U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 2
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES ACT OF 1934
For the quarterly period ended June 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
Commission File No. 000-29209
21st CENTURY TECHNOLOGIES, INC.
----------------------------------
(Exact name of registrant as specified in its Charter)
NEVADA 48-1110566
--------------------------- --------------------------
(State or Other Jurisdiction of (I.R.S. Employer ID. No.)
incorporation or organization)
2513 East Loop 820 North
Ft. Worth, TX 76118
-------------------------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number, including area code: (817) 284-0099
Facsimile Number: (817) 284-7528
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
<PAGE>
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet for the Three Months
Ended June 30, 2000
Consolidated Statements of Operations for the Three
Months Ended June 30, 2000
Consolidated Statements of Cash Flows for the Three
Months Ended June 30, 2000
Consolidated Statements of Stockholder's Equity for
the Three Months Ended June 30, 2000
Notes to Consolidated Financial Statements for the
Three Months Ended June 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Part I.
FINANCIAL INFORMATION
This report includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934, as amended. All statements other than statements of
historical fact included in this report are forward looking statements. Such
forward looking statements include, without limitation, statements as to
estimates, expectations, beliefs, plans, and objectives concerning the
Company's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources" regarding the Company's estimate
of sufficiency of existing capital resources and its ability to raise
additional capital to fund cash requirements for future operations and
acquisitions. The forward looking statements are subject to assumptions and
beliefs based on current information known to the Company and factors that are
subject to uncertainties, risk and other influences, which are outside the
Company's control, and could yield results differing materially from
<PAGE>
those anticipated. The ability to achieve the Company's expectations is
contingent upon a number of factors which include (i) availability of
sufficient capital and capital market conditions, (ii) the Company's ability
to produce and market its products as produced by its various subsidiaries
(including, but not limited to, the PT Night Sights, Sea Patch, Gripper,
Griffon 1911 Colt 45 replica sidearm, and tire sealant), (iii) effect of any
current or future competitive products, (iv) on going cost of research and
development activities, and (v) the retention of key personnel. "PT Night
Sights", "Sea Patch", "Gripper" and "Griffon" are our trade marks. This
report may contain trademarks and service marks of other companies.
ITEM 1. FINANCIAL STATEMENTS
21st Century Technologies, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
June 30, 2000 June 30, 1999
-------------- --------------
Assets
Current Assets:
Cash and cash equivalents $ 374,389 $ 34,279
Accounts Receivable, Net 38,339 1,015,430
Inventories 509,146 172,605
Notes Receivable 826,245 35,873
-------------- --------------
Total Current Assets 1,748,119 1,258,187
Property, Plant, and Equipment, Net 454,607 194,137
Other Assets, Net 560,795 423,313
-------------- --------------
Total Assets $ 2,763,521 $ 1,875,637
============== ==============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable-trade $ 65,230 $ 121,553
Accounts Payable-other 43,707 0
-------------- --------------
Total Current Liabilities 108,937 121,553
Other Liabilities:
Working Capital Advances 1,765,458 0
Customer Deposits (4,243) 2,594
Notes Payable 12,685 55,989
-------------- --------------
Total Other Liabilities 1,773,900 58,583
-------------- --------------
Total Liabilities: 1,882,837 180,136
Stockholders' Equity:
Common Stock, issued 52,657,240 and
outstanding shares at .001 par value
at June 30, 2000 52,657 38,160
Paid-in Capital 4,607,583 3,731,914
Common Stock Earned, but not Issued 360,000 360,000
Retained Earnings (Deficit) (4,104,928) (2,404,484)
Treasury Stock (31,628) (30,089)
Stock Subscriptions ( 3,000) 0
-------------- --------------
Total Stockholders' Equity 880,684 1,695,501
-------------- --------------
Total Liabilities and Stockholders' Equity $ 2,763,521 $ 1,875,637
============== ==============
See Notes to Consolidated Financial Statements
<PAGE>
21st Century Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
3 Mos. Ended 3 Mos. Ended 6 mos. ended 6 mos. ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 213,953 $ 270,795 $ 448,346 $ 493,455
Cost of Sales 235,681 132,401 489,611 317,798
-------------- ------------- -------------- -------------
Gross Profit (21,728) 138,394 (41,265) 175,732
General and administrative
