-----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, PxWojdJxixIS2lHkpz/hSePlJ+3dFJ6jAMTi/AlCtS3+HY8ur9TpG8EAobWLYRe9 lFzMuwITDYsCEC1hB5PltA== 0000810130-96-000018.txt : 19961121 0000810130-96-000018.hdr.sgml : 19961121 ACCESSION NUMBER: 0000810130-96-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961120 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S TECHNOLOGIES INC CENTRAL INDEX KEY: 0000810130 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 731284747 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15960 FILM NUMBER: 96669933 BUSINESS ADDRESS: STREET 1: 1402 INDUSTRIAL BLVD BLDG 3 STREET 2: P O BOX 697 CITY: LOCKHEART STATE: TX ZIP: 78644 BUSINESS PHONE: 5123761040 FORMER COMPANY: FORMER CONFORMED NAME: CAREAMERICA INC DATE OF NAME CHANGE: 19890720 10-Q 1 Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ______________ [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-15960 U.S. Technologies Inc. (Exact name of Registrant as specified in its charter.) State of Delaware 73-1284747 (State of Incorporation) (I. R. S. Employer Identification No.) 1402 Industrial Boulevard Lockhart, Texas 78644 (Address of principal executive offices.) Registrant's telephone number, including area code: (512) 376-1049 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the Registrant's common stock, par value $0.02, at November 14, 1996, was 21,257,263 2 U.S. TECHNOLOGIES INC. Form 10-Q-For the Quarter Ended September 30, 1996 INDEX Page No. PART I. FINANCIAL INFORMATION. Item 1. Financial Statements. Consolidated Balance Sheets 4 Nine Months Ended September 30, 1996 (unaudited) and December 31, 1995 (audited) Consolidated Statements of Operations Nine Months Ended September 30, 1996 and 1995 5 Consolidated Statements of Operations Three Months Ended September 30, 1996 and 1995 6 Consolidated Statements of Changes in Stockholders' Equity 7 Consolidated Statements of Cash Flows Nine Months Ended September 30, 1996 and 1995 8 Notes to Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and results of Operations. 13 PART II. OTHER INFORMATION. Item 1. Legal Proceedings 16 Item 2. Changes in the Rights of the Company's Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 18 3 PART I. Item 1. Financial Statements. 4 U.S. Technologies Inc. CONSOLIDATED BALANCE SHEETS ASSETS September 30, December 31, 1996 1995 Current assets: Cash in bank $ 15,405 $ 25,860 Accounts receivable - trade 207,183 168,717 Accounts receivable - other 90,275 79,894 Inventories 998,902 919,970 Prepaid expenses 15,824 6,022 Total current assets 1,327,589 1,200,463 Property and equipment - net 164,966 236,190 Other assets: Investment - NCL 265,000 265,000 Investment - Gem stones 270,000 270,000 Investment - new technologies 1,651,718 1,351,272 Other assets 4,352 3,612 Total other assets 2,191,070 1,889,884 Total assets $3,683,625 $3,326,537 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 711,741 $ 254,658 Accrued expenses 727,148 371,659 Total current liabilities 1,438,889 626,317 Long-term liabilities: Notes payable 595,119 840,435 Commitments and contingencies: (Note 3) Stockholders' equity: Common stock - $.02 par value; 40,000,000 shares authorized; 21,257,263 and 15,875,963 shares issued and outstanding at September 30, 1996 and December 31, 1995, respectively 425,146 317,520 Additional paid-in capital 10,903,596 9,887,485 Accumulated deficit (9,679,125) (8,345,220) Total stockholders' equity 1,649,617 1,859,785 Total liabilities and stockholders' equity$3,683,625 $3,326,537 The accompanying notes are an integral part of the consolidated financial statements. 4 U.S. Technologies Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Nine Months Ended September 30, 1996 1995 Net Sales $707,713$1,647,435 Operating costs and expenses: Cost of sales 1,345,878 1,268,412 Research and development expense 135,279 Selling expense 128,614 137,906 General and administrative expense 501,988 1,263,670 Allowance for doubtful accounts 15,932 9,249 __________ _________ Total operating costs and expense 1,992,412 2,814,516 __________ _________ Income (loss) from operations (1,284,699)(1,167,081) Other income (expense) Other income 6,965 156,941 Interest expense (52,639) (80,709) Other expense (3,532) (12,791) Total other income (expense) (49,206) 63,441 Net income (loss) $ (1,333,905)$(1,103,640) Earnings (loss) per common share Net income (loss) $(0.08) $(0.08) Cash dividends per common share $0.00 $0.00 Weighted-average common shares outstanding17,118,50814,701,504 The accompanying notes are an integral part of the consolidated financial statements. 