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UNITED SYSTEMS TECHNOLOGY INC, filed this 10QSB on 08/14/2001.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10-QSB
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
__________________________
For the Quarter Ended: Commission File Number
June 30, 2001 0 - 9574
__________________________
UNITED SYSTEMS TECHNOLOGY, INC.
Iowa 42-1102759
(State of Incorporation) (I.R.S. Employer
Identification Number)
1850 Crown Road, Suite 1109
Dallas, Texas 75234
(972) 402-8600
(Address of principal executive offices and telephone number)
__________________________
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 ______
As of June 30, 2001 there were 56,178,663 shares of the registrant's Common
Stock, par value $0.10 per share, outstanding.
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
PART I - FINANCIAL INFORMATION (UNAUDITED) PAGE
Item 1. Consolidated Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or
Plan of Operation 9
PART II - OTHER INFORMATION 12
_________________________________________________________
The consolidated financial information reflects all adjustments, which are,
in the opinion of management, necessary to a fair presentation of financial
position and of the statements of operations and cash flows for the periods
presented.
These consolidated financial statements should be read in conjunction with
the notes to the consolidated financial statements which are included in the
annual report on Form 10-KSB for the fiscal year ended December 31, 2000.
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
June 30,
2001 December 31,
(Unaudited) 2000
========= =========
Current Assets
Cash and cash equivalents $ 1,068,943 $ 814,240
Trade accounts receivable, less allowance for
doubtful accounts of $34,500 at June 30, 2001
and $32,000 at December 31, 2000 422,689 574,073
--------- ---------
Total current assets 1,491,632 1,388,313
--------- ---------
Property and equipment, net 116,760 119,295
Goodwill, net 474,391 457,731
Purchased software, net 774,726 453,967
Deposits and other 79,825 45,702
--------- ---------
1,445,702 1,076,695
--------- ---------
Total assets $ 2,937,334 $ 2,465,008
========= =========
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable - related party $ 12,499 $ 12,499
Trade accounts payable 79,096 47,597
Accrued payroll 114,061 92,381
Accrued interest - related party 22,642 22,127
Other accrued expenses 199,671 100,018
Deferred revenue 1,090,421 1,038,908
--------- ---------
Total current liabilities 1,518,390 1,313,530
Total liabilities 1,518,390 1,313,530
--------- ---------
Commitments and contingencies - -
Stockholders' Equity
Preferred stock, convertible, voting,
cumulative, par value $.10 per share;
authorized 5,000,000 shares; issued and
outstanding, 500,000 shares of Series B and
300,000 shares of Series E, aggregate
liquidating preference of $1,300,000
($1.00 per share) 80,000 80,000
Common stock, par value $.10 per share;
authorized 100,000,000 shares; issued and
outstanding 56,178,663 at June 30, 2001
and December 31, 2000 5,617,866 5,617,866
Additional paid-in capital 2,816,554 2,816,554
Accumulated deficit (7,046,570) (7,318,462)
Currency translation adjustments (8,906) (4,480)
--------- ---------
1,458,944 1,191,478
Less stock purchase note receivable 40,000 40,000
--------- ---------
Total stockholders' equity 1,418,944 1,151,478
--------- ---------
Total liabilities and stockholders' equity $ 2,937,334 $ 2,465,008
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
==== ==== ==== ====
Revenue
Software packages $ 113,073 $ 47,334 $ 152,127 $ 107,742
Installation, training and
customer support 170,876 12,667 272,417 41,077
Maintenance 481,979 286,735 922,104 480,368
Equipment and supplies sales 51,997 47,224 97,155 118,206
Other 3,989 1,968 8,865 4,062
--------- --------- --------- ---------
821,914 395,928 1,452,668 751,455
--------- --------- --------- ---------
Costs and expenses
Salaries 361,976 217,756 689,719 413,401
Other general, administrative
and selling expense 179,438 105,770 327,984 211,757
Depreciation and amortization 72,085 34,659 129,814 63,931
Commissions 1,440 2,525 2,804 5,250
Cost of equipment and supplies sold 27,393 24,352 48,798 61,319
--------- --------- --------- ---------
642,332 385,062 1,199,119 755,658
--------- --------- --------- ---------
Income (loss) from operations 179,582 10,866 253,549 (4,203)
--------- --------- --------- ---------
Nonoperating income (expense)
Interest expense (257) (472) (514) (943)
Interest income 8,864 8,325 18,857 19,128
--------- --------- --------- ---------
8,607 7,853 18,343 18,185
