Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,
1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15960
U.S. Technologies Inc.
(Exact name of Registrant as specified in its charter.)
State of Delaware 73-1284747
(State of Incorporation) (I. R. S. Employer
Identification No.)
1402 Industrial Boulevard
Lockhart, Texas 78644
(Address of principal executive offices.)
Registrant's telephone number, including area code: (512)
376-1049
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant's
common stock, par value $0.02, at November 14, 1996,
was 21,257,263
2
U.S. TECHNOLOGIES INC.
Form 10-Q-For the Quarter Ended September 30, 1996
INDEX
Page No.
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Balance Sheets 4
Nine Months Ended September 30, 1996 (unaudited)
and December 31, 1995 (audited)
Consolidated Statements of Operations
Nine Months Ended September 30, 1996 and 1995 5
Consolidated Statements of Operations
Three Months Ended September 30, 1996 and 1995 6
Consolidated Statements of Changes in Stockholders'
Equity 7
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 8
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and results of Operations. 13
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings 16
Item 2. Changes in the Rights of the Company's Security
Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
3
PART I.
Item 1. Financial Statements.
4
U.S. Technologies Inc.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1996 1995
Current assets:
Cash in bank $ 15,405 $ 25,860
Accounts receivable - trade 207,183 168,717
Accounts receivable - other 90,275 79,894
Inventories 998,902 919,970
Prepaid expenses 15,824 6,022
Total current assets 1,327,589 1,200,463
Property and equipment - net 164,966 236,190
Other assets:
Investment - NCL 265,000 265,000
Investment - Gem stones 270,000 270,000
Investment - new technologies 1,651,718 1,351,272
Other assets 4,352 3,612
Total other assets 2,191,070 1,889,884
Total assets $3,683,625 $3,326,537
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 711,741 $ 254,658
Accrued expenses 727,148 371,659
Total current liabilities 1,438,889 626,317
Long-term liabilities:
Notes payable 595,119 840,435
Commitments and contingencies: (Note 3)
Stockholders' equity:
Common stock - $.02 par value; 40,000,000 shares
authorized; 21,257,263 and 15,875,963 shares
issued and outstanding at September 30, 1996
and December 31, 1995, respectively 425,146 317,520
Additional paid-in capital 10,903,596 9,887,485
Accumulated deficit (9,679,125) (8,345,220)
Total stockholders' equity 1,649,617 1,859,785
Total liabilities and stockholders' equity$3,683,625 $3,326,537
The accompanying notes are an integral part
of the consolidated financial statements.
4
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended September 30,
1996 1995
Net Sales $707,713$1,647,435
Operating costs and expenses:
Cost of sales 1,345,878 1,268,412
Research and development expense 135,279
Selling expense 128,614 137,906
General and administrative expense 501,988 1,263,670
Allowance for doubtful accounts 15,932 9,249
__________ _________
Total operating costs and expense 1,992,412 2,814,516
__________ _________
Income (loss) from operations (1,284,699)(1,167,081)
Other income (expense)
Other income 6,965 156,941
Interest expense (52,639) (80,709)
Other expense (3,532) (12,791)
Total other income (expense) (49,206) 63,441
Net income (loss) $ (1,333,905)$(1,103,640)
Earnings (loss) per common share
Net income (loss) $(0.08) $(0.08)
Cash dividends per common share $0.00 $0.00
Weighted-average common shares outstanding17,118,50814,701,504
The accompanying notes are an integral part
of the consolidated financial statements.
5
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended September 30,
1996 1995
Net Sales $296,004 $767,362
Operating costs and expenses:
Cost of sales 497,576 442,168
Research and development expense 63,548
Selling expense 18,863 62,950
General and administrative expense 195,078 171,929
Allowance for doubtful accounts 15,932
__________ _________
Total operating costs and expense 727,449 740,595
__________ _________
Income (loss) from operations (431,445) 26,767
Other income (expense)
Other income 1,840 497
Interest expense (5,595) (48,613)
Other expense (1,478) (12,145)
Total other income (expense) (5,233) (60,261)
Net income (loss) $ (436,678) $(33,494)
Earnings (loss) per common share
Net income (loss) $(0.02) $(0.00)
Cash dividends per common share $0.00 $0.00
Weighted-average common shares outstanding17,647,18115,357,716
The accompanying notes are an integral part
of the consolidated financial statements.
