<PAGE>
As filed with the Securities and Exchange Commission on July 13, 2000.
Registration No. __________
==============================================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
--------------------------------------------
(Name of small business issuer in its charter)
Utah 334414 87-0427597
------ ------ ----------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
923 West 500 North
Lindon, Utah 84042
(801) 785-6520
--------------
(Address and telephone number of principal executive offices)
923 West 500 North
Lindon, Utah 84042
------------------
(Address of principal place of business
or intended principal place of business)
David R. Porter
923 West 500 North
Lindon, Utah 84042
------------------
(Name, address and telephone number of agent for service)
Copies to:
Branden T. Burningham, Esq.
455 East 500 South, Suite 500
Salt Lake City, Utah 84111
(801) 363-7411
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [_]
If this Form is a post effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
==============================================================================
CALCULATION OF REGISTRATION FEE
Title of
Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price per Offering Registration
Registered Registered Share (1) Price (1) Fee
---------- ---------- --------- --------- ---
Common Stock
underlying 1,000,000 $1.28125 $1,281,250 $338.25
Warrants(2) . . . . shares
==============================================================================
(1) Estimated solely for the purpose of calculating the registration fee
under Rule 457(c) under the Securities Act on the basis of the average of the
bid and asked price of our common stock as quoted on the OTC Electronic
Bulletin Board on June 15, 2000.
(2) In accordance with Rule 416 under the Securities Act of 1933, as amended,
a presently indeterminable number of shares of common stock are registered
hereunder which may be issued in the event the anti-dilution provision of the
Warrants becomes operative.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
1,000,000 Shares of Common Stock
This prospectus covers an aggregate of 1,000,000 shares of our
common stock, which may be sold, from time to time, by one of our
stockholders, Verity Global Financial, LLC, a Texas limited liability company.
These shares underlie warrants that we have granted to Verity. We will not
receive any money from Verity when it sells its shares of common stock. We
have agreed to pay all costs and expenses relating to the registration of our
common stock, but Verity will be responsible for any related commissions,
taxes, attorney's fees and related charges in connection with the offer and
sale of these securities. Verity may sell all or a portion of the shares
registered by this registration statement in private transactions or in the
over-the-counter market at prices related to the prevailing prices of our
common stock at the time of negotiation. Verity may sell its common stock
through one or more broker-dealers, and such broker-dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from Verity.
Our common stock is quoted on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. (the "NASD"), under the symbol "GTSM."
On June 15, 2000, the price of our common stock as quoted on the OTC Bulletin
Board was $1.25.
These securities involve a high degree of risk. See the caption
"Risk Factors," beginning on page 4 of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of the prospectus. Any representation to
the contrary is a criminal offense.
You may rely only on the information contained in this prospectus.
We have not authorized anyone to provide information different from that
contained in this prospectus. Neither the delivery of the prospectus nor the
sale of common stock means that information contained in this prospectus is
correct after the date of this prospectus. This prospectus is not an offer to
sell or a solicitation of an offer to buy these shares of common stock in any
circumstances under which the offer or solicitation is unlawful.
The date of this prospectus is __________, 2000.
1
<PAGE>
TABLE OF CONTENTS
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Determination of Offering Price and Dilution. . . . . . . . . . . . . . 8
Selling Security Holders . . . . . . . . . . . . . . . . . . . . . . . .8
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . .9
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Directors, Executive Officers, Promoters and Control Persons . . . . . 11
Security Ownership of Certain Beneficial Owners and Management . . . . 14
Description of Securities . . . . . . . . . . . . . . . . . . . . . . .15
Interest of Named Experts and Counsel . . . . . . . . . . . . . . . . .16
Disclosure of Commission Position on Indemnification for Securities . .16
Act Liabilities
Description of Business . . . . . . . . . . . . . . . . . . . . . . . 18
Management's Discussion and Analysis or Plan of Operation . . . . . . .26
Description of Property . . . . . . . . . . . . . . . . . . . . . . . .27
Certain Relationships and Related Transactions . . . . . . . . . . . . 28
Market for Common Equity and Related Stockholder Matters . . . . . . . 28
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 30
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 32
Changes in and Disagreements with Accountants on Accounting and . . . .70
Financial Disclosure
2
<PAGE>
AVAILABLE INFORMATION
We file periodic reports with the Securities and Exchange
Commission. These documents may be inspected and copied at the Public
Reference Room of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-
SEC-0330 for additional information. Our Commission filings are also
available from the Commission's web site: http://www.sec.gov.
