-----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, A96roWx7njXKLp1MHvPT6VLULYzpfbi/ViiVtRlB00n/DA+ERCPJard472VHkl2g CPGa/rUN8Q0SOLbdUcWouA== 0000810130-96-000007.txt : 19960708 0000810130-96-000007.hdr.sgml : 19960708 ACCESSION NUMBER: 0000810130-96-000007 CONFORMED SUBMISSION TYPE: PRER14A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19960705 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: PRER14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-15960 FILM NUMBER: 96591520 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 PRER14A 1 SCHEDULE 14A SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [x] Filed by a Party other than the Registrant [ ] Check the appropriate box: [x] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only ( as permi tted by Rule 14a-6(e)(2) [ ] Definitive Proxy Statement [ ] definitive Additional Materials [ ] Soliciting Material Pursuant to &240.14a-11(c) or &240.14a- 12 U.S. TECHNOLOGIES INC. Payment of Filing Fee (Check the appropriate box): [x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or Item 22(a)(2) if Schedule 14A. [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3) [ ] Fee computed on table below per Exchange Act Rules 14a- 6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: ______________________________________________ 2) Aggregate number of securities to which transaction applies: ______________________________________________ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ______________________________________________ 4) Proposed maximum aggregate value of transaction: ______________________________________________ 5) Total fee paid: ______________________________________________ [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: 2) Form, Schedule or Registration Statement No.: 2 3) Filing Party: 4) Date Filed: 3 U. S. Technologies, Inc. 1402 Industrial Boulevard P.O. Box 697 Lockhart, TX 78644 - USA Facsimile No.: (512) 375-2045 Notice of Annual Meeting of Stockholders to be held in Austin on July 25, 1996 The Board of Directors of U.S. Technologies Inc., a Delaware Corporation (the "Company"), hereby gives notice that the 1996 Annual Meeting of Stockholders of the Company will be held on Thursday, July 25, 1996, at 10:30 a.m. Central Standard Time, in the Company's Conference room at 1402 Industrial Boulevard, Lockhart, Texas, for the following purposes: 1. To elect three persons to serve on the Company's Board of Directors. 2. To consider and vote upon a proposal to approve the Company's 1996 Option Plan. 3. To consider and vote upon a proposal to undertake a reverse split of the Company's Authorized and Outstanding shares on the basis of one (1) "new" share for ever five (5) "old " shares. 4. To consider and vote upon a proposal to effectively increase the number of authorized and unissued shares. 5 To ratify selection by the Board of Directors of Brown, Graham & Company, as the Company's independent certified public accountants for fiscal year ending December 31, 1996. 6 To transact any other business as may properly come before the meeting or any adjournment(s) thereof. Stockholders of record at the close of business on May 28, 1996, are entitled to notice of and to vote at the meeting. If you attend the meeting you may vote in person if you wish, even though you may have returned your proxy. A copy of the Company's Proxy Statement and its' Annual Report for the year ended December 31, 1995 are enclosed herewith. By Order of the Board of Directors William Meehan, Secretary June 24, 1996 WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE COMPANY'S BOARD OF DIRECTORS, AND RETURN IT IN THE PRE-ADDRESSED ENVELOPE PROVIDED. ANY STOCKHOLDER MAY REVOKE HIS PROXY AT ANY TIME BEFORE THE MEETING BY WRITTEN NOTICE TO SUCH EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON. U. S. Technologies, Inc. 1402 Industrial Boulevard P.O. Box 697 Lockhart, TX 78644 - USA Facsimile No.: (512) 375-2045 PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS TO BE HELD on July 25, 1996 This Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders and Annual Report for the Year Ended December 31, 1995 are being furnished in connection with the solicitation by the Board of Directors of U.S. Technologies Inc., a Delaware corporation (the "Company"), of proxies for use at the 1996 Annual Meeting of Stockholders (the "Annual Meeting") of the Company to be held on Thursday, July 25, 1996, at 10:30 a.m., Central Standard Time, in the Company's Conference room at 1402 Industrial Boulevard, Lockhart, Texas, and at any adjournments thereof. This Proxy Statement and the enclosed proxy are first being sent to stockholders on or about July 5, 1996. The close of business on May 28, 1996, has been selected as the record date (the "Record Date") for determining the holders of outstanding shares of the Company's common stock, par value $.02 per share (the "Common Stock"), entitled to receive notice of and vote at the Annual Meeting. On the Record Date, there were 17,097,263 shares of Common Stock outstanding and approximately 870 holders of record. Holders of Common Stock are entitled to one vote per share. VOTING OF PROXIES The presence in person or by properly executed proxy of the record holders of a majority of the outstanding shares of Common Stock will constitute a quorum at the Annual Meeting. Elections of directors will be determined by a plurality vote of all shares present in person or by properly executed proxy and voting at the Annual Meeting. The affirmative vote of the record holders of a majority of the Common Stock present in person or by proxy at the Annual Meeting and entitled to vote is required to approve the 1996 Option Plan (the "Option Plan") described herein, to approve the 5 for 1 reverse split of the Company's Common stock and to ratify the selection of the independent public accountants. Abstentions will have the same effect as a withheld vote with respect to the election of directors and a vote against the approval of the Option Plan and will have no effect on the ratification of the selection of the independent public accountants. Broker non-votes will have no effect on the votes with respect to the election of directors, the approval of the Option Plan or the ratification of the selection of the independent certified public accountants. Unless proxies have been previously revoked, all shares represented by properly executed proxies will be voted at the Annual Meeting in accordance with the directions given on such proxies. Any person giving a proxy has the power to revoke it, in writing delivered to the Secretary of the Company at the 2 address given above, at any time prior to its exercise. If no direction is given, a properly executed proxy will be voted FOR the election of the three persons named under "Election of Directors," FOR the 1 for 5 reverse split of the Company's common shares, FOR the effective increase in the Company's number of authorized and unissued common shares, FOR the approval of the Option Plan and FOR the ratification of the selection of Brown, Graham & Company, as the Company's independent certified public accountants. The Board of Directors does not anticipate that any other matters will be brought before the Annual Meeting. If, however, other matters are properly presented, the persons named in the proxy will have discretion, to the extent allowed by Delaware law, to vote in accordance with their own judgment on such matters. _____________________ 3 ELECTIONS OF DIRECTORS ITEM 1 - ELECTION OF DIRECTORS Pursuant to the Company's Bylaws, the Company's Board of Directors consists of five members, each to hold office until the next annual meeting or until his respective successor is elected and qualified. If any nominee listed below should become unavailable for any reason, the proxy will be voted for any substitute nominee or nominees who may be selected by management prior to or at the Annual Meeting, or, if no substitute is selected prior to or at the Annual Meeting, for a motion to reduce the membership of the Board to the number of nominees available. Nominees for Director John V. Allen Currently a Director of the Company William Meehan Currently a Director of the Company Dr. James Chen Currently a Director of the Company Certain information regarding these nominees is set forth below in the section entitled "Management of the Company - Directors and Executive Officers." Vote Required The affirmative vote of the record holders of a plurality of the Common Stock present in person or by proxy at the Annual Meeting and voting is required to elect Directors. The enclosed proxy provides a means for stockholders to vote for the election of all of the nominees, to withhold authority to vote for one or more such nominees, or to withhold authority to vote for all of such nominees. Abstentions with respect to the election of a nominee for Director will have the same effect as a withheld vote and broker non-votes will have no effect on the election of Directors. It is the intention of the persons in the enclosed proxy to vote FOR the election of the above-named nominees to serve as Directors of the Company. The nominees, each of whom currently serves as a Director, or who have been nominated to coincide with the Annual Meeting, have consented to be named in this Proxy Statement and to serve if elected. Management does not contemplate or foresee that any of the nominees will be unable or unwilling to serve or be otherwise unavailable for election. Board Recommendation The Board of Directors recommends that stockholders vote FOR the election of the nominees for Director set forth above. APPROVAL OF THE COMPANY'S 1996 STOCK OPTION PLAN ITEM 2 - PROPOSAL TO APPROVE THE ADOPTION OF THE COMPANY'S 1996 STOCK OPTION PLAN General 4 On May 1, 1996, the Company's Board of Directors adopted the Company's 1996 Stock Option Plan (the "Option Plan"). The following summary of the provisions of the Option Plan is qualified in its entirety by express reference to the text of the Option Plan attached as Exhibit I hereto. Terms not otherwise defined in this summary shall have the meaning given to them in the text of the Option Plan. 5 Shares Granted and Reserved Under the Option Plan, a total of 600,000 shares of Common Stock are reserved to be issued upon exercise of options granted under the plan, subject to adjustment in the event of, among other things, an increase or decrease in the number of issued shares of Common Stock resulting from a stock split, stock divided, combination or reclassification of the Common Stock of the Company or the payment of a stock dividend with respect to the Common Stock. As of May 28, 1996, no options had been granted or were outstanding for the purchase of shares under the Option Plan. The stock option prices will be set at an exercise price equal to the fair market value of the Common Stock on the date of grant. A total of 600,000 shares are available for issuance under the Option Plan. Plan Description Purpose. The Purpose of the Option Plan is to strengthen the Company by providing an incentive to its employees, officers and directors and encouraging them to devote their abilities to the success of the Company. It is intended that this purpose be achieved by extending to employees, officers and directors of the Company or any subsidiary an added long-term incentive for high levels of performance and exceptional efforts through the grant of options to purchase shares of the Common Stock of the Company. Administration. The Option Plan provides that it shall be administered by a committee consisting of at least two members of the Board of Directors (the person as defined in Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act"). Subject to the terms of the Option Plan, the Committee has full power to select, from among the employees and directors eligible for option grants, the individual to whom options will be granted, and to determine the specific terms and conditions of each option grant in a manner consistent with the Option Plan; to waive compliance by participants with terms and conditions of option grants; to modify or amend option grants in a manner consistent with the Option Plan; to interpret the Option Plan and decide any questions and settle all controversies and disputes that may arise in connection therewith; and to adopt, amend, and rescind rules and regulations for the administration of the Option Plan. Determinations of the Committee on all matters relating to the Option Plan are conclusive. Eligibility. Options may be granted to any employee, officer or director of the Company, provided that incentive stock options (as defined below) may only be granted to employees and to officers who are also employees. Under Exchange Act Rule 16b- 3, a member of the Committee may not participate in the Option Plan. Options: Grants and Exercise. The Option Plan permits the granting of non-transferable stock options that qualify as incentive stock options ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"), and non- transferable stock options that do not so qualify ("non-statutory options"). The option exercise price of each option is to be determined by the Committee, but it may not be less than 100% of the fair market value of the shares on the date of grant (110% in 6 the case of a person who owns stock possessing more than 10% of the voting power of the Company (a "10% stockholder")). For purposes of the Option Plan, "fair market value" on any given date means the average of the high and low sales price at which Common Stock is traded on such date as reflected on the NASDAQ Market. The term of each option shall be determined by the Committee; provided, however, in the case of an ISO, the term may not exceed ten years from the date of grant (five years, in the case of a 10% stockholder); non-statutory options have a term limited to ten years (five years, in the case of a 10% stockholder) from the date of grant. The Committee determines at what time or times and under what conditions (including performance criteria) each option may be exercised. Options may be made executable in installments, and the exerciseability of options may be accelerated by the Committee. The Committee also determines, at the time of grant of each option, the terms and conditions under which the options granted to a participant may be exercised in the event of such participant's termination of service as an employee or director as a result of death, disability or termination of employment. To the extent not otherwise provided by the Committee, options granted to employees become executable in three installments, each equal to one-third of the entire option granted and executable on the first, second and third anniversaries of the grant date, respectively. In the event of termination of a participant's service to the Company, vested options may be exercised within twelve months following the date of death or following a determination of disability and within three months following termination for any other reason; except that, if such termination is for cause, the options will not be executable following such termination. In no event may an option be exercised later than the date of expiration of the term of the option as set forth in the agreement evidencing such option. In order to exercise an option, the participant must provide written notice and full payment to the Secretary of the Company. The option exercise price of options granted under the Option Plan must be paid for in cash or other shares of Common Stock upon such terms and conditions as determined by the Committee. The Committee may require that upon exercise of an option, certificates representing shares thereby acquired bear an appropriate restrictive legend if the sale of the shares has not been registered under the Securities Act of 1933, as amended. No option may be transferred other than by will or by the laws of descent and distribution, and during a participant's lifetime an option may only be exercised by him or her. Mergers and Consolidations. In the event of a dissolution or liquidation or merger or consolidation of the Company, the options shall continue in effect in accordance with their respective terms, and each participant shall be entitled to receive the same number and kind of stock, securities, cash, property or other consideration that each holder of Common Stock was entitled to receive in the transaction in respect of the Common Stock. 