expenses 448,472 146,986 924,539 335,628
Depreciation and Amortization 41,411 30,901 74,408 61,802
-------------- ------------- -------------- -------------
Net Income (Loss) (551,611) ( 39,493) $ (1,040,212) $ (231,698)
Estimated Income Taxes 0 0 0 0
-------------- ------------- -------------- -------------
Net Income (Loss) $ (551,611) $ ( 39,493) $ (1,040,212) $ (231,698)
============== ============= ============== =============
Earnings (Loss) Per Common Share:
Basic & Diluted $ (0.01) $ (0.00) $ (0.02) $ (0.01)
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
21st Century Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30, 2000
2000 1999
------------- -------------
Cash Flows From Operating Activities:
Net Income (Loss) $ (1,040,212) $ ( 221,698)
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and Amortization 74,408 61,802
Change in operating assets and liabilities:
Accounts receivable 55,229 (18,767)
Sale of Receivable 99,409
Inventory (108,234) (13,629)
Other non-current assets and liabilities, net ( 229,993) 1,917
Accounts payable (155,194) 82,277
------------- -------------
Net Cash Provided (Used) by Operating Activities (1,304,587) (108,098)
Cash Flows From Investing Activities:
Purchase Equipment (327,168) (6,823)
------------- -------------
Net Cash Provided (Used) by Investing Activities (327,168) (6,823)
Cash Flows From Financing Activities:
Working Capital Advances 1,765,458
Increase/(Decrease) in long-term debt (61,025) (85,919)
Sale of stock and subscriptions received 189,897 223,998
------------- -------------
Net Cash Provided (Used) by Financing Activities 1,894,330 138,079
------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents 262,575 23,158
Cash and Cash Equivalents at Beginning of Period 111,814 11,121
------------- -------------
Cash and Cash Equivalents at End of Period $ 374,389 $ 34,279
============= =============
Non Cash:
Sale of Continental Weapons Receivable $ 800,591
See Notes to Consolidated Financial Statements
<PAGE>
21st Century Technologies, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
Common Paid-in Retained Treasury Stock Issued
Stock Capital (Deficit) Stock Subscribed Total Shares
--------- ------------ ------------ --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Stock Earned, but
not issued $360,000 $ 360,000
Balance December 31,
1999 $ 50,083 $ 4,420,260 $(3,064,715) $(31,628) $(79,700) $1,294,300 50,083,753
Sale of Stock 2,574 187,222 - - - 189,896 1,631,000
Subscriptions Received - - - - 76,700 76,700 -
Net Income (Loss) - - (1,001,387) - - (1,040,212) -
--------- ------------ ------------ --------- --------- ----------- ----------
Balance June 30, 2000 $ 52,657 $ 4,607,583 $(4,104,928) $(31,628) $ 357,000 $ 880,684 51,714,753
========= ============ ============ ========= ========= =========== ==========
</TABLE>
<PAGE>
See notes to Consolidated Financial Statements
21st Century Technologies, Inc. and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
For the Three Months Ended June 30, 2000 and 1999
(Unaudited)
Note 1: Summary of Significant Accounting Policies:
a. Organization and Business Activities
21st Century Technologies, Inc. was incorporated under the laws of the State
of Delaware on May 15, 1967 as Satcom Corporation. On November 6, 1991, the
Company changed its name to Hughes Pharmaceutical Corporation. Subsequent to
1991, the Company changed its name from Hughes Pharmaceutical Corporation to
First National Holding Corporation(FNHC) Delaware. The Company became public
in 1985 through a merger with International Fluidics Control, Inc. (formerly
Sensory Systems, Inc., Training With The Pros, Inc., and/or M-H Studios,
Inc.). International Fluidics Control, Inc. successfully completed a public
offering of its securities in 1969 under Regulation A of the Securities Act of
1933.
As of December 31, 1985, the Company had liquidated all business operations
and began the search for a suitable merger or acquisition candidate. As a
result of this action, the Board of Directors approved a quasi-reorganization
for accounting purposes, effective January 1, 1986, whereby all accumulated
deficits in shareholders' equity were offset against additional paid-in
capital and common stock balance sheet accounts to the extent of reducing
these accounts to equal the par value of the issued and outstanding shares of
common stock.
During the third quarter of 1994, in conjunction with the execution of a
letter of intent to acquire Innovative Weaponry, Inc. (a New Mexico
corporation), the Company consummated a plan of merger between FNHC Nevada
and FNHC Deleware whereby the Nevada Corporation was the survivor (see below)
and changed its corporate name to Innovative Weaponry, Inc. to better reflect
its future actions and pending relationship with the acquisition target. On
September 15, 1997, the Board of Directors approved a name change to 21st
Century Technologies, Inc.
