-----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, RRVS80MCNYOSY323Nn8msF+9QGhZoPnRknUOu5KWXOsMUm5kPztR/xX+wYMu47pI +oTu463AZbJ0u65AIGbmOw== 0000810130-97-000004.txt : 19970520 0000810130-97-000004.hdr.sgml : 19970520 ACCESSION NUMBER: 0000810130-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 97606226 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 March 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-15960 U.S. Technologies Inc. (Exact name of Registrant as specified in its charter.) State of Delaware 73-1284747 (State of Incorporation) (I. R. S. Employer Identification No.) 1402 Industrial Boulevard Lockhart, Texas 78644 (Address of principal executive offices.) Registrant's telephone number, including area code: (512) 376-1049 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the Registrant's common stock, par value $0.02, at May 15, 1997, was 27,112,263. U.S. TECHNOLOGIES INC. Form 10-Q-For the Quarter Ended March 31, 1997 INDEX Page No. PART I. Financial Information Item 1. Financial Statements 3 Consolidated Balance Sheets March 31, 1997 and December 31, 1996 4 Consolidated Statements of Operations Three months Ended March 31, 1997 and 1996 5 Consolidated Statements of Changes in Stockholders' Equity 6 Consolidated Statements of Cash Flows Three months Ended March 31, 1997 and 1996 7 Notes to Financial Statements 8-13 Item 2. Management's Discussion and Analysis of Financial Condition and results of Operations 14-15 PART II. OTHER INFORMATION 16 Item 1. Legal Proceedings 16-17 Item 2. Changes in the Rights of the Company's Security Holders 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 17 2 PART I. Item 1. Financial Statements. 3 U.S. Technologies Inc. CONSOLIDATED BALANCE SHEETS ASSETS March 31, December 31, 1997 1996 Current assets: Cash in bank $ 2,863 $ 1,548 Accounts receivable - trade 284,658 238,647 Accounts receivable - related party 270,000 270,000 Inventories 512,218 472,227 Prepaid expenses 291 273 Total current assets 1,070,030 982,695 Property and equipment - net 141,374 146,118 Other assets: Investment - technologies and goodwill 1,408,839 1,519,917 Other assets 3,952 3,952 Total other assets 1,412,791 1,523,869 Total assets $ 2,624,195 $ 2,652,682 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 740,682$ 806,204 Accrued expenses 604,552 613,958 Total current liabilities 1,345,234 1,420,162 Long-term liabilities: Notes payable 144,000 144,000 Commitments and contingencies: (Note 3) Stockholders' equity: Preferred stock - $.02 par value; 10,000,000 shares authorized; no shares issued - - Common stock - $.02 par value; 40,000,000 shares authorized; 24,752,263 and 21,857,263 shares issued and outstanding at March 31, 1997 and December 31, 1996, respectively 495,046 437,146 Additional paid-in capital 11,961,411 11,729,811 Accumulated deficit (11,171,291) (10,928,232) Stock receivable ( 150,205) ( 150,205) Total stockholders' equity 1,134,961 1,088,520 Total liabilities and stockholders' equity$ 2,624,195 $ 2,652,682 4 The accompanying notes are an integral part of the consolidated financial statements. 5 U.S. Technologies Inc. CONSOLIDATED STATEMENTS OF OPERATIONS Three months Ended March 31 1997 1996 Net Sales $ 671,787$ 400,661 Operating costs and expenses: Cost of sales 668,968 711,111 Selling expense 23,901 31,806 General and administrative expense 222,708 354,952 Total operating costs and expenses 915,577 1,097,869 (Loss) from operations ( 243,790)( 697,208) Other income (expense) Interest income - 8 Other income 4,501 156,436 Interest expense ( 3,770)( 17,476) Other expense - ( 646) Total other income 731 138,322 Net loss $( 243,059)$( 558,886) Loss per common share $( 0.01)$( 0.04) Cash dividends per common share $ 0.00 $ 0.00 Weighted-average common shares outstanding 22,223,725 13,154,852 5 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 Stock Additional Number of Par Paid-In Accumulated Shares Value Capital Deficit Total Balance, December 31, 199515,875,963$317,520$ 9,887,485$(8,345,220)$1,859,785 Stock options exercised3,536,00070,720481,780 - 552,500 Rule 144 stock issued1,845,30036,906534,331 - 571,237 Stock exchanged for services - - (150,205) -(150,205) Stock issued - gems600,000 12,000 78,000 - 90,000 Debt contributed to capital - - 748,215 -748,215 Net (loss) -_______ -(2,583,012)(2,583,012) Balance, December 31, 199621,857,263437,14611,579,606(10,928,232) 1,088,520 Stock issued 2,895,000 57,900 231,600 - 289,500 Net loss _____________________________ (243,059) (243,059) Balance March 31, 199724,752,263$495,046$11,811,206$(11,171,291)$1,134,961 7 The accompanying notes are an integral part of the consolidated financial statements. 