7 Amendment. The Board may amend the Option Plan or any outstanding option for any purpose which may at the time be permitted by law, except that no amendment or termination of the Option Plan may adversely affect the rights of any participant (without his or her consent) under an option previously granted. Term of Plan. Unless sooner terminated by the Board, the Option Plan will terminate at the tenth anniversary of the date of adoption by the Board. Certain Federal Income Tax Consequences The following summary generally describes the principal federal (and not state and local) income tax consequences of options granted under the Option Plan. It is general in nature and is not intended to cover all tax consequences that may apply to an Option Plan participant or to the Company. The provisions of the Code and the regulations thereunder relating to these matters ("Treasury Regulations") are complex, and their impact in any case may depend upon the particular circumstances. Each holder of an option under the Option Plan should consult the holder's own accountant, legal counsel or other financial advisor regarding the tax consequences of participation in the Option Plan. This discussion is based on the Code as currently in effect. If an option (whether an ISO or non-statutory) is granted to a participant in accordance with the terms of the Option Plan, no income will be recognized by such participant at the time the option is granted. Generally, on exercise of a non-statutory option, the amount by which the fair market value of the shares of the Common Stock on the date of exercise exceeds the purchase price of such shares will be taxable to the participant as ordinary income, and, in the case of any employee, the Company will be required to withhold tax on the amount of income recognized by the employee upon exercise of a non-statutory option. Such amount will be deductible for tax purposes by the Company in the year in which the participant recognizes the ordinary income. The disposition of shares acquired upon exercise of a non-statutory option will result in capital gain or loss (long-term or short-term depending on the applicable holding period) in an amount equal to the difference between the amount realized on such disposition and the sum of the purchase price and the amount or ordinary income recognized in connection with the exercise of the non-statutory option. Generally, on exercise of an ISO, an employee will not recognize any income and the Company will not be entitled to a deduction for tax purposes. However, the difference between the purchase price and the fair market value of the shares of Common Stock received ("ISO shares") on the date of exercise will be treated as a positive adjustment in determining alternative minimum taxable income, which may subject the employee to the alternative minimum tax ("AMT"). Upon the disposition of the ISO shares, the employee will recognize long-term or short-term capital gain or loss (depending on the applicable holding period) in an amount equal to the difference between the amount realized 8 on such disposition and the purchase price of such shares. Generally, however, if the employee disposes the ISO shares within two years after the date of option grant or within one year after the date of option exercise (a "disqualifying disposition"), the employee will recognize ordinary income, and the Company will be entitled to a deduction for tax purposes for the taxable year in which the disqualifying disposition occurs, in the amount of the excess of the fair market value of the shares on the date of exercise over the purchase price (or, if less, the amount of the gain on sale). Any excess of the amount realized by the holder on the disqualifying disposition over the fair market value of the shares on the date of exercise of the ISO will ordinarily constitute capital gain. If an option is exercised through the use of Common Stock previously owned by the employee, such exercise generally will not be considered a taxable disposition of the previously owned shares and, thus, no gain or loss will be recognized with respect to such shares upon such exercise. However, proposed Treasury Regulations would provide that, if the previously owned shares are ISO shares and the holding period requirement for those shares was not satisfied at the time they were used to exercise an option, such use would constitute a disqualifying disposition of such previously owned ISO shares, resulting in the recognition of ordinary income (but not any additional capital gain) in the amount described above. If an otherwise qualifying ISO first becomes executable in any one year for shares having a fair market value, determined as of the date of the grant, in excess of $100,000, the portion of the option in respect of such excess shares will be treated as a non-statutory option. Section 16(b) of the Exchange Act generally requires officers, directors and 10% stockholders of the Company to disgorge profits realized by buying and selling the Company's Common Stock within a six month period. Consequently, by application of Code Section 83 to these participants who are subject to Section 16, generally the relevant date for recognizing and measuring the amount of ordinary income in connection with an exercise of a non-statutory option (or AMT in the case of an ISO), as well as the relevant date for recognizing and measuring the amount of an employee's ordinary income and the Company's tax deduction in connection with a disqualifying disposition of ISO shares as discussed above, will be the later of: (i) six months following the date of grant, and (ii) the date of exercise of the option unless such participants elect otherwise under Code Section 83(b). Vote Required The affirmative vote of the record holders of the majority of the Common Stock present in person or by proxy at the Annual Meeting and entitled to vote is required to approve the Option Plan. Approval of the Option Plan by stockholders is required for ISO options granted under the Option Plan to meet the requirements of Code Section 422 and for options granted under the Option Plan to persons potentially liable under Section 16 of the Exchange Act to be exempt from liability to the extent provided under Exchange Act Rule 16b-3. Abstentions will have the same effect as a vote against the approval of the Option Plan and broker non-votes will have no effect on such vote. 9 Board Recommendation The Board of Directors recommends that stockholders vote FOR the approval of the Option Plan. APPROVAL OF 1 FOR 5 REVERSE SPLIT OF THE COMPANY'S COMMON SHARES ITEM 3 - PROPOSAL TO APPROVE A 1 FOR 5 REVERSE SPLIT OF THE COMPANY'S COMMON SHARES On May 28, 1996, the Board of Directors of the Company adopted a resolution declaring it advisable that the common stock of the Company be reverse split on an 1 for 5 basis. This proposal would effect a 1 for 5 reverse split of the Company's issued and outstanding Common Shares ( the "Stock Split"). The Stock Split would result in one post-split Common Share being issued in exchange for each 5 Common Shares which are presently issued and outstanding. The Company would not issue fractional shares pursuant to the Stock Split, but instead would issue one whole Common Share to those shareholders who would otherwise be entitled to receive fractional shares. The principal effect of the Stock Split would be to decrease the number of issued and outstanding Common Shares as of May 28, 1996, from 17,097,263 to approximately 3,419,453, depending on the number of whole Common Shares issued in elimination of fractional Common Shares. The Stock Split would not have an immediate effect on any shareholder's proportionate interest in the Company, including the proportionate interest of management, except for (i) the de minimis effect on those shareholders who receive one whole share in lieu of fractional shares, and (ii) the increase in future possible dilution, as described below. The following table illustrates the principal effects of the proposed stock split based on the Company's capitalization as of December 31, 1995: Common Shares Prior to Split After Split Authorized 40,000,000 40,000,000 Outstanding 17,097,263 3,419,453* Available for future issuance22,902,737 36,580,547* * Assumes that no post-split Common Shares are issued in lieu of fractional Common Shares Reasons for the Reverse Stock Split The Company's Common Stock is listed on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). As of May 28, 1996, the Company's Common Stock is trading at $0.34 bid and $.041 ask per share, respectively. For continued inclusion in the NASDAQ system, a minimum bid price per share shall be $1.00, provided, however that the Company shall not be required to maintain the $1.00 per share minimum bid price if it maintains the market value of public float of $1,000,000 or $2,000,000 in capital and surplus. Currently, the Company 10 maintains a public float market value of approximately $5,813,000, however, the Company does not maintain $2,000,000 in capital and surplus. Accordingly, in order to maintain its listing on the NASDAQ system the Company must increase the price per share from $0.34 bid to a price in excess of $1.00 per share. The Company believes that by reverse splitting the outstanding shares of Common Stock on a basis of 1 for 5, it will increase the price per share in excess of $1.00. In the event that the shares are reverse split on a 1 for 5 basis , there is no assurance that the price per share will exceed $1.00, or in the event the bid price does exceed $1.00 per share that it will remain at or above $1.00, and accordingly, it is possible that the Company's shares of Common Stock could be delisted from the NASDAQ system even though the reverse split is approved by the shareholders and effectuated. In the event the Company's shares of Common Stock are delisted from the NASDAQ system, their marketability because of the reluctance of many leading brokerage firms to recommend low priced securities to their clients, may be adversely affected. Further, a number of brokerage firms policies tend to discourage individual brokers within those firms from dealing in low priced securities. The Board of Directors is hopeful that by decreasing the number of Common Shares outstanding as a consequence of the reverse split, and the resulting increase in price level will generate broader interest in the Company's Common shares and promote continued liquidity for the Company's shareholders. Future Dilution; Anti-Takeover Effects There may be certain disadvantages suffered by shareholders of the Company as a result of approval of the Amendment. These include a significant increase in possible dilution to present shareholders' percentage ownership of the Common Shares. As described above, assuming issuance of all authorized Common Shares, present shareholders, in the aggregate, would own approximately 42.7% of the then-outstanding Common Shares under the Company's present capital structure, but only 8.6% of the outstanding Common Shares under the Capital structure assuming adoption of the amendment. The proportionate increase in the number of Common Shares available for future issuance may also have certain anti-takeover effects, For example, the availability of a large number of Common Shares for future issuance might allow the Company's Board of Directors to dilute the percentage share ownership of persons who might attempt to obtain control over the Company. Approval of the Amendment therefore might allow the Board of Directors to frustrate a takeover attempt which might be favorable to shareholders as a group, and may have the effect of limiting shareholder participation in these types of transactions. While the Amendment may have certain anti-takeover effects, management of the Company is not aware of any attempts by third persons to accumulate a large number of Common Shares. Accordingly, the Amendment has not been recommended by the Board of Directors in response to any existing attempts by third parties at obtaining control of the Company. No Plans or Agreements to issue Any Additional Common Shares 11 The Company has no plans or agreements to issue any additional Common Shares at this time. Exchange of Certificates and Liquidation of Fractional Shares American Securities Transfer, Inc. has been appointed to serve as the exchange agent (the "Exchange Agent") to act for shareholders in effecting the exchange of their certificates. As soon as practicable after the Effective Date, shareholders will be notified and requested to surrender their certificates representing Common Shares to the Exchange Agent in exchange for certificates representing post-split Common Shares. Commencing on the Effective Date, each certificate representing pre-split Common Shares will be deemed for all purposes to evidence ownership of post-split Common Shares. Certificates representing fractional Common Shares will not be issued in connection with the Stock Split. Assuming approval of the Stock Split by shareholders, shareholders who would otherwise receive fractional shares will be entitled to receive one whole Common Share in lieu of any fractional share. Vote Required The affirmative vote of a majority of the outstanding Common Shares is required to adopt the Amendment. The Company's officers and directors are expected to vote for the adoption of the Amendment. Federal Income Tax Consequences The federal income tax consequences of the proposed Stock Split are set forth below. The following information is based upon existing tax laws, which are subject to change by legislation, administrative action and judicial decision. Shareholders are therefore advised to consult with their own tax advisor for more detailed information relating to their individual tax circumstances. 