Innovative Weaponry, Inc. - New Mexico was incorporated on June 22, 1988 under
the laws of the State of New Mexico. The Company was formed for the
development and sale of specialized firearms, firearm systems and related
equipment. On September 14, 1992, Innovative Weaponry, Inc. filed a petition
for relief under Chapter 11 of the Federal Bankruptcy Laws in the United
States Bankruptcy Court of the District of New Mexico. Under Chapter 11,
certain claims are stayed while the Debtor continues business operations as
Debtor-in-Possession. On August 19, 1994, IWI-NV (now 21st Century
Technologies, Inc.) and IWI-NM entered into a letter of intent whereby IWI-NV
would use its unregistered, restricted common stock and cash to satisfy
certain obligations of IWI-NM in settlement of IWI-NM's bankruptcy action.
On February 1, 1995, the U. S. Bankruptcy Court of the District of New Mexico
confirmed the IWI-
<PAGE>
NM's plan of reorganization. The plan became effective 30 days after its
confirmation. IWI-NM became a wholly owned subsidiary of Innovative Weaponry,
Inc. (IWI-NV) (formerly First National Holding Corporation) (FNHC Nevada) (now
known as 21st Century Technologies, Inc.), a publicly owned company.
b. Cash and Cash Equivalents:
For purposes of reporting cash flows, the Company considers all cash on hand
and in banks, certificates of deposit and other highly liquid debt instruments
with a maturity of three months or less at the date of purchase to be cash and
cash equivalents.
c. Revenue recognition and credit policies:
In the normal course of business, the Company sells its goods on "cash in
advance" or "cash on delivery", but primarily extends unsecured credit to its
customers involved in the retail and wholesale sale of the Company's products.
Revenue is recognized when products are shipped to the wholesale or retail
purchaser. All products are shipped F.O.B. the Company's facilities.
Management has provided an allowance for doubtful accounts, which reflects its
opinion of amounts, which will eventually become uncollectible. In the event
of complete non-performance by the Company's customers, the maximum exposure
to the Company is the outstanding trade accounts receivable balance at the
date of non-performance.
d. Inventory:
Inventory consists of raw materials used in the manufacture of firearm
products and finished goods imported for resale. Inventory is carried at the
lower of cost or market value, using the first-in, first-out method (FIFO).
e. Property and equipment:
Property and equipment is recorded at its historical cost. Depreciation is
provided in amounts sufficient to relate the asset cost to operations over the
estimated useful life (three to seven years) using the straight-line method
for financial reporting purposes. Gains and losses from disposition of
property and equipment are recognized as incurred and are included in
operations.
f. Income Taxes:
The Company uses the asset and liability method as identified in SFAS 109,
Accounting for Income Taxes.
<PAGE>
g. Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
h. Asset Impairment:
The Company adopted the provisions of SFAS 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, in its
financial statements for the year ended December 31, 1995. The Company
prepares an undiscounted estimate of future cash flows for each long-lived
asset (excluding production equipment) on an annual basis. If the carrying
value of the asset exceeds undiscounted future cash flows expected to be
produced by the asset, the Company recognizes an impairment loss. The Company
measures the amount of the impairment loss as the amount by which the carrying
value of the asset exceeds its fair value. The Subsidiary Bankruptcy Excess
Reorganization Value is evaluated annually for events or conditions which
would indicate impairment. Management estimates cash flows which can be
expected for continuing to use the asset and then compares these estimated
cash flows to the asset's carrying amount. If the estimated cash flows
resulting from continuing to use the asset exceed the carrying amount of the
asset, an impairment adjustment is not necessary. There has been no effect as
of December 31, 1999 of adopting SFAS 121.
i. Stock-Based Compensation:
The Company will follow the fair value based method of accounting as
prescribed by SFAS No. 123, Accounting for Stock-Based Compensation, for its
stock-based compensation. The Company currently does not have a stock option
plan.
j. Principles of Consolidation and Presentation --Wholly-Owned Subsidiaries:
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Intercompany transactions and accounts have been eliminated
in the consolidation.
k. License Agreement:
The License agreement is amortized over the life of the related patent
technology (generally 17 years) using the straight-line method.
<PAGE>
l. Research and Development Costs:
The Company expenses any research and development costs in the period which
they are incurred. There are no research and development costs incurred in
the periods presented.
m. Treasury Stock:
The Company utilizes the cost method to account for the acquisition of
Treasury Stock.
n. Basis of Presentation:
Financial information presented as of any date other than December 31 has been
prepared from the books and records without audit. The accompanying financial
statements have been prepared in accordance with the instructions to Form
10QSB and do not include all of the information and the footnotes required by
generally accepted accounting principles for complete statements. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such financial statements,
have been included.
These financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1999.
Note 2: Accounts Receivable
On November 6, 1998, Innovative Weaponry received a purchase order from
Continental Weapons Ltd for 32,103 Night Sights. Continental was invoiced and
a quantity of sights were shipped to South Africa. The balance of the order (
approximately 1,000 sights) has been manufactured and is being held at the
Company's manufacturing facility to be installed on the Griffon replica of the
Colt 45 as they are received by the Company. The Company is receiving the
first 1000 pistols sightless and are invoiced for a pistol without sights.
The receivable is decreased by the number of sights used when they are
installed on the pistols and income is credited for the sights installed. Due
to Continental's inability to ship the entire 1000 pistol order, the
receivable was not decreased materially during 1999. The Continental Weapons
invoice remained unpaid as of December 31, 1999; however, the Company
negotiated an agreement to sell the receivable for the full invoice value.
The sale was consumated April 1, 2000 to Great Mughal Trade Associates,
Ltd.(GMTA). GMTA purchased the receivable and the rights to 31,103 Night
Sights for $900,000.00 paying $50,000.00 down and a note for $850,000.00
payable $85,000.00 per month for 10 months.
6/30/00 3/31/00 12/31/99 12/31/98
---------- --------- ---------- ----------
Outstanding Invoice-Continental $ 23,422 $ 923,422 $ 923,422 $ 930,987
<PAGE>
Note 3: Other Assets
License Agreement: In June 1995, Trident, a wholly owned subsidiary of the
Company, entered into a license agreement (Agreement) with Trade Partners
International, Inc. (TPI) to acquire the exclusive license to certain patent
rights conveyed to TPI by The University of California as operators of Los
Alamos National Laboratory (patent holder) related to the development,
marketing and sales rights to certain specified magnetic and/or magnet
technology.
The agreed-upon and negotiated value of the Agreement at acquisition date was
$75,000. Subsequently, the transaction was re-negotiated and 21st Century
acquired all of the common stock of TPI in a Type B reorganization.
Trident, as sub-licensee, is obligated to pay a royalty fee of 8.0% on net
income (as defined in the Agreement) of products sold using the patented
technology. Further, Trident is to pay an annual maintenance fee, which was
$24,000 for the third and all subsequent years of the Agreement. All royalty
fees paid during a specific year are to be credited to that year's maintenance
fee and the maintenance fee requirement is considered met if the royalty
payments during an Agreement year are equal to or exceed the required
maintenance fee.
Trademark: The trademark "PT Night Sights" has been capitalized at cost and
is being amortized over 17 years.
Bankruptcy excess Re-Organization Cost: Innovative Weaponry, Inc. (IWI)
emerged from a bankruptcy filing under Chapter 11 of the US Bankruptcy Code,
effective March 1, 1995. As a result of the Plan of Reorganization, IWI
became a wholly owned subsidiary of 21st Century Technologies, Inc. and all
prior IWI shareholders retained less that a 50% interest in the combined
reorganized entities.
In conjunction with IWI's emergence from protection under Chapter 11, IWI
adopted "fresh-start" accounting as a result of its acquisition by 21st
Century. "Fresh start" accounting allows for the restatement of all assets
and liabilities being set to the fair market value of each respective category
and the restatement of retained earnings to "0". The resulting amount was
debited to the account "Reorganization value in excess of amounts allocable to
identifiable assets". This balance is being amortized over ten (10) years
using the straight-line method. The amortization period began on March 1,
1995, concurrent with the effective date of IWI's Plan of Reorganization.
The adjustment necessary to reflect the "fresh-start" accounting, as
prescribed by Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" issued by the American Institute of
Certified Public Accountants reflected a Reorganization value in excess of
amounts allocable to identifiable assets.
<PAGE>
Note 4: Stockholders' Equity
The total number of all classes of authorized capital stock is 200,000,000
shares, all of which are Common Stock, $0.001 par value per share. As of
June 30, 2000, there are 52,657,240 shares of common stock issued. An
additional 19,000,000 shares of common stock has been earned under a previous
consulting agreement with the Chairman. These shares were not issued to Mr.
Wilson because the Company needed the shares to raise equity capital.
Additionally, it was discovered that the authorized shares had not been
properly filed with the State of Nevada. The Company retroactively corrected
this issue during this quarter. Mr. Wilson's shares are represented in the
Equity section of the balance sheet as common stock earned but not issued. An
adjustment to the 1997 ending retained earnings was recorded to record the
compensation expense incurred by the Company
Note 5: Earnings (Loss) Per Common Share
Earnings per common share are computed by dividing net income by the weighted
average number of common shares outstanding during the years 1999 and 1998.