We have filed a registration statement with the Commission on Form
SB-2, under the Securities Act of 1933, with respect to the securities
described in this prospectus. This prospectus is filed as part of the
registration statement. It does not contain all of the information set forth
in the registration statement and the exhibits and schedules filed with it.
For further information about us and the common stock described by this
prospectus, we refer you to the registration statement and to the exhibits and
schedules filed with it. Copies of these documents may be inspected at or
obtained from the Public Reference Branch.
PROSPECTUS SUMMARY
GALTECH SEMICONDUCTOR MATERIALS, INC.
-------------------------------------
Since this is a summary of the terms of the common stock described
in this prospectus, it does not contain all of the information that may be
important to you. This prospectus contains "forward-looking" information
within the meaning of the Private Securities Litigation Reform Act of 1995.
We believe that the forward-looking statements contained in this prospectus
are within the meaning of the safe harbor provided by Section 27A of the
Securities Act of 1933. Forward-looking statements contained in this
prospectus involve known and unknown risks, uncertainties and other factors
that could cause actual results, financial or operating performance to differ
from the future results, financial or operating performance or achievements
expressed or implied by such forward-looking statements. You should read the
following summary and the "Risk Factors" section along with the more detailed
information , financial statements and the notes to the financial statements
appearing elsewhere in this prospectus before you decide whether to purchase
the common stock described in this prospectus.
The Company
-----------
Galtech conducts research and development of a reliable method for
growing large, single crystal semiconductor material using cadmium telluride
and cadmium zinc telluride.
The Offering
------------
Securities offered by us . . . None
Securities that may be sold
by our stockholders . . . . . . 1,000,000 shares of our common stock.
Use of proceeds . . . . . . . . We will not receive any money from any
stockholders when they sell their shares of
common stock.
Offering Price . . . . . . . . .Market prices prevailing at the time of sale,
at prices related to the prevailing market
prices, at negotiated prices or at fixed
prices, all of which may change.
Transfer Agent . . . . . . . . .American Registrar & Transfer Company,
342 East 900 South, Salt Lake City, Utah
84110, serves as the transfer agent and
registrar for our outstanding securities.
3
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RISK FACTORS
------------
We Have a Limited Operating History.
------------------------------------
Although Galtech was incorporated in 1984, it stopped operating in
1990 and has only recently recommenced its operations. Galtech's business
plan calls for it to conduct research and development on the production of
monocrystalline cadmium telluride for use as semiconductor materials.
However, Galtech is still in a formative stage. You should be aware of the
difficulties that new companies in a highly competitive industry normally
encounter. We have limited evidence that our business plans will prove
successful or that we will be able to market our products successfully. We
can not assure you that we will be able to operate profitably in the future.
We Have Not Proved Our Production Technology.
---------------------------------------------
We have designed our research and development activities to
reproduce the results of our 1990 production of a large, high quality
monocrystalline boule, or lump, of cadmium telluride. Our President and CEO,
William F. Pratt, has developed a model for the production of this compound.
Our focus during the next 12 months will be to test and refine the model. Our
goal will be to develop a consistent, reliable method for producing high
quality, round wafers of cadmium telluride. To date, we have been
unsuccessful in reproducing our earlier results. We can not guarantee that we
will succeed. If we are not able to develop a reliable process for producing
marketable cadmium telluride wafers, our business is likely to fail.