8 U.S. Technologies Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS Three months Ended March 31, 1997 1996 Cash flows from operating activities: (Loss) from continuing operations$( 243,059)$( 558,886) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 124,746 427,444 Excess of market over issue price of Rule 144 stock - 145,181 Changes in certain assets and liabilities: Accounts receivable ( 46,011) ( 82,172) Inventories ( 39,991)( 3,866) Prepaid expense ( 18)( 3,603) Accounts payable ( 65,522) 3,325 Accrued expenses ( 9,406) 43,956 ______ ______ Net cash provided (used) by operating activities (279,261) ( 185,057) Cash flows from investing activities: Equipment purchases ( 8,924)( 648) Decrease in other assets - 4,485 Net cash provided by (used in) investing activities ( 8,924) 3,838 Cash flows from financing activities: Proceeds from issuance of common stock289,500 45,000 Proceeds from short term notes - 150,689 Net cash provided (used) by financing activities 289,500 195,689 Increase in cash 1,315 14,470 Cash, beginning of period 1,548 2,579 Cash, end of period $ 2,863$ 17,049 The accompanying notes are an integral part of the consolidated financial statements. 7 U.S. Technologies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company U.S. Technologies Inc. furnishes administrative and management services to its wholly owned subsidiaries. Lockhart Technologies, Inc.("LTI") and Newdat, Inc. LTI operations consist of contract manufacturing, prototyping and repair of printed circuit boards using surface mount, through-hole and mixed technology. Newdat, Inc. and its 80% owned subsidiary SensonCorp, Limited were acquired on January 23, 1995. U.S. Technologies Inc., together with its subsidiaries, are hereinafter referred to collectively as "the Company." Principles of Consolidation The consolidated balance sheets at December 31, 1996 and March 31, 1997 include the accounts of U.S. Technologies Inc., and its subsidiaries. The consolidated statements of operations, changes in stockholders' equity and cash flows include the accounts of U.S. Technologies Inc., and its subsidiaries for the three months ended March 31, 1996 and 1995. Presentation Basis The Company's consolidated financial statements have been presented on the basis that the Company is a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred significant losses during each of the three years in the period ended December 31, 1996, and had working capital deficiencies at December 31, 1996. The Company's continued existence is dependent upon its ability to resolve its liquidity problems. While there is no assurance that such problems can be resolved, the Company believes there is a reasonable expectation of achieving that goal through the cash generated from future operations, the introduction of new products into the market and the sale of additional common stock. The interim financial statements are unaudited but, in the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. 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 8 work-in-progress, and the first-in, first-out method for finished goods. Property and Depreciation Property and equipment are stated at cost less accumulated depreciation. Expenditures for additions, renewals and improvements of property and equipment are capitalized. Expenditures for repairs, maintenance and gains or losses on disposals are included in operations. Depreciation is computed using the straight-line method over the following estimated lives: Estimated Lives Equipment 5-7 years Furniture and fixtures 7 years Vehicles 3 years Leasehold Improvementsterm of building lease Earnings per Share Net loss per common share is based on the weighted average number of common shares and common share equivalents outstanding in each period. The shares reserved for stock options and warrants are anti-dilutive for the purpose of determining net income or loss per share. 9 Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Revenue is recognized from sales of products when the product is shipped. Technologies and Goodwill Acquired technologies and goodwill are being amortized over a 60 month period. 2. ACCOUNTS RECEIVABLE Accounts receivable - trade at March 31, 1997 and December 31, 1996 is net of an allowance for doubtful accounts in the amount of $16,337 and $90,953, respectively. 