There were no common stock equivalents outstanding during the years 1999 and
1998. SFAS No. 128, Earnings per Share applies to entities with publicly held
common stock and establishes standards for computing and presenting earnings
per share (EPS). Basic EPS excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Note 6: Income Taxes
At December 31, 1999, the Company has available net operating loss
carryforwards of approximately $2,704,715 for federal income tax purposes that
begin to expire in 2008. The federal carryforwards resulted from losses
generated in prior years and have created a deferred tax asset o $919,603. It
is believed to be "more likely than not" that taxable income in the periods
prior to the expiration of the deferred tax assets will not be sufficient for
the deferred tax assets to be recognized; therefore, a valuation allowance of
$919,603 has been recognized to offset the deferred tax assets. There are no
deferred tax liabilities. Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes.
Note 7: Risks and Uncertainties
The Company operates in highly specialized industries. There are only four
companies worldwide who manufacture and sell night sights using tritium. The
Company ranks number three out of four. The gun sight industry is highly
dependent on major firearms manufacturers as well as consumer and governmental
demand for weapons. World
<PAGE>
conditions and economies can affect the future sales of this product.
The Company's magnetic and hydraulic-magnetic technologies are largely
un-proven and may require additional extensive testing before marketing these
products can continue. Demand for these products from governmental and
industrial sources is largely estimated and while the Company has studied
various markets, no assurance can be given that these products can be
successfully marketed.
In the future, these products will be marketed outside the United States,
which will subject the Company to foreign currency fluctuation risks.
The Company's firearm replica and tire sealant import division has not been
tested in the U. S. market and the estimated demand for these products may not
reach the Company's expectations.
Note 8: Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
financial instruments:
Cash and Cash Equivalents. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
Accounts Receivable and Accounts Payable. The carrying amount of accounts
receivable and accounts payable in the balance sheet approximates fair value.
Short-Term and Long-Term Debt. The carrying amount of the debts recorded in
the balance sheet approximates fair value.
The carrying amounts of the Company's financial instruments at December 31,
1999 and 1998 represent fair value.
Note 9: Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. It requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial statement
and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid in capital in the equity
section of a statement of financial position. The Company's comprehensive
income does not differ from its reported net income.
<PAGE>
Note 10: Business Segments
The Company has five business segments: (a) Manufacture of night sights for
handguns, (b) Manufacture of "the Gripper", a patented device used for
climbing steel surfaces, (c) Manufacture of an Emergency Magnetic-Hydraulic
Sea Patch System (d) Importation and resale of firearms and (e) Importation
and Distribution of a Tire Sealant product. The majority of the Company's
sales are derived from sales of night sights. The other segments sales are not
material to these financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS
The Company's current revenue is derived from sales of product by its four
operating subsidiaries as follows:
1. Innovative Weaponry Incorporated.
We introduced our new line of lower profile PT Night Sights at the SHOT show
in Las Vegas, NV during the 1Q00. We featured the low profile design we made
for the Glock handgun. Subsequently, in the 2Q00 we added additional low
profile designs including those for the Sig Sauer, Colt, H&K, Styer, Smith &
Wesson, Novak style and our own Griffon.
Our master gunsmiths created the low profile sights to lessen the possibility
for "snags" on protective gear and clothing. A low profile is also easier to
holster since it moves more smoothly throughout all ranges of motion. Since
field conditions range from benign to hostile, we believe that the low profile
offers an added measure of safety particularly for persons with small hand
size and grip strength. However, the low profile will not replace the
traditional design configurations which we have sold during the past four
years. Both traditional and low profile compliment one another giving our
customers a fuller range of design choices based upon personal preference.
During the 2Q00, we implemented a number of engineering and manufacturing
changes to the design and fabrication of our night sights. A number of these
changes were prompted by feed back from our customers. None of these changes
altered, however, the fact that we continue to "machine" not "cast" our night
sights. Our customers may not know the difference between the two processes
when comparing our night sights against competitors.
"Casting" is the process of taking steel (while in a molten state) and pouring
it into a mold of a specific shape. In order for the molten steel to pour,
additives such as sulfur and other impurities must be utilized. These
impurities impart certain negative qualities. As a result, a cast night sight
must be sandblasted after it comes out of the mold followed by an oxidation
processing called "bluing".