1. The post-split Common Shares in the hands of a shareholder will have an aggregate basis for computing gain or loss equal to the aggregate basis of the pre-split Common Shares held by the shareholder immediately prior to the Stock Split. Registration The Board of Directors believes the changes to be effected by the reverse split will not cause the Company to terminate registration of the Common Shares under the Securities Exchange Act of 1934 or to cease filing reports under that Act with the Securities and Exchange Commission. The Company does not have any present plans to take any action which would further reduce the number of shares THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE 1 FOR 5 REVERSE STOCK SPLIT. APPROVAL OF EFFECTIVE INCREASE IN AUTHORIZED AND UNISSUED SHARES 12 ITEM 4 - PROPOSAL TO APPROVE THE EFFECTIVE INCREASE IN THE NUMBER OF AUTHORIZED AND UNISSUED SHARES. As disclosed in item 3, the Board of Directors adopted a resolution declaring it advisable that the common stock of the Company be reverse split on a 1 for 5 basis. The Board of Directors has recommended to keep the authorized number of Common Shares at 40,000,000 after the split. Normally the authorized number of shares would be reduced to 8,000,000 to reflect the 1 for 5 reverse split being proposed in item 3 of this proxy statement. Electing to keep the authorized number of shares at 40,000,000 could result in a significant increase in possible dilution to present shareholders' percentage of ownership of the Company's Common Shares. Assuming the issuance of all authorized Common Shares, present shareholders, in the aggregate, would own approximately 42.7% of the outstanding shares under the Company's present capital structure prior to the split, but only 8.6% of the outstanding Common shares under the Capital structure assuming adoption of this proposal. The Board of Directors feels that retaining the existing number of authorized Common shares may be more attractive for future possible merger or acquisition candidates should the opportunity become available and be in the Company's best interest. Should this proposal not be approved by the shareholders, the Board of Directors will change the authorized number of Common Shares to reflect the direct proportional reverse 1 for 5 split, which would result in the then authorized number of Common Shares being 8,000,000. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE EFFECTIVE INCREASE IN THE AUTHORIZED AND UNISSUED NUMBER OF SHARES. RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ITEM 5 - PROPOSAL TO APPROVE THE RATIFICATION OF APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors has selected the firm of Brown, Graham & Company, as the Company's independent certified public accountants for the fiscal year ending December 31, 1996. Although the selection of auditors does not require ratification, the Board has directed that the appointment of Brown, Graham & Company be submitted to stockholders for ratification because management believes this matter is of such significance as to warrant stockholder participation. The Company expects a representative of Brown, Graham & Company to be present at the Annual Meeting in person or by telephone conference to respond to appropriate stockholder questions, and they will be given the opportunity to address the stockholders, if they so desire. Vote Required The affirmative vote of the record holders of a majority of the Common Stock present in person or by proxy at the Annual Meeting and voting is required to ratify the selection of the 13 independent certified public accountants. Abstentions and broker non-votes will have no effect on such vote. Board Recommendation The Board of Directors recommends that stockholders vote FOR ratification of the selection of Brown, Graham & Company, as the Company's independent certified public accountants for the fiscal year ending December 31, 1996. MANAGEMENT OF THE COMPANY The directors and executive officers of the Company are as follows: Name Age Position John V. Allen 57 Chairman of the Board William Meehan 51 President and Director James Chen 40 Director Directors and Executive Officers JOHN V. ALLEN. John Allen became a member and Chairman of the Board of Directors on January 23, 1995, when U.S. Technologies Inc. acquired Newdat, Inc. Mr. Allen has been Chairman of the Board of Newdat, Inc. since it's inception in 1994. Mr. Allen was a founder and Chairman of the Board of Pan Pacific Gold Corporation since July 1994, a Canadian resources company with activities in British Columbia, Vietnam, China and the U.S. 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 principally electronic products. During the period of 1984 through 1989 Mr. Allen served as the founder and Chairman of Superburn Systems, Ltd., a Canadian public 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 Investment Ltd., a wholly owned multi-national investment holding company with a diverse range of high technology businesses. WILLIAM MEEHAN. William Meehan was appointed President and Chief Executive officer of the Company on June 1, 1995, and appointed to the Board of Directors on October 30, 1995. Mr. Meehan has served as President, Chief Executive Officer and a member of the Board of Directors of SensonCorp Limited from July 1994. Mr. Meehan served from October 1992 as President and as a member of the Board of Directors of Clarion Environmental Technologies, Inc., a Vancouver Stock Exchange public company, specializing in environmental pollution eradication until his resignation in June 1994. Mr. Meehan has been President and a member of the Board of Directors of Pan Pacific Gold Corporation, a Canadian public Company trading on the Vancouver Stock Exchange since August 1994. Pan Pacific conducts mining and extraction activities in British Columbia, Vietnam, China and the U.S. Mr. Meehan was appointed as the Australian Consul General to Western Canada, based in Vancouver, in December 1989 and served in that 14 position until October 1992. Mr. Meehan has a degree in civil engineering and has written a fellowship in International Marketing. He has worked extensively in Europe, the Middle East, Asia, Australia, and North America during his career. 15 James Chen James Chen Phd. (Engineering) was appointed to the Board of Directors of U.S. Technologies Inc., on May 28, 1996, to fill the vacant position created by the resignation of Norman Frank on April 30, 1996. Dr. Chen has provided technical assistance to the Company over the past year. Dr. Chen is Vice President (International Engineering) for Laura Technologies Ltd., a Vancouver based company. From October 1994 until September 1995, Dr. Chen was Vice President, research, and a member of the Board of Directors of Clarion Environmental Systems Ltd. Prior to that he spent two and a half years as a post doctoral fellow at the University of British Columbia, specializing in air pollution technology and energy utilization. Board of Directors and Committees Pursuant to the Company's Bylaws, the Company's Board of Directors consists of five members, each to hold office (subject to the Company's By-Laws) until the next annual meeting or until his respective successor is elected and qualified. In the case of a vacancy, a director will be appointed by a majority of the remaining directors then in office to serve the remainder of the term left vacant. Directors do not receive any fees for attending Board meetings. However, if two meetings are held in a single month, then non-employee Directors receive a payment of $100. Directors are entitled to receive reimbursement for traveling costs and other out-of-pocket expenses incurred in attending Board meetings. During the fiscal year ended December 31, 1995 ("fiscal 1995"), the Board of Directors held 8 meetings. All incumbent directors attended at least 75 percent of those meetings. Based solely upon a review of the copies of the forms furnished to the Company, or written representations from certain reporting persons, the Company believes that during fiscal 1995, all filing requirements applicable to its officers and directors were complied with by such individuals. Compensation of Executive Officers The following table sets forth all compensation awarded to, earned by or paid to each of the Company's executive officers (the "Named Officers") for the Company's fiscal year as specified below: SUMMARY COMPENSATION TABLE Annual Compensation Name and Principal Other Annual Position Year Salary Bonus Compe nsation William Meehan 1995 $90,000 $0 $0 President and 1994 30,000 0 0 Chief Executive Officer (1) Ryan Corley 1995 24,000 0 0 16 President and 1994 67,500 0 0 Chief Executive 1993 60,000 0 0 Officer(2) (1) Mr. Meehan served as president of SensonCorp, Inc., one of Companies acquired in the Newdat, Inc., acquisition on January 21, 1995, and was appointed Company President and CEO on June 1, 1995. (2) Mr. Corley resigned as Company President on June 1, 1995. All other executive officers received less than $100,000 total annual salary and bonus during the years being reported upon herein. Employment Agreements The Company is a party to an employment agreement with Mr. William Meehan which expires on May 31, 1999. Pursuant to such employment agreement, Mr. Meehan acts as President and Chief Executive Officer of the Company, for which he currently receives an annual salary of $120,000 and is prohibited from competing with the Company for a period of one year following the term of the agreement. Stock Option Plans 1988 and 1990 Stock Option Plans In March 1989 and June 1990, the shareholders approved the 1988 Stock Option Plan (the "1988 Plan") and (the "1990 Plan"), respectively. The 1988 and 1990 Plans are designed to serve as an incentive for retaining qualified and competent employees. The Plans provide for the award of options to purchase up to 300,000 shares of Common Stock in each respective Plan, of which 137,580 were subject to outstanding options as of December 31, 1995. The Plans are administered by the Stock Option Committee of the Board of Directors. The Stock Option Committee has, subject to the provisions of each Plan, full authority to select Company individuals eligible to participate in each respective Plan, including officers and employees. The 1988 Plan provides for the awarding of incentive stock options (as defined in Section 422 of the Internal Revenue Code of 1986) and non- incentive stock options. Options granted pursuant to the 1988 Plan will have such vesting schedules and expiration dates as the Stock Option Committee shall establish in connection with each Plan Participant, which terms shall be reflected in an option agreement executed in connection with the granting of the option. During the year ended December 31, 1995, 3,000 shares were granted under the Plans. On May 28, 1996, the Company's Board of Directors adopted and approved the 1996 Stock Option Plan. The Option Plan is designed to serve as an incentive for retaining qualified and competent directors, officers and employees. See "Approval of the Company's 1996 Option Plan." Options Granted in Last Fiscal Year There were no options granted to any of the named executive officers during the year ended December 31, 1995. Option Values 17 There were no unexercised options held by the named executive officers as of December 31, 1995. Board of Directors' Report on Executive Compensation The Board of Directors has not established any compensation committee. Therefore, the full Board reviews and makes decisions regarding salaries, compensation and benefits of executive officers and key employees of the Company. Compensation of the Company's executive officers and key employees has historically consisted of two components: base salary and annual bonuses. Base compensation levels have been developed in order to attract and retain executives and key employees based on their level of responsibility within the Company. Generally, the Company has positioned salaries at median compensation levels for comparable positions and responsibilities in the market. Individual salaries may be higher or lower based on the qualifications and experience of the individual as well as Company performance. Base salaries have been subject to periodic review and adjustment and annual salary adjustments have been made based on the factors described above. Annual bonuses are under consideration and will closely link executive pay with performance in areas key to the Company's short term operating performances. For fiscal 1995, the compensation package of the Company's President, Mr. Meehan, was established pursuant to a written employment agreement which expires on May 31, 1999. Mr. Meehan currently receives an annual salary of $120,000. See "Management of the Company - Employment Agreements." The Board of Directors has instituted the 1996 Stock Option Plan which is administered by the Stock Option Committee. See "Management of the Company - Stock Option Plans." The Company has adopted these stock option plans in order to create incentives for retaining qualified and competent employees and maximizing long-term stockholder values. For fiscal 1996, the Board intends to examine and evaluate the performance of the Company's officers and employees, through discussions with senior management and otherwise, and make its decisions with respect to base salary, annual bonuses and any other elements of compensation in light of an overriding company philosophy linking pay and performance. Certain Relationships and Related Party Transactions Mr. John Allen, Chairman of the Company is also Chairman of the Board of Directors of Laura Technologies, Inc., with whom the Company and or its subsidiaries have a loan in the amount of $210,774 as of December 31, 1995. Performance Graph Set forth below is a graph comparing cumulative total stockholder returns (assuming reinvestment of dividends) of the Company, the Standard & Poor's High Tech composite and the Standard & Poor's 500 index. The graph assumes $100 invested on December 31, 1991 in the Company and in each of the indices. The 18 performance shown in the graph is not necessarily indicative of future performance. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS Performance Graph for U.S. Technologies Inc. TOTAL STOTAL SHAREHOLDER RETURNS Dividends Reinvested ANNUAL RETURN PERCENTAGE Years Ending Company/Index Dec 91 Dec 92 Dec 93 Dec 94 Dec 95 U. S. Technologies Inc. 113.22 -68.80 -23.91 -68.41 - -8.27 S & P High Tech Composite 14.08 4.13 23.01 16.55 44.04 S & P 500 Index 30.47 7.62 10.08 1.32 37.58 INDEXED RETURNS Years Ending Base Period Company/Index Dec 90 Dec 91 Dec 92 Dec 93 Dec 94 Dec 95 U. S. Technologies Inc. 100 213.22 66.52 50.62 15.99 14.67 S & P High Tech Composite100 114.08 118.79 146.13 170.31 245.32 S & P 500 Index 100 130.47 140.41 154.56 156.60 215.45 19 VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF The following table set forth as of May 28, 1996, the number and percentage of shares of Common Stock held by (i) each of the executive officers and directors of the Company, (ii) all persons who are known by the Company to be the beneficial owners of, or who otherwise exercise voting or dispositive control over, five percent or more of the Company's outstanding Common Stock and (iii) all of the Company's present executive officers and directors as a group: Name and Address Common Stock Percentage of of Beneficial Owner Owned (1) Outstanding John V. Allen (1) 0 0.00 Suite 203 2750 Gulfshore Blvd. North Naples, FL 33940 William Meehan (1) 0 0.00 7806 Newhall Lane Austin, TX 78746 James Chen (1) 0 0.00 Suite 1110 900 West Hastings Street Vancouver, British Columbia Canada V6C 1E5 All Officers and Directors as a Group (3 individuals) 0 0.00% Tintagel, Ltd. (2) 6,319,226 39.80% P.O. Box 156, Hybiscus Square Pond Street Grand Turk, Turks & Caicos Islands British West Indies (1) These individuals are officers and/or directors of the Company. (2) Beneficial owner of more than 5% of the outstanding shares of the Company's Common Stock. 