-----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, CMfbmRIHwyxiOut7mn+V+7i+0L5tVB02l6YcxM9VpE6BCVK5AWlyhyvFwuYcS+IH EGYXHJhewiz9fZR6dEV6Zg== 0000950144-99-012977.txt : 19991115 0000950144-99-012977.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950144-99-012977 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S TECHNOLOGIES INC CENTRAL INDEX KEY: 0000810130 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 731284747 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15960 FILM NUMBER: 99751053 BUSINESS ADDRESS: STREET 1: 3901 ROSWELL ROAD SUITE 300 CITY: MARIETTA STATE: GA ZIP: 30062 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 1 U.S. TECHNOLOGIES, INC. 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, 1999 [ ] 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.) 2001 Pennsylvania Avenue, NW, Suite 675 Washington, DC 20006 (Address of principal executive offices.) Registrant's telephone number, including area code: (202) 466-2445 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, at November 8, 1999, was 28,795,278 shares. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: U.S. TECHNOLOGIES INC. CONSOLIDATED BALANCE SHEETS ASSETS
September 30, 1999 December 31, (Unaudited) 1998 ----------- ---- Current assets: Cash in bank $ 32,678 $ 110,140 Trade Accounts receivable, net of reserves of $48,648 at September 30, 1999 and $140,000 December 31, 1998 379,975 572,975 Inventories 316,691 585,855 Prepaid expenses 21,644 29,831 ----------- ----------- Total current assets 750,988 1,298,801 ----------- ----------- Property and equipment, net of accumulated depreciation of $1,300,396 and $1,208,991 at September 30, 1999 and December 31, 1998 626,937 499,749 ----------- ----------- Other assets: Net investment in and advances to subsidiary to be sold -- 524,558 Note receivable - USV Partners 48,502 -- Note receivable - sale of subsidiary 319,126 -- Other assets 5,350 44,425 ----------- ----------- Total other assets 372,978 568,983 ----------- ----------- Total assets $ 1,750,903 $ 2,367,533 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade $ 981,122 $ 844,173 Accrued expenses 380,136 626,937 Accrued severance expenses 78,774 124,469 Current portion of long-term debt and capital leases 17,066 16,050 ----------- ----------- Total current liabilities 1,457,098 1,611,629 ----------- ----------- Long-term debt and capital leases less current portion 30,086 31,862 ----------- ----------- Total liabilities 1,487,184 1,643,491 ----------- ----------- Stockholders' equity: Series A convertible preferred stock (net): $0.02 par value; 10,000,000 shares authorized; 500,000 subscribed, none issued or outstanding 5,000,000 3,648,682 Common stock; $.02 par value; 40,000,000 shares authorized; 29,195,278 issued and 28,795,278 shares outstanding 583,906 583,906 Additional paid-in capital 12,605,029 12,605,029 Accumulated deficit (17,547,327) (15,735,686) Stock receivable (150,205) (150,205) Treasury stock (227,684) (227,684) ----------- ----------- Total stockholders' equity 263,719 724,042 ----------- ----------- Total liabilities and stockholders' equity $ 1,750,903 $ 2,367,533 =========== ===========
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 Nine months ended September 30, ended September 30, --------------------- ---------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net Sales $ 600,232 $ 930,202 $ 3,290,986 $ 3,594,913 Operating costs and expenses: Cost of sales 670,910 784,741 3,913,843 2,575,846 Selling expense 4,314 31,397 29,994 97,799 General and administrative expense 130,560 518,883 956,890 1,369,544 Impairment of assets -- -- 416,834 -- Severance expenses -- -- 228,275 -- ----------- ----------- ----------- Total operating costs and expenses 805,784 1,335,021 5,545,836 4,043,189 ----------- ----------- ----------- ----------- Income (loss) from operations (205,552) (404,819) (2,254,850) (448,276) Other income (expense) Gain on sale of subsidiary -- -- 1,168,994 -- Other 8,669 99,547 (84,621) 218,222 Interest expense (2,411) (1,137) (38,334) (3,282) ----------- ----------- ----------- ----------- Total other income (expense) 6,258 98,410 1,046,039 214,940 ----------- ----------- ----------- ----------- Net earnings (loss) $ (199,294) $ (306,409) $(1,208,811) $ (233,336) Preferred dividend 111,705 -- 448,189 -- Accretive dividend -- -- 154,641 -- ----------- ----------- ----------- Net earnings (loss) available to common shareholders $ (310,999) $ (306,409) $(1,811,641) $ (233,336) =========== =========== =========== =========== Net earnings (loss) per share: Basic $ (0.01) $ (0.01) $ (0.06) $ (0.01) =========== =========== =========== =========== Diluted $ (0.01) $ (0.01) $ (0.06) $ (0.01) =========== =========== =========== =========== Shares used in per share calculation: Basic 28,795,278 29,085,061 28,795,278 29,037,069 =========== =========== =========== =========== Diluted 28,795,278 29,085,061 28,795,278 29,037,069 =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 U.S. Technologies Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months Ended September 30, ------------------------------- 1999 1998 ---- ---- Cash flows from operating activities: Net earnings (loss) $(1,208,811) $ (233,336) Adjustments to reconcile net earnings (loss) to net cash used in operating activities: Depreciation and amortization 91,405 87,097 Gain on sale of Subsidiary (1,168,994) Impairment of assets 416,834 Changes in certain assets and liabilities: Accounts receivable 193,000 (345,601) Inventories 269,164 (200,051) Prepaid expense 8,187 (195,419) Accounts payable 136,949 (175,488) Accrued expenses (292,496) (162,969) ----------- ----------- Net cash used in operating activities (1,554,762) (1,225,767) ----------- ----------- Investing activities: Equipment purchases (219,535) (304,380) Purchase common stock for treasury -- (155,849) Increase in notes receivable -- (840,917) Advances, net of deficit in operating results to subsidiary prior to sale (570,318) Proceeds from sale of subsidiary 876,000 Change in other assets 39,075 (51,127) ----------- ----------- Net cash provided by (used in) investing activities 125,222 (1,352,273) ----------- ----------- Financing activities: Proceeds from issuance of common stock -- 224,277 Proceeds from convertible preferred stock subscriptions 1,351,318 3,350,000 Proceeds from notes payable 28,628 23,174 Payments of notes payable (27,868) (26,015) ----------- ----------- Net cash provided by financing activities 1,352,078 3,571,436 ----------- ----------- (Decrease) increase in cash (77,462) 993,396 Cash, beginning of period 110,140 489 ----------- ----------- Cash, end of period $ 32,678 $ 993,885 =========== ===========
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. CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1998 Form 10-K as filed with the Securities and Exchange Commission. The results of operations for the periods presented are not necessarily indicative of the operating results for the full year. 2. EARNINGS 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 is based on the weighted average number of common shares outstanding during the period. Diluted earnings per share would include the dilutive effect of common stock equivalents. For the nine months ended September 30, 1999 and 1998, diluted earnings per share have not been presented because stock options and warrants which comprised common stock equivalents would have been anti-dilutive.
Per (Loss) Shares share (Numerator) (Denominator) amount ----------- ------------- ------ Nine months ended September 30, 1999: Net (loss) $ (1,811,641) 28,795,278 $ (0.06) Effect of dilutive potential common shares: Stock options -- -- Warrants -- -- ------------ ---------- Diluted earnings (loss) per share: Net earnings (loss) available to common shareholders $ (1,811,641) 28,795,278 $ (0.06) ============ ========== =======
5 6 2. EARNINGS PER SHARE (CONTINUED)
Per Earnings Shares share (Numerator) (Denominator) amount ----------- ------------- ------ Nine months ended September 30, 1998: Net loss $(233,336) 29,037,069 $ (0.01) Effect of dilutive potential common shares: Stock options -- -- Warrants -- -- --------- ---------- Diluted earnings per share: Net earnings available to common shareholders plus assumed conversions $(233,336) 29,037,069 $ (0.01) ========= ========== =======
3. INVENTORIES At September 30, 1999, and December 31, 1998, inventories consisted of the following:
1999 1998 ---- ---- Raw materials $ 195,991 $ 285,766 Work in progress 91,377 239,243 Finished Goods 29,323 60,846 ---------- ---------- $ 316,691 $ 585,855 ========== ==========
4. NOTE RECEIVABLE - SALE OF SUBSIDIARY The note receivable - sale of subsidiary at September 30, 1999, represents an obligation of the former President and CEO of the Company, Mr. Kenneth H. Smith. This obligation resulted from the purchase by Mr. Smith, in February 1999, of the Company's wholly-owned subsidiary, GWP, Inc. ("GWP"), and GWP's 51% interest in Technology Manufacturing & Design, Inc. ("TMD"). The total purchase price for GWP of approximately $2.64 million was paid with cash of approximately $876,000 and a promissory note from Mr. Smith in the amount of approximately $1.76 million. During the quarter ended June 30, 1999, Mr. Smith tendered 3,000,000 shares of the Company's common stock. The market value of these tendered shares, $1,050,000 was applied to Mr. Smith's promissory note to the Company. These shares were simultaneously purchased by USV Partners, LLC ("USV Partners") by creation of a note receivable from USV Partners in the amount of $1,050,000. During the quarter ended June 30, 1999, the Company recorded a reserve of $238,340 against the remaining value of the promissory note from Mr. Smith. The reserve was recorded to recognize an impairment in the value of the collateral securing the note, Mr. Smith's common stock representing his 51% ownership of TMD. The net carrying value of the note receivable from Mr. Smith was $319,126 as of September 30, 1999. 