849,275 or $(0.004) and $(0.03) per weighted-average share, on net sales of $1,230,964 and $2,964,764 as compared to net losses of $436,678 and $1,333,905 or $(0.02) and $(0.08) per weighted-average share, on net sales of $296,004 and $707,713 for the comparable periods in 1996. Net sales for the three month period and the nine month period ending September 30, 1997 increased 315% and 318%, respectively, over the comparable periods in 1996. Net sales for the three month and the nine month periods ending September 30, 1997, were 87.2% and 210%, respectively, of the total net sales for the entity for all of 1996, amounting to $707,713. Gross margin for the three month and nine month periods ended September 30, 1997, was a positive 27.6% 21 and 18.9% compared to the negative gross margins of (168.1%) and (190.2%) for the comparable periods in 1996. This continues to reflect new management's success in the overall turnaround of the Company. Selling expenses represented only 2% of sales for both the three month and nine month periods ended September 30, 1997, compared to 6.4% and 18.2% for the comparable periods in 1996. This significant decrease in sales expense for 1997 was the direct result of policy changes implemented immediately by new management. This included sales personnel being placed on a commission only basis, and being held accountable for certain minimum sales volumns. Administrative expenses for the three month and nine month periods ended September 30, 1997, was only 33.9% and 36.5% of sales as compared to 65.9% and 70.9% for the comparable periods in 1996. The tremendous percentage decrease is due to new management's immediate and aggressive cost cutting measures primarily in the reduction of staff. More efficient systems were implemented and duties reassigned so as to handle the increased sales volume with fewer people. No expenditures were made during the periods reported on for research and development in 1997 and 1996. While the Company anticipates a continued increase in demand for its products and services, the capacity to meet these demands are limited by equipment, personnel and working capital. The Company does not anticipate that inflationary trends will have a material impact on its results of operations because of the short-term nature of its contracts. 22 PART II. OTHER INFORMATION 23 Part II Item 1. 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 the assets of American Microelectronics Inc. without consideration. The action seeks damages of $11,527. The Company believes the claim is 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, in the 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. The suit does not specify the dollar amount of damages sought. The plaintiff's were denied most of the equitable relief they sought, but obtained a temporary injunction requiring Senson to continue selling them certain products on Senson's usual and customary terms. This ceased when Senson subsequently canceled the agreement on "Without Cause" grounds in May 1995. The company was notified that the plaintiff has dismissed all proceedings as of January 1997. On July 16, 1995, the Company was served with a citation in Elpac Electronics vs. U.S. Technologies Inc., in the 53rd District Court of Travis County, Texas. The petition alleges that the Company is liable for certain debts of a former subsidiary, American Microelectronics, Inc. ("AMI") on the basis of fraudulent transfer of assets from AMI to the Company. The petition seeks $101,461 in damages plus $35,000 in attorney's fees, interest and costs. The Company believes the complaint is without merit. On July 16, 1995, the Company was served with a citation in Evins Personnel Consultants vs. U.S. Technologies Inc., County Court at Law No. 1 of Travis County, Texas. The petition alleges that the Company is liable for certain debts of a former subsidiary, American Microelectronics, Inc. ("AMI") on the theory that the Company was doing business as AMI. The petition seeks $56,246 in damages plus $18,747 in attorney's fees, interest 24 and costs. The parties are in the discovery state, but the Company believes that the complaint is without merit. On July 16, 1995, the Company was served with a citation in Texas Industrial Svcs. vs. U.S. Technologies Inc., in County Court at Law No. 2 Travis County, Texas. The petition alleges that the Company is liable for certain debts of a former subsidiary, American Microelectronics, Inc. ("AMI") on the theory the Company is doing business as AMI. The petition seeks $24,482 in damages plus $8,000 in attorney's fees, interest and costs. The Company believes that the complaint is without merit. As a part of the agreement with GWP, Inc., William Meehan resigned his position as president and CEO of the Company effective January 6, 1997. Subsequent to his resignation, Mr. Meehan retained counsel in an effort to recover amounts he asserts are due him under certain provisions of his employment