3. INVENTORIES At March 31, 1997 and December 31, 1996, inventories consist of the following: 1997 1996 Raw materials ...... $ 1,043,310 $ 984,811 Work in progress 53,908 72,416 1,097,218 1,057,227 Valuation allowance ...... ( 585,000) ( 585,000) $ 512,218$ 472,227 4. PROPERTY AND EQUIPMENT At March 31, 1997 and December 31, 1996, property and equipment consist of the following: 1997 1996 Equipment $ 939,849 $ 936,559 Furniture and fixtures 164,056 164,056 10 Leasehold improvements 123,520 123,520 1,227,425 1,224,135 Less accumulated depreciation (1,086,051) (1,078,017) $ 141,374$ 146,118 5. TECHNOLOGIES AND GOODWILL Technologies and goodwill at March 31, 1997 and December 31, 1996 consist of the following: 1997 1996 Technologies $ 1,692,500 $ 1,692,500 Goodwill 849,065 849,065 2,541,565 2,541,565 Accumulated amortization (1,132,726) (1,021,648) $ 1,408,839$ 1,519,917 6. NOTES PAYABLE Notes payable at March 31, 1997 and December 31, 1996, consist of the following: 1997 1996 Notes payable to individuals and a trust at rates from 12% to 14%, unsecured, due July 1, 1998 and January 1, 1999 $144,000 $ 144,000 7. INCOME TAXES Deferred income tax at March 31, 1997 and December 31, 1996 follows: 1997 1996 Deferred income tax asset $ 2,791,422 $ 2,708,782 11 Valuation allowance 2,791,422 2,708,782 Total deferred tax asset $ - - $ - At December 31, 1996, the Company has available for federal income tax purposes unused operating losses which may provide future tax benefits expiring as follows: Year of Expiration Net Operating Loss 2003 $ 1,383,000 2005 379,903 2006 65,727 2007 363,554 2008 2,183,089 2009 894,689 2010 1,323,470 2011 2,240,937 $ 8,834,369 8. COMMITMENTS AND CONTINGENCIES LTI has a verbal agreement for a new operating lease agreement with Wackenhut Corrections Corporation, The Texas Department of Criminal Justice, Division of Pardons and Paroles and the City of Lockhart, Texas, to lease approximately 27,800 square feet of manufacturing and office space commencing February 1, 1997 through January 31, 2000 and provides for an automatic three year extension unless notification is given by either party at least six months prior to the expiration of each term. The lease provides for annual rental rates of $1 per year for the primary term and the automatic three year extension. The amount of space under the lease is subject to be increased or decreased depending upon the number of residents employed by LTI on August 31, 1997. On March 22, 1995, the Company was served with a citation in TTI Testron, Inc. vs. American Microelectronics, Inc. and Lockhart Technologies, Inc., County Court at Law No. 1, Travis County, Texas, Cause No. 221,094. The 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 12 seeks equitable relief and damages for breach of contract, breach of implied warranty of good faith and fair dealing, common law fraud, negligent misrepresentation, unfair competition, interference with contract, accounting, receiver/attachment, and theft of trade secrets. The causes of action are related to a marketing agreement between Senson and the plaintiffs. The suit does not specify the dollar amount of damages sought. The plaintiff's were denied most of the equitable relief they sought, but obtained a temporary injunction requiring Senson to continue selling them certain products on Senson's usual and customary terms. This ceased when Senson subsequently canceled the agreement on "Without Cause" grounds in May 1995. The company was notified that the plaintiff has dismissed all proceedings as of January 1997. On July 16, 1995, the Company was served with a citation in Elpac Electronics vs. U.S. Technologies Inc., in the 53rd District Court of Travis County, Texas. The petition alleges that the Company is liable for certain debts of a former subsidiary, American Microelectronics, Inc. ("AMI") on the basis of fraudulent transfer of assets from AMI to the Company. The petition seeks $101,461 in damages plus $35,000 in attorney's fees, interest and costs. The Company believes the complaint is without merit. On July 16, 1995, the Company was served with a citation in Evins Personnel Consultants vs. U.S. Technologies Inc., County Court at Law No. 1 of Travis County, Texas. The petition alleges that the Company is liable for certain debts of a former subsidiary, American Microelectronics, Inc. ("AMI") on the theory that the Company was doing