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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
--------------
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
[ ] 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 [X] No [ ]
The number of shares outstanding of the Registrant's common stock, par value
$0.02, as of June 30, 2001 was 29,610,786 shares.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
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U.S. TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2001 2000
----------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents $33,188,905 $ 6,110
Trade accounts receivable, net of reserves of $194,000
at March 31, 2001 and $158,000 at December 31, 2000 1,075,172 401,253
Inventories, net of reserves of $80,000 130,719 169,834
Due from sale of assets 500,000 --
Refundable deposits 446,093
Prepaid expenses 563,174 81,848
----------- ----------
Total current assets 35,904,063 659,045
Property and equipment, net of accumulated depreciation
of $1,508,145 and $1,473,512 at March 31, 2001 and
December 31, 2000 1,056,909 656,820
Investments in affiliates 5,027,790 3,434,217
Other assets:
Notes receivable 254,299 90,000
Other assets 333,194 450
----------- ----------
Total other assets 587,493 90,450
----------- ----------
Total assets $42,576,255 $4,840,532
=========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
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U.S. TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
2001 2000
------------ ------------
(Unaudited)
Current liabilities:
Accounts payable 1,750,947 1,715,586
Accrued expenses 1,832,438 290,985
Obligation under put option assumed in conjunction with
E2E acquisition 2,000,010 2,000,010
Due to Yazam shareholders 5,568,884 --
Line of credit 200,456 197,392
Notes payable $ 22,895,572 $ 685,861
------------ ------------
Total current liabilities 34,248,307 4,889,834
------------ ------------
Series F redeemable convertible preferred stock:
$0.02 par value, votes as if converted to common
stock on certain issues, 27,374 shares authorized
issued and outstanding 7,713,790 --
Shareholders' equity:
Common stock; $.02 par value; 40,000,000 shares
authorized; 29,610,786 issued and outstanding
at March 31, 2001 and December 31, 2000 592,216 592,216
Series A convertible preferred stock:
$0.02 par value, votes as if converted to common stock,
10,000,000 shares authorized;625,000 issued and
outstanding 6,250,000 6,250,000
Series B mandatorily convertible preferred stock:
$0.02 par value, votes as if converted to common
stock on certain issues, 112,000 shares authorized,
issued and outstanding 11,200,000 11,200,000
Series C mandatorily convertible preferred stock:
$0.02 par value, votes as if converted to common stock
on certain issues, 8,750 shares authorized; 4,534 shares
issued and outstanding 4,337,914 4,337,914
Series D mandatorily convertible preferred stock:
$0.02 par value, votes as if converted to common
stock on certain issues, 2,000 shares authorized;
1,552.5 shares issued and outstanding 170,775 170,775
Series E convertible preferred stock: issuable 1,788,500 1,199,200
Additional paid-in capital 34,501,965 27,601,507
Accumulated deficit (58,227,212) (51,400,914)
------------ ------------
Total shareholders' equity 614,158 (49,302)
------------ ------------
Total liabilities and shareholders' equity $ 42,576,255 $ 4,840,532
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
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U.S. TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months
ended March 31,
---------------------------------
2001 2000
------------ ------------
Net Sales $ 602,607 $ 476,526
Operating costs and expenses:
Cost of sales 606,240 627,277
Selling expense 19,694 15,923
General and administrative expense 592,631 210,999
------------ ------------
Total operating costs and expenses 1,218,565 854,199
------------ ------------
(Loss) from operations (615,958) (377,673)
Other (income) expense
Interest, net 90,618 (3,254)
Other, net (495) (13,743)
Equity in loss of investees 97,937 --
------------ ------------
Total other (income) expense 188,060 (16,997)
------------ ------------
Net loss $ (804,018) $ ( 360,676)
Deemed dividend 6,022,280 --
------------ ------------
Net loss applicable to common shareholders $ (6,826,298) $ (360,676)
============ ============
Net loss per share:
Basic $ (0.23) $ (0.01)
============ ============
Diluted $ (0.23) $ (0.01)
============ ============
Shares used in per share calculation:
Basic 29,610,786 28,924,838
============ ============
Diluted 29,610,786 28,924,838
============ ============
The accompanying notes are an integral part
of the consolidated financial statements.
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U.S. TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months Ended March 31,
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (804,018) $ (360,676)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization 34,634 31,750
Equity in losses of investees 97,937 --
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable 7,879 (128,712)
Inventories 39,115 (24,215)
Prepaid expense (26,887) (237,069)
Accounts payable (863,535) (36,146)
Accrued expenses 424,183 81,679
Due to Yazam shareholders 5,568,884 --
------------ ------------
Net cash provided by (used in) operating activities 4,478,192 (673,389)
------------ ------------
Cash flows from investing activities:
Net cash acquired in acquisitions 6,113,165 --
Investments in affiliates (164,299) (414,730)
Equipment purchases (38,838) --
Change in other assets (7,500) 22,749
------------ ------------
Net cash provided by (used in) investing activities 5,902,528 (391,981)
Cash flows from financing activities:
Proceeds from the issuance of notes payable 22,319,451 --
Payments of notes payable (109,740) (12,437)
Net borrowings under line of credit 3,064 --
Proceeds from exercise of stock
options and warrants -- 202,813
Proceeds from convertible preferred stock 589,300 2,742,928
------------ ------------
Net cash provided by financing activities 22,802,075 2,933,304
------------ ------------
Net cash provided 33,182,795 1,867,934
Cash and cash equivalents, beginning of period 6,110 9,451
------------ ------------
Cash and cash equivalents, end of period $ 33,188,905 $ 1,877,385
============ ============
Supplemental disclosures of cash flow information:
Supplemental schedule of non-cash investing activities
On March 27, 2001, the Company paid $22,000,000, exchanged 27,374 shares of
Series F mandatorily convertible preferred stock and granted 8,000,000 warrants
for all of the outstanding shares of Yazam.net as described more fully in Note
4. In conjunction with the acquisition, net cash was acquired as follows as
follows:
Fair value of assets acquired $ 33,008,049
Cash paid (16,831,000)
Non-cash assets acquired (4,495,000)
Due to Yazam shareholders (5,568,884)
-------------
Net cash acquired in acquisition $ 6,113,165
=============
The accompanying notes are an integral part
of the consolidated financial statements.