6
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
$0.01 Par Value
Common StockAdditional
Number of Par Paid-InAccumulated
Shares ValueCapital Deficit Total
Balance, December 31, 19934,077,029$81,541$6,315,872$(5,637,116)$760,297
Stock options exercised 171,606 3,432 125,718 129,150
Rule 144 stock issued 1,470,000 29,400 556,850 586,250
Stock exchanged for services951,00019,020685,381 704,401
Stock issued - gems 300,000 6,000 294,000 300,000
Net (loss) _________ ________________ (847,016) (847,016)
Balance December 31, 19946,969,635139,3937,977,821(6,484,132)1,633,082
Stock exchanged for services372,0007,440 198,083 205,523
Stock issued for new product 750,00015,000181,793 196,793
Stock issued for Newdat, Inc.
acquisition 7,053,728 141,0741,269,675 1,410,749
Stock options exercised 730,600 14,612 260,113 274,725
Net (loss) __________________________ (1,816,088) (1,816,088)
Balance, December 31, 199515,875,963317,5209,887,485(8,345,220)1,859,785
Stock issued for notes payable1,845,30036,906534,331 571,237
Stock issued for technology
acquisition 3,536,000 70,720 481,780 552,500
Net (loss) _________________ __________ (1,333,905) (1,333,905)
Balance, September 30, 199621,257,263$425,146$10,903,596$(9,679,125) $1,649,617
The accompanying notes are an integral part
of the consolidated financial statements.
7
U.S. Technologies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30,
1996 1995
Cash flows from operating activities:
Income (loss) from operations $(1,333,905)$(1,070,146)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 322,999 602,020
Excess of market over issue price
of Rule 144 stock 145,181
Record secured note received for previous
writedown of gems (156,436)
Changes in certain assets and liabilities - net of effects
of Newdat, Inc. acquisition:
Accounts receivable (48,847) (182,172)
Inventories (78,932) 67,975
Prepaid expense (9,802) 7,131
Accounts payable 457,083 106,617
Accrued expenses 355,489 118,378
________ ________
Net cash provided (used) by
operating activities (335,915) (361,645)
Cash flows from investing activities:
Equipment purchases (648)
Decrease in other assets (740) 6,980
Net cash used in investing activities (740) 6,332
Cash flows from financing activities:
Increase in notes payable 326,200 426,888
Proceeds from issuance of common stock 45,000
Principal payments on notes payable _______ (50,000)
Net cash provided by financing activities 326,200 421,888
Increase (decrease) in cash (10,455) 66,575
Cash, beginning of period 25,860 2,579
Cash, end of period $15,405 $69,154
The accompanying notes are an integral part
of the consolidated financial statements.
8
U.S. Technologies Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
U.S. Technologies Inc. furnishes administrative and
management services to its wholly owned subsidiaries. Lockhart
Technologies, Inc. ("LTI") and Newdat, Inc. LTI operations
consist of contract manufacturing, prototyping and repair of
printed circuit boards using surface mount, through-hole and
mixed technology. Newdat, Inc. and its 80% owned subsidiary
SensonCorp, Limited were acquired on January 23, 1995. U.S.
Technologies Inc., together with its subsidiaries, are
hereinafter referred to collectively as "the Company."
Principles of Consolidation
The consolidated financial statements include the accounts
of U.S. Technologies Inc., and its subsidiaries, all of which are
wholly owned, except for SensonCorp which the Company owns eighty
percent of the outstanding stock. All significant intercompany
transactions have been eliminated.
Presentation Basis
The Company's consolidated financial statements have been
presented on the basis that the Company is a going concern which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has
incurred significant losses during each of the four years
including the period ended December 31, 1995 and for the nine
months ended September 30, 1996.