6 7 5. NOTE RECEIVABLE - USV PARTNERS The note receivable - USV Partners at September 30, 1999, represents an obligation of USV Partners to purchase all of the 3,000,000 shares of Mr. Smith's common stock, which was tendered in partial payment of his promissory note. During the quarter ended September 30, 1999, the note was reduced by amounts received from USV Partners. As of September 30, 1999, the net amount, including accrued interest, due to the Company from USV Partners was $48,502. Gregory Earls the President and Chief Executive Officer of the Company, is the sole member of USV Management, LLC, the manager of USV Partners. As of October 15, 1999 the note receivable - USV Partners has been fully satisfied. 6. CONVERTIBLE PREFERRED STOCK In July 1998, the Company entered into an investment agreement with USV Partners pursuant to which the Company is to issue 500,000 shares of Series A Convertible Preferred Stock ("Preferred Stock") and a warrant to purchase 500,000 shares of the Company's common stock. The aggregate purchase price of the Preferred Stock and warrants was $5 million. The Company has received the final payment from USV Partners in connection with the sale of the Preferred Stock. With the $5 million having now been invested, the Company will issue the Preferred Stock and warrants. The aggregate net proceeds, of approximately $4.9 million (after payment of associated legal and professional fees), have been used primarily for corporate purposes and working capital. Gregory Earls the President and Chief Executive Officer of the Company, is the sole member of USV Management, LLC, the manager of USV Partners. The Preferred Stock has a dividend rate of nine percent, payable annually on April 1, beginning retroactively in 1999. The dividend, at the discretion of the Board of Directors of the Company, was accrued and applied to the "Note Receivable - USV Partners" mentioned above, in the amount of $336,484, which represented the accumulated dividend due to USV Partners, through June 30, 1999. During the quarter ended September 30, 1999, an additional $111,705, representing the preferred dividend for that quarter, was accrued and applied to the "Note Receivable - USV Partners" mentioned above. The dividend rate will increase to 11% upon certain "triggering events", as defined, which are generally events of default. Shares of the Preferred Stock are convertible into shares of common stock from issuance through January 12, 2004. The preferred shares can be converted into that number of common stock shares determined by dividing the stated value of $10.00 per share plus accrued and unpaid dividends, by a conversion price of $.41 and multiplied by a Conversion Factor, as defined. The Conversion Factor is initially 1.00, as adjusted from time to time, so as not to dilute the number of shares of common stock that would be received upon conversion of the Preferred Stock. The Company is required to reserve 12.2 million shares of common stock for conversion of the Preferred Stock. The Company, at its option, may redeem the Preferred Stock in the event that the daily average closing price of the common stock is $2.50 or greater for 20 consecutive trading days. The redemption price is equal to the stated value of $10.00 per share plus accumulated and unpaid dividends. As long as at least 45% of the Preferred stock that was issued remains unconverted, the holders of the Preferred Stock have the right to elect at least one member and up to one-third of the members of the board of directors. The holders of Preferred Stock are also entitled to vote together as a single class with the holders of common stock on certain corporate matters submitted to a vote of stockholders. The holders of Preferred stock have one vote for each share of common stock that could then be acquired on conversion of the Preferred Stock. 7 8 6. CONVERTIBLE PREFERRED STOCK (continued) Upon any dissolution, liquidation or winding-up of the Company, before any payments are made to any holders of common stock or any other class or series of the Company's capital stock then outstanding, the holders of the Preferred Stock are entitled to receive an amount equal to the stated value of $10.00 per share of Preferred Stock plus accrued and unpaid dividends. There is no sinking fund in respect to the Preferred Stock. 7. 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. The four reportable segments are USXX (Washington, DC), LTI (Lockhart, Texas) ("LTI Lockhart), TMD (Georgetown, Texas) and LTI (Blythe, California) ("LTI Blythe"). USXX is the corporate office, LTI Lockhart is a prison-based manufacturer of computer circuit boards, TMD is a free-world manufacturer of computer circuit boards and LTI Blythe is a prison-based manufacturer of modular office furniture components. Segment amounts disclosed are prior to any elimination entries made in the consolidation. Summary information by segment as of and for the nine months ended September 30, 1999 and 1998 follow (in thousands):
