-----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, JnA6pj9sRQKJomjJiHXFsOLIJbyAAOxO8gQvw7Q2jIK3THxHhpUxMxspLeaeERzY zSm1o7k5KlVnZsMMIeZF3w== /in/edgar/work/0000950144-00-011731/0000950144-00-011731.txt : 20000929 0000950144-00-011731.hdr.sgml : 20000929 ACCESSION NUMBER: 0000950144-00-011731 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S TECHNOLOGIES INC CENTRAL INDEX KEY: 0000810130 STANDARD INDUSTRIAL CLASSIFICATION: [3672 ] IRS NUMBER: 731284747 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-15960 FILM NUMBER: 729899 BUSINESS ADDRESS: STREET 1: 2001 PENNSYLVANIA AVE NW STE 675 STREET 2: SUITE 300 CITY: WASHINGTON STATE: DC ZIP: 20006 BUSINESS PHONE: 7705654311 MAIL ADDRESS: STREET 1: 3901 ROSWELL ROAD STREET 2: SUITE 300 CITY: MARIETTA STATE: GA ZIP: 30062 FORMER COMPANY: FORMER CONFORMED NAME: CAREAMERICA INC DATE OF NAME CHANGE: 19890720 10-Q/A 1 g64390e10-qa.txt U.S. TECHNOLOGIES, INC. 1 Form 10-Q/A 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 June 30, 2000 [ ] 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.) 1130 Connecticut avenue, NW, Suite 700 Washington, DC 20036 (Address of principal executive offices) Registrant's telephone number, including area code: (202) 466-3100 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 [ ] No [X] The number of shares outstanding of the Registrant's common stock, par value $0.02, as of July 31, 2000 was 29,133,286 shares. This Amendment No. 1 on Form 10-Q/A amends Item 1 of the quarterly report on Form 10-Q of U.S. Technologies, Inc. for the quarter ended June 30, 2000, to revise our previously reported balances for goodwill and accrued liabilities on our consolidated balance sheet as of June 30, 2000. This revision reflects an adjustment to record an additional liability assumed in an acquisition. This revision has no impact on our previously reported historical results of operations for any periods presented. In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, this Amendment No. 1 sets forth the complete text to Item 1 of Part 1 of our Form 10-Q for the quarter ended June 30, 2000, as amended. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: U.S. TECHNOLOGIES INC. CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2000 1999 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,159,760 $ 9,451 Trade Accounts receivable, net of reserves of $206,000 at June 30, 2000 and December 31, 1999 422,655 195,289 Inventories 282,371 260,575 Prepaid expenses 32,155 39,340 ------------ ------------ Total current assets 1,896,941 504,655 ------------ ------------ Property and equipment, net of accumulated depreciation of $1,402,417 and $1,329,988 at June 30, 2000 and December 31, 1999 549,257 571,383 ------------ ------------ Other assets: Investment in internet businesses 13,304,395 -- Goodwill internet investments - net 4,405,134 -- Notes receivable 334,730 -- Other assets 898,306 16,058 ------------ ------------ Total other assets 18,942,565 16,058 ------------ ------------ Total assets $ 21,388,763 $ 1,092,096 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 26,875 $ 27,270 Accounts payable 2,254,860 1,004,237 Accrued expenses 2,334,924 267,587 ------------ ------------ Total current liabilities 4,616,659 1,299,094 Long-term debt less current maturities 621,000 13,794 ------------ ------------ Total liabilities 5,237,659 1,312,888 ------------ ------------ Shareholders' equity: Common stock; $.02 par value; 40,000,000 shares authorized; 29,533,286 and 29,195,278 issued and outstanding at June 30, 2000 and December 31, 1999, respectively 590,665 583,906 Series A convertible preferred stock: $0.02 par value; 10,000,000 shares authorized; 625,000 and 500,000 issued and outstanding respectively 6,250,000 5,000,000 Series A convertible preferred stock subscribed but unissued -- 289,703 Series B mandatorily convertible preferred stock: $0.02 par value; 10,000,000 shares authorized 1,120,000 shares issued and outstanding 11,200,000 -- Series C mandatorily convertible preferred stock: $0.02 par value; 8,750 shares authorized; 5,184 issued and outstanding 4,571,914 -- Additional paid-in capital 13,058,271 12,275,655 Accumulated deficit (19,141,857) (17,992,167) Stock receivable (150,205) (150,205) Treasury stock, at cost, 400,000 shares held (227,684) (227,684) ------------ ------------ Total shareholders' equity 16,151,104 (220,792) ------------ ------------ Total liabilities and shareholders' equity $ 21,388,763 $ 1,092,096 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 2 3 U.S. TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net Sales $ 713,745 $ 820,470 $ 1,190,271 $ 