20 OTHER MATTERS The Board of Directors is not currently aware of any other matters to be transacted at the Annual Meeting. However, if any other matter should properly come before the Annual Meeting or any adjournment thereof, the persons named in the accompanying proxy intend to vote on such matters as they, in their discretion, may determine, subject, in any event, to the requirements of Delaware Law. The Company will bear all costs of soliciting proxies in the accompanying form. Solicitation will be made by mail, and officers of the Company may also solicit proxies by telephone or personal interview. In addition, the Company expects to request persons who hold shares in their names and other to forward copies of this proxy soliciting material to them and to request authority to execute proxies in the accompanying form, and the Company will reimburse such persons for their out-of-pocket and reasonable clerical expenses in doing this. FINANCIAL STATEMENTS The Company's audited consolidated financial statements for the fiscal year ended December 31, 1995 and certain other related financial and business information of the Company are obtained in the 1995 Annual Report to Stockholders mailed with this Proxy Statement. Refer to Attachment 1. STOCKHOLDERS' PROPOSALS Any proposal which an eligible stockholder wishes to include in the proxy statement for the 1997 Annual Meeting of Stockholders must be received by the Company at its principal executive offices at 1402 Industrial Boulevard, P.O. Box 697, Lockhart, Texas 78644, not later than March 1, 1997. By Order of the Board of Directors William Meehan, Secretary Dated: June 27, 1996 21 U.S. TECHNOLOGIES INC. - STOCKHOLDERS ANNUAL MEETING - JULY 25, 1996 PROXY - This Proxy is solicited on behalf of the Board of Directors The undersigned hereby appoints the Chief Executive Officer of U.S. Technologies Inc. (the "Company"), the attorney, agent and proxy of the undersigned, with full power of substitution and revocation, in the name, place and stead of the undersigned and with all the powers the undersigned is entitled to vote at any annual or special meeting of the shareholders of the Company (including any adjournments thereof) on all matters on which such shareholders are entitled to vote, (a) in favor of any nominees for election to the Board of Directors of the Company (the "Board") recommended by the Board, (b) otherwise, on each matter to be voted on any such meeting of shareholders. In the same proportion as the votes cast for, against and abstaining on such matter by the other holders of stock of the Company present and voting at such meeting. ______________________________ ___ [Name] Dated:____________________, 1996 [Settlement Date] Agenda Item 1 Election of Directors [ ] For all nominees listed below [ ] WITHHOLD AUTHORITY (except as marked to the contrary) to vote for all nominees listed (INSTRUCTION: To withhold authority for any individual nominee strike a line through the nominees' name in the list below.) John V. Allen, William Meehan, and James Chen Agenda Item 2 [ ] [ ] Proposal to Approve the Adoption of FOR AGAINST the Company's 1996 Stock Option Plan Agenda Item 3 [ ] [ ] Proposal to Approve the 5 for 1 Reverse split FOR AGAINST of the Company's Common shares. Agenda Item 4 [ ] [ ] Proposal to effectively increase the number of FOR AGAINST authorized and unissued shares. 22 Agenda Item 5 [ ] [ ] Ratification of Appointment of FOR AGAINST Independent Certified Public Accountants Please mark your choices above, date, sign and return this proxy statement promptly using the enclosed envelope. This proxy when executed will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this proxy will be voted for Proposals 1, 2, 3, 4 and 5. 23 EX-13 2 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, 1995 [ ] 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) 376-1049 _______________________ 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 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 at April 12, 1996 was approximately $5,397,827. The number of shares outstanding of the Registrant's Common Stock, par value $0.02 per share, at March 31, 1995 was 15,875,963 shares. TABLE OF CONTENTS PART I Item 1. Business 3 Item 2. Properties 9 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 11 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 19 Item 9. Changes in and Disagreements on Accounting and Financial Disclosure 34 PART III. Item 10. Directors and Executive Officers of the Registrant 34 Item 11. Executive Compensation 37 Item 12. Security Ownership of Certain Beneficial Owners and Management 39 Item 13. Certain Relationships and Related Transactions 41 PART IV. Item 14. Exhibits, Financial Statement Schedules and reports on Form 8-K 41 Schedules and Reports on Form 10-K: Schedule II Valuation and Qualifying Accounts 43 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 Austin, Texas. The Company's decision to move its headquarters 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 Company's Common Stock traded on the over-the-counter market and listed on the National Association of Securities Dealers Automated Quotations (NASDAQ) System. The trading symbol 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. MicroLabs had been inactive for several years, but had at 3 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. 4 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 formally ratified the assignment of the IWPA from American Microelectronics Inc. to LTI, but has continued full cooperation with LTI over the past 22 months. 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 are 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, 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 direction, administrative and consulting services to its Subsidiaries, and raises funds as appropriate for their operation and expansion. 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 basic element for manufacturing electronic circuitry today. Individual electrical components such as resistors, capacitors and 5 solid state devices are mounted on the circuit 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 and five manufacturing representative sales people. It has increased the sales force by 350% over the past six months and is attempting to expand its contract manufacturing business by including larger runs and turnkey operations. Newdat, Inc. is an Arizona corporation which has developed to market ready status 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 has wide ranging alternative applications. For example it 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 also owns an eighty percent (80%) interest in SensonCorp Limited "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 market these products in North America. The coatings have a variety of applications, all with non toxic anti-corrosion capability using vapor phase corrosion inhibitors. Over the past half year, the Company's management has consolidated much of Newdat's engineering business in Lockhart as a control measure and cost saving exercise. This has been a highly successful move which has expanded the engineering capability of LTI, allowing it to work on a wider range of business. LTI is also preparing to manufacture its own proprietary products. LTI successfully concluded an agreement in the third quarter of 1995 to manufacture a unique earthquake early warning device which has been designed and priced for the consumer market in North America, Japan, and many other earthquake prone regions of the world. Under the present arrangement, LTI is guaranteed $10 net profit for every unit manufactured to an agreed cost, and management is presently in discussion with the owner of the technology for the purpose of acquiring a controlling interest in the technology as well 6 as world manufacturing and marketing rights. Both manufacture-only and technology ownership options offer the Company good prospects for resolving its liquidity problems and returning a very satisfactory profit. Another potential business opportunity for LTI is a product which it has developed on behalf of a customer. The product is an energy saving device which has been developed for a local company and is presently in field testing. The product offers LTI the opportunity to undertake long production run work which will enable combining the building of circuit boards and coils with electro-mechanical assembly. 7 Raw Materials Some of the components and raw materials used by LTI and Newdat are available from a limited number of suppliers and/or are susceptible to non availability due to periodic shortages. While component purchasing lead times are improving due to greater competition. 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 could jeopardize orders and increase the cost of operations for LTI and Newdat. LTI and Newdat have 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. To mitigate potential supply problems, LTI has recruited a materials specialist who has already in his brief time with the Company considerably reduced any risk of production delays while also reducing component cost through judicious ordering procedures. Senson's raw materials include chemical stocks which are generally available and management does not presently anticipate any restrictions or delays in production due to shortages in 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 as important in some instances as the 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 8 The Company's subsidiaries are discouraged from carrying excess quantities of raw materials or purchased parts because most of their products are produced to demand; therefore, components and parts can usually be ordered as needed. LTI has an agreement which allows one of its suppliers to purchase materials from LTI's inventory when they have needs for certain items. This procedure is to be extended to other customers and known users of certain of LTI's inventory, and should result in an increase turn in inventory and in an overall reduction of the raw material inventory during 1996. In a determined effort to limit inventory holdings, LTI has introduced a heavy hand in its writeoff program and has made a allowance for a $295,000 complemented with a determination to find buyers for slow moving items. LTI offers selected customers a 2% discount if bills are paid within ten days. Normal terms are net 30. Newdat and Senson currently offer 14 day terms. 9 Dependence on Customers LTI has broadened its customer base during 1995 and is less dependent on key customers than during the last two years. However, it is now seeking longer production runs than in the recent past and if it is successful, dependence on one or more customers is inevitable. 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. Newdat and Senson do not appear to have dependence upon any particular customer at this stage of their development. Backlog At December 31, 1995, LTI's backlog (which represents that portion of outstanding contracts not yet included in revenue) was approximately $235,000. It is anticipated that 100% of the backlog will be delivered before June 30, 1996. At December 31, 1995, Newdat had no backlog as the wire measurement devices have not passed through their Beta site testing phases, and are therefore not offered for sale. At December 31, 1995, Senson's backlog was approximately $2,750, and this should not be a problem generally as the Company manufactures in large batches and holds adequate stocks. The backlog will be delivered before March 31, 1996. 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 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 10 markets. Positive factors pertaining to LTI's competitive position are the experience of LTI's new management team 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 initially be able obtain through the use of such borrowed funds or leased equipment for its operations. Research and Development Activities Newdat acquired products of which one had already been developed. Newdat is limiting further research and development to support the latest possible entry of its proprietary products into market, and then the support and enhancement of those products in the field. Number of Persons Employed As of December 31, 1995, the Company had two salaried employees. Several employees of LTI devoted a significant portion of their time to the affairs of the Company. As of December 31, 1995, LTI had approximately 47 regular employees. LTI employees include residents from the minimum security prison facility where the Company is located. As of December 31, 1995, Newdat had one regular employees. As of December 31, 1995, Senson had 4 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 generally applicable to companies producing medical 11 electronics. The products that are subject to FDA regulation are not a significant portion of LTI's business. All of the Company's subsidiaries are subject to OSHA. 12 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, although the assignment has not been formally ratified. 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, 1995, 1994 and 1993, was $33,144, $7,290, and $132,000, respectively. The rent expense for 1993 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. 13 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 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. Defendant John Allen is the Chairman of the Board of the Company. Dugal Allen is John Allen's son and was Vice President of operations for Senson at the time. Mr. Meehan is President of U.S. Technologies Inc., and was a founding member of SensonCorp Limited. 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 cancelled the agreement on "Without Cause" grounds in May 1995. The Company formally sought to participate in arbitration during April 1996 and is awaiting a date for the arbitration to be heard. The Company strongly believes that the plaintiffs claims are without merit and that SensonCorp, Limited. and the other defendants will prevail. 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 14 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 $40,818 in damages plus $13,500 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 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. 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. 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to the stockholders for their consideration during the fourth quarter of 1995. 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, 1995, 1994, 1993, 1992, and 1991. 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 1995 4th Quarter $.5937 $.3437 3rd Quarter $.7187 $.5000 2nd Quarter $.7187 $.2812 1st Quarter $.7812 $.3750 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 On April 123, 1995, the closing bid price of the Common Stock, as quoted on the NASDAQ system, was $0.34. 