contract with the Company. The Company believes that the claims are without merit and intends to defend its position. During March 1997, LTI was notified that it, AMI and certain of AMI's former officers and directors are subject to litigation brought by the State of Texas over alleged sales tax underpayments by AMI. The alleged tax liabilities occurred prior to the Company's foreclosure of its security interest in AMI and the Sale of AMI on June 30, 1994. All assertions brought by the State are denied and will be contested by the Company. Certain of the former officers and directors made a party to the State's legal action assert indemnification on the part of the Company in the event they are held personally liable for such underpayments. At this time the Company is not aware of any contingent liability relating to indemnification obligations on the part of the Company, but will address such claims if they arise. AMI, Republic and certain of its former officers and directors are subject to a federal tax claim relating to alleged unpaid payroll taxes. The alleged tax liabilities occurred prior to the Company's foreclosure of its security interest in AMI and the Sale of AMI and Republic on June 30, 1994, and the ninety days following the sale of these former subsidiaries. Certain former officers and directors who are subject to the government's claim assert entitlement to indemnification on the part of the Company in the event they are held personally liable. At this time the Company is not aware of any contingent liability relating to indemnification obligations on the part of the Company, but will address such claims if they arise. There were several lawsuits outstanding against AMI and Republic at the time they were sold. AMI and Republic are 25 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. On July 25, 1997, Brian J. McCluskey filed a complaint in the Supreme Court of the State of New York, county of Nassau, claiming breach of an alleged employment contract supposedly entered into on September 3, 1996. Management does not believe that an employment contract existed between the Company and Mr. McCluskey, an investment banker in New York City, or that Mr. McCluskey was, otherwise, an employee of the Company. Management intends to vigorously defend this case. On July 14, 1997, Ryan Corley filed a petition in the District Court of Travis County, Texas, claiming breach of a contract established by a Board resolution aadopted by the Board of Directors of U.S. Technologies Inc. on October 27, 1994, wherein, the Board allegedly guaranteed Ryan Corley four (4) months severance pay in the event of a voluntary termination of his employment within six (6) months following the close of any merger or acquisition by the Company. Management does not believe that this Board resolution created an employment contract nor that, in fact, any merger or acquisition by the Company, in fact, occurred which would, in any event, give rise to a severance pay obligation of the Company. Management intends to vigorously defend this case. Included in accrued liabilities of the Company is $215,000 representing accrued but unpaid compensation to Mr. William Meehan, the former president and CEO of the Company. The Company accrued the compensation on a monthly basis under the terms of an employment contract between the Company and Mr. Meehan. In 1997, Mr. Meehan initiated an administrative proceeding before the Texas Workforce Commission which ordered the payment of approximately $56,000 to Mr. Meehan. The Company believes that it has no liability to Mr. Meehan because of, among other things, the breach of his employment contract. The Company intends to vigorously contest this ruling by way of an appeal of the ruling of the Texas Workforce Commission to a Texas state court of competent jurisdiction and shall assert against Mr. Meehan certain claims, defenses and offsets in excess of the accrued but unpaid salary recorded on the books of the Company, including breach of fiduciary duty and illegality. Item 2. Changes in the Rights of the Company's Security Holders 26 No changes in the rights of the Company's Security holders occurred during the period covered by this Form 10- Q. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of Security holders during the period covered by this Form 10-Q. Item 6. Exhibits and Reports on Form 8-K. Company filed Form 8-K on September 26, 1997, regarding a change in control of the Company occurring on April 7, 1997. 27 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. U.S. TECHNOLOGIES INC. DATE: August 14, 1997 BY: s/K. H. Smith K. H. Smith President and CEO 28 EX-27 2
5 9-MOS DEC-31-1997 SEP-30-1997 117,944 0 860,165 0 171,400 1,167,408 1,346,291 1,132,921 2,572,630 1,565,943 144,000 0 0 558,146 234,211 2,572,630 2,964,764 3,046,080 2,403,526 2,403,526 1,472,876 0 18,953 (849,275) 0 (849,275) 0 0 0 (849,275) (.03) (.03)
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