2,690,754 Operating costs and expenses: Cost of sales 675,940 1,206,292 1,303,217 3,242,933 Selling expense 14,385 7,290 30,308 25,679 General and administrative expense 910,787 514,276 1,121,786 1,209,247 ------------ ------------ ------------ ------------ Total operating costs and expenses 1,601,112 1,727,858 2,455,311 4,477,859 ------------ ------------ ------------ ------------ Income (loss) from operations (887,367) (907,388) (1,265,040) (1,787,105) Other income (expense) Gain on sale of subsidiary -- (236,840) -- 752,160 Other 48,036 (80,577) 65,053 (93,290) Equity in loss of internet businesses (4,437) -- (4,437) -- Interest expense (4,771) (1,667) (4,791) (35,923) ------------ ------------ ------------ ------------ Total other income (expense) 38,828 (319,084) 55,825 622,947 ------------ ------------ ------------ ------------ Net (loss) $ (848,539) $ (1,226,472) $ (1,209,215) $ (1,164,158) Preferred dividend -- 336,484 -- 336,484 ------------ ------------ ------------ ------------ Net (loss) available to common shareholders $ (848,539) $ (1,562,956) $ (1,209,215) $ (1,500,642) ============ ============ ============ ============ Net earnings (loss) per share: Basic $ (0.03) $ (0.05) $ (0.04) $ (0.05) ============ ============ ============ ============ Diluted $ (0.03) $ (0.05) $ (0.04) $ (0.05) ============ ============ ============ ============ Shares used in per share calculation: Basic 28,966,342 28,795,278 29,032,529 28,795,278 ============ ============ ============ ============ Diluted 28,966,342 28,795,278 29,032,529 28,795,278 ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 3 4 U.S. TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, --------------------------------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net earnings (loss) $(1,209,215) $(1,164,158) Adjustments to reconcile net earnings (loss) to net cash used in operating activities: Depreciation and amortization 114,425 54,275 Gain on sale of Subsidiary -- (752,160) Equity in loss of investees 4,437 -- Changes in certain assets and liabilities: Accounts receivable (245,819) 29,182 Inventories (21,796) 292,430 Prepaid expense 25,648 (1,577) Accounts payable (214,361) 17,316 Accrued expenses (99,441) (5,094) ----------- ----------- Net cash used in operating activities (1,646,122) (1,529,786) ----------- ----------- Investing activities: Equipment purchases -- (63,092) Advances, net of deficit in operating results to subsidiary prior to sale -- (570,318) Proceeds from sale of subsidiary -- 876,000 Investment in internet businesses (2,576,989) -- Increase in notes receivable (334,730) -- Change in other assets (12,811) 1,415 ----------- ----------- Net cash provided by (used in) investing activities (2,924,530) 244,005 ----------- ----------- Financing activities: Proceeds from convertible preferred stock subscriptions 5,532,211 1,196,677 Proceeds from exercise of stock options and warrants 202,939 -- Proceeds from notes payable -- 28,628 Payments of notes payable (14,189) (14,920) ----------- ----------- Net cash provided by financing activities 5,720,961 1,210,385 ----------- ----------- (Decrease) increase in cash 1,150,309 (75,396) Cash, beginning of period 9,451 110,140 ----------- ----------- Cash, end of period $ 1,159,760 $ 34,744 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 4 5 U.S. TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. This information reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the statement of financial position of the Company as of June 30, 2000 and the results of operations and cash flows for the three months and six months ended June 30, 2000. All adjustments made have been of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes that disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements are read in conjunction with the financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1999. The basis for presentation for investments the Company acquires are accounted for under three methods: consolidation, equity method or cost method. The applicable accounting method is determined based on the Company's voting interest in an investment, degree of influence over the operations and controlling positions. 