<PAGE>
Essentially bluing is a controlled oxidation process performed in a super
heated bath (i.e. approximately 285 degrees Fahrenheit) containing sodium
hydroxide and sodium nitrate. During bluing, the steel imparts a "black rust"
surface instead of the normal "red rust" surface. Also, a cast sight after
bluing turns a "plum color" which is the result of the impurities. However,
our machined sights turn a "deep black" color after bluing which is considered
by armorers to be more desirable. Further, a cast sight appears "rough" after
bluing while our machined sights are "smooth".
Despite the superiority of machined sights, our competitors continue to cast
their sights based on a lower production unit cost. During casting, thousands
of piece goods can be mass molded in a much shorter period of time then it
takes us to machine the same number of sights by hand. While this mass
production results in a lower price per each sight, the high cost of molds
(which might cost $15,000 to $25,000) means that any change in design will
require new molds. For example, to change elevation impact (as we did in our
new low profile sights) requires numerous new molds with various combinations
of higher or lower front and/or rear sights. Thus, by introducing new low
profile sights, we believe that we have achieved an additional competitive
advantage based upon the high cost of market entry for our competitors who
would have to re-mold their production lines. We have also improved the fit
of our "dovetails" which hold the sights onto the particular weapon being
equipped. In fact, our dovetails are machine cut at our manufacturing
facility to tolerances that allow custom fitting by our gunsmiths for that
bench made fit and feel.
To aid our gunsmiths, we have designed special tools to better fit the
"slides" and sights together. Because some 6 G's of force act upon the slide
during recoil of a firearm, we use a special tool we call the "Slammer". This
device uses air pressure and simulates recoil velocity such as encountered
with a semi-automatic pistol. We can test adhesion of the sights more rapidly
and with greater precision with the Slammer.
Also during the 2Q00, our research and development resulted in seven (7)
patent applications being filed with the U.S. Patent and Trade Mark Office in
Washington, D.C. as follows:
Application No. Description Filing Date Allowance Date
29/ 119,941 Replacement 2/28/00 6/29/00
Blade Rear
Sight Handgun
29/ 119,487 Front Sight 2/28/00 6/29/00
Handgun
29/ 119,382 Fixed Rear 2/28/00 6/29/00
Handgun
29/ 119,493 Adjustable 2/28/00 6/29/00
Rear Shotgun
Ghost Ring
29/ 119,492 Two Piece 2/28/00 6/29/00
Rear Sight
Handgun
<PAGE>
29/ 119,383 Front Sight 2/28/00 6/29/00
Shotgun
29/ 119,489 Front Sight 2/28/00 6/29/00
Shotgun
We believe that additional design innovations will result in patent filings in
the 3Q00. We believe that our line of 20 configurations and multi-color
formats represents the broadest choices of any manufacturer. Our fixed PT
Night Sight for revolvers and a new adjustable "ghost ring" for shot guns were
added to our product inventory in 2Q00.
We believe that increased media coverage of our product line will help
increase sales. We have ads in three major publications: Guns & Ammo (588,000
readers per month); Shot Business (circulation directed to firearms dealers
and storeowners); and Handguns (157,000 readers per month) a publication
directed to personal defense and handgun enthusiasts.
However, sales have remained steady and without the increase we believed would
be generated by added media coverage. Over past years, we have relied upon
trade shows like the SHOT show (Shooting, Hunting and Outdoor Trade, IACP show
(International Association of Chief's of Police), COPEX (military and law
enforcement) and TREXPO and our regional representatives for increasing sales.
We now believe that the summer months will continue to be "soft". Since many
of our customers don't traditionally place their orders until mid-August or
September, we believe that sales will increase in the 3Q00. A number of
industry sources believe that handgun sales will continue to be soft until
after the Presidential elections which could adversely impact sales of night
sights on new handguns, but not on those already purchased by our customers or
in the marketplace.
2. Trident Technologies Incorporated.
During the 2Q00, Douglas N. Spring, President of Trident and Buren Palmer,
Chief Technology Officer, made numerous field demonstrations of the Sea Patch
to members of the maritime industry and hazardous materials ("HAZMAT")
prevention and clean-up industries. Assisting Messrs. Spring and Palmer in
these demonstrations was Donald Alford of Baton Rouge, LA. Mr. Alford
currently acts as an unpaid consultant to Trident with contract negotiations
being pursued by the parties. Mr. Alford is experienced in oil industry sales
and recently sold his Houston, TX based business.
The demonstrations were made to a broad representation of Gulf Coast shipping,
oil storage and HAZMAT related entities. At the demonstrations, Mr. Palmer
(who is experienced in maritime repair and maintenance as a former U.S. Navy
SEAL diver) is available to answer questions.