--------- --------- --------- ---------
Net income 188,189 18,719 271,892 13,982
Preferred stock dividend
requirements (13,960) (13,960) (27,920) (27,920)
--------- --------- --------- ---------
Income (loss) available for
common stockholders $ 174,229 $ 4,759 $ 243,972 $ (13,938)
========= ========= ========= =========
Net income per common share $ NIL $ NIL $ NIL $ NIL
========= ========= ========= =========
Weighted average number of common
shares outstanding 56,178,663 54,069,078 56,178,663 53,080,067
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Six Month Period Ended June 30, 2001 and 2000
(Unaudited)
<TABLE>
<S> <C> <C>
2001 2000
======== ========
Cash flows in operating activities:
Net income $ 271,892 $ 13,982
--------- ---------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 129,814 63,931
Recognition of deferred compensation costs on
employee stock purchase 9,000 9,000
Change in operating assets and liabilities:
Accounts receivable 231,054 130,889
Deposits and other (36,844) (38,130)
Accounts payable 32,015 (4,170)
Accrued expenses 49,360 (118,598)
Deferred revenue (282,832) (136,202)
--------- ---------
131,567 (93,280)
--------- ---------
Net cash provided from (used in) operating
activities 403,459 (79,298)
--------- ---------
Cash flows from investing activities:
Property and equipment additions (17,747) (10,397)
Acquisition of businesses (132,065) (425,200)
--------- ---------
Net cash used in investing activities (149,812) (435,597)
--------- ---------
Cash flows from financing activities:
Exercise of common stock options - 87,500
--------- ---------
Net cash provided by financing activities - 87,500
--------- ---------
Effect of exchange rate changes on cash 1,056 -
--------- ---------
Increase (decrease) in cash and cash equivalents 254,703 (427,395)
Cash and cash equivalents, beginning of period 814,240 922,838
--------- ---------
Cash and cash equivalents, end of period $1,068,943 $ 495,443
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation:
In the opinion of management, the accompanying unaudited consolidated
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the consolidated financial position of
United Systems Technology, Inc. ("USTI") as of June 30, 2001 and December 31,
2000 and the results of operations and cash flows of USTI for the six months
ended June 30, 2001 and 2000. The consolidated results of operations for the six
months ended June 30, 2001 are not necessarily indicative of the results to be
expected for the full year.
Note 2. Property and Equipment:
Property and equipment at June 30, 2001 and December 31, 2000 consisted of
the following:
<TABLE>
<S> <C> <C>
June 30, December 31,
2001 2000
======== ========
Leasehold improvements $ 75,184 $ 75,431
Furniture and fixtures 57,349 54,080
Equipment 1,038,672 1,024,107
--------- ---------
1,171,205 1,153,618
Less Accumulated depreciation
and amortization (1,054,445) (1,034,323)
--------- ---------
$ 116,760 $ 119,295
</TABLE>
Note 3. Other Assets:
Other assets at June 30, 2001 and December 31, 2000 consisted of the
following:
<TABLE>
<S> <C> <C> <C>
Accumulated
June 30, 2001 Cost Amortization Net
============= ======== ============ ========
Goodwill $ 1,945,604 $(1,471,213) $ 474,391
Purchased Software 1,470,576 (695,850) 774,726
December 31, 2000
=================
Goodwill $ 1,881,396 $(1,423,665) $ 457,731
Purchased Software 1,086,977 (633,010) 453,967
</TABLE>
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)
Note 4. Preferred Stock:
The company is in arrears in the payment of dividends to holders of its
Series B and E Preferred Stock. Holders of Series B Preferred Stock are entitled
to annual dividends of $.07 per share, payable quarterly and, as of June 30,
2001, are entitled to the payment of approximately $446,105 in dividends, which
are currently in arrears. Holders of Series E Preferred Stock are entitled to
annual dividends of $.07 per share, payable quarterly and, as of June 30, 2001,
are entitled to the payment of approximately $211,125 in dividends, which are
currently in arrears.
Note 5. Acquisition of Assets:
On March 2, 2001, USTI Canada, Inc, a wholly owned subsidiary of United
Systems Technology, Inc (USTI) acquired the Municipal Application Suite (MAS)
software from Ever America Corporation, doing business as JPH International
(JPHI). This transaction includes all rights to the MAS software owned by JPHI,
contracts for Software Support, and all accounts receivable related to the MAS
business unit. The purchase price was $132,065 plus the assumption of certain
Customer Support obligations for the remainder of 2001.