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U.S. TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(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 the financial
position of the Company as of March 31, 2001 and the results of operations and
cash flows for the three months ended March 31, 2001. 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, 2000.
The basis for presentation for investments the Company acquires is accounted for
under one of 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. GOING CONCERN
The Company's consolidated financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
Company incurred significant losses during each of the three years in the
period ended December 31, 2000, and had working capital deficiencies at
December 31, 2000 and 1999. These circumstances raise substantial doubt about
the Company's ability to continue as a going concern.
On March 27, 2001, the Company acquired Yazam.com Inc. ("Yazam"). As a result of
the acquisition of Yazam, the Company obtained approximately $6,900,000 in cash,
incurred approximately $800,000 in closing costs and assumed liabilities of
approximately $2,800,000, which will be used to support the Company's working
capital and investing requirements during 2001. In addition to the acquisition
cost for Yazam, the Company plans to selectively invest additional funds in
those acquired companies of Yazam which are deemed to have the most potential to
achieve their strategic business objectives. Any return may be realized through
future cash flows from the acquired companies or through the sale of the
acquired companies, once their business operations are properly developed.
If prior to September 1, 2001, the Company is unable to issue sufficient shares
of its common stock to allow the conversion of the Series F Preferred Stock and
the exercise of the warrants issued to the former Yazam shareholders, these
former Yazam shareholders have the right to require the Company to repurchase
their Series F Preferred Stock for a price equal to the greater of $250 per
share or the average price of USXX's common stock for 20 days prior to the
required repurchase multiplied by 1,000. The minimum amount that the Company
would need to pay to the former Yazam stockholders should this repurchase be
required is approximately $6,844,000. The Company has subsequently entered into
transactions with certain holders of the Series F Preferred Stock modifying
their respective rights.
The Company's sources of funds to pursue these acquisition opportunities and
provide working capital will come from equity transactions involving the sale of
the Company's convertible preferred stock. The Company's ability to attract
investors to its equity offerings and to support its business objectives is
dependent upon its ability to generate positive earnings (through increasing
revenues and controlling costs at its LTI operations and generating revenues as
a result of providing services to the Associated Companies) and cash flow from
operations, complete the development of its capital raising operations and
attract investors to its equity offerings. Should the Company be unable to raise
sufficient capital to meet its cash flow needs, the Company may be required to
significantly curtail its operations and investing activities. The condensed
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
3. NATURE OF OPERATIONS
OVERVIEW U.S. Technologies Inc. ("U.S. Technologies," "USXX" or the "Company")
develops and operates a network of technology and related companies. The Company
builds and develops associated companies by providing them with operational
assistance, capital support, industry expertise, other venture business services
and access to a strategic network of business relationships. The Company's
associated companies include technology and emerging growth companies that
management believes have high growth potential. It is our strategy to actively
manage, develop, operate and promote collaboration among our network of
associated companies.
The Company also performs labor and service intensive "outsourcing" work for
Fortune 1000 and other select companies. Currently, the work is performed by
inmates in detention facilities located in Texas and California under the
guidelines of a 1979 Federal Government Program known as the Prison Industry
Enhancement program ("PIE"). The Company performs electronic and furniture
assembly, manufacturing, enhancement, rework, packaging and sorting of products.
On April 12, 2000, the Company completed its acquisition of E2Enet, Inc
("E2Enet"). E2Enet was a privately held company that had made investments in
several development stage businesses. The acquisition of E2Enet provided the
Company with a platform to participate in the growing technology industry. The
completion of the E2Enet acquisition enhanced our opportunities for both
investment in, and creative development of early stage businesses.
In mid-March 2001, the Company concluded its management arrangement with The
Spear Group, which had been providing accounting and administrative support to
the Company and operating the Company's PIE businesses from Atlanta, Georgia.
These operating services for the PIE businesses are now being handled from the
Company's office in Orlando, Florida. The accounting and administrative support
functions were consolidated in the Company's executive offices in Washington,
DC. In connection with these changes, Jim Warren, while retaining his position
as a Director, stepped down as Co-Director and Co-Chief Executive Officer of the
Company and Skip Moore resigned as an officer with the Company.
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On March 27, 2001, the Company consummated its acquisition of Yazam.com, Inc
("Yazam"). Yazam, a privately held company, had been engaged in seed-stage
funding and business development services to emerging Internet and technology
related start-ups. Due to the fact that the acquisition of Yazam occurred on
March 27, 2001 just prior to the end of the quarter on March 31, 2001, the
acquisition was recorded, for accounting purposes, as if it occurred on March
31, 2001. Therefore, results of operations for the quarter ended March 31, 2001,
do not include the operating results of Yazam. These four days of operations
were not material to the consolidated financial statements of the Company. (See
"Yazam Acquisition" below)
Historically, the Company has been engaged, through its wholly owned-subsidiary,
Labor-to-Industry Inc. ("LTI"), in the operation of industrial facilities
located within both private and state prisons, which are staffed principally
with inmate labor. LTI's prison-based operations are conducted under the
guidelines of the 1979 Prison Industry Enhancement ("PIE") program.