16 As of March 31, 1996, there were 398 holders of record of the Company's Common Stock. This number is exclusive of beneficial owners whose securities are held in street name. 17 ITEM 6. SELECTED FINANCIAL DATA The selected financial data set forth below for the years ended December 31, 1995, 1994, 1993, 1992 and 1991 is derived from the Company's audited financial statements. This information should be read in conjunction with the financial statements for 1995, 1994 and 1993 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, 1995 1994 1993 1992 1991 Operations statement data: Net sales $1,951,487$1,668,865$6,655,573 $8,888,016$8,368,471 Loss from operations $(1,861,474)$(2,230,710) $(2,448,096)$(356,835)$(49,841) Net income (loss) $(1,861,088)$(847,016)$(2,352,572) $(463,423)$(168,689) Per Share Data: Loss per share $(0.12) $(0.16) $(0.62) $(0.16) $(0.06) Weighted-average common shares outstanding 14,997,5325,302,1473,794,631 2,830,972 2,707,144 Cash dividends per common share -0- -0- -0- - -0- -0- Balance sheet data: Total assets $3,326,537$2,120,340$2,685,325 $2,915,400$3,160,281 long-term debt (including capital lease obligations) $840,435 $-0-$19,166 $19,166$110,062 12 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, 1995, 1994 and 1993 and had working capital deficiencies in the year ended December 31, 1993. 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. 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 in the Company's capital and surplus are at least $2,000,000 and $1,000,000, respectively. 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 operations , the sale of additional common stock through a private placement of $1,000,000, which was commenced on April 4, 1996 and of which $100,000 has been placed as of the date of this report, and the conversion by certain creditors of debt obligation to equity may enable the Company to alleviate its liquidity and 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 12, 1996, the closing bid price of the Company's common stock was $.34. As of December 31, 1995, 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 has talked to the holders of the long-term notes and plans to convert some if not all of the outstanding long-term debt to equity. If the Company fails to meet the minimum bid requirements within a reasonable period, the Company will be delisted from the NASDAQ system thereby resulting in the owners of the 13 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; 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 is confident that it will achieve its goals through the plans and actions outlined above and subsequently detailed. See "Business - General Development of Business," "Principal Shareholders," "Certain Transactions" and "Description of Capital Stock." Additionally, the Company's 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. A major change in management personnel during the summer of 1995 resulted in new attention being paid to monthly reviews of profit and loss statements and other financial indications of the Company's status. The effects of regular utilization of these judgmental management tools are still the main focus realizing the need for additional accounting personnel, and stronger monthly manufacturing figures. In 1994, 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. This has resulted in a satisifactory control system being evidenced. Liquidity and Capital Resources 14 At December 31, 1995, the Company has a positive working capital balance of $574,146 compared to $779,566 at December 31, 1994. This decrease in working capital was due primarily to the a significant inventory writedown and an increase in accrue payables and expenses. As of December 31, 1995, the Company had a cash balance of $25,860 compared to a cash balance of $2.579 and $40,911 at December 31, 1994 and 1993, respectively. The cash balance at December 31, 1995 was the result of the company trying to better manage its cash. The decrease or low balance of cash at December 31, 1994 is due primarily 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 better managing its cash. Accounts payable increased approximately 100% to $254,658 at December 31, 1995, primarily due to the lack of available funds to timely pay creditors and a decrease in production in the last quarter. Accounts payable decreased 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. Inventories decreased by approximately 12% to $919,970 at December 31, 1995 from $1,042,306 at December 31, 1994. Inventories at December 31, 1993 were $1,470,424. The inventory consists principally of electrical components and raw materials utilized in the layout, design and assembly process of electronic circuit boards. The Company will be liquidating excess inventory during 1996. During 1995, an allowance of $262,000 was charged to income for obsolescence and reduction in net realizable value. The Company does not presently anticipate significant writedowns for obsolescence or reductions in net realizable value of product inventory during 1996. 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 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 15 (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 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 1996. 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. The Company is dependent on seven customers for a major portion of its sales. The sales of services to IBM represented approximately 11%, and 24% for the years ended December 31, 1994, and 1993, respectively. Trimble Navigation represented approximately 27%, and 12% of sales during the years ended December 31, 1994, and 1993, respectively, Dell Computer Corporation represented approximately 9%, 20% and 35% of the Company's sales for the years ended December 31, 1995, 1994 and 1993; Texas Instruments accounted for approximately 15% and 14% of total sales during the years ended December 31, 1995 and 1994, respectively. Sales to Crystal Semiconductor accounted for 13% of sales during the year ended December 31, 1995. Micronics Computer and Intel Corporation each accounted for 9% of total sales during the year ended December 31, 1995. The Company is attempting to developed a broader customer base to so that the Company will not rely on any 16 one customer for more that 10% of its business in the future. The Competitiveness of LTI's quotes enable through improved controls and efficiencies should enable LTI to increase its contract manufacturing business to $300,000 per month, to broaden its scope of job bidding, and to achieve a healthy blend of contract manufacturing work with it's own proprietary product. The business of LTI is capital intensive, as was the former business of AMI, i.e., significant investment in equipment has been necessary. The Company acquired approximately, $10,000, $17,000, and $197,000 of new and used equipment during 1995, 1994 and 1993, respectively. 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 had funded the capital expenditures of AMI through a mixture of internal and external sources such as bank borrowings and lease agreements. 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 assigned all of its right title and interest in the lease to LTI, but the assignment of the Lease has not yet been accepted. 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. 17 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 now 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 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 and 1993, respectively. From time to time during 1995, 1994, and 1993, 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 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 18 and demanded payment in full. These loans remained unpaid as of June 30, 1994, the date on which AMI, Republic and Microlabs were sold. 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 executable 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 July 31, 1996. 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. During 1993 and for the first six months of 1994, one of the Company's former subsidiaries had an factoring arrangement which provided for the sale of eligible accounts receivables with and without recourse to the factoring company which advanced funds equal to 80% of such eligible receivables. Additionally, the factoring company charged 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, the factoring company retained a continuing security interest in the factored accounts receivables and inventory. The interest and factoring fees discussed above of $44,167, and $154,834 were incurred during the two years ended December 31, 1994, and 1993, 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, and 1993 from the sale of receivables was $837,923, and $4,517,891, 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 19 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 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 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 franchise. 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 of approximately $300,000. During the year ended December 31, 1994 the Company obtained an appraisal of the stones which determined the value to be approximately $143,000. The Company contacted Paris Fashion Ltd. and demanded that the difference in appraised value be corrected. During the year ended December 31, 1995, Paris Fashions, Ltd provided the Company with additional gem stones with a purported value of $170,000. The gem stones have been appraised during 1996 at a value of $270,000. The Company has provided for a valuation reserve and a charge against operations in the amount of $30,000 and $160,000 for the years ended December 31, 1995 and 1994, respectively. The Company's Board of Directors 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 20 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 Messers Corley and Bryant have requested payment. The present Board of Directors question the legality of this form of compensation and is obtaining a legal ruling. The severance pay of $46,000 has not been recorded in the accompanying financial statements due to the uncertainty. 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 reference. Results of Operations During the Year ended December 31, 1995 the Company had a net loss of $(1,951,487) or $(0.12) per weighted-average share, on consolidated net sales of $1,951,487 as compared to a net loss of $(847,046) or, $(0.16) per weighted-average share, on consolidated net sales of $1,668,865 in 1994. In 1993, the Company had a net loss of $(2,352,572) or $(0.62) per weighted-average share, on consolidated net sales of $6,655,573. The increase in sales for 1995 is mainly due to sales of the company's new products obtained through the purchase of Newdat. 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 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, 1995 was $270,000 or 13.8% Management anticipates gross margins to improve due to the continued decreased labor cost, the decrease in employee benefits required for the resident employees and reduced facilities cost in the future. 21 Selling expenses represented approximately 11.6% of sales in 1995 compared to 9.7% of sales in 1994 compared to 6.2% in 1993. 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. Administrative expenses were approximately $1,777,934 or 91.0% of sales during 1995 compared to 89.8% and 26.2% in 1994 and 1993, 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. Continued attempts are being made to control both selling and administrative costs. No expenditures were made during 1994 for research and development while approximately $82,750 and $76,000, was spent during the two years ended December 31, 1995 and 1993, respectively. The Company does anticipate incurring expenditures for research and development during 1996 in completing the high speed tape back up system being developed by Newdat. 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 1995. The Company adopted the Statement of Position number 94-6 "Disclosure of Certain Significant Risks and Uncertainities." during the year ended December 31, 1995, which requires disclosure of risks and uncertainities that could significantly affect the amounts reported in the financial statements or the near-term functioning of the Company and communicate to financial statements users the inherent limitations in financial statements. 22 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, 1995 and 1994, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years ended December 31, 1995, 1994 and 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 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, 1995 and 1994, and the results of their operations and their cash flows for the years ended December 31, 1995, 1994 and 1993 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 ended December 31, 1995, 1994 and 1993 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. The financial statements do not include any adjustments that might result from this uncertainty. BROWN, GRAHAM AND COMPANY P.C. 19 Georgetown, Texas April 14, 1996 20 U.S. Technologies Inc. CONSOLIDATED BALANCE SHEETS ASSETS December 31, 1995 1994 Current assets: Cash in bank $ 25,860 $ 2,579 Accounts receivable: Trade, net 168,717 117,900 Officers, directors and employees 79,894 72,927 Inventories, net 919,970 1,042,306 Prepaid expenses 6,022 31,112 Total current assets 1,200,463 1,266,824 Property and equipment - net 236,190 426,238 Other assets: Investment - NCL 265,000 265,000 Investment - Gem stones 270,000 143,564 Investment - new technologies, net 1,351,272 Other assets 3,612 18,714 Total other assets 1,889,884 427,278 Total assets $3,326,537 $2,120,340 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 50,000 Accounts payable $ 254,658 129,048 Accrued expenses 371,659 308,210 Total current liabilities 626,317 487,258 Long term Liabilities: Notes payable 840,435 ________ Commitments and contingencies: (Note 8) Stockholders' equity: Common stock - $.02 par value; 40,000,000 shares authorized; 15,875,963 and 6,969,635 shares issued and outstanding at December 31, 1995 and 1994, respectively 317,520 139,393 Additional paid-in capital 9,887,485 7,977,821 Accumulated deficit (8,345,220) (6,484,132) Total stockholders' equity 1,859,785 1,633,082 Total liabilities and stockholders' equity$3,326,537 $2,120,340 The accompanying notes are an integral part of the consolidated financial statements 20 U.S. Technologies Inc. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 1995 1994 1993 Net Sales $1,951,487$1,668,865$6,655,573 Operating costs and expenses: Cost of sales 1,681,371 2,032,521 6,861,981 Research and development expense 82,750 76,419 Selling expense 227,034 161,752 416,479 General and administrative expense 1,777,934 1,499,036 1,742,160 Provision for doubtful receivables 43,872 206,266 6,630 _________ _________ _________ Total operating costs and expense3,812,961 3,899,575 9,103,669 _________ _________ _________ Loss from operations (1,861,474)(2,230,710)(2,448,096) Other income (expense) Interest income 1,610 1,655 Interest expense (113,997) (20,016) (62,093) Gain on sale of subsidiaries 1,376,959 Other income 126,596 29,748 169,139 Other expense (13,823) (2,997) (13,177) __________ _________ ________ Total other income (expense) 386 1,383,694 95,524 __________ _________ _________ Net Loss $(1,861,088)$(847,016)$(2,352,572) Loss per common share $ ( .12)$ (0.16) $ (0.62) Cash dividends per common share $ -0- $ -0- $ -0- Weighted-average common shares outstanding 14,997,5325,302,1473,794,631 21 The accompanying notes are an integral part of the consolidated financial statements 22 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, 19932,921,029$58,421$4,323,430$(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, 19946,969,635139,3937,977,821(6,484,132)1,633,082 Stock exchanged for services372,0007,440 198,083 205,523 Stock issued for new product750,00015,000181,793 196,793 Stock options exercised 730,600 14,612 260,113 274,725 Stock issued for Newdat, Inc. acquisition 7,053,728 141,0751,269,675 1,410,750 Net loss ________ ________________(1,861,088)(1,861,088) Balance, December 31, 199515,875,963$317,520$9,887,485$(8,345,220)$1,859,785 The accompanying notes are an integral part of the consolidated financial statements. 