The Company's continued existence is dependent upon its
ability to resolve its liquidity problems. While there is no
assurance that such problems can be resolved, the Company
believes there is a reasonable expectation of achieving that goal
through the cash generated from future operations, the
introduction of new products into the market and the sale of
additional common stock through private placement.
The interim financial statements are unaudited but, in the
opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been included.
Such adjustments consisted only of normal recurring items.
Interim results are not necessarily indicative of results for a
full year.
Inventories
Inventories are stated at the lower of cost or market
utilizing the average cost method for raw materials and work-in-
progress, and the first-in, first-out method for finished goods.
Property and Depreciation
9
Property and equipment are stated at cost less accumulated
depreciation. Expenditures for additions, renewals and
improvements of property and equipment are capitalized.
Expenditures for repairs, maintenance and gains or losses on
disposals are included in operations. Depreciation is computed
using the straight-line method over the following estimated
lives:
Estimated Lives
Equipment 5-7 years
Furniture and fixtures 7 years
Vehicles 3 years
Leasehold Improvementsterm of building lease
Earnings per Share
Net loss per common share is based on the weighted average
number of common shares and common share equivalents outstanding
in each period. The shares reserved for stock options and
warrants are anti-dilutive for the purpose of determining net
income or loss per share.
10
Recent Pronouncements
The Company adopted the Statement of Position number 94-6
"disclosure of Certain Significant Risks and Uncertainties"
during the year ended December 31, 1995, which requires
disclosure of risks and uncertainties that could significantly
affect the amounts reported in the financial statements or the
near-term functioning of the Company and communicate to financial
statement users the inherent limitations in financial statements.
Revenue Recognition
Revenue is recognized from sales of products when the
product is shipped.
New Technologies
Acquired technologies are being amortized over a 60 month
period.
2. ACCOUNTS RECEIVABLE
The Company has the policy of offering customers a 2%
discount for payment of invoiced amounts within 10 days of the
invoice date. Accounts receivable - trade at September 30, 1996
and December 31, 1995, is net of an allowance for doubtful
accounts in the amount of $29,485, and $59,059, respectively.
3. COMMITMENTS AND CONTINGENCIES
LTI's operations are located in a minimum security prison
facility under a lease agreement with Wackenhut Corrections
Corporation, The Texas Department of Criminal Justice, Division
of Pardons and Paroles and the City of Lockhart, Texas, to lease
approximately 27,800 square feet of manufacturing and office
space under an operating lease through January 31, 1997 and
provides for automatic three year extensions unless notification
is given by either party at least six months prior to the
expiration of each term. LTI has been notified by Wackenhut that
it wishes to renegotiate its lease arrangement prior to January
31, 1997, because LTI has not been able to meets its employment
requirements pertaining to the number of residents employed.
This could mean that LTI would be forced to give of some of the
floor space with it presently has, or that LTI will be limited to
the number of residents available for future employment, or
possibly be asked to withdraw from the facility and program. The
Company presently believes that the net result of the
negotiations will be that LTI may be forced to give up some of
its current space. Wackenhut Corrections Corporation is not an
affiliated party.
On March 22, 1995, the Company was served with a citation in
TTI Testron, Inc. vs. American Microelectronics, Inc. and
Lockhart Technologies, Inc., County Court at Law No. 1, Travis
County, Texas, Cause No. 221,094. The petition alleges that
Lockhart Technologies, Inc. received the assets of American
Microelectronics Inc. without consideration. The action seeks
11
damages of $11,527. The Company believes the claim is without
merit.