We Have a History of Losing Money.
----------------------------------
Galtech is still a development stage company. We have not yet
earned an annual profit. Our gross revenues and net losses for the three
calendar years ended December 31, 1999, are shown below:
Year ended Gross Net
December 31, Revenues Loss
------------ -------- ----
1997 $42,000 $290,549
1998 -0- $464,211
1999 -0- $729,731
In addition, we had a net loss of $198,591 during the quarterly
period ended March 31, 2000. In the foreseeable future, we are likely to
report losses on an annual basis. We can not assure you that our business
operations will ever be profitable.
4
<PAGE>
Any substantial downturn in economic conditions or any significant
price decreases in the semiconductor industry could seriously hurt our
business. Economic conditions such as inflation may also make attractive
financing rates for Galtech or its customers unavailable and may also impair
our business.
We Do Not Have a Source of Revenue.
-----------------------------------
We will have no source of revenue until we have shown that we can
produce marketable amounts of high quality cadmium telluride. Our operations
are still in a research and development phase. We can not assure you that we
will succeed in our production efforts.
Our Financial Statements Have an Auditor's 'Going Concern' Opinion.
-------------------------------------------------------------------
The Independent Auditors' Report issued with our audited financial
statements for the calendar years ended December 31, 1999, and 1998, expresses
"substantial doubt about [our] ability to continue as a going concern," due to
our status as a development stage company and our lack of significant
operating results.
We Will Depend on Additional Financing.
---------------------------------------
Galtech will need substantial additional funding in order to refine
its production model and begin producing marketable amounts of cadmium
telluride. We will use this funding to upgrade our control software and to
purchase three additional production furnaces and additional equipment. If we
can not secure this financing, we will be able to produce only limited amounts
of our product and we may be unable to produce enough material to become
profitable. We can not assure you that we will be able to raise enough
funding to make our operations viable.
We Rely Heavily on Existing Management.
---------------------------------------
Our operations depend heavily upon the expertise of William F. Pratt
and David R. Porter. The loss of either Dr. Pratt or Mr. Porter will
seriously limit our research and development activities. If our production
model proves successful and we can produce marketable amounts of cadmium
telluride, our success will also depend on our ability to attract and retain
qualified management, administrative and sales personnel. We can not assure
you that we will succeed at this. Galtech does not carry "key man" insurance
on the lives of any of its officers.
Our Management Devotes Insignificant Time to Our Activities.
------------------------------------------------------------
Other entities employ our officers full-time. Our officers have not
been able to devote their full time to Galtech's affairs because due to delays
in funding. Because of their time commitments, we expect that management will
devote only part time attention to Galtech's activities, at least until
Galtech has tested and refined it production methods and is able to produce
marketable amounts of product.
5
<PAGE>
Our Industry Changes Rapidly.
-----------------------------
The high technology industry changes rapidly. We believe that our
success will depend on our ability to offer technologically competitive
products. Depending on the success of our initial research and development
efforts, we intend to develop new products based on different chemical
structures such as Indium Phosphide and Gallium Antimonide. However, we can
not guarantee that we will have the ability or resources to develop any new
products. Our competitors may develop products that are technologically
superior to ours or that achieve greater market acceptance. Our competitors'
development of any superior technology or our inability to respond to such a
development could make our planned products obsolete. This would seriously
hurt our business, financial condition and results of operations. Our
relative lack of capital resources could make us unable to develop new
technologies or to respond to technological changes.
We Do Not Pay Dividends.
------------------------
Galtech has never paid any cash dividends on its common stock. We
do not intend to pay any dividend in the foreseeable future.
Our Stockholders' Sales of Our Shares Could Hurt Our Stock Price.
-----------------------------------------------------------------
Of the 14,844,018 outstanding shares of our common stock, 6,781,805
are freely tradeable, and 8,062,213 are unregistered securities and therefore
restricted from resale other than through a transaction complying with the
provisions of Rule 144, adopted under the Securities Act of 1933, or some
other exemption from registration.