<PAGE>
During the 2Q00, we have continued to refine the re-design of the Sea Patch.
As originally designed at the Los Alamos National Laboratory in Los Alamos,
New Mexico, the Sea Patch consisted of a series of magnetic pods attached to a
circular plate with a flexible sealing gasket on its inner surface. Using
cam-on/cam-off technology, the Sea Patch could be affixed to ferrous metal
surfaces like a ship's hull or a storage container. Once the Sea Patch was
screwed down using cam-on mechanics, its surface plate and flexible seals
stopped leaks by exerting a powerful pressure gradient over the damaged
surface area thereby off-setting the backward pressure of the leak. Although
effective in its original design, our design modifications were driven by the
need for a dramatic reduction in weight and the ability to adapt the size of
the Sea Patch to "tears, punctures and rips" that came in all sizes. In
addition, we began testing a number of Sea Patch designs for application in
non-ferrous metal HAZMAT applications such as for highway accidents involving
overturned aluminum skinned tanker trucks.
Our design changes resulted in a series of hand built Sea Patch models which
was then followed by field testing using our own demonstration hull plate and
pressure gradient measurement devices. We also sought input from our
potential customer base which is composed of HAZMAT personnel, storage
facilities, rail car, inland barges and ocean tankers as to what they
currently used in emergency and/or repair situations. Using this "anecdotal"
and "roll-up" your sleeves methodology, we were able to re-design the Sea
Patch into a component kit consisting of a series of strong back bars,
locking-pins, and modular magnetic pods. The design innovations have now been
completed with an expanded product line consisting of pre-built Sea Patches in
6 inch (circular), 12 inch (circular), 36 inch x 4 inch configurations and in
a variety of component kit forms. We now have named the new design the ProMag
6, ProMag 4 and the ProMag 3 reflecting size and the number of magnet pods.
We have established pricing models for the Sea Patch on both a sale and lease
basis. This allows buyers to take into consideration their own budgetary
needs selecting anywhere from entry level to a complete inventory of Sea Patch
designs. Our objective has been to make the Sea Patch something everyone can
initially afford with re-sales coming from old customers expanding design
capability through the purchase of kit components. Also, we have integrated
the Gripper as one of the kit components. The Gripper whose magnets are worn
on the hands and feet gives the under water diver or surface repair crew the
added ability to safely reach the point of an accident on the hull of a ship
(which is slippery and subject to jarring wave movement).
We will submit the new design to the American Bureau of Shipping ("ABS")for
certification. Although on February 4, 2000, we obtained "certification" of
the Sea Patch from the ABS, it does not cover the new design. The ABS is a
non-for-profit and non-governmental organization which acts as a
self-regulatory agency for the international marine industry. We will
continue to test further generations of design modifications with the ABS and
other maritime testing bodies worldwide to determine structural and technical
fitness.
We received our first order for the Sea Patch from an Indian Ocean customer
based in the Seychelles who saw the early design at the offshore conference in
Houston, TX. The order was for 500 units
<PAGE>
with the first 100 Units to be delivered in July 2000. The units were priced
at our cost plus 20% with a revenue sharing arrangement following recovery of
manufacturing costs. We received partial payment of approximately $150,000
towards the units which we used to purchase an inventory of magnets for the
cam-on/cam-off pods. The magnets represent the most costly component of the
units. We now have sufficient magnets to deliver the 100 units. Final
delivery of the units will take place after we have completed filing for
patent protection on the ProMag design modifications. Fabrication of the
ProMag will be out sourced to select sub-contractors in a production schedule
which we believe is 4 to 6 weeks in duration.
We believe that patent filings will be completed in the 3Q00. The ProMag will
make its international debut at the Stavanger, Norway maritime show scheduled
for August 21-25, 2000. At the Stavanger show, consumer response will help
determine the best mix between the ProMag 6, 4 and 3 design for the Indian
Ocean. It is too early to make any projections on revenues and profitability
since we are sourcing materials and determining marketing costs. Although the
Indian Ocean represents a major maritime market in close proximity to both
Africa, Southeast Asia, and Australia, future sales of the Sea Patch and
ProMag will depend upon a number of factors the most important of which is
acceptance of the technology by the maritime and HAZMAT industries.
3. Griffon USA, Inc.
Griffon USA, Inc. ("Griffon"), is an importer and licensee of Continental
Weapons (Pty), Inc., a South African manufacturer of a replica 1911 Colt 45
sidearm, rifles and other guns.