On January 24, 1995, an action styled SensonCorp Systems,
Inc., SensonCorp Pacific, SensonCorp Southeast, SensonCorp West,
Creative Media Resources vs. SensonCorp Limited, William Meehan,
Dugald Allen, John Allen, DOES 1 through 50, in the United States
District Court Northern District of California, Cause No. C-95-
00282. The action seeks equitable relief and damages for breach
of contract, breach of implied warranty of good faith and fair
dealing, common law fraud, negligent misrepresentation, unfair
competition, interference with contract, accounting,
receiver/attachment, and theft of trade secrets. The causes of
action are related to a marketing agreement between Senson and
the plaintiffs. Defendant John Allen is the Chairman of the
Board of the Company. Dugald Allen is John Allen's son and was
Vice President of operations for Senson at the time. Mr. Meehan
is President of U.S. Technologies Inc., and was a founding member
of SensonCorp Limited. The suit does not specify the dollar
amount of damages sought. The plaintiff's were denied most of
the equitable relief they sought, but obtained a temporary
injunction requiring Senson to continue selling them certain
products on Senson's usual and customary terms. This ceased when
Senson subsequently cancelled the agreement on "Without Cause"
grounds in May 1995. The Company formally sought to participate
in arbitration during April 1996 and is awaiting a date for the
arbitration to be heard. The Company strongly believes that the
plaintiffs claims are without merit and that SensonCorp, Limited.
and the other defendants will prevail.
On July 16, 1995, the Company was served with a citation in
Elpac Electronics vs. U.S. Technologies Inc., in the 53rd
District Court of Travis County, Texas. The petition alleges
that the Company is liable for certain debts of a former
subsidiary, American Microelectronics, Inc. ("AMI") on the basis
of fraudulent transfer of assets from AMI to the Company. The
petition seeks $101,461 in damages plus $35,000 in attorney's
fees, interest and costs. The Company believes the complaint is
without merit.
On July 16, 1995, the Company was served with a citation in
Evins Personnel Consultants vs. U.S. Technologies Inc., County
Court at Law No. 1 of Travis County, Texas. The petition alleges
that the Company is liable for certain debts of a former
subsidiary, American Microelectronics, Inc. ("AMI") on the theory
that the Company was doing business as AMI. The petition seeks
$40,818 in damages plus $13,500 in attorney's fees, interest and
costs. The Company believes that the complaint is without merit.
On July 16, 1995, the Company was served with a citation in
Texas Industrial Svcs. vs. U.S. Technologies Inc., in County
Court at Law No. 2 Travis County, Texas. The petition alleges
that the Company is liable for certain debts of a former
subsidiary, American Microelectronics, Inc. ("AMI") on the theory
12
the Company is doing business as AMI. The petition seeks $24,482
in damages plus $8,000 in attorney's fees, interest and costs.
The Company believes that the complaint is without merit.
There were several lawsuits outstanding against AMI and
Republic at the time they were sold. AMI and Republic are
separate corporations, incorporated under the laws of the State
of Texas. Therefore, the Company believes it has no liability
arising out of or in connection with any lawsuits against AMI or
Republic.
The previous Board of Directors guaranteed severance pay to
four individuals in the event of any merger or acquisition by the
Company. In such event the company guaranteed severance pay of
four months each to Ryan Corley and Jack Bryant, who served as
directors of the Company until October 30, 1995, if their
employment with the Company is terminated voluntarily or
involuntarily for any reason (with or without cause) within six
months following the closing of any acquisition or merger. The
new Board of Directors has reversed the decision on severance pay
on the grounds that it was not in the best interest of the
shareholders.
4. SHAREHOLDERS EQUITY
On August 7, 1996, the Company acquired an 85% ownership
interest in the QuakeAlarm technology from Komen Holdings Pty.
Ltd., a New South Wales Holding Company. This technology, which
has been developed and prototyped, is a fully integrated early
warning earthquake alarm that can detect first signs of an
imminent earthquake. The QuakeAlarm can alert the user before
humans begin to feel the earthquake by sensing the quake's "P"
(primary) wave, which precedes the "S" (shock) waves which cause
the damage. The purchase of the majority ownership gives the
Company the exclusive manufacturing and marketing rights to the
product worldwide. The consideration in the amount of $552,500
given by the Company for this product was paid by the issuance of
3,536,000 shares of the Company's common stock. The Company
plans to commence production of the QuakeAlarm immediately and
market this product through several marketing representatives
worldwide.