Note 6. Comprehensive Income:
Comprehensive income is as follows:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Net income $188,189 $18,719 $271,892 $13,982
Currency translation
adjustments (2,050) - (4,426) -
------- ------- ------- -------
Comprehensive income $186,139 $18,719 $267,466 $13,982
======= ======= ======= =======
</TABLE>
Note 7. Recent Accounting Pronouncements:
In June 2001, the Financial Accounting Standards Board approved for
issuance Statement of Financial Accounting Standards No. 141 (SFAS 141),
Business Combinations. This standard eliminates the pooling method of accounting
for business combinations initiated after June 30, 2001. In addition, SFAS 141
addresses the accounting for intangible assets and goodwill acquired in a
business combination. This portion of SFAS 141 is effective for business
combinations completed after June 30, 2001. The Company does not expect SFAS 141
to have a material effect on the Companys financial position or results of
operations.
In June 2001, the Financial Accounting Standards Board approved for
issuance Statement of Financial Accounting Standards No. 142 (SFAS 142),
Goodwill and Intangible Assets, which revises the accounting for purchased
goodwill and intangible assets. Under SFAS 142, goodwill and intangible assets
with indefinite lives will no longer be amortized, but will be tested for
impairment annually, and also in the event of an impairment indicator. SFAS 142
is effective for fiscal years beginning after December 15, 2001, with early
adoption permitted for companies with fiscal years beginning after March 15,2001
if their first quarter financial statements have not previously been issued. The
Company has not yet determined when it will adopt SFAS 142 or its effect on
annual income.
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
or Plan of Operation
Results of Operations
---------------------
The Company derives its revenue from the licensing of its software
packages, installation, training and custom modifications, maintenance
agreements and equipment sales and commissions. Results of operations for the
three month period ended June 30, 2001 include revenues of $821,914 and net
income of $188,189 as compared to revenues of $395,928 and net income of $18,719
for the same period in 2000. Results of operations for the six month period
ended June 30, 2001 include revenues of $1,452,668 and net income of $271,892 as
compared to revenues of $751,455 and net income of $13,982 for the same period
in 2000.
The Company has completed the development of several new software products,
which significantly enhance the competitiveness of its comprehensive software
offering. These products are marketed under the asystTM brand name, were
developed as Windows applications to look and work like Microsoft Office, and
include a Fund Accounting product line, a Utility Billing product line, a
General Government product line and a Public Safety product line. The Fund
Accounting product line includes General Ledger, Budget XLence, Report XLence,
Accounts Payable, Accounts Receivable, Purchase Orders, Cash Receipts and
Payroll modules. The Utility Billing product line includes Utility Billing,
Service Orders, Meter Reader Interface, Bank Drafts and Budget Billing modules.
The General Government product line includes Master and Land Directories,
Business and Animal Licenses, Code Enforcement and Building Permits modules. The
Public Safety product line includes Master Name Index, Calls for Service,
Offense Reports, Citations, State Interface, Computer Aided Dispatch, Jail
Management, Alarm Billing and UCR Reports modules. The Company is currently
developing additional modules for its asystTM product line, including Tax
Billing and Collection, Fixed Assets and Inventory Control to add to its
existing asystTM offerings and anticipates that these packages will be released
during the second half of 2001.
Three Month Period Ended June 30, 2001 and 2000
-----------------------------------------------
The Companys total revenue increased 108% from $395,928 during the second
quarter in 2000 to $821,914 in 2001. Software license fees increased from
$47,334 in 2000 to $113,073 in 2001 due, in part, to an increase in sales of
products to existing customers during the quarter. Installation and training
increased to $170,876 in 2001 from $12,667 in 2000 due, in a significant part,
to services provided to the Companys Canadian customers related to regulatory
changes that were implemented during the quarter. Maintenance revenue increased
from $286,735 in 2000 to $481,979 during 2001, due primarily to an increase in
revenue from the CPS, Auto Admin and MAS customers acquired by the Company.
Equipment and supplies sales remained relatively constant from 2000 to 2001.
<PAGE>
Total costs and expenses increased 67% from $385,062 in 2000 to $642,332 in
2001. Salary expense increased from $217,756 in 2000 to $361,976 in 2001, due in
part, from the addition of employees related to recent acquisitions and
increased incentives resulting from improved results of operations. Other
general, administrative and selling expenses increased from $105,770 in 2000 to
$179,438 in 2001 as a result of increased costs related to acquisitions in 2001
including software and maintenance costs for 3rd party products utilized at
these customer locations. Depreciation and amortization expense increased from
$34,359 in 2000 to $72,085 in 2001 due to the addition of assets related to the
CPS, Auto Admin and MAS acquisitions. Cost of equipment and supplies sold
remained relatively constant from 2000 to 2001.
Six Month Period Ended June 30, 2001 and 2000
---------------------------------------------
The Companys total revenue increased 93% from $751,455 during the first
six months of 2000 to $1,452,668 during the same period in 2001. Software
license fees increased from $107,742 in 2000 to $152,127 in 2001 due, in part,
to an increase in sales of products to existing customers during the quarter.