LTI USXX Lockhart TMD (1) Blythe Other Total ---- -------- ------- ------ ----- ----- 1999 Net sales $ -- $ 1,529 $ 948 $ 777 $ 37 $ 3,291 Operating Profit (loss) (1,151) (723) (66) (201) (114) (2,255) Total Assets 2,958 620 -- 489 170 4,237 1998 Net sales $ -- $ 3,512 $ -- $ -- $ 83 $ 3,595 Operating Profit (loss) (874) 536 -- -- (110) (448) Total Assets 4,873 944 -- 205 311 6,333
(1) TMD was sold by the Company on February 12, 1999. The operating results include activity through that date. 8 9 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, 1998. General The Company is an "outsourcing company" soliciting manufacturing, assembly, repair, kitting and customer call center services from 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. The PIE Program has two primary objectives: To generate products and services that enable prisoners to make a contribution to society, help offset the cost of their incarceration, compensate crime victims, and provide inmate family support. To provide a means of reducing prison idleness, increasing inmate job skills, and improving the prospects for successful inmate transition to the community upon release. To serve its clients the Company has established U.S. Technologies Inc. as the parent organization to provide management and financial resources to its wholly owned operating subsidiaries. The operating subsidiaries are Labor-to-Industry Inc. ("LTI"), which operates the Company's manufacturing outsourcing operations, and Service-to-Industry Inc. ("STI"), formed in March 1998, which will operate the Company's service outsourcing operations. Each subsidiary negotiates an agreement with a prison under which facilities and participants are available to the Company. In January 1997, the Company was acquired by a group of individuals led by the Company's former Chairman and CEO, Mr. Kenneth H. Smith. As a part of the acquisition the preceding management and Board of Directors resigned. During 1997 a new management team was assembled, the Company's mission statement was revised, and the Company's operations were restructured. On February 12, 1999, concurrent with his purchase of GWP and GWP's 51% interest in TMD, Mr. Smith resigned his position as an officer and director of the Company. On and since that date Mr. Smith has tendered or forfeited all of his approximately 6.3 million shares of the Company's common stock in partial payment for his purchase of GWP. Mr. Smith was replaced as the Company's President and Chief Executive Officer by Gregory Earls. Mr. Earls is also President of USV Partners, the company that has entered into an agreement with the Company to purchase $5 million of the Company's preferred stock. Mr. Earls is working with the Company's management personnel to further reorganize the Company. 9 10 Results of Operations The following analysis compares the results of operations for the three-month and nine-month periods ended September 30, 1999 to the comparable periods ended September 30, 1998. Net sales during the three months ended September 30, 1999 were $600,232, compared to $930,202 during the three months ended September 30, 1998. The decrease in net sales in the amount of $ 329,970, was due to a decline in sales in the Company's LTI Lockhart facility, as a result of the reorganization of the facility. This reorganization includes 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 nine months ended September 30, 1999 were $3,290,986, compared to $3,594,913 during the nine months ended September 30, 1998. The decrease in net sales in the amount of $303,927, 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 nine-month period ended September 30, 1999, declined by $1,252,103, as a result of the reorganization mentioned above. In the three months ended September 30, 1999, cost of goods sold was $670,910, which represented 112% of net sales. During the three months ended September 30, 1998, cost of goods sold was $ 784,781, which represented 84% of net sales. The increase in cost of goods sold was a result inventory adjustments to reflect loss of certain customers and not reducing manufacturing payroll and fixed costs to match the decline in sales. In the nine months ended September 30, 1999, cost of goods sold was $3,913,843, which represented 119% of net sales. During the nine months ended September 30, 1998, cost of goods sold was $ 2,575,846, which represented 72% of net sales. The increase in cost of goods sold was a result inventory adjustments to reflect loss of certain customers and not reducing manufacturing payroll and fixed costs to match the decline in sales. Selling expenses during the three months ended September 30, 1999 were $4,314, representing 1% of net sales. During the three months ended September 30, 1998, selling expenses in the amount of $31,397 represented 3% of net sales. These expenses decreased