On July 15, 1996, the Company exchanged 624,000 shares of
its Common stock in exchange for the retirement of a note in the
amount of $156,000 it had with Carlton Technologies & Services
Ltd.
On March 8, 1996, the Company exchanged 1,221,300 shares of
its Common stock in exchange for the retirement of a note in the
amount of $397,212 and $18,025 in accrued and unpaid interest it
had with Carlton Technologies & Services Ltd.
On January 23, 1995, the Company acquired all of the
outstanding capital stock of Newdat, Inc., in exchange for
13
7,053,728 shares of the Company's common stock. As a result of
the acquisition, the Company has available two new products which
will go into production as funds become available, and an 80%
interest in another company which is marketing a line of
environmentally friendly chemical coatings for which the
technology is owned by a major Australian chemical company.
The acquisition was accounted for by the purchase method of
accounting, and accordingly, the purchase price has been
allocated to assets acquired and liabilities assumed based on
their fair market value at the date of acquisition. The excess
of purchase price over the fair values of net assets acquired has
been recorded as goodwill. The fair values of these assets and
liabilities are summarized as follows:
Cash $ 2,846
Accounts receivable 11,243
Inventory 165,981
Property and equipment 4,578
Purchased technologies 1,140,000
Goodwill 849,065
Accounts payable and accrued expenses(33,720)
Notes payable (729,243)
$1,410,750
Included in the purchased technologies is $300,000 of
technologies for a tape storage device that is still in the
development stage. That amount was charged to expense during the
quarter ended March 31, 1995.
5. INCOME TAXES
At December 31, 1995, the Company has available for federal
income tax purposes unused operating losses which may provide
future tax benefits expiring as follows:
Year of Expiration Net Operating Loss
2003 $1,383,000
2005 390,000
2006 165,000
2007 147,000
2008 2,291,000
2009 836,000
2010 1,323,470
$6,535,470
6. NASDAQ MARKET LISTING
On September 6, 1996, the Common Stock was deleted from the
Nasdaq SmallCap Stock Market. The Company's Common Stock was
deleted because the Common Stock was trading at $.125 per share,
which was below the required minimum bid price of $1.00 per
share. Although, the Company did meet the alternative minimum
bid price test requirement of $2,000,000 in capital and surplus
14
and $1,000,000 in market value of public float the Nasdaq Listing
Qualifications Panel was of the opinion that the Company's plan
to ensure long term compliance did not convince them that the
Company would be able to continue meeting the minimum
requirements. The Common Stock is presently trading on the OTC
Bulletin Board.
15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
Working capital decreased by $404,373 to $(169,773) at June
30, 1996, from $574,146 at December 31, 1995. As of September
30, 1996, the Company has no unused lines of credit available
under bank credit agreements. The Company's consolidated
financial statements have been presented on the basis that the
Company is a going concern which contemplates the realization of
assets and the satisfaction of liabilities in the normal course
of business. The Company's continued existence is dependent upon
its ability to resolve its previous liquidity problems,
principally from profitable operations, by increasing its level
of sales, operating more efficiently and obtaining lines of
credit, long-term debt or equity financing. To help the Company
overcome its liquidity and operational problems, the Company has
done the following:
A. On January 23, 1995, the Company acquired Newdat,
Inc. of Arizona, including an 80% ownership in
SensonCorp Ltd. (a manufacturer and distributor of
environmentally friendly corrosion inhibition
products), With this acquisition, the Company believed
that it has acquired a greater range of talent for both
its traditional electronics business and its newly
acquired activities. The Company previously predicted
to break even in the quarter ending September 30, 1995,
and to show a profit in the fourth quarter of 1995.
however, a general decline in the electronic contract
manufacturing directly affected first quarter sales and
denied the Company profitable results for the third and
fourth quarters of 1995 and first quarter 1996. The
first and second quarters of 1996, while quite the
Company booked as many new orders during august for
production for the remainder of 1996.
B. The Company recruited new management and
operations staff in the second half of 1995.