5 U.S. Technologies Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended September 30, 1996 1995 Net Sales $296,004 $767,362 Operating costs and expenses: Cost of sales 497,576 442,168 Research and development expense 63,548 Selling expense 18,863 62,950 General and administrative expense 195,078 171,929 Allowance for doubtful accounts 15,932 __________ _________ Total operating costs and expense 727,449 740,595 __________ _________ Income (loss) from operations (431,445) 26,767 Other income (expense) Other income 1,840 497 Interest expense (5,595) (48,613) Other expense (1,478) (12,145) Total other income (expense) (5,233) (60,261) Net income (loss) $ (436,678) $(33,494) Earnings (loss) per common share Net income (loss) $(0.02) $(0.00) Cash dividends per common share $0.00 $0.00 Weighted-average common shares outstanding17,647,18115,357,716 The accompanying notes are an integral part of the consolidated financial statements. 6 U.S. Technologies Inc. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY $0.01 Par Value Common StockAdditional Number of Par Paid-InAccumulated Shares ValueCapital Deficit Total 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 product 750,00015,000181,793 196,793 Stock issued for Newdat, Inc. acquisition 7,053,728 141,0741,269,675 1,410,749 Stock options exercised 730,600 14,612 260,113 274,725 Net (loss) __________________________ (1,816,088) (1,816,088) Balance, December 31, 199515,875,963317,5209,887,485(8,345,220)1,859,785 Stock issued for notes payable1,845,30036,906534,331 571,237 Stock issued for technology acquisition 3,536,000 70,720 481,780 552,500 Net (loss) _________________ __________ (1,333,905) (1,333,905) Balance, September 30, 199621,257,263$425,146$10,903,596$(9,679,125) $1,649,617 The accompanying notes are an integral part of the consolidated financial statements. 7 U.S. Technologies Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, 1996 1995 Cash flows from operating activities: Income (loss) from operations $(1,333,905)$(1,070,146) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 322,999 602,020 Excess of market over issue price of Rule 144 stock 145,181 Record secured note received for previous writedown of gems (156,436) Changes in certain assets and liabilities - net of effects of Newdat, Inc. acquisition: Accounts receivable (48,847) (182,172) Inventories (78,932) 67,975 Prepaid expense (9,802) 7,131 Accounts payable 457,083 106,617 Accrued expenses 355,489 118,378 ________ ________ Net cash provided (used) by operating activities (335,915) (361,645) Cash flows from investing activities: Equipment purchases (648) Decrease in other assets (740) 6,980 Net cash used in investing activities (740) 6,332 Cash flows from financing activities: Increase in notes payable 326,200 426,888 Proceeds from issuance of common stock 45,000 Principal payments on notes payable _______ (50,000) Net cash provided by financing activities 326,200 421,888 Increase (decrease) in cash (10,455) 66,575 Cash, beginning of period 25,860 2,579 Cash, end of period $15,405 $69,154 The accompanying notes are an integral part of the consolidated financial statements. 8 U.S. Technologies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company U.S. Technologies Inc. furnishes administrative and management services to its wholly owned subsidiaries. Lockhart Technologies, Inc. ("LTI") and Newdat, Inc. LTI operations consist of contract manufacturing, prototyping and repair of printed circuit boards using surface mount, through-hole and mixed technology. Newdat, Inc. and its 80% owned subsidiary SensonCorp, Limited were acquired on January 23, 1995. U.S. Technologies Inc., together with its subsidiaries, are hereinafter referred to collectively as "the Company." Principles of Consolidation The consolidated financial statements include the accounts of U.S. Technologies Inc., and its subsidiaries, all of which are wholly owned, except for SensonCorp which the Company owns eighty percent of the outstanding stock. All significant intercompany transactions have been eliminated. Presentation Basis The Company's consolidated financial statements have been presented on the basis that the Company is a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred significant losses during each of the four years including the period ended December 31, 1995 and for the nine months ended September 30, 1996. The Company's continued existence is dependent upon its ability to resolve its liquidity problems. While there is no assurance that such problems can be resolved, the Company believes there is a reasonable expectation of achieving that goal through the cash generated from future operations, the introduction of new products into the market and the sale of additional common stock through private placement. The interim financial statements