In May 2001, Eric Becker, a Managing partner and co-founder of Sterling Venture
partners, joined the Company's Board of Directors.
4. YAZAM ACQUISITION
On March 27, 2001, the Company acquired Yazam, which made early stage
investments in several development stage technology businesses. The details of
the purchase of Yazam have been reported by the Company in its Forms 8-K filed
on March 1, April 11, 2001 and May 25, 2001. Financial information for the Yazam
acquisition is to be presented in a Form 8-K/A filing, which is currently in
process.
At the date of closing the assets of Yazam totaled approximately $33.0 million.
Yazam assets included approximately $28.5 million of cash, a public and investor
relations services company called Gregory Communications FCA ("Gregory, FCA"), a
$0.5 million asset representing a business held and under contract for sale that
has since closed, a $1.7 million investment in 26 associated companies, plus
office equipment and other assets.
In consideration for the purchase of Yazam the Company paid $22,000,000 in cash
plus 27,374 shares of the Company's Series F Convertible Preferred Stock, which
may be convertible into 27,374,000 shares of common stock of the Company, and
warrants to purchase an aggregate of 8,000,000 shares of the Company's common
stock at $0.34 per share. As of March 31, 2001, approximately $16.4 million of
the cash portion of the purchase price had been paid to Yazam shareholders, with
the balance (or approximately $5.6 million) of the cash portion being paid
during the quarter ended June 30, 2001.
The Company obtained a loan from Safra National Bank of New York for the entire
cash portion of the Yazam purchase price. The loan carried an interest rate of
1.0% over the three-month LIBOR rate and was secured by a portion of the cash
held by Yazam as of the closing date and was repaid in full during April 2001.
The issuance of shares of the Company's common stock upon the exercise of such
warrants or the conversion of the Series F Convertible Preferred Stock into
common stock will require the prior amendment of the Company's charter to
increase the number of authorized common shares of the Company. Management has
obtained agreements from stockholders representing the majority of shares
entitled to vote on the charter amendment to vote in favor of such amendment.
The Company presently expects to increase the aggregate number of authorized
shares of capital stock of the Company from 40 million to 500 million shares, as
previously disclosed by the Company.
The holders of the Company's Series F Stock may, if authorized shares of Common
Stock are not then adequate for conversion of their Series F Stock and Warrants,
put their respective shares of Series F Stock to the Company at any time on or
after September 1, 2001 for the greater of the trailing twenty-day market
average prior to exercise of their put or $250.00 per share of Series F stock.
In mid-July, 2001, the Company began negotiations with certain significant
holders of the Series F Stock to obtain waivers of their put. Because of this
put option, the Series F Convertible Preferred Stock will not be included in the
Company's stockholders' equity as reported on March 31, 2001. On July 18 and 20,
2001 the Company entered into Waiver and Replacement Agreements with respect to
the Series F Stock held by
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the two largest holders of that class. The Waiver and Replacement Agreements
provide for a waiver of their put as well as their right to redeem their shares
after March 27, 2003 that is set forth in the Series F Certificate of
Designations. In return, the holders of those shares of Series F Stock received
the right to require the Company to purchase their shares at a purchase price of
$300.00 per share (or $0.30 per share of Common Stock) during a ninety-day
period beginning September 30, 2002.
On July 18, 2001, the Carlyle Group entered into a Waiver and Replacement
Agreement with the Company. On July 20, 2001, various affiliates of the Texas
Pacific Group ("TPG") entered into an agreement to sell their shares of Series F
Stock to USV Partners at $150.00 per share of Series F stock by August 3, 2001
and USV entered into a Waiver and Replacement Agreement with respect to those
shares. USV and its assignees expect to close the transaction the week of August
6, 2001.
As of the date of this report, the Company cannot determine with certainty
whether the requirements to approve the Charter Amendment will be completed by
September 1, 2001. Therefore, the Company cannot determine with certainty
whether the Series F stockholders will have the right to put their shares to the
Company on and after September 1, 2001. The Company cannot presently determine
whether the average price per share of the Company's common stock during the 20
trading day period used to determine the put price will exceed $0.25 and
therefore cannot presently estimate the Company's maximum financial obligation
to repurchase the Series F Convertible Preferred Stock. Currently, the Company
is exploring several alternatives with regard to its obligations under the
repurchase obligation including negotiating with Series F stockholders to amend
or waive the repurchase obligation. However, if the Company is required to fund
its obligation to repurchase shares of the Series F Stock, it may have to raise
additional funds to do so and there can be no assurance that the Company will be
able to raise such additional funds.
Presented below is certain information on several of the associated companies,
which were acquired by the Company in the Yazam acquisition. Our equity
ownership/voting power percentages have been calculated, as of March 27, 2001,
based on the issued and outstanding common stock of each associated company,
assuming the issuance of common stock upon the exercise of outstanding options
and warrants and the conversion into common stock of outstanding convertible
securities. Except where we indicate otherwise, our equity ownership and voting
power percentages are the same.