2. NATURE OF OPERATIONS OUTSOURCING OPERATIONS U.S. Technologies Inc. (the "Company"), is an "outsourcing company" that provides manufacturing, assembly, repair, kitting and fulfillment services to Fortune 1000 and other select businesses. The Company performs its services utilizing prison labor under the Prison Industry Enhancement Program ("PIE"). Congress created the PIE program in 1979 to encourage states and local units of government to establish employment opportunities for prisoners that approximate private sector work opportunities. The program is designed to place inmates in a realistic working environment, pay them the local prevailing wage for similar work, and enable them to acquire marketable skills to increase their potential for successful rehabilitation and meaningful employment upon release. E2E ACQUISITION On April 12, 2000, the Company acquired E2Enet, Inc. ("E2E"), a privately held Internet incubator company. E2E has made early stage investments in several development stage business-to-business (B2B) and business-to-consumer (B2C) e-commerce businesses. The details of the purchase of E2E have been reported by the Company in its Form 8-K filed on April 27, 2000. The Company believes that its acquisition of E2E will provide the Company with a platform to establish a position in the growing e-commerce industry. The Company believes that the completion of the E2E Acquisition will enhance the Company's opportunities for both investment in and creative development of associated companies that are promising early stage B2B and B2C e-commerce ventures. Further investments in this industry are intended primarily to comprise controlled subsidiaries engaged in the development or operation of B2B business. The Company also is in the process of expanding its management team to include technology and e-commerce expertise. The Company has restructured some of E2E's investments in its associated companies and provided these entities with additional working capital to stimulate their further growth and expansion. E2E's initial investment in Buyline.net, Inc. ("Buyline") has been restructured and increased so that Buyline is a controlled operating subsidiary. On April 26, 2000, the Company completed its acquisition of 20,700,005 shares of Buyline's common stock. The Buyline Purchase Agreement provided for (1) the conversion to Buyline's common stock of E2E's existing loans to Buyline (including accrued interest), (2) acknowledgment of in kind services already rendered by E2E, and (3) an additional $1,000,000 cash investment by the Company through E2E. Simultaneous with entering into the Buyline Agreement, the Company hired a technology executive who has become Buyline's President and Chief Executive Officer. As a result, the Company, through E2E, will be the controlling shareholder of Buyline, and will designate and supervise the Buyline management team. The details of the purchase of Buyline have been reported by the Company in its Form 8-K filed on May 11, 2000. On April 12, 2000, the Company closed an agreement with Vipro Corporation ("Vipro") to invest through E2E an additional $1,000,000 in Vipro, another E2E portfolio company, for additional equity in the form of shares of Vipro's Series B Convertible Preferred Stock. 5 6 On April 12, 2000, the Company signed a letter of intent with Web Milestones.com, LLC. ("Webmilestones") an internet services company that will initially provide a site for publishing obituary notices that can be accessed through the Internet's World Wide Web. On July 5, 2000 the Company completed the acquisition of its 40% equity interest in Webmilestones for $400,000, including the amount of $150,000, which is included in the Company's notes receivable as of June 30, 2000. The Company completed its acquisition of Webmilestones on July 5, 2000. The details of the purchase of Webmilestones have been reported by the Company in its Form 8-K filed on July 5, 2000. On April 12, 2000, the Company signed a letter of intent with Portris, LLC ("Portris"). Portris is a software company that has developed an information management system that facilitates performance of interactive team oriented projects over the internet. Under the terms of the letter of intent the Company will receive a 30.4% equity interest in Portris for $380,000, including the amount of $180,000, which is included in the Company's notes receivable as of June 30, 2000. As of the date of this Form 10-Q, the transaction with Portris has not been completed. 3. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 4. INVENTORIES At June 30, 2000, and December 31, 1999, inventories consisted of the following: 2000 1999 -------- -------- Raw materials $253,834 $217,348 Work in progress 17,827 42,180 Finished Goods 10,710 1,047 -------- -------- $282,371 $260,575 ======== ======== 5. NOTES RECEIVABLE During the six months ended June 30, 2000, the Company advanced cash, to be used for working capital, to primarily Webmilestones and Portris. As of June 30, 2000, the Company had advanced $150,000 and $180,000 to Webmilestones and Portris, respectively. 