C. The Company is implementing a plan expected to
increase the traditional business at the Lockhart
facility from less than $100,000 a month to
approximately $700,000 per month over the period
through December 1997. To enable the Company to
achieve this goal, the permanent sales force is to be
expanded from 2 to 4 persons in order to adequately
cover the Texas and surrounding markets. Further sales
force expansion will take place if sales objectives so
demand.
D. The 80% equity ownership in SensonCorp Inc. is
expected to contribute to the profitability of the
13
Company by mid 1997. The Company has designed a range
of retail products to complement its industrial range,
and will launch thses coinciding with receipt of
projected funds forecast in early 1997.
E. The Company participated in the development and
prototyping of an earthquake warning device over the
past twelve months and has now commenced production of
the devices. The product is priced to sell into the
consumer market and the Company expects to receive
revenues from its participation both from North America
and from export markets.
The Company has undertaken more turnkey business i.e.
contracts for the supply of finished products where it purchases
electronic components, builds the products, and supplies the OEM
with a completed product. This has meant greater purchase
requirements of inventory, however, the inventory is purchased
specifically for designated jobs and held for only a short
period. Turnkey opportunities are far greater than labor-only
work, and LTI has acquired a wider range of customers.
LTI announced on November 8, 1996, that it had signed a 3
year contract with an Austin based company for the assembly,
testing and distribution of an Apple clone PC. The contract is
expected to absorb about 20% of LTI's capacity in 1997 and 30% in
1998 according to the OEM's sales projections.
The Company and its subsidiaries have a number of vendor
accounts payable on which the aging is over sixty days since date
of invoice. The Company is attempting to work out extended
payment plans with many of its vendors to meet its obligations.
Should these attempts be unsuccessful, some of the vendors may
seek other methods of collection on amounts due them such as
employing collection agencies or litigation to collect amounts
due them. Any of these actions could have a significant impact
on its current cash flow or operations.
Another source of future working capital may be the 660,000
outstanding Redeemable Warrants issued in connection with the
Company's initial public offering together with the 60,000
underwriter Warrants. The Warrants, which were to expire on
December 31, 1992, which have been extended several times until
December 31, 1996, are executable at $10.00 per Warrant. If
exercised could generate, after offering expenses, approximately
$6,393,000. Management is evaluating alternative sources of
capital as there is no assurance the Common Stock trading in the
public market will ever trade at the required closing bid price
for the specified amount of time to enable the exercise of the
Redeemable Warrants.
Results of Operations - Quarter Ended June 30, 1996
14
During the three month and nine month periods ended
September 30, 1996, the Company had a net loss from operations of
$436,676 and $1,333,905 or $(0.02) and $(0.08) per weighted-
average share, on net sales of $296,004 and $707,713 as compared
to net losses of $33,494 and $1,103,640 or $(0.00) and $(0.08)
per weighted average share, on net sales of $767,362 and
$1,647,435 for the comparable periods in 1995. Net sales
decreased approximately 61.4% for the three month period and
decreased approximately 57.0% for the nine month period ended
September 30, 1996, over the comparable periods in 1995. For the
three month and nine month period ended September 30, 1996, LTI
accounted for approximately 99% of the total sales.
Gross margins for the three month and nine month periods
ended September 30, 1996, was (168.1)% and (190.2)%. For the
comparable periods in 1995, gross margins for the three month
period was (57.61)% and (77.0)%. The decrease in gross margins
for the three month and nine month periods ended September 30,
1996, compared to the same periods in 1995 was due primarily the
decrease in LTI's sales to a level which would cover would not
cover all of the fixed overhead. The Company presently is
attempting to increase its sales volume by adding additional
sales personnel and contacting potential outside sales
representatives along with seeking additional lines of work which
has resulted in generating approximately $1,150,000 in bookings
of work to be shipped prior to March 31, 1997
Selling expenses represented approximately 6.4% and 18.2% of
sales during the three month and nine month periods ended
September 30, 1996, compared to 8.2% and 8.4% for the comparable
periods in 1995. The increase in sales expense for 1996 was
primarily the result of the decreased volume of sales for the
three months and nine months ended September 30, 1996 over which
to allocate base salary commitment to salespersons marketing the
Company's products. Additionally, during the first four months
of 1996 salaries were paid for three sales personnel attempting
to develop sales of the Senson products which were not employed
during the comparable periods in 1995.