- ---------------------------------------------------------------------------------------------------
Associated Companies Acquired With Yazam
- ---------------------------------------------------------------------------------------------------
Associated Company Market Date Equity
Formed Ownership Board Representation
- ---------------------------------------------------------------------------------------------------
Baobab THE COMPANY HAS THE
Developing language RIGHT TO DESIGNATE 1
www.baobab.com recognition technology 1/18/00 9.02% MEMBER
- -------------- TOTAL DIRECTORS--4
- ---------------------------------------------------------------------------------------------------
Ezface THE COMPANY HAS THE
Developing RIGHT TO DESIGNATE 1
www.ezface.com interactive cosmetic 12/6/99 6.96% MEMBER
- -------------- websites TOTAL DIRECTORS--UP TO
7
- ---------------------------------------------------------------------------------------------------
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10
Gammasite THE COMPANY HAS THE
RIGHT TO DESIGNATE 1
www.gammasite.com Provides internet 12/29/99 9.75% MEMBER
- ----------------- searching capabilities TOTAL DIRECTORS--UP TO
7
- ---------------------------------------------------------------------------------------------------
Incepto 7.0%(5% AS A HOLDER OF A
COMMON MAJORITY OF THE
www.incepto.com STOCK AND A PREFERRED SHARES, THE
- --------------- CARRY OF COMPANY MAY DESIGNATE
Provides technology PREFERRED 1 MEMBER SUBJECT TO
that allows ISPs to DECEMBER SHAREHOLDERS APPROVAL OF THE
operate cost 1999 EQUAL TO FOUNDERS, NOT TO BE
efficiently APPROXIMATELY UNREASONABLY WITHHELD,
ANOTHER 2% AND TO JOINTLY
OF THE DESIGNATE ONE OTHER
COMPANY) MEMBER.
TOTAL DIRECTORS--4
- ---------------------------------------------------------------------------------------------------
Phlair AS A HOLDER OF A
MAJORITY OF THE SERIES
www.phlair.com Provides commercial B STOCK, THE COMPANY
- -------------- transaction tracking 2/24/00 9.28% HAS THE RIGHT TO
services DESIGNATE 1 MEMBER
TOTAL DIRECTORS--4
- ---------------------------------------------------------------------------------------------------
Quintessence Developing fiber 11/16/00 1.5% NO BOARD
www.quintessence.com optic hardware REPRESENTATION
- --------------------
- ---------------------------------------------------------------------------------------------------
Soneta Provides one-stop 2/1/00 8.42% THE COMPANY HAS THE
shopping for RIGHT TO DESIGNATE 1
www.soneta.com outsourced internet MEMBER
- -------------- commerce solutions TOTAL DIRECTORS--4
- ---------------------------------------------------------------------------------------------------
Selis AS HOLDER OF THE
Developing web-based SERIES A STOCK, THE
www.selis.com network management 1/19/00 12.24% COMPANY HAS THE RIGHT
systems TO DESIGNATE 1 MEMBER
TOTAL DIRECTORS--3
- ---------------------------------------------------------------------------------------------------
TravelBond Developing web-based 3/31/00 26.47% THE COMPANY HAS THE
infrastructure for RIGHT TO DESIGNATE 1
www.travelbond.com interactive travel MEMBER. THE COMPANY
- ------------------ planning CURRENTLY OWNS A
MAJORITY OF THE SERIES
B STOCK.
TOTAL DIRECTORS--UP TO 3
- ---------------------------------------------------------------------------------------------------
The following unaudited pro-forma condensed consolidated financial data for the
quarter ended March 31, 2001, assume that the acquisition of Yazam, as described
above, occurred at January 1, 2001. This data has been prepared for comparative
purposes only and does not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on the date
indicated, or which may result in the future.
<Table>
<Caption>
2000
-----------
Revenues $ 1,242,072
Net loss applicable to common shareholders 12,795,386
Basic and diluted net loss per common share (0.43)
</Table>
5. 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.
6. INVENTORIES
At March 31, 2001 and December 31, 2000, inventories consisted of the following:
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2001 2000
---------- ----------
Raw materials $ 200,132 $ 231,177
Work in progress 10,587 18,272
Finished Goods - 385
Reserve for Obsolescence (80,000) (80,000)
---------- ----------
$ 130,719 $ 169,834
========== ==========
7. NOTES RECEIVABLE
During the quarter ended March 31, 2001, the Company advanced approximately
$165,000, to be used for working capital, to Portris, Inc. ("Portris"), a U.S.
Technologies associated company. Portris is a software company that is
developing an information management system that facilitates performance of
interactive team oriented projects over the Internet. As of March 31, 2001, the
Company had advanced approximately $254,000 to Portris in exchange for the
delivery to U.S. Technologies of promissory notes equal to such amount. During
May 2001, these promissory notes were cancelled and exchanged for equity of
Portris, thereby increasing the Company's ownership interest in Portris from
30.4% to 42.2%.
8. CONVERTIBLE PREFERRED STOCK
During the quarter ended March 31, 2001, the Company raised, through recent
subscriptions for it's Series E Preferred, approximately $589,000. This brings
the total raised through the Series E Preferred Stock offering to approximately
$1,789,000. As of the date of this report, the offering of the Series E
Preferred has not closed. The proceeds from the Series E Preferred offering will
be used primarily to finance additional investments in new and existing
technology companies and ongoing working capital needs.
On the closing date of the Yazam acquisition, the Company issued 27,374 shares
of the Company's Series F Convertible Preferred Stock, which may be convertible
into 27,374,000 shares of common stock of the Company, and warrants to purchase
an aggregate of 8,000,000 shares of the Company's common stock at $0.34 per
share. (See "Yazam Acquisition" above)
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 Company's convertible preferred shares.
Common stock outstanding at March 31, 2001 29,610,786
Conversion of Series A Convertible Preferred Stock 51,229,508
Conversion of Series B Mandatorily Convertible Preferred Stock 56,000,000
Conversion of Series C Mandatorily Convertible Preferred Stock 3,126,895
Conversion of Series D Mandatorily Convertible Preferred Stock 1,552,500
Conversion of Series F Convertible Preferred Stock 27,374,000
------------
168,893,689*
============
* Does not include conversion of subscribed but unissued preferred stock which
is not determinable at the date of this report. Also does not include shares,
which would be issuable upon exercise of stock options and warrants.