23 U.S. Technologies Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1995 1994 1993 Cash flows from operating activities: Net loss $(1,861,088)$(847,016)$(2,352,572) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 852,297 297,698 371,392 Allowance for writedown of gem stones(126,436)156,436 Excess of market over issue price non qualified stock options and Rule 144 stock 147,181 869,452 688,546 Gain on sale of subsidiaries (1,376,959) Changes in current assets and liabilities: Accounts receivable (28,470)(785,655) 169 Inventory 288,317 (80,341) 75,412 Notes receivable 48,805 378 Prepaid expense 25,090 (8,713) (50,242) Accounts payable 91,890 858,745 440,800 Accrued expenses 63,441 406,753 241,582 ________ ________ ________ Net cash used in operating activities(547,778)(460,795)(584,535) ________ ________ ________ Cash flows from investing activities: Proceeds from sale of subsidiaries 1,758 Proceeds from release of deposit on capital leases 46,184 Equipment purchases (3,294) (37,607) (197,989) Decrease (increase) in other assets (1,482) 25 601 Investment in NCL ________________ (14,250) Net cash used in investing activities (4,776) (35,824) (165,454) Cash flows from financing activities: Proceeds from issuance of common stock45,000458,287 1,076,266 Principal payments for obligation under capital leases and notes payable (50,000) (120,214) Increase in notes payable 580,835 Proceeds payments - overdrafts (165,152) _______ _______ _______ Net cash provided by financing activities575,835 458,287 790,900 Increase (decrease) in cash 23,281 (38,332) 40,911 Cash, beginning of period 2,579 40,911 -0- Cash, end of period $25,860 $ 2,579 $40,911 Supplemental disclosure of cash flow information: Cash paid for interest during the years ended December 31, 1995, 1994 and 1993 was $12,411, $20,016 and $62,093 respectively. Supplemental schedule of noncash investing and The accompanying notes are an integral part of the consolidated financial statements. 24 financing activities: 1995: Issued 750,000 shares of stock for new product Issued 7,053,728 shares of stock for purchase of Newdat, Inc. 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 liabilities. 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. The accompanying notes are an integral part of the consolidated financial statements. 25 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, 1995 includes the accounts of U.S. Technologies Inc., and its wholly owned subsidiaries Lockhart Technologies, Inc., Newdat, Inc. and its 80% owned subsidiary SensonCorp, Limited. The consolidated balance sheet at December 31, 1994 includes U.S. Technologies Inc. and Lockhart Technologies, Inc. The consolidated statements of operations, changes in stockholders' equity and cash flows for the year ended December 31. 1995, include the accounts of U.S. Technologies Inc., Lockhart Technologies, Inc., Newdat, Inc., and the operations of SensonCorp Limited. The consolidated statements of operations, changes in stockholders' equity and cash flows for the year ended December 31, 1994 includes the accounts of U.S. Technologies Inc., Lockhart Technologies, Inc. from its inception on June 29, 1994 and its formerly wholly owned subsidiaries American Microelectronics Inc., Republic Technology Corporation and U.S. Microlabs Inc., (see note 19). For the year ended December 1993, consolidated statements of operations, changes in stockholders' equity and cash flows include the accounts of U.S. Technologies Inc., and its formerly wholly owned subsidiaries American Microelectronics Inc., Republic Technology Corporation and U.S. Microlabs Inc. Intercompany transactions and balances have been eliminate in consolidation. 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, 1995, and had working capital deficiencies at December 31, 1993. Additionally, at various times during 1995 and 1994, the Company was in default (delinquent payments) on its debt obligations. 24 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 (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 25 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. 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. 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. Recent Pronouncements The Company adopted the Statement of Position number 94-6 "Disclosure of Certain Significant Risks and Uncertainties." during the year ended December 31, 1995, which requires disclosure of risks and uncertainties that could significantly affect the amounts reported in the financial statements or the near-term functioning of the Company and communicate to financial statement users the inherent limitations in financial statements. 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. 2. ACCOUNTS RECEIVABLE - TRADE During 1993 and for the first six months of 1994, one of the Company's former subsidiaries had a factoring arrangement which provided for the sale of eligible accounts receivables with and without recourse to the factoring company which advanced funds equal to 80% of such eligible receivables. Additionally, the factoring company charged 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 26 American Federal Bank of Dallas. Under the terms of the agreement, the factoring company retained a continuing security interest in the factored accounts receivables and inventory. The interest and factoring fees discussed above of $44,167, and $154,834 were incurred during the two years ended December 31, 1994, and 1993, 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, and 1993 from the sale of receivables was $837,923, and $4,517,891, respectively. Accounts receivable - trade at December 31 is net of an allowance for doubtful accounts as follows: 1995 $68,434 1994 49,830 3. INVENTORIES At December 31, inventories consist of the following: 1995 1994 Raw Materials $1,186,863 $1,038,380 Work in progress 28,107 7,122 Finished goods ________ 29,804 1,214,970 1,075,306 Allowance for obsolescence 295,000 33,000 $919,970 $1,042,306 The Company provided an allowance for obsolete raw materials of $262,000, $33,000 and $15,000, which was charged against cost of sales, during the years ended December 31, 1995, 1994 and 1993, 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 and $26,000 during the years ended December 31, 1994, and 1993, respectively. As a result of recent changes in the Company's market for certain products, carrying amounts for those inventories have been reduced by approximately $295,000 due to quantities in excess of current requirements. Management believes that this reduces inventory to its lower of cost or market, and no additional loss will be incurred upon disposition of the excess quantities. While it is at least reasonably possible that the estimate will change materially in the near term, no estimate can be made of the range of additional loss that is at least reasonably possible. 4. PROPERTY AND EQUIPMENT 27 At December 31, property and equipment consists of: 1995 1994 Equipment $1,572,663 $1,566,634 Furniture and fixtures 165,362 179,721 Vehicles 12,873 Leasehold improvements 204,865 204,865 1,942,890 1,964,093 Less accumulated depreciation1,706,7001,537,855 $ 236,190 $ 426,238 Depreciation expense for the years ended December 31, 1995, 1994 and 1993 was $197,920, $287,782 and $346,594, respectively. 5. LICENSES Prior to 1993, 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. The cost and accumulated amortization are included in other assets. Amortization is computed using the straight-line method over 5 years. Amortization expense for 1995, 1994 and 1993 totaled $16,583, $9,917 and $24,798 respectively. Accumulated amortization at December 31, 1995 and 1994 was $56,250, $39,667. 6. NOTES PAYABLE Notes payable and long-term debt at December 31, 1995 and 1994, consist of the following: 1995 1994 10% unsecured note payable to Carlton Technologies Limited; due on December 15, 1997.$397,212 10% secured note payable to Laura Technologies Limited; due on December 15, 1997; secured by the investment in gemstones 210,774 10% unsecured note payable to Tintagel Limited; due on December 15, 1997. 232,449 Note payable to Coopers & Lybrand. 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 28 paid monthly maturing June 21, 1994. _________50,000 Total Maturities $840,435 $50,000 7. INCOME TAXES Deferred federal income tax at December 31, 1995 follows: Deferred federal income tax asset $2,222,060 Valuation allowance (2,222,060) 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 2010 1,323,470 $6,535,470 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, although the assignment has not been formally ratified 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, Texas. Rental expense for the years ended December 31, 1995, 1994 and 1993, was $33,144, $7,290 and $132,000, 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 29 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, was filed in 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 was Vice President of operations for Senson at the time. Mr. Meehan is President of U.S. Technologies Inc., and was a founding member of SensonCorp Limited. 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 cancelled the agreement on "Without Cause" grounds in May 1995. The Company formally sought to participate in arbitration during April 1996 and is awaiting a date for the arbitration to be heard. The Company strongly believes that the plaintiffs claims are without merit and that SensonCorp, Limited. and the other defendants will prevail. 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 $40,818 in damages plus $13,500 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 AMI. The petition seeks $24,482 30 in damages plus $8,000 in attorney's fees, interest and costs. The Company believes that the complaint is without merit. 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 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, 1995. The Company's Board of Directors 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 Messers Corley and Bryant have requested payment. The present Board of Directors question the legality of this form of compensation and is obtaining a legal ruling. The severance pay of $46,000 has not been recorded in the accompanying financial statements due to the uncertainty. 9. ESCROW AGREEMENT Dr. R. E. Woody, a shareholder; Mr. Ryan Corley, a shareholder, a former 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 31 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 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 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, 1995, 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 three 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. 10. CUSTOMERS The Company is dependent on seven customers for a major portion of its sales. The sales of services to IBM represented approximately 11%, and 24% for the years ended December 31, 1994, and 1993, respectively. Trimble Navigation represented approximately 27%, and 12% of sales during the years ended December 31, 1994, and 1993, respectively, Dell Computer Corporation represented approximately 9%, 20% and 35% of the Company's sales for the years ended December 31, 1995, 1994 and 1993; Texas Instruments accounted for approximately 15% and 14% of total sales during the years ended December 31, 1995 and 1994, respectively. Sales to Crystal Semiconductor accounted for 13% of sales during the year ended December 31, 1995. Micronics Computer and Intel Corporation each accounted for 9% of total sales during the year ended December 31, 1995. 32 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 executable 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 1995 3,000 $0.63 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 1995 3,000 $0.63 Forfeited/cancelled: 1989 122,460 $4.20 1990 176,880 $3.60 1991 139,540 $3.10 1992 133,760 $4.97 1993 91,000 $3.16 1994 87,920 $3.03 1995 45,000 $6.68 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 33 1993 281,500 $2.86 1994 182,580 $3.41 1995 137,580 $2.34 Executable 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 1995 137,580 $2.34 Options for a total of 48,840 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. 34 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 1995 0 $.00 Exercised: 1993 512,000 $.98 1994 951,000 $.41 1995 272,000 $.05 Outstanding at year end: 1993 513,000 $2.13 1994 272,000 $.05 1995 0 $.00 Executable at year end: 1993 513,000 $2.13 1994 272,000 $.05 1995 0 $.00 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 $147,181 and $188,694 has been included in expense in the accompanying financial statements as compensation for the years ended December 31, 1995 and 1994, respectively. There are 90,000 shares available to grant as of December 31, 1995 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 July 31, 1996. During 1994, 1,770,000 shares of the Company's Rule 144 stock was sold for total consideration of $412,500. The excess of market price for the shares sold exceeded the purchase price 35 by $348,750 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 1994 1993 Common shares outstanding at December 3115,875,9636,969,635 4,077,029 Effect of using weighted average common shares outstanding (878,431)(1,667,488)(289,398) _________ _________ _________ Shares used in computing earnings per share 14,997,532 5,302,147 3,794,631 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 of approximately $300,000. During the year ended December 31, 1994 the Company obtained an appraisal of the stones which determined the value to be approximately $143,000. The Company contacted Paris Fashion Ltd. and demanded that the difference in appraised value be corrected. During the year ended December 31, 1995, Paris Fashions, Ltd provided the Company with additional gem stones with a purported value of $160,000. The gem stones have been appraised during 1996 at a value of $270,000. The Company has provided for a valuation reserve and a charge against operations in the amount of $30,000 and $170,000 for the years ended December 31, 1995 and 1994, respectively. On July, 23, 1993, The Company purchased a NCL International LTD., formerly the 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 Germany or Spain if the NCL doesn't sell a team membership in either country within one year. The Company has been given an extension to December 31, 1996 to establish a team for the 1997 season and may also establish the team in the U.S., Canada or Mexico. 