business as AMI. The petition seeks $56,246 in damages plus $18,747 in attorney's fees, interest and costs. The Company believes that the complaint is without merit. On July 16, 1995, the Company was served with a citation in Texas Industrial Svcs. vs. U.S. Technologies Inc., in County Court at Law No. 2 Travis County, Texas. The petition alleges that the Company is liable for certain debts of a former subsidiary, American Microelectronics, Inc. ("AMI") on the theory the Company is doing business as AMI. The petition seeks $24,482 in damages plus $8,000 in attorney's fees, interest and costs. The Company believes that the complaint is without merit. As a part of the agreement with GWP, Inc., William Meehan resigned his position as president and CEO of the Company effective January 6, 1997. Subsequent to his resignation, Mr. Meehan retained counsel in an effort to recover amounts he asserts are due him under certain provisions of his employment contract with the Company. The 13 Company believes that the claims are without merit and intends to defend its position. During March 1997, LTI was notified that it, AMI and certain of AMI's former officers and directors are subject to litigation brought by the State of Texas over alleged sales tax underpayments by AMI. The alleged tax liabilities occurred prior to the Company's foreclosure of its security interest in AMI and the sale of AMI on June 30, 1994. All assertions brought by the State are denied and will be contested by the Company. Certain former officers and directors who were made a party to the State's legal action assert indemnification on the part of the Company in the event they are held personally liable for such underpayments. At this time the Company is not aware of any contingent liability relating to indemnification obligations on the part of the Company, but will address such claims if they arise. AMI, Republic and certain of its former officers and directors are subject to a federal tax claim relating to alleged unpaid payroll taxes. The alleged tax liabilities occurred prior to the Company's foreclosure of its security interest in AMI and the sale of AMI and Republic on June 30, 1994, and the ninety days following the sale of these former subsidiaries. Certain former officers and directors who are subject to the government's claim assert entitlement to indemnification on the part of the Company in the event they are held personally liable. At this time the Company is not aware of any contingent liability relating to indemnification obligations on the part of the Company, but will address such claims if they arise. There were several lawsuits outstanding against AMI and Republic at the time they were sold. AMI and Republic are separate corporations, incorporated under the laws of the State of Texas. Therefore, the Company believes it has no liability arising out of or in connection with any lawsuits against AMI or Republic. On July 14, 1989, the Company's Board of Directors adopted a bonus plan that sets aside 1%, 2% and 3% of sales as long as the Company has maintained pretax income of 10%, 15% and 20% of sales, respectively. The performance standards will be based on a three month period of time. Bonuses will be accrued quarterly and determined as of the end of each calendar year. No employees will have vested rights in the bonus plan. The Board of Directors will act as a committee to determine who participates and the actual amount, if any, of the individual bonuses. No bonuses were declared during the three years ended December 31, 1996. The Company's Board of Directors, during the year ended December 31, 1994, guaranteed severance pay to four 14 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. During 1995, the new Board of Directors questioned the legality of this form of compensation. The severance pay of $46,000 has not been recorded in the accompanying financial statements due to the uncertainty. 