6. CONVERTIBLE PREFERRED STOCK On April 12, 2000, the closing date of the E2E Acquisition, the Company sold, in two private placement transactions, 125,000 shares of its Series A Convertible Preferred Stock ("Series A Preferred") to USV Partners LLC ("USV") at a purchase price of $10 per share and 5,184 shares of its Series C Mandatorily Convertible Preferred Stock ("Series C Preferred") at a purchase price of $1,000 per share. Of the 5,184 shares of Series C Preferred issued, USV purchased 2,120 shares for $2,120,000. Gregory Earls, the Co-Chairman and the Co-Chief Executive Officer of the Company, is the sole member of the management of USV. The proceeds of $6,309,000 raised through the recent sales of the Series A Preferred and Series C Preferred will be used primarily to finance additional investments in new and existing internet businesses that focus on B2B and B2C e-commerce, the payment of costs incurred and liabilities assumed in connection with the E2E Acquisition and related business transactions and ongoing working capital needs. 6 7 When the E2E Acquisition closed, E2E's former stockholders were issued a total of 1,120,000 shares of the Company's Series B Mandatorily Convertible Preferred Stock (the "Series B Preferred"). Upon their mandatory conversion as described below, these shares of Series B Preferred will be converted into 56,000,000 shares of the Company's common stock, par value $0.02 ("Common Stock"). The Company's capital stock is presently comprised of common stock, par value $0.02 ("Common Stock"), Series A Preferred, Series B Preferred and Series C Preferred. Except as explained below with respect to the Charter Amendment (defined and discussed below), each holder of Series A Preferred is entitled to vote as if converted to Common Stock on all matters that require a vote of the holders of the Company's capital stock. USV is the holder of all issued and outstanding shares of Series A Preferred. Under the Certificate of Designations, Rights and Preferences, as amended, setting forth the rights and preferences of the Series A Preferred, USV has the right to convert its shares of Series A Preferred to Common Stock at any time. Upon the conversion of all of the Series A Preferred, USV would be entitled to receive 51,229,508 shares of Common Stock. USV and the Company entered into an agreement, dated March 1, 2000, whereby USV waived its right to convert its shares of Series A Preferred until an appropriate amendment is made to the Company's Restated Certificate of Incorporation. This amendment will increase the number of shares of Common Stock that the Company is authorized to issue to an amount sufficient for all of the Company's outstanding convertible securities, warrants and options to be converted or exercised (the "Charter Amendment"). USV has committed to convert its Series A Preferred shares to Common Stock once the Charter Amendment is effective. Under the definitive agreement containing the terms and conditions of the E2E Acquisition, the Company is required to call a meeting of its stockholders to approve the Charter Amendment. Upon the acceptance of the Charter Amendment for filing by the Secretary of State of the State of Delaware, the Series B Preferred and the Series C Preferred will automatically be converted into shares of Common Stock. The terms of the Series B Preferred and the Series C Preferred do not permit the holders thereof to vote on the Charter Amendment, but otherwise permit them to vote as if the Series B Preferred and Series C Preferred were already converted to Common Stock. Accordingly, the Charter Amendment will be presented for approval by the holders of outstanding shares of Common Stock and Series A Preferred, voting together as a single class. The following table presents the dilution of the Company's common stock which will result upon approval of the Company's Charter Amendment and conversion of the previously described issuance's of the Company's convertible preferred shares. Common stock outstanding at July 31, 2000 29,133,286 Conversion of Series A Preferred Stock 51,229,508 Conversion of Series B Preferred Stock 56,000,000 Conversion of Series C Preferred Stock 3,526,531 ----------- 139,889,325 =========== 7. ACCRUED EXPENSES Included in the Company's accrued expenses at June 30, 2000 is an amount of approximately $2,000,000, which represents a contingent obligation of the Company related to the Company's acquisition of E2E. The contingent obligation involves the Company's potential indemnification of the obligation of Jonathan Ledecky, a former principal stockholder of