The terms of the Series A Preferred Stock permits them to vote as if the Series
A Preferred Stock was already converted to Common Stock. The terms of the Series
B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock
and the Series F Preferred Stock do not permit the holders thereof to
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vote on the Charter Amendment, but otherwise permit them to vote as if the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series F Preferred Stock 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 Stock, voting
together as a single class.
The Company and certain holders of the Company's Series A, B and C Preferred
Stock entered into a registration rights agreement for the registration of the
shares of common stock into which the Series A, Series B, and Series C Preferred
Stock are convertible. Collectively, the stockholders party to the agreement
have the right to compel the Company to register their respective shares at the
expense of the Company at certain times (no earlier than six months subsequent
to conversion of such shares to Common Stock) and rights on other occasions to
have such registration effected at the expense of the holders. This request must
be made by one third of the shares covered by this agreement. These stockholders
also have unlimited registration rights to be combined, at the Company's
expense, with certain registrations of any equity securities by the Company
(Piggyback Rights), subject to restrictions which might be imposed by an
underwriter for the sale of such shares.
On March 27, 2001, the Company and certain holders of the Company's Series F
Preferred Stock entered into a registration rights agreement. Under the Series F
registration rights agreement, the holders have the right to compel the Company
to register their respective shares at the Company's expense. The holders also
have Piggyback Rights, subject to restrictions, which an underwriter might
impose for the sale of the shares. This Series F registration rights agreement
expires by its terms on March 27, 2007.
Based on the conversion terms of the Series F Convertible Preferred Stock, and
the market price of the Company's common stock on the date of issuance of the
Series F Convertible Preferred Stock, the Company recognized the existence of a
beneficial conversion feature in the amount of $6,022,280. This amount was
recorded as a non-cash deemed dividend in the quarter ended March 31, 2001,
resulting in an increase in the net loss applicable to common shareholders.
9. ADDITIONAL PAID-IN CAPITAL
During the quarter ended March 31, 2001, the Company increased additional paid
in capital by approximately $6,902,000. The components of this increase were; a
$6,022,000 deemed dividend created by beneficial conversion features of the
Series F mandatorily convertible preferred stock and $880,000 value of warrants
issued in the Yazam acquisition.
10. 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 quarters ended March 31, 2001 and
2000. The four reportable segments are USXX (Washington, DC), LTI (Lockhart,
Texas and Blythe, California) ("LTI"), the Company's technology investments
("TECHNOLOGY") and Gregory FCA (Philadelphia, Pennsylvania). USXX is the
corporate office, LTI is a prison-based manufacturer of computer circuit boards
and modular office furniture components. The Company's technology investments
consist of ownership interests in approximately 34 technology companies, which
were primarily acquired through the acquisition of E2E and Yazam. Gregory FCA is
a wholly-owned subsidiary of Yazam which provides public and investor relations
services (see note 2).
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Summary information by segment as of and for the three months ended March 31,
2001 and 2000 follow (in thousands):
USXX LTI(a) Gregory FCA(c) TECHNOLOGY Other Total
------- ----- -------------- ---------- ----- -----
2001
Net sales $ -- $ 603 $ -- $ -- $ -- $ 603
Operating loss (462) (151) -- (3) -- (616)
Total Assets(b) 9,728 928 885 31,035 -- 42,576
2000
Net sales $ -- $ 461 $ -- $ -- $ 16 $ 477
Operating Profit (loss) (151) (219) -- -- (8) (378)
Total Assets(b) 2,519 1,064 -- -- 127 3,710
(a) Amounts shown in the "LTI" column were previously shown
separately as "LTI" and "LTI - Blythe".
(b) Represents net book value of assets.
(c) Gregory FCA is a wholly-owned subsidiary of Yazam. See
Yazam acquisition disclosure in note 4.
11. Earnings per Share
The Company presents basic and diluted earnings per share in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share". Basic earnings per common share is 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 three months
ended March 31, 2001 and 2000 because stock options and warrants which comprised
common stock equivalents would have been anti-dilutive.
Per
(Loss) Shares share
(Numerator) (Denominator) amount
----------- ------------ --------
Three months ended March 31, 2001:
Net loss $(6,826,298) 29,610,786 $ (0.23)
Effect of dilutive potential common shares:
Stock options -- --
Warrants -- --
----------- -----------
Diluted net loss $(6,826,298) 29,610,786 $ (0.23)
=========== =========== =======
Three months ended March 31, 2000:
Net loss $ (360,676) 28,924,838 $ (0.01)
Effect of dilutive potential common shares:
Stock options -- --
Warrants -- --
----------- -----------
Diluted net loss $ (360,676) 28,924,838 $ (0.01)
=========== =========== =======
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12. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria.
SFAS 141 applies to all business combinations initiated after June 30, 2001 and
for purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within
the first interim quarter after adoption of SFAS 142. The adoption of SFAS No.
141 and SFAS No. 142 is not expected to have a material effect on the Company's
financial position, results of operations and cash flows in 2002 and subsequent
years.
Effective January 1, 2001, the Company adopted SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
- -- a replacement of SFAS No. 125. This statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities and revises the accounting standards for
securitizations and transfers of financial assets and collateral. The adoption
of this standard on January 1, 2001 did not have a material effect on the
Company's results of operations and financial position. This standard also
required new disclosures in 2000. Such requirements were not applicable to the
Company.