9. SHAREHOLDERS EQUITY The following table reconciles the number of commons shares shown as outstanding on the balance sheet with the weighted average number of common and common equivalent shares used in computing earnings per share for the three months ended March 31, 1997 and 1996: 1997 1996 Common shares outstanding $ 24,752,263 $ 17,097,263 Effects of using weighted average shares outstanding ( 2,528,538) ( 3,942,411) Shares used in computing earnings per share $ 22,223,725 $ 13,154,852 On August 7, 1996, the Company purchased an 85% interest in the QuakeAlarm technology for $552,500 by an exchange of 3,536,000 shares of the Company's common stock. This fully integrated early warning earthquake alarm can detect first signs of an imminent earthquake by sensing the quakes "P" (primary) wave. The purchase of the majority ownership gives the Company the exclusive manufacturing and marketing rights to the product worldwide. The purchased technology is being amortized over 5 years on the straight line method. Amortization in the amount of $46,042 has been charged to expense during the year ended December 31, 1996. 15 As a part of the agreement with GWP, Inc. certain accounts receivables, accrued expenses and notes payable from Tintagel, Ltd., Laura Investments, Ltd., and Laura Technologies, Ltd. in the amount of $748,215 was contributed to additional paid in capital effective December 31, 1996. During the year ended December 31, 1996, the Company issued 1,845,300 shares of common stock to retire outstanding notes payable to Carlton Technologies Limited in the amount of $571,237. At the time the stock was issued to Carlton Technologies Limited only $421,032 of notes payable was due; therefore a receivable for $150,205 has been recorded as a reduction of stockholders equity. 16 10. RELATED PARTIES Carolyn Meehan, wife of William Meehan, president and CEO of the Company until his resignation on January 6, 1997, is president of Carlton Technologies Limited with whom the Company had various loans during 1995 and 1996 and had a loan in the amount of $397,212 as of December 31, 1995. Many of these loans were retired by the issuance of the Company's common stock in exchange for the debt. At December 31, 1996, the Company had a receivable of $150,205 from the issuance of common stock in excess of debt to Carlton. Mr. K. H. Smith and Mr. James V. Warren are majority shareholders in GWP, Inc., ("GWP") from which the Company has an account receivable in the amount of $270,000 as of December 31, 1996. Effective January 7, 1997, Mr. Smith became President, CEO and Director of the Company. Mr. Warren became a director effective January 7, 1997 and Chairman of the Board effective January 20, 1997. 11. SUBSEQUENT EVENTS Subsequent to March 31, 1997, K. H. Smith and James V. Warren purchased 2,360,000 shares of Rule 144 common stock at $0.10 per share which management believes is market value. 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources On January 6, 1997, an agreement was entered into between GWP, Tintagel, LTD., Komen Holdings Pty., Ltd., Laura Investments, Ltd., and Laura Technologies, Ltd., whereby GWP would acquire approximately 42% of the outstanding common stock of the Company as of December 31, 1996, from Tintagel, LTD and Komen Holdings Pty., Ltd., contingent upon the following conditions being met prior to final closing on April 7, 1997: 1. The Company would grant an option to SWG Partners, ("SWG"), a Georgia partnership of which Mr. James V. Warren and Mr. K. H. Smith are general partners, to purchase up to 6,000,000 shares of its common stock at $0.10 per share prior to closing on April 7, 1997. 2. That SWG and/or its designee (K.H. Smith and James V. Warren) would purchase 1,500,000 shares of the Company's common stock upon execution of the letter of intent on January 6, 1997. 3. That SWG and/or its designee (K. H. Smith and James V. Warren) could purchase an additional maximum of 4,500,000 shares of the Company's common stock by April 7, 1997. 4. That William Meehan would resign as President, CEO and director of the Company and K. H. Smith be named President, CEO and director effective as of January 7, 1997, upon William Meehan's resignation. 5. That James Chen would resign as a director of the Company and James Warren would be named as a director of the Company to fill his position effective as of January 7, 1997, upon James Chen's resignation. 