primarily due to the decrease in sales revenue mentioned above. Selling expenses during the nine months ended September 30, 1999 were $29,994, representing 1% of net sales. During the nine months ended September 30, 1998, selling expenses in the amount of $97,799 represented 3% of net sales. These expenses decreased primarily due to the decrease in sales revenue mentioned above. General and administrative expenses during the three months ended September 30, 1999 were $130,560, which represented 22% of net sales. During the three months ended September 30, 1998, general and administrative expenses were $518,883 , which represented 56% of net sales. The decrease in general and administrative expenses is the result of the downsizing of the Company's corporate staff, which occurred in the quarter ended March 31, 1999. The downsizing resulted in the recognition of $228,275 in severance costs in the quarter ended March 31, 1999. General and administrative expenses during the nine months ended September 30, 1999 were $956,890, which represented 29% of net sales. During the nine months ended September 30, 1998, general and administrative expenses were $1,369,544, which represented 38% of net sales. Decreases in general and administrative staffing costs during the nine months ended September 30, 1999 were offset by legal and accounting expenses related to the reorganization and the write-off of certain costs associated with the proposed acquisition of Affordable Interior Systems. 10 11 During the nine months ended September 30, 1999, the Company recognized operating expenses of $416,834, due to the impairment of certain assets. The expenses consisted of a $238,340 reserve against collectability the note receivable - sale of subsidiary and a write off of $178,494 of goodwill which had been recognized as a result of purchasing certain production assets for the LTI Blythe facility at less than their fair value. There were no comparable charges during the nine months ended September 30, 1998. During the nine months ended September 30, 1999, the Company recognized $228,275, in severance costs related to the downsizing of the Company's corporate staff. There were no comparable charges during the nine months ended September 30, 1998. During the three months ended September 30, 1999, the Company had a net loss available to common shareholders of $(310,999) or $(0.01) per weighted-average share. During the three months ended September 30, 1998 the company reported a net loss available to common shareholders of $(306,409) or $(0.01) per weighted-average share. The loss for the three months ended September 30, 1999, includes a $111,705 dividend on the Company's convertible preferred stock. During the nine months ended September 30, 1999 the Company had net loss available to common shareholders of $(1,811,641) or $(0.06) per weighted-average share. During the nine months ended September 30, 1998, the Company reported a net loss of $(233,336) or $(0.01) per weighted-average share. The loss for the nine months ended September 30, 1999, includes a $448,189 dividend on the Company's convertible preferred stock and an accretive dividend of $154,641 as a result of completion of the subscription of the Company's convertible preferred stock. Liquidity and Capital Resources During the nine months ended September 30, 1999 and 1998, the Company experienced negative operating cash flows of $1,554,762 and $1,225,767 respectively. Negative operating cash flows in the nine months ended September 30, 1999 resulted principally from the operating loss incurred during that period and reductions in accrued expenses of $292,496, offset by a non-cash charge of $416,834 due to impairment of certain assets, reductions in inventories of $269,164 and reduction of $193,000 in accounts receivable. Negative operating cash flows in the nine months ended September 30, 1998 resulted primarily from an operating loss and increase in accounts receivable of $345,601, inventory of $200,051 and prepaid expenses of 195,419, attributable to increased sales volume. Net cash provided by investing activities of $125,222 during the nine months ended September 30, 1999, was primarily the result of cash advances to TMD offset by cash proceeds from the sale of TMD and equipment purchases of $219,535. Net cash used of $1,352,273 during the nine months ended September 30, 1998 was to purchase the 51% interest in TMD and to make equipment purchases. Net cash provided by financing activities of $1,352,078 during the nine months ended September 30, 1999 was primarily due to the receipt of net proceeds from the subscription of preferred stock. Net cash provided by financing activities of $3,571,436, during the nine months ended September 30, 1998 was primarily due to the receipt of net proceeds from the subscription of preferred stock and the issuance of common stock. 