In 2000, the Financial Accounting Standards Board (FASB) issued Interpretation
(FIN) No. 44, Accounting for Certain Transactions Involving Stock Compensation,
an interpretation of Accounting Principles Board Opinion No. 25. Interpretation
No. 44 clarifies the application of APB No. 25 to the definition of an employee
for purposes of applying APB No. 25, the criteria for determining whether a
plan qualifies as a noncompensatory plan, the accounting consequences of
various modifications to the terms of a previously fixed stock option or award
and the accounting for an exchange of stock compensation awards in a business
combination. The Company's policies have been amended for the adoption of FIN
No. 44.
Pursuant to the Securities and Exchange Commission's Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in Financial Statements, the Company has
reviewed its accounting policies for the recognition of revenue. SAB No. 101
was required to be implemented in fourth quarter 2000. SAB No. 101 provides
guidance on applying generally accepted accounting principles to revenue
recognition in financial statements. The company's policies for revenue
recognition are consistent with the views expressed within SAB No. 101. See
note 1, "Summary of Significant Accounting Policies," for a description of the
Company's policies for revenue recognition.
In June 1998 the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 133
establishes new accounting and reporting standards for derivative financial
instruments and for hedging activities. SFAS 133 requires an entity to measure
all derivatives at fair value and to recognize them in the balance sheet as an
asset or liability, depending on the entity's rights or obligations under the
applicable derivative contract. The Company will designate each derivative as
belonging to one of several possible categories, based on the intended use of
the derivative. The recognition of changes in fair value of a derivative that
affect the income statement will depend on the intended use of the derivative.
If the derivative does not qualify as a hedging instrument, the gain or loss on
the derivative will be recognized currently in earnings. If the derivative
qualifies for special hedge accounting, the gain or loss on the derivative will
either (i) be recognized in income along with an offsetting adjustment to the
basis of the item being hedged or (ii) be deferred in other comprehensive
income and reclassified to earnings in the same period or periods during which
the hedged transaction affects. SFAS 137 delayed the effective date of SFAS 133
to fiscal years beginning after June 15, 2000. SFAS 138 Accounting For Certain
Derivative Instruments and Certain Hedging Activities, Amendment of SFAS No.
133, liberalized the application of SFAS 133 in a number of areas.
The Company has not entered into derivatives contracts either to hedge existing
risks or for speculative purposes. Accordingly, the Company does not expect
adoption of the new standard on January 1, 2001, to affect its financial
statements.
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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, 2000.
Results of Operations
The following analysis compares the results of operations for the three-month
period ended March 31, 2001 to the comparable period ended March 31, 2000.
Due to the fact that the acquisition of Yazam occurred on March 27, 2001, just
prior to the end of the quarter on March 31, 2001, the acquisition, for
accounting purposes, was recorded as it occurred on March 31, 2001. Therefore,
results of operations for the quarter ended March 31, 2001 do not include the
operating results of Yazam. These four days of operations were not material to
the consolidated financial statements of the Company. The operating results of
Yazam in prior periods have included asset impairment losses and equity in
losses of associated companies. The Company expects operating results of this
nature to also occur in future periods.
Net sales during the three months ended March 31, 2001 were $ 602,607, compared
to $ 476,526 during the three months ended March 31, 2000. The increase in net
sales, in the amount of $126,081, was primarily due to an increase in sales in
the Company's LTI Lockhart facility, which occurred primarily as a result of
additional sales to existing customers.
In the three months ended March 31, 2001, cost of goods sold was $ 606,240,
which represented 101% of net sales. During the three months ended March 31,
2000, cost of goods sold was $ 627,277, which represented 132% of net sales.
The decrease in the cost of goods sold percentage was primarily a result of
inventory adjustments, recorded in 2000, to reflect the loss of certain
customers, which did not occur in 2001. Also contributing was a change in
customer preferences which resulted in the use of more customer supplied
materials in 2001, thereby reducing cost of sales when compared to 2000.
Selling expenses during the three months ended March 31, 2001 were $ 19,694,
representing 3% of net sales. During the three months ended March 31, 2000,
selling expenses in the amount of $15,923 represented 3% of net sales.
General and administrative expenses during the three months ended March 31, 2001
were $592,631, which represented 99% of net sales. During the three months ended
March 31, 2000, general and administrative expenses were $ 210,999, which also
represented 44% 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 associated companies.
Other expense during the quarter ended March 31, 2001, totaled $188,060 compared
to other income of $(16,997) during the quarter ended March 31, 2000. The
principal components of the 2001 other expenses were $97,937 related to the
Company's portion of the losses of associated companies accounted for on the
equity basis and $90,618 in net interest expense due primarily to the
$22,000,000 acquisition note taken out by the Company during March 2001 to fund
the purchase of Yazam.
During the three months ended March 31, 2001, the Company had a net loss
available to common shareholders of $ 6,826,298 or $ 0.23 per weighted-average
share. Included in the net loss for March 31, 2001, the Company recognized a
non-cash expense of $6,022,280 as a result of a deemed dividend resulting from
beneficial conversion features of the Series F Preferred Stock issued in the
Yazam
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acquisition. The deemed dividend amount was calculated for each respective
preferred series as the excess of the market price of the Company's common stock
on the March 27, 2001, measurement date over the effective conversion price of
the Series F Preferred Stock, times the 27,374,000 shares of the Company's
common stock to be issued on conversion of the preferred stock.
During the three months ended March 31, 2000, the Company incurred a net loss of
$ 360,676 or $ 0.01 per weighted-average share. There were no events occurring
during the quarter ended March 31, 2000, which created any deemed dividend
issues relative to the Company's preferred stock.