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 36 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, 1995, 1994 and 1993 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, 1994, 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 for the three subsidiaries sold as of June 30, 1994, and December 31, 1993, and for the six months ended June 30, 1994 and the year ended December 31, 1993. 1994 1993 Total Assets $ 214,159 $3,274,346 Total liabilities 1,589,360 4,663,284 Net assets (liabilities) $1,375,201 $(1,388,938) Sales and other income $1,255,437 $6,926,368 Operating cost and other expense 1,783,733 8,432,324 Net income (loss) $(528,296)$(1,505,956) 37 15. FOURTH QUARTER ADJUSTMENTS Significant adjustments increasing the fourth quarter loss of 1995, 1994 and 1993 are as follows: 1995 1994 1993 Increase of allowance for doubtful accounts$55,268 $156,436 Unrecorded compensation on Rule 144 stock 20,142 $190,421 Physical inventory adjustments 57,183 Writedown of inventory for obsolete raw materials 60,703 33,000 Decrease in gain on sale of subsidiaries 224,000 Increase in goodwill in acquisition of Newdat, Inc. 500,000 Amortization of goodwill 100,000 Accrued expenses 84,519 Accrual of penalties and interest on Travis County Tax Judgment_________26,712 18,180 Aggregate adjustment $800,490$460,290$265,784 16. ACQUISITION OF SUBSIDIARY 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 has been 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 1,140,000 Goodwill 849,065 Accounts payable and accrued expenses(33,720) Notes payable (729,243) $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. Goodwill and purchased technologies are being amortized 38 over 5 years on the straight line method. Amortization in the amount of $337,793 has been charged to expense during the year ended December 31, 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 17. RELATED PARTIES Mr. John Allen, Chairman of the Company is also Chairman of the Board of Directors of Laura Technologies, Inc. with whom the Company and or its subsidiaries have a loan in the amount of $210,774 as of December 31, 1995, 39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. During 1995, 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, 1995 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. 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 60 Chairman of the Board Norman Frank 66 Director William Meehan 50 Director, President and Chief Executive Officer of the Company. Peter Simmons 49 Vice President of Sales and Marketing 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 Allen became a member and Chairman of the Board of Directors on January 23, 1995, when U.S. Technologies Inc. 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 since July 1994, 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 40 principally electronic products. During the period of 1984 through 1989 Mr. Allen served as the founder and Chairman of Superburn Systems Ltd., a Canadian public 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 Ltd., a wholly owned multinational investment holding company with a diverse range of high technology businesses. Norman W. Frank - Director Norman W. Frank, was appointed to the Board of Directors on October 30, 1995. From March 1994, Mr. Frank has operated his own independent consulting firm specializing in environmental and international business fields. For over 25 years Mr. Frank was employed by United Technologies Elliott having served the Company in several locations throughout his career. He set up several domestic and foreign offices, and operations including joint ventures and license agreements. He subsequently became Vice President of International Operations. His responsibilities included running the Company's international operations and setting up new arrangements in other countries for the manufacturing, sales and service of equipment for the oil, gas and petrochemical industries. In 1976, while still employed with Elliott, Mr. Frank was appointed to the Board of Directors of Ebara Corporation, a large Japanese conglomerate. In 1981 he joined Ebara full time and founded their first U.S. subsidiary company, Ebara International Corp. He served as President of this Company until 1986 when he became a consultant to Ebara for their Environmental business, and later set up a new company for them in the U. S. for these businesses. He served as President of this company until February 1994. Mr. Frank has written many papers on environmental situations, and serves as a consultant to the International Atomic Energy Agency (IAEA) for radiation processing. Mr. Frank attended Worcester Polytechnic Institute in Worcester, Massachusetts and graduated with a degree in Mechanical Engineering. William Meehan - President, Chief Executive Officer and member of the Board of Directors. William Meehan was appointed President and Chief Executive Officer of the Company on June 1, 1995, and appointed to the Board of Directors on October 30, 1995. Mr Meehan has served as President, Chief Executive Officer and a member of the Board of Directors of SensonCorp Limited from July 1994. Mr. Meehan served from October 1992 as President and as a member of the Board of Directors of Clarion Environmental Technologies Inc., a Vancouver Stock Exchange public company, specializing in environmental pollution eradication until his resignation in June 1994. Mr. Meehan has been President and a member of the Board of Directors of Pan Pacific Gold Corporation, a Canadian public Company trading on the Vancouver Stock exchange since August 1994. Pan Pacific conducts mining and extraction activities in British Columbia, Vietnam and China. Mr. Meehan was appointed as 41 the Australian Counsul General to Western Canada, based in Vancouver, in December 1989 and served in that position until October 1992. Mr Meehan has a degree in civil engineering and has written a fellowship in International Marketing. He has worked extensively in Europe, the Middle East, Asia, Australia and North America during his career. Peter Simmons - Vice President of Sales and Marketing. Peter Simmons was appointed as Vice President of Sales and Marketing to the Company in June 1995. Mr. Simmons previously served as Vice President of Sales and Marketing for the Hazardous Gas Detector Division of Halitec Industries Corporation, manufacturers of gas detectors for industrial, commercial and residential use; while located in Surrey, British Columbia from December 1993 through November 1994. Mr. Simmons served as President of Campers Choice Superstore, a retail sales company for RV's, camping and sporting goods, located in Delta, British Columbia, from April 1992 thought December 1993. Previous to that, Mr. Simmons served as Vice President of Sales and Marketing for Nameco T.M.E. of Canada Ltd, manufacturers, importers and distributors of RV, camping, marine, sporting goods, automotive and hardware related products. Significant Employees The Company relies on the services of certain key employees. Set forth below is certain information describing such persons. Leonard Hilt - President of Lockhart Technologies, Inc. Mr. Hilt is the founding officer of LTI the manufacturing subsidiary of the Company. Mr Hilt has had a direct or indirect association with the Company since 1987. Mr Hilt is a CPA and graduated from Kansas State University with a degree in business administration. Walter Stierhoff - General Manager of Lockhart Technologies, Inc. Mr. Stierhoff joined LTI in September 1995. Mr. Stierhoff is a specialist in electronics and electro-mechanical production. He has structured all key elements of the factory and recruit top personnel as section heads in preparation for increased contract manufacturing and for production of the Company's proprietary products. Mr. Stierhoff a degree in electrical engineering for Texas University. 42 Robert Walker - National Sales Manager for SensonCorp LTD. Mr. Walker joined Senson during 1995. Mr. Walker controls 2 regional sales managers and with these managers is developing a distribution net works for sales of product to industrial distributors and end users. Mr. Walker is a graduate in science from the University of Arizona. 43 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, 1995 to each of the Company's executive officers and to a group consisting of all` executive officers of the Company. Name Capacities in which serves Cash Compensation John V. Allen Chairman of the Board $0 William Meehan Director, President and chief executive officer $95,0 00 Peter Simmons Vice President of Sales and Marketing $31,343 Norman Frank Director $0 All Executive Officers and Directors as a $126,343 Group (4 persons) 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. 44 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 executable 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 executable 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 executable after 10 years from the date it was granted. As of December 31, 1995, no 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. On May 4, 1993, September 3, 1993 the Company adopted the 1993, and 1993A nonqualifying stock option plans, respectively. The plans reserved 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. 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 45 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 1995, 1994, or 1993 under this plan. 46 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Mr. Ryan Corley, a shareholder, former Chairman of the Board of Directors, former President and former Chief Executive Officer; Dr. R. E. Woody, a shareholder 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. 47 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 John V. Allen [1] Suite 203 2750 Gulfshore Blvd. North Naples, FL 33940 William Meehan [1] 7806 Newhall Lane Austin, Texas 78746 Peter Simmons [1] 13117 20th Avenue Surrey, British Columbia Canada V4A 1Z1 Norman Frank [1] 10,000 .06% 717 Curtis Road Greensburg, PA 15601 All Officers and Directors as a Group (4 individuals) 10,000 .06% Tintagel, Ltd. [2] 6,319,226 39.80 % P.O. Box 156, Hybiscus Square Pond Street Grand Turk, Turks & Caicos Islands British West Indies Vancouver, B.C. Canada V6C2M7 [1] These individuals are officers and/or directors of the Company. [2] Beneficial owner of more than 5% of the outstanding shares of the Company's Common Stock. 48 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Mr. John Allen, Chairman of the Company is also Chairman of the Board of Directors of Laura Technologies, Inc. with whom the Company and or its subsidiaries have a loan in the amount of $210,774 as of December 31, 1995, 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. 49 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 __ 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 1995 and 1994 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 14, 1995 42 U.S. Technologies Inc. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 1995, 1994 and 1993 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 1995: Accounts receivable - bad debt reserve$49,830$43,872 $25,268 $68,434 Inventory Obsolescence$33,000262,000 $ - $295,000 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 NOTE: These valuation and qualifying accounts were deducted from the assets to which they apply. 43 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 14th day of April, 1996. 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/Norman Frank Director April 14, 1996 Norman Frank s/William Meehna PresidentApril 14, 1996 William Meehan Acting Controller Acting Principal Accounting Officer 44 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 14th day of April, 1996. U.S. TECHNOLOGIES INC. BY:__________________________ 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 ___________________ Director April 14, 1996 Norman Frank ___________________ President April 14, 1996 William Meehan Acting Controller Acting Principal Accounting Officer EX-27 3
5 0000810130 U.S. TECHNOLOGIES INC. YEAR DEC-31-1995 DEC-31-1995 25,860 0 317,045 64,434 919,970 1,200,463 1,942,890 1,706,700 3,326,537 626,317 840,435 0 0 317,520 9,887,485 3,326,537 1,951,487 0 1,681,371 1,681,371 0 43,872 113,997 (1,861,088) 0 (1,861,088) 0 0 0 (1,861,088) (0.12) (0.12)
EX-20 4 U. S. TECHNOLOGY INC 1996 STOCK OPTION PLAN ARTICLE I PURPOSE U. S. TECHNOLOGY INC (the "Company"), is largely dependent for the successful conduct of its business on the initiative, effort and judgment of its officers and employees. This Stock Option Plan (the "Plan") is intended to provide the key employees of the Company an incentive through stock ownership in the Company and encourage them to remain in the Company's employ. Moreover, since the Incentive Stock Options and Non-Qualified Stock Options provided for in the Plan are subject to various alternative provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Committee (as hereinafter defined) will have considerable latitude in shaping options granted under the Plan to the particular circumstances of the optionee, thus recognizing the full incentive value of the option. ARTICLE II ADMINISTRATION The Plan shall be administered by the Board of Directors (the "Board") of the Company or the Board, at its option, may delegate the administration of the Plan to a committee of the Board (the Board and the Committee are hereinafter collectively or alternatively referred to as the "Committee") subject to the provisions of this Article II. All members of the Committee shall be Directors of the Company and shall be selected by (and serve at the pleasure of) the Board. Subject to the express provisions of the Plan, the Committee shall have plenary authority, in its discretion, to recommend to the Board the individuals within the class set forth in Article IV to whom, and the time and price per share at which, options shall be granted, and the number of shares to be subject to each option. In making such determination, the Committee may take into account the nature of the services rendered by the respective employees, their present and potential contributions to the Company's success and such other factors as the Committee in its discretion shall deem relevant. Subject to the express provisions of the Plan, the Committee shall also have plenary authority to interpret the Plan, to prescribe, amend and rescind rules and regulations regulating it, to recommend to the Board the terms and provisions of the respective options (which need not be identical) and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determination 1 on the matters referred to in this Article II shall be final, conclusive and binding upon all optionees. ARTICLE III AMOUNT OF STOCK AND DURATION OF PLAN The aggregate amount (subject to adjustment as provided in Article VIII) of stock which may be purchased pursuant to options granted under this Plan shall be 600,000 shares of the Company's Common Stock. Any option granted hereunder must be granted within ten (10) years from the date of approval of adoption of the Plan by the Board or the date on which this Plan is approved by the Company's shareholders, whichever is earlier. Shares subject to options under the Plan may, in the sole discretion of the Board, be either authorized and unissued shares or issued shares which have been acquired by the Company and are being held in its treasury. When options have been granted under the Plan and have lapsed unexercised or partially unexercised, the shares which were subject thereto may be reoptioned under the Plan. ARTICLE IV ELIGIBILITY AND PARTICIPATION All officers and employees of the Company shall be eligible to receive Stock Options under the Plan. ARTICLE V TERMS AND CONDITIONS OF OPTIONS Each option granted under the Plan shall be evidenced by a Stock Option Agreement (the "Agreement"), the form of which shall have been approved by the Committee and Counsel to the Company. The Agreement shall be executed by the Company and the optionee and shall set forth the terms and conditions of the option, which terms and conditions shall include, but not by way of limitation, the following: 1. Option Price. The option price shall be determined by the Committee, but shall not in any event be less than the greater of the (i) par value of the Company's Common Stock or (ii) the fair market value of the Company's Stock on the date that the option is granted. 