6. That all notes payable, accrued expenses and accounts receivable from Tintagel, Laura Investments Ltd., and Laura Technologies Ltd., be contributed to the Company as additional paid in capital. Working capital, while still negative, improved by $162,263 at March 31, 1997. This was made possible by an injection of new equity from new management. The equity was used to fund increased sales volume during this same 18 quarter. The increased sales volume resulted in an increase in inventory and accounts receivable. At the same time, accounts payable decreased by $65,522, or 8%. As of March 31, 1997 and 1996, the company had no short term financing from lending institutions. The Company's consolidated financial statements have been presented on the basis that the Company is a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. New management believes the Company's continued existence will be accomplished by solving its liquidity problem through profitable operations, with financing provided by equity. Results of Operations - Quarter Ended March 31, 1997 During the three month period ended March 31, 1997, the Company had a net loss of $243,058 or $(0.008) per weighted-average share, on net sales of $671,787 as compared to a net loss of $558,886 or $(0.04) per weighted average share, on net sales of $400,661 for the comparable period in 1996. Net sales increased approximately 67.7% for the three month period ended March 31, 1997 over the comparable period in 1996 primarily due to the increase of production jobs from key customers and the Company's ability to purchase the necessary components to do turnkey jobs because of the new injection of equity from new management. Gross margin for the three month period ended March 31, 1997 was 0.4%. While this is a totally unacceptable gross margin, it represents an increase over the comparable period in 1996 of a (77.5)% (negative) gross margin. This tremendous improvement was the result of increased efficiency from new management's redesign of the plant layout as well as a reduction in cost of purchases due to improved relationships with old vendors or better prices from new vendors. Selling expenses represented only 3.6% of sales during the three month period ended March 31, 1997, compared to 7.9% for the comparable period in 1996. The significant decrease in sales expense for 1997 was the direct result of policy changes implemented immediately by new management. This included sales personnel being placed on a commission only basis, and being held accountable for certain minimum sales volume. Administrative expenses for the three month period ended March 31, 1997, was only 33.2% of sales as compared to 88.68% for the comparable period in 1996. The tremendous percentage decrease is due to new management's immediate and aggressive cost cutting 19 measures primarily in the reduction of staff. Corporate staff in the Company's LTI subsidiary was reduced by 60%. More efficient systems were implemented and duties reassigned to handle the increased sales volume with fewer people. No expenditures were made during the periods reported on for research and development in 1997 and 1996. While the Company anticipates a continued increase in demand for its products and services, the capacity to meet these demands are limited by equipment, personnel and working capital. The Company does not anticipate that inflationary trends will have a material impact on its results of operations because of the short-term nature of its contracts. 20 Part II Item 1. Legal Proceedings. On March 22, 1995, the Company was served with a citation in TTI Testron, Inc. vs. American Microelectronics, Inc. and Lockhart Technologies, Inc., County Court at Law No. 1, Travis County, Texas, Cause No. 221,094. The petition alleges that Lockhart Technologies, Inc. received the assets of American Microelectronics Inc. without consideration. The action seeks damages of $11,527. The Company believes the claim is without merit. On January 24, 1995, an action styled SensonCorp Systems, Inc., SensonCorp Pacific, SensonCorp Southeast, SensonCorp West, Creative Media Resources vs. SensonCorp Limited, William Meehan, Dugal Allen, John Allen, DOES 1 through 50, in the United States District Court Northern District of California, Cause No. C-95-00282. The action seeks equitable relief and damages for breach of contract, breach of implied warranty of good faith and fair dealing, common law fraud, negligent misrepresentation, unfair competition, interference with contract, accounting, receiver/attachment, and theft of trade secrets. The causes of action are related to a marketing agreement between Senson and the plaintiffs. The suit does not specify the dollar amount of damages sought. The plaintiff's were denied most of the equitable relief they sought, but obtained a temporary injunction requiring Senson to continue selling them certain products on Senson's usual and customary terms. This ceased when Senson subsequently canceled the agreement on "Without Cause" grounds in May 1995. The company was notified that