Liquidity and Capital Resources
During the three months ended March 31, 2001 the Company experienced positive
operating cash flows of $4,478,192. Positive operating cash flows in the three
months ended March 31, 2001 resulted principally from the deferred payment of
$5,568,884 due to be paid to certain shareholders of Yazam as part of the
$22,000,000 cash acquisition cost, which was not paid until after March 31,
2001. This was negatively impacted by the $804,018 net loss incurred during
that period and a decrease in accounts payable of $863,535, reduced by an
increase of $424,183 in accrued expenses. The decrease in accounts payable was
attributable to the payment of legal and accounting fees that accumulated at
December 31, 2000 associated primarily with the acquisition of Yazam, which were
paid prior to March 31, 2001. Accrued expenses increased due primarily to
accrual of unbilled legal fees at March 31, 2001, which were primarily
associated with the Yazam acquisition. Negative operating cash flows in the
three months ended March 31, 2000 resulted principally from the $360,676 net
loss incurred during that period and increases in prepaid expenses and accounts
receivable of $237,069 and $128,712, respectively. The increase in prepaid
expenses includes approximately $165,000 in legal costs associated with the E2E
acquisition, which closed on April 12, 2000.
Net cash provided by investing activities of $5,902,528 during the three months
ended March 31, 2001 consisted primarily of $6,113,165 net cash acquired in the
Yazam acquisition after legal and accounting fees related to the acquisition.
Approximately $5,600,000 was paid to Yazam shareholders during the quarter ended
June 30, 2001. Net cash used in investing activities of $391,981 during the
three months ended March 31, 2000 was primarily the result of cash advances to
technology companies associated with the acquisition of E2E by the Company, of
$414,730.
Net cash provided by financing activities of $22,802,075 during the three months
ended March 31, 2001 was primarily due to the $22,000,000 note created to
provide the cash portion of the Yazam acquisition and the receipt of net
proceeds from the subscription of preferred stock of $589,300. The Yazam
acquisition note was paid in full during April 2001. Net cash provided by
financing activities of $2,933,304 during the three months ended March 31, 2000
was primarily due to the receipt of net proceeds from the subscription of
preferred stock of $2,742,928 and proceeds from the exercise of common stock
options and warrants of $202,813.
As identified by the above discussion and analysis, the Company did not produce
a profit from operations in the quarter ended March 31, 2001. Management has
initiated steps to increase sales and reduce unnecessary costs. However,
completing the Company's business plans will require additional investment and
working capital. To provide for this investment and working capital, the Company
raised, during the quarter ended March 31, 2001, approximately $7,100,000
through the Yazam purchase and the subscription of its Series E Preferred.
Under the terms of the Yazam Acquisition Agreement, the 27,374 shares of the
Company's Series F Preferred Stock are convertible into 27,374,000 shares of
Company common stock. Holders of Series F Preferred Stock would receive
preferential treatment in a liquidation of the Company over all existing holders
of Company common stock and Preferred Stock ("Existing Preferred Stock").
Pursuant to the
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Registration Rights Agreement, the Series F holders have demand and piggy-back
registration rights. By the Company's 2001 Proxy Statement, the Company intends
to amend its Charter to increase the number of authorized shares of Company
common stock in order to authorize and reserve at least a sufficient number of
shares of common stock for issuance in connection with the conversion of the
Series F Stock and the exercise of the warrants. If the Company does not
authorize and issue such additional number of shares of common stock as
necessary for the conversion of the Series F Stock and the exercise of the
warrants prior to September 1, 2001, the Yazam stockholders who received shares
of Series F Stock may require the Company after such date to repurchase their
shares of Series F Stock for a price per share equal to the average price of
Company common stock as reported on the OTC BB (or other applicable nationally
recognized market quotation system) for the 20 trading days prior to the date of
the request multiplied by 1,000, but not less than $250 per share of Series F
stock (or a total of $6,843,500). Because of this put option, the Series F
Convertible Preferred Stock will not be included in the Company's stockholders'
equity as reported on March 31, 2001.
In mid-July, 2001, the Company began negotiations with certain significant
holders of the Series F Stock to obtain waivers of their put. On July 18 and 20,
2001 the Company entered into Waiver and Replacement Agreements with respect to
the Series F Stock held by the two largest holders of that class. The Waiver and
Replacement Agreements provide for a waiver of their put as well as their right
to redeem their shares after March 27, 2003 that is set forth in the Series F
Certificate of Designations. In return, the holders of those shares of Series F
Stock received the right to require the Company to purchase their shares at a
purchase price of $300.00 per share of Series F stock during a ninety-day period
beginning September 30, 2002.
On July 18, 2001, the Carlyle Group entered into a Waiver and Replacement
Agreement with the Company. On July 20, 2001, various affiliates of the Texas
Pacific Group ("TPG") entered into an agreement to sell their shares of Series F
Stock to USV Partners at $150.00 per share of Series F stock by August 3, 2001
and USV entered into a Waiver and Replacement Agreement with respect to those
shares. USV and its assignees expect to close the transaction the week of
August 6, 2001.
As of the date of this report, the Company can not determine with certainty
whether the requirements to approve the Charter Amendment will be completed by
September 1, 2001. Therefore, the Company cannot determine with certainty
whether the Series F stockholders will have the right to put their shares to the
Company on and after September 1, 2001. The Company cannot presently determine
whether the average price per share of the Company's common stock during the 20
trading day period used to determine the put price will exceed $0.25 and
therefore cannot presently estimate the Company's maximum financial obligation
to repurchase the Series F Convertible Preferred Stock. Currently, the Company
is exploring several alternatives with regard to its obligations under the
repurchase obligation including negotiating with Series F stockholders to amend
or waive the repurchase obligation. However, if the Company is required to fund
its obligation to repurchase shares of the Series F Stock, it may have to raise
additional funds to do so and there can be no assurance that the Company will be
able to raise such additional funds.