Installation and training increased to $272,417 in 2001 from $41,077 in 2000
due, in a significant part, to services provided the Companys Canadian
customers related to regulatory changes that were implemented during the quarter
and an increase in training services provided to its Canadian customers.
Maintenance revenue increased from $480,368 in 2000 to $922,104 during 2001, due
primarily to an increase in revenue from the CPS, Auto Admin and MAS customers
acquired by the Company. Equipment and supplies sales decreased from $118,206 in
2000 to $97,155 as a result of decreased sales of computer equipment during the
year.
Total costs and expenses increased 59% from $755,658 in 2000 to $1,199,119
in 2001. Salary expense increased from $413,401 in 2000 to $689,719 in 2001, due
in part, from the addition of employees related to recent acquisitions and
increased incentives resulting from improved results of operations. Other
general, administrative and selling expenses increased from $211,757 in 2000 to
$327,984 in 2001 as a result of increased costs related to acquisitions in 2001
including software and maintenance costs for 3rd party products utilized at
these customer locations. Depreciation and amortization expense increased from
$63,931 in 2000 to $129,814 in 2001 due to the addition of assets related to the
CPS, Auto Admin and MAS acquisitions. Cost of equipment and supplies sold
decreased from $61,319 in 2000 to $48,798 as a result of decreased sales of
computer equipment during the year.
Liquidity and Capital Resources
-------------------------------
The Company had net cash provided from operating activities of $403,459
during the six months ended June 30, 2001, as compared to net cash used in
operations of $79,298 for the same period in 2000. This increase in cash
provided in 2001 was due, in part, to the improvement in the results of
operations during the first six months of 2001. Net cash of $132,065 was
utilized in 2001 for the purchase of the Municipal Application Suite (MAS)
software from Ever America Corporation, doing business as JPH International
(JPHI). This transaction includes all rights to the MAS software owned by JPHI,
contracts for Software Support, and all accounts receivable related to the MAS
business unit. Net cash of $17,747 was utilized for the purchase of equipment.
<PAGE>
Management believes that its ability to generate positive cash flows from
operations, in addition to its existing cash balances, will be adequate to meet
its working capital requirements in the near future.
The Company is currently in arrears in the payment of dividends to holders
of its preferred stock. As of June 30, 2000, dividends were in arrears on the
Series B preferred stock in the amount of $446,105 and on Series E preferred
stock in the amount of $211,125.
Forward-Looking Statements
--------------------------
This report contains forward-looking statements, other than historical
facts, which reflect the view of Companys management with respect to future
events. Such forward-looking statements are based on assumptions made by and
information currently available to the Companys management. Although management
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from such expectations include, without limitation, the ability of
the Company i) to generate levels of revenue and adequate cash flows from its
operations to support and maintain its current cost structure and ii) to develop
and deliver products that are competitive, accepted by its markets and are not
rendered obsolete by changing technology. The forward-looking statements
contained herein reflect the current views of the Companys management with
respect to future events and are subject to these factors and other risks,
uncertainties and assumptions relating to the operations, results of operations
and financial position of the Company. The Company assumes no obligation to
update the forward-looking statements or to update the reasons actual results
could differ from those contemplated by such forward-looking statements.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
The Company is a defendant in various legal actions, which arose out of the
normal course of business. In the opinion of management, none of these actions
are expected to have a material effect on the consolidated results of operations
or financial position of the Company.
Item 2. Change In Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
The Company is in arrears in the payment of dividends to holders of its
Series B and E Preferred Stock. Holders of Series B Preferred Stock are entitled
to annual dividends of $.07 per share, payable quarterly and, as of June 30,
2001, are entitled to the payment of approximately $446,105 in dividends, which
are currently in arrears. Holders of Series E Preferred Stock are entitled to
annual dividends of $.07 per share, payable quarterly and, as of June 30, 2001,
are entitled to the payment of approximately $211,125 in dividends, which are
currently in arrears.
Item 4. Submission of Matters to a Vote of Security Holders
On June 27, 2001, the Company held its Annual Meeting of Shareholders. At
the meeting, the shareholders approved the following items:
The following persons were elected as Directors of the Company:
Thomas E. Gibbs
Randall L. McGee
Earl H. Cohen
Scott Burri
The accounting firm of Grant Thornton LLP was selected as independent
accountants for the Company.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - No exhibits are required to be filed with this report.
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
<PAGE>
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.
United Systems Technology, Inc.
Date: August 14, 2001 By: /s/ Thomas E. Gibbs
Thomas E. Gibbs, President
and Chairman of the Board
(Principal Executive Officer)
Date: August 14, 2001 By: /s/ Randall L. McGee
Randall L. McGee, Secretary
and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
</TEXT>
</DOCUMENT>
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