are unaudited but, in the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. Inventories Inventories are stated at the lower of cost or market utilizing the average cost method for raw materials and work-in- progress, and the first-in, first-out method for finished goods. Property and Depreciation 9 Property and equipment are stated at cost less accumulated depreciation. Expenditures for additions, renewals and improvements of property and equipment are capitalized. Expenditures for repairs, maintenance and gains or losses on disposals are included in operations. Depreciation is computed using the straight-line method over the following estimated lives: Estimated Lives Equipment 5-7 years Furniture and fixtures 7 years Vehicles 3 years Leasehold Improvementsterm of building lease Earnings per Share Net loss per common share is based on the weighted average number of common shares and common share equivalents outstanding in each period. The shares reserved for stock options and warrants are anti-dilutive for the purpose of determining net income or loss per share. 10 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. Revenue Recognition Revenue is recognized from sales of products when the product is shipped. New Technologies Acquired technologies are being amortized over a 60 month period. 2. ACCOUNTS RECEIVABLE The Company has the policy of offering customers a 2% discount for payment of invoiced amounts within 10 days of the invoice date. Accounts receivable - trade at September 30, 1996 and December 31, 1995, is net of an allowance for doubtful accounts in the amount of $29,485, and $59,059, respectively. 3. COMMITMENTS AND CONTINGENCIES 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. LTI has been notified by Wackenhut that it wishes to renegotiate its lease arrangement prior to January 31, 1997, because LTI has not been able to meets its employment requirements pertaining to the number of residents employed. This could mean that LTI would be forced to give of some of the floor space with it presently has, or that LTI will be limited to the number of residents available for future employment, or possibly be asked to withdraw from the facility and program. The Company presently believes that the net result of the negotiations will be that LTI may be forced to give up some of its current space. Wackenhut Corrections Corporation is not an affiliated party. 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 11 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, Dugald 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. Dugald 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 12 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. The previous Board of Directors guaranteed severance pay to four individuals in the event of any merger or acquisition by the Company. In such event the company guaranteed severance pay of four months each to Ryan Corley and Jack Bryant, who served as directors of the Company until October 30, 1995, if their employment with the Company is terminated voluntarily or involuntarily for any reason (with or without cause) within six months following the closing of any acquisition or merger. The new Board of Directors has reversed the decision on severance pay on the grounds that it was not in the best interest of the shareholders. 4. SHAREHOLDERS EQUITY On August 7, 1996, the Company acquired an 85% ownership interest in the QuakeAlarm technology from Komen Holdings Pty. Ltd., a New South Wales Holding Company. This technology, which has been developed and prototyped, is a fully integrated early warning earthquake alarm that can detect first signs of an imminent earthquake. The QuakeAlarm can alert the user before humans begin to feel the earthquake by sensing the quake's "P" (primary) wave, which precedes the "S" (shock) waves which cause the damage. The purchase of the majority ownership gives the Company the exclusive manufacturing and marketing rights to the product worldwide. The consideration in the amount of $552,500 given by the Company for this product was paid by the issuance of 3,536,000 shares of the Company's common stock. The Company plans to commence production of the QuakeAlarm immediately and market this product through several marketing representatives worldwide. On July 15, 1996, the Company exchanged 624,000 shares of its Common stock in exchange for the retirement of a note in the amount of $156,000 it had with Carlton Technologies & Services Ltd. On March 8, 1996, the Company exchanged 1,221,300 shares of its Common stock in exchange for the retirement of a note in the amount of $397,212 and $18,025 in accrued and unpaid interest it had with Carlton Technologies & Services