Further, for a ninety-day period beginning March 27, 2003, , holders of the
Series F Preferred Stock will have the right to require the Company to redeem
the Series F Preferred Stock at a price of $100 per share, or a total of
$2,734,400. The Series F Stock has voting rights on an as-converted basis with
Company common stock and not as a separate class, except that the Series F
holders are not entitled to vote on the Charter Amendment. A vote of the holders
of two-thirds of the Series F Stock is required to approve any diminution in the
rights of the Series F Stock, and a vote of a majority of the Series F stock is
required before the Company may issue any securities with the same preference or
priority as, or with a preference or priority senior to, the Series F Stock. No
dividends will accrue or be payable at any time with respect to the Series F
Stock.
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Historically, the capital the Company needed, both for working capital and to
pursue acquisition opportunities, has exceeded the Company's cash flows from
operations. These shortfalls have been met by the Company's ability to raise
capital through equity transactions involving the Company's convertible
preferred stock. The Company's independent certified public accountants report
on the consolidated financial statements dated May 9, 2001 contained an
explanatory paragraph regarding uncertainty about the Company's ability to
continue as a going concern. The Company's ability to continue as a going
concern depends on its ability to raise capital in the next twelve months.
Current economic and business conditions have created a difficult environment in
which to raise capital. The Company's ability to execute its business plan is,
and its ability to continue as a going concern may be, dependant on its ability
to raise capital and attain profitable operations. While there is no assurance
that these objectives can be attained, the Company believes there is a
reasonable expectation of achieving these goals. Should the Company be unable to
achieve its objectives and successfully execute its business plan, the Company
may be required to significantly curtail its acquisition and investment
activities.
The Company's sources of funds to pursue acquisition opportunities and provide
working capital during 2001 will come from a combination of cash flows from
existing operations and if required, equity transactions involving the Company's
convertible preferred stock. Management projects approximately $1,800,000 will
be invested in new and existing associated companies during 2001. In addition,
approximately another $230,000 will be invested in capital expenditures. The
sources of funds to cover these investments and to provide the Company's working
capital will come from operations, sales of the Company's preferred stock and
possible sale of investments in associated companies. Management projects that
approximately $1,000,000-2,000,000 will have to be raised during 2001, through
preferred stock sales to accomplish the Company's goals. However, there can be
no assurance that the Company can raise such amounts or if such amounts can be
raised on terms beneficial to the Company.
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 by 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 technology 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 companies, all of which are subject to
material changes outside the Company's control.
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PART II. OTHER INFORMATION
ITEM 1. THROUGH ITEM 4. Not applicable.
ITEM 5. OTHER INFORMATION.
On April 27, 2001 the Company granted 5,820,000 stock options
to employees and 5,895,000 stock options to consultants, both
exercisable at market value or $.28 per share. The options vest over a
three to four year period and expire on April 27, 2011. The Company has
recorded the options granted to employees at their intrinsic value in
accordance with APB 25, Accounting for Stock Issued to Employees,
consequently there was no impact on the Company's financial statements
as a result of this grant.
The Company has recorded the options granted to consultants at
fair value on the grant date in accordance with SFAS No. 123,
Accounting for Stock-Based Compensation, using the Black Scholes option
pricing model. Accordingly, annual compensation expense of
approximately $325,000, or $1.3 million over the next four years, will
be recognized beginning in the second quarter of 2001.
Effective as of June 30, 2001, the Company sold all of its
shares of Buyline.net, Incorporated to an entity wholly owned by
Gregory Earls, the CEO of the Company. As consideration for such
shares, the purchaser delivered to the Company a promissory note in the
principal amount of $100,000. The promissory note, plus accrued
interest, will become due and payable only upon the earlier of, and
only to the extent of: (i) any distributions by Buyline or (ii) the
sale by such purchaser of its shares of Buyline. The Company has the
right to repurchase for $250,000 such Buyline shares at any time prior
to June 30, 2004. Such transaction was approved by at least a majority
of the disinterested directors of the Company.
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
January 22, 2001, describing the acquisition of an
associated company, WebMilestones.com, LLC by Final
Arrangements, LLC.
During the quarter for which this report is filed,
Registrant filed a Current Report on form 8-K dated
February 14, 2001, describing the signing of a
non-binding letter of intent to purchase Yazam.com,
Inc.
During the quarter for which this report is filed,
Registrant filed a Current Report on form 8-K dated
March 1, 2001, describing the signing of a definitive
agreement to purchase Yazam.com, Inc.
During the quarter for which this report is filed,
Registrant filed a Current Report on form 8-K/A dated
March 27, 2001, providing the December 31, 1998 and
1999 audited financial statements for E2E.
During the quarter for which this report is filed,
Registrant filed a Current Report on form 8-K/A dated
March 28, 2001, providing additional information on
the Registrant's purchase of a controlling interest
in Buyline during the year ended December 31, 2000.
During the quarter for which this report is filed,
Registrant filed a Current Report on form 8-K/A dated
March 28, 2001, providing additional information on
the Registrant's purchase of a controlling interest
in WebMilestones during the year ended December 31,
2000.
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EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
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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 duly authorized officers.
U.S. TECHNOLOGIES INC.
(Registrant)
Date: August 7, 2001 /s/ Gregory Earls
---------------------------
Gregory Earls
Chief Executive Officer
Date: August 7, 2001 /s/ Allyson Holland
---------------------------
Allyson Holland
Vice President - Controller
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