E2E, to purchase shares of E2E's common stock under the terms of a Put Agreement, dated May 14, 1999, as amended (the "Put Agreement"), between Ledecky and two other former stockholders of E2E. The Company agreed to assume Ledecky's obligation under the Put Agreement in connection with the merger of E2E into the Company. The two holders have not consented to this assignment. The holders of the put have exercised their right to put their shares of Series B Preferred Stock (approximately 53 shares of Series B Preferred Stock each, which shares were received in exchange for their shares of E2E common stock in connection with the merger of E2E into the Company) to Ledecky. Each of the two stockholders' shares of Series B Preferred Stock are mandatorily convertible into 26,892 shares of Company common stock upon amendment of the Company's charter to increase the number of shares authorized. Ledecky has disputed their right to exercise the put under the Put Agreement. The holders of the put have filed suit against Ledecky and Ledecky has filed an answer. As of the date of this report, such dispute has not been resolved. The Company has elected to record its contingent obligation related to the Put Agreement. 8. SEGMENT INFORMATION During 1998, the Company adopted SFAS 131, Disclosures about Segments of an Enterprise and Related Information. SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in their financial statements. The standard defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision makers in deciding how to allocate resources and in assessing the performance. The Company's chief operating decision makers aggregate operating segments based on the location of the segment and whether it is prison-based or free-world. Based on the quantitative thresholds specified in SFAS 131, the Company has determined that it has four reportable segments for the six and three months ended June 30, 2000. The four reportable segments are USXX (Washington, DC), LTI (Lockhart, Texas) ("LTI Lockhart), LTI (Blythe, California) ("LTI Blythe") and E2E (Washington, DC). USXX is the corporate office, LTI Lockhart is 7 8 a prison-based manufacturer of computer circuit boards, LTI Blythe is a prison-based manufacturer of modular office furniture components and E2E represent the Company's recent investment in B2B and B2C e-commerce businesses. Based on the quantitative thresholds specified in SFAS 131, the Company has determined that it had four reportable segments during the six and three months ended June 30, 1999. In addition to the three of the reportable segments identified above, the Company owned, until its sale in February 1999, a controlling interest in Technology Manufacturing & Design, Inc. ("TMD"). Segment amounts disclosed are prior to any elimination entries made in the consolidation. Summary information by segment as of and for the six months and three months ended June 30, 2000 and 1999 follow (in thousands):
LTI LTI USXX Lockhart TMD (1) Blythe E2E Other Total ---- -------- ------- ------ --- ----- ----- Six months ended June 30 2000 Net sales $ -- $ 863 $ -- $ 273 $ -- $ 54 $ 1,190 Operating profit (loss) (878) (226) -- 3 (178) 14 (1,265) Total Assets 19,957 682 -- 416 16,790 56 37,901 1999 Net sales $ -- $ 1,335 $ 948 $ 378 $ -- $ 30 $ 2,691 Operating (loss) (847) (524) (66) (257) -- (93) (1,787) Total Assets 3,445 465 -- 435 -- 183 4,528 Three months ended June 30 2000 Net sales $ -- $ 504 $ -- $ 172 $ -- $ 38 $ 714 Operating profit (loss) (727) (26) -- 22 (178) 22 (887) Total Assets 19,957 682 -- 416 16,790 56 37,901 1999 Net sales $ -- $ 586 $ -- $ 205 $ -- $ 30 $ 821 Operating (loss) (445) (284) -- (121) -- (57) (907) Total Assets 3,445 465 -- 435 -- 183 4,528
(1) TMD was sold by the Company on February 12, 1999. The operating results include activity through that date. 8 9 9. LOSS PER SHARE The Company has adopted the provisions of Statements of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which was effective for fiscal years ending after December 15, 1997. Basic earnings per common share are based on the weighted average number of common shares outstanding during the period. Diluted earnings per share does not include the dilutive effect of common stock equivalents for the six months and three months ended June 30, 2000 and 1999 because stock options and warrants which comprised common stock equivalents would have been anti-dilutive.