2. Term of Option. The term of the option shall be selected by the Committee, but in no event shall such term exceed ten (10) years. 3. Transferability. Options granted hereunder shall not be transferable otherwise than by will or operation of the laws of descent and distribution. During the lifetime 2 of the optionee, options granted hereunder shall be exercisable only by the optionee. 4. Termination of Employment. In the event of an optionee's termination of employment with the Company for any reason other than death, all options granted hereunder shall thereupon terminate. The Committee may, in its discretion, direct that certain Agreements contain provision permitting exercise of an option after an optionee's retirement. Upon the termination of an optionee's employment by reason of his death, such optionee's option(s) shall terminate to the extent it was not exercisable at the date of his death. To the extent such options were then exercisable by the optionee, optionee's estate or the beneficiaries thereof shall be entitled to exercise such options for a period of three (3) months from the date of his death, (unless the option(s) should sooner terminate according to its own provisions) but not thereafter. Notwithstanding the other provisions of this subparagraph 4, no option shall be exercised more than ten (10) years from the date upon which it is granted. 5. Other Conditions. At its sole discretion, the Committee may impose other conditions upon the options granted hereunder, including, but not by way of limitation, percentage limitations upon the exercise of options granted hereunder. If the Plan and the shares of Common Stock reserved for options hereunder have not been registered under the Securities Act of 1933, as amended (the "Act"), the Committee shall satisfy itself that the exemption from registration afforded by Section 4(2) of the Act will be available. 3 ARTICLE VI INCENTIVE STOCK OPTIONS The Committee and the Board, in recommending and granting stock options hereunder, shall have the discretion to determine that certain options shall be Incentive Stock Options, as defined in Section 422A of the Code and the regulations thereunder, while other options shall be Non- Qualified Stock Options. Neither the members of the Committee, the members of the Board nor the Company shall be under any obligation or incur any liability to any person by reason of the determination by the Committee or the Board whether an option granted under the Plan shall be an Incentive Stock Option or a Non-Qualified Stock Option. The provisions of this Article VI shall be applicable to all Incentive Stock Options at any time granted or outstanding under the Plan. All Incentive Stock Options granted or outstanding under the Plan shall be granted and held subject to and in compliance with the terms and conditions specifically set forth in Articles II, III, IV, and V hereof and, in addition, subject to and in compliance with the following further terms and conditions: 1. The option price of all Incentive Stock Options shall not be less than one hundred percent (100%) of the fair market value of the Company's Common Stock at the time the option is granted (notwithstanding any provision of Article V hereof to the contrary); 2. No Incentive Stock Option shall be granted to any person who, at the time of the grant, owns stock possessing more than ten percent (10%) of the total combined voting power of the Company. Such ownership limitation will be waived if (i) the option price is at least one hundred ten percent (110%) of the fair market value of the Company's Common Stock at the time the option is granted; and (ii) the option by its terms must not be exercisable more than five (5) years from the date it is granted; and, 3. The aggregate fair market value of all shares of Common Stock (determined at the time of the grant of the option) exercisable for the first time by an employee during any calendar year shall not exceed $100,000. ARTICLE VII EXERCISE OF OPTIONS Options granted hereunder may be exercised only by tendering to the Company written notice of exercise accompanied by the aggregate purchase price for the shares 4 with respect to which the option is being exercised. No option shall be exercisable unless the shares issuable on the exercise thereof have been registered under the Act, or the Company shall have first received the opinion of its counsel that registration under the Act is not required in connection with such issuance. At the time of exercise, if the shares with respect to which the option is being exercised have not been registered under the Act, the Company may require the optionee to give the Company whatever written assurance counsel for the Company may require that the shares are being acquired for investment and not with a view to the distribution thereof, and that the shares will not be disposed of without the written opinion of such counsel that registration under the Act is not required. Share certificates issued to the optionee upon exercise of the option shall bear a legend to the foregoing effect to the extent counsel for the Company deems it advisable. The purchase price of shares of Common Stock of the Company acquired upon the exercise of any Non- Qualified Stock Option or Incentive Stock Option granted under the Plan may be paid by an optionee by the payment of cash, or by the assignment to the Company of shares of the Company's Common Stock theretofore owned by the optionee having a value equal to such option price, or by any combination thereof. For purposes of the Plan, shares of Common Stock shall be deemed to have a value equal to the closing bid price for a share for the trading day upon which such value is being determined. ARTICLE VIII ADJUSTMENTS Subject to any required action by the Company's Directors and shareholders, the number of shares provided for in each outstanding option and the price per share thereof, and the number of shares provided for in the Plan, shall be proportionately adjusted for any increase or decrease in the number of issued shares of the Company's Common Stock resulting from a subdivision or consolidation of shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company. Subject to any required action by the Company's Directors and shareholders, if the Company shall be the surviving corporation in any merger or consolidation, each outstanding option shall pertain to and apply to the securities to which a holder of the number of shares of the Company's Common Stock subject to the option would have been entitled. In the event (hereinafter collectively referred to as an "Event of Sale or Liquidation") of: (a) a dissolution or liquidation of the Company; (b) a merger or consolidation in which the Company is not the surviving corporation; (c) a sale of all or 5 substantially all of the assets of the Company; or (d) a sale of all or substantially all of the outstanding Common Stock of the Company to on purchaser, then each outstanding option shall terminate, provided, however, that in such event, each optionee shall have the right immediately prior to any Event of Sale of Liquidation to exercise his option with respect to the full number of shares covered thereby, without regard to any installment provision contained in this Agreement. In the event of a change in the Company's Common Stock which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be Common Stock within the meaning of the Plan. The aforesaid adjustment shall be made by the Committee whose determination in that respect shall be final, binding and conclusive. Except as hereinbefore expressly provided in this Article VIII, the optionee shall have no rights by reason of subdivision or consolidation of shares of stock of any class or payment of any stock dividend or any other increase or decrease in the number of shares of any class or by reason of any Event of Sale or Liquidation, or spin-off of assets or stock of another corporation; and any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect and no adjustment by reason thereof shall be made with respect to the number or price of shares of the Company's Common Stock subject to any option. The grant of an option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve or liquidate or sell or transfer all or any part of its business or assets. ARTICLE IX AMENDMENT OR DISCONTINUANCE The Board may at any time amend, rescind or terminate the Plan, as it shall deem advisable, provided, however, that no change may be made in options theretofore granted under the Plan (without the consent of the optionees) which should impair the optionee's rights. Provided, however, that no amendment to the Plan will be effective unless and until such amendment has been approved by the holders of a majority of the Company's outstanding voting stock (voting as a single class) present, or represented, and entitled to vote at a duly constituted meeting of such shareholders. ARTICLE X SHAREHOLDER APPROVAL 6 The Plan shall be effective (the "Effective Date") when it has received the approval of a majority of the Board of Directors. However, the Plan and all options granted under the Plan shall be void if the Plan is not approved by the holders of a majority of the outstanding voting stock of the Company (voting as a single class) within twelve (12) months of the Effective Date. U. S. TECHNOLOGY INC BY: William Meehan, President ATTEST: ____________________________ Secretary 7 INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT is made and entered into by and between U. S. TECHNOLOGY INC. (the "Company") and _________________ ("_________"). WHEREAS, ________________ is a valuable and trusted employee of the Company and the Company considered it desirable and in the Company's best interests that ________________________________ be given an inducement to acquire a propriety interest in the Company and an added incentive to advance the interests of the Company by possessing an option to purchase stock of the Company in accordance with the Incentive Stock Option Plan (the "Plan") adopted by the Board of Directors (the "Board") of the Company on _____________________, 19 _____. NOW THEREFORE, in consideration of the promises, it is agreed by and between the parties as follows: 1. Grant of Option. The Company hereby grants to ____________ the right, privilege, and option to purchase _____________________ shares of the Company's Common Stock at the purchase price of $______ per share, in the manner and subject to the conditions hereinafter provided and Article VI of the "Stock Option Plan." 2. Time of Exercise of Options. The aforesaid option may, until the termination thereof as provided in paragraph 4, be exercised in any increments, subject to Article VI(1) of the "Stock Option Plan." Provided that for this purpose any such previously granted option not having been exercised in full shall be deemed to remain outstanding until the expiration of the period during which under its initial term it could have been exercised. 3. Method of Exercise. The option shall be exercise by written notice (the "Notice") from ______________________ to the Executive Committee (the "Committee") of the Board. The Notice shall specify the number of shares of stock for which the option is being exercised and by accompanied by a cashier's check for payment in full of the option price for the number of shares specified. The option shall be deemed exercised as of the time the Notice is actually received by the Company. The Company shall make immediate delivery of such shares, provided that if any law or regulation required the Company to take any action with respect to the shares specified in such Notice before the issuance thereof, then the date of delivery of such shares shall be extended for the period necessary to take such action. 8 4. Termination of Option. Except as otherwise provided, the option to the extent nor already exercised or expired by its own terms shall terminate upon the first to occur of the of the following dates: (a) Ninety days following the date on which _____________________, employment (or position as an officer or director) by the Company is terminated except if such termination is caused by reason of death or permanent and total disability. (b) The expiration of twelve (12) months after the date on which __________________' employment (or position as an officer or director) by the Company is terminated, if such termination is caused by ______________'s death or _____________________'s permanent and total disability. (c) Midnight _____________, 199____. 5. Adjustments. Subject to any required action by the Company's Directors and shareholders, the number of shares provided for in this option, and the price thereof, shall be adjusted proportionately upward or downward in accordance with the provisions of Article VII of the Plan. 6. Rights prior to Exercise of Option. This option is nontransferable by ____________________ otherwise than by will or the laws of descent and distribution, and is exercisable during _____________________' lifetime only by ______________________. ___________ shall have no rights as a stockholder with respect to the option shares until payment of the option price and delivery to them of such shares as herein provided. 7. Restriction of Disposition. All shares acquired by ______________________ pursuant to this Incentive Stock Option Agreement may be subject to restriction on sale, encumbrance and other dispositions pursuant to state or federal law. 8. Notices. The addresses to which all notices required to be given hereunder shall be sent are, if to the Company: U.S. Technologies Inc. P.O. Box 697 1402 Industrial Blvd. Lockhart, Texas 78644 and if to ____________________: 9 Either party may change his address by giving written notice to the other party at the indicated address. All notices given hereunder shall be deemed received when actually delivered to the indicated address. 9. Stock Option Plan. This Agreement is subject to and incorporated by reference to all the terms and conditions set forth in the Plan. In the event of any conflict between the terms of this Agreement and the Plan, the terms and conditions of the Plan shall control. 10. Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of ___________, 199__. U. S. TECHNOLOGY INC. BY: William Meehan, President ATTEST: (Seal) _________________________ Secretary 10 -----END PRIVACY-ENHANCED MESSAGE-----