Administrative expenses for the three month and nine month
periods ended September 30, 1996, was 65.9% and 70.9% of sales as
compared to 22.4% and 76.7% for the comparable periods in 1995.
The percentage decrease for the nine months ended September 30,
1995.
For the nine month period ended September 30 1995, the
Company expended approximately $135,279 for research and
development of unannounced products being developed by NewDat,
Inc. No expenditures were incurred for research and development
during the nine month period ended September 30, 1996.
Although the Company anticipates that there will be an
increases in demand for its products and services, its capacity
to meet these demands are presently limited by the availability
15
of funds to do further turn key work and the lack of established
credit lines with suppliers of components. The Company is
presently seeking additional working capital and working to
establish new and additional credit lines with suppliers. It has
been fairly successful during the third quarter 1996 expanding
its credit lines.
The Company does not anticipate that inflationary trends
will have a material impact on its results of operations because
of the short-term nature of its contracts.
16
Part II
Item 1. Legal Proceedings.
LTI's operations are located in a minimum security prison
facility under a lease agreement with Wackenhut Corrections
Corporation, The Texas Department of Criminal Justice, Division
of Pardons and Paroles and the City of Lockhart, Texas, to lease
approximately 27,800 square feet of manufacturing and office
space under an operating lease through January 31, 1997 and
provides for automatic three year extensions unless notification
is given by either party at least six months prior to the
expiration of each term. LTI has been notified by Wackenhut that
it wishes to renegotiate its lease arrangement prior to January
31, 1997, because LTI has not been able to meets its employment
requirements pertaining to the number of residents employed.
This could mean that Lti would be forced to give up some of the
floor space with it presently has, or that LTI will be limited to
the number of residents available for future employment, or
possibly be asked to withdraw from the facility and program. The
Company presently believes that the net result of the
negotiations will be that LTI may be forced to give up some of
its current space. Wackenhut Corrections Corporation is not an
affiliated party.
On March 22, 1995, the Company was served with a citation in
TTI Testron, Inc. vs. American Microelectronics, Inc. and
Lockhart Technologies, Inc., County Court at Law No. 1, Travis
County, Texas, Cause No. 221,094. The petition alleges that
Lockhart Technologies, Inc. received the assets of American
Microelectronics Inc. without consideration. The action seeks
damages of $11,527. The Company believes the claim is without
merit.
On January 24, 1995, an action styled SensonCorp Systems,
Inc., SensonCorp Pacific, SensonCorp Southeast, SensonCorp West,
Creative Media Resources vs. SensonCorp Limited, William Meehan,
Dugald Allen, John Allen, DOES 1 through 50, in the United States
District Court Northern District of California, Cause No. C-95-
00282. The action seeks equitable relief and damages for breach
of contract, breach of implied warranty of good faith and fair
dealing, common law fraud, negligent misrepresentation, unfair
competition, interference with contract, accounting,
receiver/attachment, and theft of trade secrets. The causes of
action are related to a marketing agreement between Senson and
the plaintiffs. Defendant John Allen is the Chairman of the
Board of the Company. Dugald Allen is John Allen's son and was
Vice President of operations for Senson at the time. Mr. Meehan
is President of U.S. Technologies Inc., and was a founding member
of SensonCorp Limited. The suit does not specify the dollar
amount of damages sought. The plaintiff's were denied most of
the equitable relief they sought, but obtained a temporary
injunction requiring Senson to continue selling them certain
products on Senson's usual and customary terms. This ceased when
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Senson subsequently cancelled the agreement on "Without Cause"
grounds in May 1995. The Company formally sought to participate
in arbitration during April 1996 and is awaiting a date for the
arbitration to be hear. The Company strongly believes that the
plaintiffs claims are without merit and that SensonCorp, Limited.
and the other defendants will prevail.