Ltd. On January 23, 1995, the Company acquired all of the outstanding capital stock of Newdat, Inc., in exchange for 13 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 as funds become available, and an 80% interest in another company which is marketing a line of environmentally friendly chemical coatings for which the technology is owned by a major Australian chemical company. The acquisition was accounted for by the purchase method of accounting, and accordingly, the purchase price has been allocated to assets acquired and liabilities assumed based on their fair market value at the date of acquisition. The excess of purchase price over the fair values of net assets acquired has been recorded as goodwill. The fair values of these assets and liabilities are summarized as follows: Cash $ 2,846 Accounts receivable 11,243 Inventory 165,981 Property and equipment 4,578 Purchased technologies 1,140,000 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 was charged to expense during the quarter ended March 31, 1995. 5. INCOME TAXES At December 31, 1995, the Company has available for federal income tax purposes unused operating losses which may provide future tax benefits expiring as follows: Year of Expiration Net Operating Loss 2003 $1,383,000 2005 390,000 2006 165,000 2007 147,000 2008 2,291,000 2009 836,000 2010 1,323,470 $6,535,470 6. NASDAQ MARKET LISTING On September 6, 1996, the Common Stock was deleted from the Nasdaq SmallCap Stock Market. The Company's Common Stock was deleted because the Common Stock was trading at $.125 per share, which was below the required minimum bid price of $1.00 per share. Although, the Company did meet the alternative minimum bid price test requirement of $2,000,000 in capital and surplus 14 and $1,000,000 in market value of public float the Nasdaq Listing Qualifications Panel was of the opinion that the Company's plan to ensure long term compliance did not convince them that the Company would be able to continue meeting the minimum requirements. The Common Stock is presently trading on the OTC Bulletin Board. 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources Working capital decreased by $404,373 to $(169,773) at June 30, 1996, from $574,146 at December 31, 1995. As of September 30, 1996, the Company has no unused lines of credit available under bank credit agreements. 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's continued existence is dependent upon its ability to resolve its previous liquidity problems, principally from profitable operations, by increasing its level of sales, operating more efficiently and obtaining lines of credit, long-term debt or equity financing. To help the Company overcome its liquidity and operational problems, the Company has done the following: A. On January 23, 1995, the Company acquired Newdat, Inc. of Arizona, including an 80% ownership in SensonCorp Ltd. (a manufacturer and distributor of environmentally friendly corrosion inhibition products), With this acquisition, the Company believed that it has acquired a greater range of talent for both its traditional electronics business and its newly acquired activities. The Company previously predicted to break even in the quarter ending September 30, 1995, and to show a profit in the fourth quarter of 1995. however, a general decline in the electronic contract manufacturing directly affected first quarter sales and denied the Company profitable results for the third and fourth quarters of 1995 and first quarter 1996. The first and second quarters of 1996, while quite the Company booked as many new orders during august for production for the remainder of 1996. B. The Company recruited new management and operations staff in the second half of 1995. C. The Company is implementing a plan expected to increase the traditional business at the Lockhart facility from less than $100,000 a month to approximately $700,000 per month over the period through December 1997. To enable the Company to achieve this goal, the permanent sales force is to be expanded from 2 to 4 persons in order to adequately cover the Texas and surrounding markets. Further sales force expansion will take place if sales objectives so demand. D. The 80% equity ownership in SensonCorp Inc. is expected to contribute to the profitability of the 13 Company by mid 1997. The Company has designed a range of retail products to complement its industrial range, and will launch thses coinciding with receipt of projected funds forecast in early 1997. E. The Company participated in the development and prototyping of an earthquake warning device over the past twelve months and has now commenced production of the devices. The product is priced to sell into the