A feature article about the Griffon appeared in the June 2000 edition of
Combat Guns. The article was favorable and underscores a number of features
concerning the Griffon.
4. TRADE PARTNERS INTERNATIONAL, INC.
During 2Q00, Trade Partners International, Inc. ("Trade Partners") continued
to work with William Baylor, formerly a principal of Vee Tubes USA, a bicycle
inner tube company, based in Olney, IL. Mr. Baylor is a 25 year veteran in
the bike industry. Due to a management decision of Vee Tubes parent, the plan
to insert a our sealant was interrupted when USA activities were closed down.
The sealant is used to prevent punctures in tube and tubeless tires.
During this period, we decided to "test" our tire sealant in both the
laboratory and field. The laboratory testing will consist of determining the
"sealing tolerances" of our tire sealant versus others in the industry. The
field testing will consist of collection of historical data based on a
mountain bike event we will sponsor. The findings will be used to determine
whether our product is competitive based on objective criteria. The findings
will help us in determining whether reformulation is necessary. We hope the
results will be available for the up coming bike show in Las Vegas, NV in late
September 2000.
<PAGE>
REVENUES
Our primary source of revenue during the three months ended June 30, 2000
continued to be from the sales of PT Night Sights. During the three months
ended March 31, 2000, we increased sales of PT Night Sights over the previous
period, but sales during the summer months are typically soft. We believe
that sales will increase after Labor Day, but the political issues surrounding
handgun registration and ownership may contribute to a continuing softening of
sales. In addition, the U.S. Presidential election outcome may dramatically
effect sales in the future either positively or negatively depending on which
candidate wins.
COST OF SALES
Cost of sales for PT Night Sights consists primarily of material and labor
costs. Because of the competitive nature of our business individual unit cost
is confidential, but our cost of goods sold increased during the quarter
because of new design innovations such as the low profile configuration for
the Glock and other gun manufacturers. In addition, customizing the Griffon
added additional expenses. However, these should be non-recurring expenses in
subsequent quarters.
MARKETING AND SALES EXPENSE
During the 2Q00, we spent approximately $50,000.00 on print media to keep our
product circulating among gun enthusiasts. This is about the same amount we
spent in the previous period.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense is comprised primarily of compensation and
related expenditures for administrative and executive personnel, professional
fees associated with legal, consulting, accounting services, and general
corporate overhead.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense consists primarily of personnel costs
including salaries, benefits and consultant costs related to the research and
preliminary development efforts in design modifications to our PT Night
Sights, Sea Patch and Griffon (attributable to our Innovative Weaponry,
Trident Technologies and Griffon subsidiaries).
Through the period ended June 30, 2000, we have incurred operating losses
since our inception. To date, our consolidated operations have not been
profitable and there is no assurance that they will become profitable in the
future.
Significant changes in product design in our Innovative Weaponry, Trident
Technologies, and Trade Partners subsidiaries in 1999 (which are being
implemented in the first three months of 2000) distort the comparability
between periods and as to future revenues. We believe these design changes
make our products more appealing to our customers and therefore have warranted
the time and expense of research and development.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES.
Our cash position, less known commitments and contingencies, plus outside
financing received through June 30, 2000, plus cash generated from operations
for the balance of fiscal year 2000 should be adequate to fund our on-going
operations and to fund the further development of the Sea Patch and MagPro,
including any patent applications. Although we should have improved operating
results, we will still require substantial additional capital during fiscal
2000 to go into manufacture and marketing the Sea Patch following design
modification and testing.
Our capital requirements will depend on many factors, including, cash flow
from operations, additional working capital requirements, additional product
development expenses and capital expenditures. To the extent existing
resources are insufficient to fund our operations in the short- or long-term,
we will need to raise additional funds through public or private financings.
We may not be able to raise additional financing on terms favorable to us or
to our stockholders without substantial dilution of their ownership and
rights. If we are unable to raise sufficient funds to satisfy either short-
or long-term there would be substantial doubt as to our ability to continue as
a going concern on either a consolidated basis or through continued operation
of any subsidiary, and we may be required to significantly curtail our
operations, significantly alter our business strategy, forego market
opportunities, or obtain funds through arrangements with strategic partners or
others that may require us to relinquish material rights to certain of our
technologies or potential markets.
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
There are no material legal proceedings to which we are a party or which any
of our property is the subject other than ordinary, routine claims incidental
to our business.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
None.
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 thereto duly authorized.
21ST Century Technologies, Inc.
_______________________________________
Registrant
11-6-00 /s/ Kenneth E. Wilson
_________ ________________________________________
Date Kenneth E. Wilson