Per (Loss) Shares share (Numerator) (Denominator) amount ----------- ------------- ------ Six months ended June 30, 2000: Net (loss) $(1,209,215) 29,032,529 $(0.04) =========== ========== ====== Effect of dilutive potential common shares: Stock options -- -- Warrants -- -- ----------- ---------- Diluted net (loss) $(1,209,215) 29,032,529 $(0.04) =========== ========== ====== Six months ended June 30, 1999: Net (loss) available to common shareholders $(1,500,642) 28,795,278 $(0.05) Effect of dilutive potential common shares: Stock options -- -- Warrants -- -- ----------- ---------- Diluted net (loss) available to common shareholders $(1,500,642) 28,795,278 $(0.05) =========== ========== ====== Three months ended June 30, 2000: Net (loss) $ (848,539) 28,966,342 $(0.03) Effect of dilutive potential common shares: Stock options -- -- Warrants -- -- ----------- ---------- Diluted net (loss) $ (848,539) 28,966,342 $(0.03) =========== ========== ====== Three months ended June 30, 1999: Net (loss) available to common shareholders $(1,562,956) 28,795,278 $(0.05) Effect of dilutive potential common shares: Stock options -- -- Warrants -- -- ----------- ---------- Diluted net (loss) available to common shareholders $(1,562,956) 28,795,278 $(0.05) =========== ========== ======
10. RECENT ACCOUNTING PRONOUNCEMENTS None. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the consolidated financial statements of the Company (including the notes thereto) included in the Company's form 10-K for the year ended December 31, 1999. RESULTS OF OPERATIONS The following analysis compares the results of operations for the three-month and six-month periods ended June 30, 1999 to the comparable periods ended June 30, 1999. Net sales during the three months ended June 30, 2000 were $713,745, compared to $820,470, during the three months ended June 30, 1999. The decrease in net sales in the amount of $106,725, was primarily due to a decline in sales in the Company's LTI Lockhart facility, as a result of the reorganization of the facility. This reorganization included the hiring of a new plant manager and the installation of equipment, which will replace tasks, which were previously performed manually. Net sales during the six months ended June 30, 2000 were $1,190,271, compared to $2,690,754 during the six months ended June 30, 1999. The decrease in net sales in the amount of $1,500,483, includes $948,176 from the Company's interest in TMD, which was sold in February 1999. Without regard to the sales from TMD, the Company's sales for the six-month period ended June 30, 1999, declined by $552,307, as a result of the reorganization mentioned above. In the three months ended June 30, 2000, cost of goods sold was $675,940, which represented 95% of net sales. During the three months ended June 30, 1999, cost of goods sold was $1,206,292, which represented 147% of net sales. The reduction in cost of sales is a result of more effective management of operations in the Company's Lockhart, Texas, electronics facility, resulting in significant reductions in labor and materials cost. The re-engineering process is continuing with the intent of seeking business in which the customer supplies materials. In the six months ended June 30, 2000, cost of goods sold was $1,303,217, which represented 109% of net sales. During the six months ended June 30, 1999, cost of goods sold was $3,242,933, which represented 120% of net sales. The reduction in cost of sales is a result of more effective management of operations in the Company's Lockhart, Texas, electronics facility, resulting in significant reductions in labor and materials cost. The re-engineering process is continuing with the intent of seeking business in which the customer supplies materials. Selling expenses during the three months ended June 30, 2000 were $14,385, representing 2% of net sales. During the three months ended June 30, 1999, selling expenses in the amount of $7,290 represented 1% of net sales. These expenses increased primarily due to more sales being generated through outside commission sales personnel, rather than in-house sales. Selling expenses during the six months ended June 30, 2000 were $30,308, representing 3% of net sales. During the six months ended June 30, 1999, selling expenses in the amount of $25,679 represented 1% of net sales. These expenses increased primarily due to more sales being generated through outside commission sales personnel, rather than in-house sales. General and administrative expenses during the three months ended June 30, 2000 were $910,787, which represented 128% of net sales. During the three months ended June 30, 1999, general and administrative expenses were $514,276, which represented 63% of net sales. The increase in general and administrative expenses is primarily the result of increasing corporate staff at the Company's Washington, DC headquarters, to support the Company's investment activities. General and administrative expenses during the three months ended June 30, 2000 includes approximately $200,000 related to the consolidation of the operations of E2E and Buyline from April 12 and April 26, 2000, the respective dates of their acquisitions by the Company. 