consumer market and the Company expects to receive revenues from its participation both from North America and from export markets. The Company has undertaken more turnkey business i.e. contracts for the supply of finished products where it purchases electronic components, builds the products, and supplies the OEM with a completed product. This has meant greater purchase requirements of inventory, however, the inventory is purchased specifically for designated jobs and held for only a short period. Turnkey opportunities are far greater than labor-only work, and LTI has acquired a wider range of customers. LTI announced on November 8, 1996, that it had signed a 3 year contract with an Austin based company for the assembly, testing and distribution of an Apple clone PC. The contract is expected to absorb about 20% of LTI's capacity in 1997 and 30% in 1998 according to the OEM's sales projections. The Company and its subsidiaries have a number of vendor accounts payable on which the aging is over sixty days since date of invoice. The Company is attempting to work out extended payment plans with many of its vendors to meet its obligations. Should these attempts be unsuccessful, some of the vendors may seek other methods of collection on amounts due them such as employing collection agencies or litigation to collect amounts due them. Any of these actions could have a significant impact on its current cash flow or operations. Another source of future working capital may be the 660,000 outstanding Redeemable Warrants issued in connection with the Company's initial public offering together with the 60,000 underwriter Warrants. The Warrants, which were to expire on December 31, 1992, which have been extended several times until December 31, 1996, are executable at $10.00 per Warrant. If exercised could generate, after offering expenses, approximately $6,393,000. Management is 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. Results of Operations - Quarter Ended June 30, 1996 14 During the three month and nine month periods ended September 30, 1996, the Company had a net loss from operations of $436,676 and $1,333,905 or $(0.02) and $(0.08) per weighted- average share, on net sales of $296,004 and $707,713 as compared to net losses of $33,494 and $1,103,640 or $(0.00) and $(0.08) per weighted average share, on net sales of $767,362 and $1,647,435 for the comparable periods in 1995. Net sales decreased approximately 61.4% for the three month period and decreased approximately 57.0% for the nine month period ended September 30, 1996, over the comparable periods in 1995. For the three month and nine month period ended September 30, 1996, LTI accounted for approximately 99% of the total sales. Gross margins for the three month and nine month periods ended September 30, 1996, was (168.1)% and (190.2)%. For the comparable periods in 1995, gross margins for the three month period was (57.61)% and (77.0)%. The decrease in gross margins for the three month and nine month periods ended September 30, 1996, compared to the same periods in 1995 was due primarily the decrease in LTI's sales to a level which would cover would not cover all of the fixed overhead. The Company presently is attempting to increase its sales volume by adding additional sales personnel and contacting potential outside sales representatives along with seeking additional lines of work which has resulted in generating approximately $1,150,000 in bookings of work to be shipped prior to March 31, 1997 Selling expenses represented approximately 6.4% and 18.2% of sales during the three month and nine month periods ended September 30, 1996, compared to 8.2% and 8.4% for the comparable periods in 1995. The increase in sales expense for 1996 was primarily the result of the decreased volume of sales for the three months and nine months ended September 30, 1996 over which to allocate base salary commitment to salespersons marketing the Company's products. Additionally, during the first four months of 1996 salaries were paid for three sales personnel attempting to develop sales of the Senson products which were not employed during the comparable periods in 1995. Administrative expenses for the three month and nine month periods ended September 30, 1996, was 65.9% and 70.9% of sales as compared to 22.4% and 76.7% for the comparable periods in 1995. The percentage decrease for the nine months ended September 30, 1995. For the nine month period ended September 30 1995, the Company expended approximately $135,279 for research and development of unannounced products being developed by NewDat, Inc. No expenditures were incurred for research and development during the nine month period ended September 30, 1996. Although the Company anticipates that there will be an increases in demand for its products and services, its capacity to meet these demands are presently limited by the availability 15 of funds to do further turn key work and the lack of established credit lines with suppliers of components. The Company is presently seeking additional working capital and working to establish new and additional credit lines with suppliers. It has been fairly successful during the third quarter 1996 expanding its credit lines. The Company does not anticipate that inflationary trends will have a material impact on its results of operations because of the short-term nature of its contracts. 