11 12 As identified by the above discussion and analysis, regardless of the impairment of assets charge, the Company did not produce a profit from operations in the quarter ended September 30, 1999. Management has initiated steps to further reorganize the Company, increase sales and reduce unnecessary costs. However, to return the Company to profitability will require additional working capital. To provide for this working capital, the Company is negotiating with private investors to raise $2 to $3 million through a convertible preferred stock subscription, similar to the $5 million convertible preferred stock subscription completed with USV Partners in the quarter ended June 30, 1999. While the Company is using its best efforts to complete the negotiations for this investment, a successful outcome can not be assured. Inflation Inflation has not had a material impact on the Company's operations. New Accounting Pronouncements None applicable. Year 2000 In 1999, the Company assessed its computer systems and those of its subsidiaries and determined that much of the software used for order entry, billing, inventory management, job costing and other accounting functions would either need to be upgraded or replaced in order to be year 2000 compliant. To date, the Company has incurred expenses of approximately $2,000 in connection with software upgrades. Although the Company is still in the process of determining the most cost-effective means of upgrading or replacing its remaining non-year 2000 compliant software, it anticipates that these additional expenses will not exceed $10,000. The Company estimates that all of its critical software will be year 2000 compliant before the end of the fourth quarter of 1999. Should the Company not be able to successfully convert its computer hardware and operating systems to be year 2000 compliant, the Company would be able to operate manually for some period of time without experiencing a significant negative impact on its operations. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 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, which statements can generally be identified by use of forward-looking terminology, such as "may," "will," "expect," "estimate," "anticipate," "believe," "target," "plan," "project," or "continue" or the negatives thereof or other variations thereon or similar terminology, and are made on the basis of management's plans and current analyses of the Company, its business and the industry as a whole. These forward-looking statements are subject to risks and uncertainties, including, but not limited to, economic conditions, competition, interest rate sensitivity and exposure to regulatory and legislative changes. The above factors, in some cases, have affected, and in the future could affect, the Company's financial performance and could cause actual results for 1999 and beyond to differ materially from those expressed or implied in such forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. 12 13 PART II. OTHER INFORMATION ITEM 1. THROUGH ITEM 4. Not applicable. ITEM 5. OTHER INFORMATION. On October 27, 1999, the Company entered into an agreement with Wackenhut Corrections Corporation and American Quantum Cycles under which modifications will be made to correctional facilities located in South Bay and Moore Haven, Florida for the purposes 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. Production activities under this agreement are expected to commence in December 1999, with the first phase consisting of the polishing of aluminum and stainless steel motorcycle parts. Effective November 6, 1999, the sole customer of the Company's LTI Blythe facility, cancelled their production contract. Currently the Company does not have other production work to locate in this facility. The Company is actively seeking other customers for the facility, however, the length of time the facility will remain idle cannot be estimated at this time. The out of pocket costs of keeping the facility open until additional customers can be located is less than $20,000 per month. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. The following exhibit is filed with this report:
Exhibit No. Description 27.1 Financial Data Schedule (for SEC use only)
During the quarter ended September 30, 1999, there were no reports filed on Form 8-K. 13 14 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 12, 1999 BY: /s/ Gregory Earls ----------------- Gregory Earls President and CEO 14 15 Exhibit Index
Exhibit No. Description - ----------- ----------- 27.1 Financial Data Schedule (for SEC use only)
15 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 1999, 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 SEPTEMBER 30, 1999. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 32,678 0 428,623 48,648 316,691 750,988 1,927,333 1,300,396 1,750,903 1,457,098 0 0 5,000,000 583,906 (5,320,187) 1,750,903 3,290,986 3,290,986 3,913,843 3,913,843 (1,084,373) 0 38,334 (1,811,641) 0 (1,811,641) 0 0 0 (1,811,641) (0.06) (0.06)
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