10 11 General and administrative expenses during the six months ended June 30, 2000 were $1,121,786, which represented 94% of net sales. During the six months ended June 30, 1999, general and administrative expenses were $1,209,247, which represented 45% of net sales. The decrease in general and administrative expenses was primarily the result of severance and other costs incurred during the reorganization of the Company's corporate staff during the six months ended June 30, 1999, which were offset by increasing corporate staff at the Company's Washington, DC headquarters, to support the Company's investment activities and the above mentioned consolidation of the operating results of E2E and Buyline. During the three months ended June 30, 2000, the Company had a net loss available to common shareholders of $848,539 or $(0.03) per weighted-average share. During the three months ended June 30, 1999 the company reported a net loss available to common shareholders of $1,562,956 or $(0.05) per weighted-average share. The loss for the three months ended June 30, 2000, includes a loss of $4,437, which represents the Company's share of losses from internet business accounted for under the equity method. The loss for the three months ended June 30, 1999, includes a $336,484 dividend on the Company's convertible preferred stock and a reserve of $236,840 against a note taken during the quarter ended March 31, 1999, related to the sale of the Company's interest in TMD. During the six months ended June 30, 2000 the Company had net loss available to common shareholders of $1,209,215 or $(0.04) per weighted-average share. During the six months ended June 30, 1999, the Company reported a net loss available to common shareholders of $1,500,642 or $(0.05) per weighted-average share. The loss for the six months ended June 30, 2000, includes a loss of $4,437, which represents the Company's share of losses from internet business accounted for under the equity method. The loss for the six months ended June 30, 1999, includes a $336,484 dividend on the Company's convertible preferred stock and a reserve of $236,840 against a note taken during the quarter ended March 31, 1999, related to the sale of the Company's interest in TMD. LIQUIDITY AND CAPITAL RESOURCES During the six months ended June 30, 2000 and 1999, the Company experienced negative operating cash flows of $1,646,122 and $1,529,786 respectively. Negative operating cash flows in the six months ended June 30, 2000 resulted principally from the $(1,209,215) net loss incurred during that period, an increase in accounts receivable of $245,819 and a decrease in accounts payable of $214,361. Negative operating cash flows in the six months ended June 30, 1999 resulted principally from the $(1,164,158) net loss incurred during that period. Net cash used in investing activities of $2,924,530 during the six months ended June 30, 2000, was primarily the result of the acquisition of E2E by the Company and cash advances to our associated companies. Net cash provided by investing activities of $244,005 during the six months ended June 30, 1999, was primarily the result of cash advances to TMD offset by cash proceeds from the sale of TMD. Net cash provided by financing activities of $5,720,961 during the six months ended June 30, 2000 was primarily due to the receipt of net proceeds from the subscription of preferred stock of $5,532,211 and proceeds from the exercise of common stock options and warrants of $202,939. Net cash provided by financing activities of $1,210,385 during the six months ended June 30, 1999 was primarily due to the receipt of net proceeds from the subscription of preferred stock. FORWARD-LOOKING INFORMATION Certain statements in this quarterly report on form 10-Q contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 concerning prospective future events and results. Such prospective events include acquisitions and investments, and prospects for such acquisitions and investments. U.S. Technologies cautions that actual developments and results may differ materially from its prospective future events. There can be no assurance that the conditions necessary to completing any prospective event will occur. Additional investments in the Company or by the Company or an unrelated person in any of