16 Part II Item 1. Legal Proceedings. 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. LTI has been notified by Wackenhut that it wishes to renegotiate its lease arrangement prior to January 31, 1997, because LTI has not been able to meets its employment requirements pertaining to the number of residents employed. This could mean that Lti would be forced to give up some of the floor space with it presently has, or that LTI will be limited to the number of residents available for future employment, or possibly be asked to withdraw from the facility and program. The Company presently believes that the net result of the negotiations will be that LTI may be forced to give up some of its current space. Wackenhut Corrections Corporation is not an affiliated party. 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, Dugald 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. Dugald 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 17 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 hear. 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 in damages plus $8,000 in attorney's fees, interest and costs. The Company believes that the complaint is without merit. On July 15, 1996, LTI was served with a citation in Gentron Corporation vs Lockhart Technologies, Inc. in superior court in and for the County of Maricopa, Arizona. The petition seeks payment of certain sums of money totaling $7,588 plus attorney's fees and court costs. The Company believes that it will be liable for the amount of the claim. The Company and its subsidiaries have a number of vendor accounts payable on which the aging is over sixty days since date of invoice. The Company is attempting to work out extended payment plans with many of its vendors to meet its obligations. Should these attempts be unsuccessful, some of the vendors may seek other methods of collection on amounts due them such as employing collection agencies or litigation to collect amounts due them. Any of these actions could have a significant impact on its current cash flow or operations. There were several lawsuits outstanding against AMI and Republic at the time they were sold. AMI and Republic are 18 separate corporations, incorporated under the laws of the State of Texas. Therefore, the Company believes it has no liability arising out of or in connection with any lawsuits against AMI or Republic. The Company'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 obtained a legal opinion. The present Board of Directors has subsequently reversed the earlier decision on the basis that it was not in the best interest of the Shareholders of the Company. The questioned severance pay of $46,000 has not been recorded in the financial statements due to the uncertainty. 19 Item 2. Changes in the Rights of the Company's Security Holders No changes in the rights of the Company's security holders occurred during the period covered by this Form 10-Q. Item 4. Submission of Matters to a Vote of Security Holders No maters were submitted to shareholders to vote on during this quarter. Item 6. Exhibits and Reports on Form 8-K. Exhibit 27 - Financial Data Schedule is filed with this report. No reportable items were filed on a Form 8-K for the period covered during this quarter. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. U.S. TECHNOLOGIES INC. DATE: November 19, 1996 BY: s/William Meehan_____ WILLIAM MEEHAN, President 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. U.S. TECHNOLOGIES INC. DATE: November 19, 1996 BY: ______________________ WILLIAM MEEHAN, President 21 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM U.S. TECHNOLOGIES INC., FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000810130 U.S. TECHNOLOGIES INC. 9-MOS DEC-31-1996 SEP-30-1996 15,405 0 236,668 29,485 998,902 1,327,589 1,942,940 1,777,973 3,683,625 1,438,889 595,119 0 0 425,146 10,903,596 3,683,625 707,713 0 1,345,878 1,345,878 0 0 52,639 (1,333,905) 0 (1,333,905) 0 0 0 (1,333,905) (.08) (.08)
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