the plaintiff has dismissed all proceedings as of January 1997. On July 16, 1995, the Company was served with a citation in Elpac Electronics vs. U.S. Technologies Inc., in the 53rd District Court of Travis County, Texas. The petition alleges that the Company is liable for certain debts of a former subsidiary, American Microelectronics, Inc. ("AMI") on the basis of fraudulent transfer of assets from AMI to the Company. The petition seeks $101,461 in damages plus $35,000 in attorney's fees, interest and costs. The Company believes the complaint is without merit. On July 16, 1995, the Company was served with a citation in Evins Personnel Consultants vs. U.S. Technologies Inc., County Court at Law No. 1 of Travis County, Texas. The petition alleges that the Company is liable for certain debts of a former subsidiary, American Microelectronics, Inc. ("AMI") on the theory that the Company was doing business as AMI. The petition seeks $56,246 in damages plus $18,747 in attorney's fees, interest 21 and costs. The parties are in the discovery state, but the Company believes that the complaint is without merit. On July 16, 1995, the Company was served with a citation in Texas Industrial Svcs. vs. U.S. Technologies Inc., in County Court at Law No. 2 Travis County, Texas. The petition alleges that the Company is liable for certain debts of a former subsidiary, American Microelectronics, Inc. ("AMI") on the theory the Company is doing business as AMI. The petition seeks $24,482 in damages plus $8,000 in attorney's fees, interest and costs. The Company believes that the complaint is without merit. As a part of the agreement with GWP, Inc., William Meehan resigned his position as president and CEO of the Company effective January 6, 1997. Subsequent to his resignation, Mr. Meehan retained counsel in an effort to recover amounts he asserts are due him under certain provisions of his employment contract with the Company. The Company believes that the claims are without merit and intends to defend its position. During March 1997, LTI was notified that it, AMI and certain of AMI's former officers and directors are subject to litigation brought by the State of Texas over alleged sales tax underpayments by AMI. The alleged tax liabilities occurred prior to the Company's foreclosure of its security interest in AMI and the Sale of AMI on June 30, 1994. All assertions brought by the State are denied and will be contested by the Company. Certain of the former officers and directors made a party to the State's legal action assert indemnification on the part of the Company in the event they are held personally liable for such underpayments. At this time the Company is not aware of any contingent liability relating to indemnification obligations on the part of the Company, but will address such claims if they arise. AMI, Republic and certain of its former officers and directors are subject to a federal tax claim relating to alleged unpaid payroll taxes. The alleged tax liabilities occurred prior to the Company's foreclosure of its security interest in AMI and the Sale of AMI and Republic on June 30, 1994, and the ninety days following the sale of these former subsidiaries. Certain former officers and directors who are subject to the government's claim assert entitlement to indemnification on the part of the Company in the event they are held personally liable. At this time the Company is not aware of any contingent liability relating to indemnification obligations on the part of the Company, but will address such claims if they arise. There were several lawsuits outstanding against AMI and Republic at the time they were sold. AMI and Republic are 22 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. 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 matters were submitted to a vote of Security holders during the period covered by this Form 10-Q. Item 6. Exhibits and Reports on Form 8-K. A Form 8-K was filed on January 10, 1997 reporting changes in the board of directors of the Company. 23 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: May 14, 1997 BY: s/K. H. Smith K. H. Smith President and CEO 24 EX-27 2
5 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 2,863 0 570,995 16,337 512,218 1,070,030 1,227,425 1,086,051 2,624,195 1,345,234 144,000 0 0 495,046 639,915 2,624,195 671,787 676,288 668,968 668,968 246,609 0 3,770 (243,059) 0 (243,059) 0 0 0 (243,059) .01 .01
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