On July 16, 1995, the Company was served with a citation in
Elpac Electronics vs. U.S. Technologies Inc., in the 53rd
District Court of Travis County, Texas. The petition alleges
that the Company is liable for certain debts of a former
subsidiary, American Microelectronics, Inc. ("AMI") on the basis
of fraudulent transfer of assets from AMI to the Company. The
petition seeks $101,461 in damages plus $35,000 in attorney's
fees, interest and costs. The Company believes the complaint is
without merit.
On July 16, 1995, the Company was served with a citation in
Evins Personnel Consultants vs. U.S. Technologies Inc., County
Court at Law No. 1 of Travis County, Texas. The petition alleges
that the Company is liable for certain debts of a former
subsidiary, American Microelectronics, Inc. ("AMI") on the theory
that the Company was doing business as AMI. The petition seeks
$40,818 in damages plus $13,500 in attorney's fees, interest and
costs. The Company believes that the complaint is without merit.
On July 16, 1995, the Company was served with a citation in
Texas Industrial Svcs. vs. U.S. Technologies Inc., in County
Court at Law No. 2 Travis County, Texas. The petition alleges
that the Company is liable for certain debts of a former
subsidiary, American Microelectronics, Inc. ("AMI") on the theory
the Company is doing business as AMI. The Petition seeks $24,482
in damages plus $8,000 in attorney's fees, interest and costs.
The Company believes that the complaint is without merit.
On July 15, 1996, LTI was served with a citation in Gentron
Corporation vs Lockhart Technologies, Inc. in superior court in
and for the County of Maricopa, Arizona. The petition seeks
payment of certain sums of money totaling $7,588 plus attorney's
fees and court costs. The Company believes that it will be
liable for the amount of the claim.
The Company and its subsidiaries have a number of vendor
accounts payable on which the aging is over sixty days since date
of invoice. The Company is attempting to work out extended
payment plans with many of its vendors to meet its obligations.
Should these attempts be unsuccessful, some of the vendors may
seek other methods of collection on amounts due them such as
employing collection agencies or litigation to collect amounts
due them. Any of these actions could have a significant impact
on its current cash flow or operations.
There were several lawsuits outstanding against AMI and
Republic at the time they were sold. AMI and Republic are
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separate corporations, incorporated under the laws of the State
of Texas. Therefore, the Company believes it has no liability
arising out of or in connection with any lawsuits against AMI or
Republic.
The Company's Board of Directors guaranteed severance pay to
four individuals, including themselves, in the event of any
merger or acquisition by the Company. In such event the Company
guaranteed severance pay of four months each to the then Chairman
Ryan Corley and the then Director Jack Bryant; and two months
each for Leonard Hilt and Neil Ginther., if their employment with
the Company or any subsidiary was terminated voluntarily or
involuntarily for any reason (with or without cause) within six
months following the closing of any acquisition or merger. The
same conditions applied if any of the parties resigned before the
designated date. Mr. Ginther resigned from the Company during
February 1995 and Mr. Corley and Mr. Bryant resigned from the
Company during July 1995. Mr. Ginther has stated that he did not
wish to claim the severance, while Messers Corley and Bryant have
requested payment. The present Board of Directors question the
legality of this form of compensation and obtained a legal
opinion. The present Board of Directors has subsequently
reversed the earlier decision on the basis that it was not in the
best interest of the Shareholders of the Company. The questioned
severance pay of $46,000 has not been recorded in the financial
statements due to the uncertainty.
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Item 2. Changes in the Rights of the Company's Security Holders
No changes in the rights of the Company's security holders
occurred during the period covered by this Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders
No maters were submitted to shareholders to vote on during
this quarter.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 27 - Financial Data Schedule is filed with this
report.
No reportable items were filed on a Form 8-K for the period
covered during this quarter.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
U.S. TECHNOLOGIES INC.
DATE: November 19, 1996 BY: s/William Meehan_____
WILLIAM MEEHAN,
President
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
U.S. TECHNOLOGIES INC.
DATE: November 19, 1996 BY:
______________________
WILLIAM MEEHAN,
President
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