the Company's associated companies provide no assurance that the Company or such associated company will succeed or that the Company's investments will be recovered or that the Company or any of its associated companies will be profitable. The Company's assets and operations, including results of operations, would be affected materially by either occurrence of any such event or the failure of any such event to occur, by the extent to which it and its associated companies continue to have access to financing sources on reasonable terms in order to pursue its and their business plans, by the success or failure of the business plans of its associated companies, by economic conditions generally and particularly in the developing e-commerce market, by competition and technological changes in its and its associated companies' industries and businesses, and by the results of its and its associated companies' operations if and when operating. The Company's assembly and other outsourcing business activities involve a limited number of facilities serving a limited number of customers, all of which are subject to material changes outside the Company's control. 11 12 PART II. OTHER INFORMATION ITEM 1. THROUGH ITEM 4. Not applicable. ITEM 5. OTHER INFORMATION. During March 2000, the Company began staffing the facility it will manage for American Quantum Cycles in the Wackenhut Corrections Corporation facility located in South Bay, Florida. Using a combination of free-world employees and prisoners the Company will perform the functions of fabricating, painting and polishing motorcycle parts. The Company will manage various aspects of the manufacturing process for American Quantum, while American Quantum will retain responsibility for monitoring quality control. Due to delays in the preparation of the facility, significant production activities under this agreement are not expected to commence during the fourth quarter of 2000, with the first phase consisting of the polishing of aluminum and stainless steel motorcycle parts. On July 31, 2000, the Company announced that it has decided to initiate efforts to divest its current prison-based outsourcing services business so that it may focus exclusively on its transformation into a distributive Internet operating company. On July 31, 2000, the Company announced that it entered into an Agreement in Principle to acquire On-Site Sourcing, Inc. ("On-Site"), a publicly held digital imaging, document and facilities management company. The proposed cost of the acquisition is approximately $35 million. The Company expects to enter into a definitive agreement regarding the acquisition of On-Site by September 2000. Once the Company has signed the definitive agreement, it expects to file the appropriate proxy statements and registration statement with the SEC, accordingly the transaction would be completed by December 30, 2000. The details of the purchase of On-Site have been reported by the Company in its Form 8-K filed on July 28, 2000. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits A list of exhibits included as part of this report is set forth in the Exhibit Index appearing elsewhere in this report, and is incorporated by reference. (b) Reports on form 8-K During the quarter for which this report is filed, Registrant filed a Current Report on form 8-K dated April 27, 2000, describing the Company's acquisition of E2E. During the quarter for which this report is filed, Registrant filed a Current Report on form 8-K dated May 11, 2000, describing the Company's acquisition of Buyline. EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 27.1 Financial Data Schedule, submitted to the Commission in electronic format 12 13 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 duly authorized officers. U.S. TECHNOLOGIES INC. (Registrant) Date: September 27, 2000 /s/ Gregory Earls -------------------------------- Gregory Earls Co-Chief Executive Officer Date: September 27, 2000 /s/ James V. Warren -------------------------------- James V. Warren Co-Chief Executive Officer 13 14 EXHIBIT INDEX Exhibit No. Description - ---------- ----------- 27.1 Financial Data Schedule (for SEC use only) 14 EX-27.1 2 g64390ex27-1.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 2000, UNAUDITED FINANCIAL STATEMENTS OF U.S. TECHNOLOGIES, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS IN FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1,160 0 629 206 282 1,897 1,951 1,402 21,389 4,617 0 21,389 0 597 (6,468) 21,389 1,190 1,190 1,303 1,303 1,152 0 5 (1,209) 0 (1,209) 0 0 0 (1,209) (0.04) (0.04)
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