Under Rule 144, if certain information about Galtech is publicly
available, people who have held our restricted securities for at least one
year may sell up to one percent of our outstanding common stock or the average
weekly reported volume in our common stock. Under Rule 144(k), non-affiliates
may make unlimited sales of our restricted stock if they have held our shares
for two years. Future sales under Rule 144 or Rule 144(k) could depress the
market price of our shares.
Our Stock is "Penny Stock."
---------------------------
Our common stock is "penny stock" as defined in Reg. Section
240.3a51-1 of the Securities and Exchange Commission. Penny stocks are
stocks:
with a price of less than five dollars per share;
that are not traded on a "recognized" national exchange;
whose prices are not quoted on the NASDAQ automated quotation
system; or
6
<PAGE>
in issuers with net tangible assets less than $2,000,000, if
the
issuer has been in continuous operation for at least three
years, or $5,000,000, if in continuous operation for less than
three years, or with average revenues of less than $6,000,000 for
the last three years.
Our common stock is currently quoted on the OTC Bulletin Board of
the NASD. However, there has been no "established public market" for our
common stock during the last five years. If we ever meet the eligibility
requirements, we may try to qualify for quotation on either NASDAQ or a
national securities exchange. However, at least initially, our stock will
probably trade on the OTC Bulletin Board.
Section 15(g) of the Securities Exchange Act of 1934 and Reg.
Section 240.15g-2 of the Securities and Exchange Commission require
broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before making any transaction in
a penny stock for the investor's account. You are urged to obtain and read
this disclosure carefully before purchasing any of our shares.
Reg. Section 240.15g-9 of the Securities and Exchange Commission
requires broker-dealers in penny stocks to approve the account of any investor
for transactions in these stocks before selling any penny stock to that
investor. This procedure requires the broker-dealer to:
get information about the investor's financial situation,
investment experience and investment goals;
reasonably determine, based on that information, that
transactions
in penny stocks are suitable for the investor and that the
investor can evaluate the risks of penny stock transactions;
provide the investor with a written statement setting forth the
basis on which the broker-dealer made his or her determination;
and
receive a signed and dated copy of the statement from the
investor, confirming that it accurately reflects the investor's
financial situation, investment experience
and investment goals.
Compliance with these requirements may make harder for our investors
to resell their shares to third parties.
Our Management Faces Potential Conflicts of Interest.
-----------------------------------------------------
Our directors and officers may become officers, directors,
controlling shareholders or partners of other entities engaged in a
variety of businesses not related to Galtech's business. Potential conflicts
of interest exist due to time, effort and corporate opportunity involved in
participation with these other business entities.
7
<PAGE>
We May Not Be Able to Maintain a Public Market for Our Securities.
------------------------------------------------------------------
The public market for our common stock is very limited. We can not
guarantee that any market will continue. Purchasers of our securities may have
trouble selling our shares when they want to do so.
The Market Value of Common Stock Bears No Relation to its Book
Value.
------
There is no correlation between the market price of our common stock
and its book value. As of March 31, 2000, the net book value of a share of
our common stock was $0.016. The average closing bid price during the
quarterly period ended on that date was $1.668353 per share. That amount does
not necessarily bear any relationship to our asset value, net worth or
other established criteria of value. You should not consider it indicative of
Galtech's actual value or the market price of its common stock.
USE OF PROCEEDS
---------------
Galtech will not receive any part of the proceeds from Verity's sale
of our common stock.
DETERMINATION OF OFFERING PRICE AND DILUTION
--------------------------------------------
We will not receive any money from Verity when it sells its shares
of common stock. Verity may sell all or part of its shares in private
transactions or in the over-the-counter market at prices related to the
prevailing prices of our common stock at the time of negotiation. Because we
can not accurately predict the prices of such sales, we can not accurately
estimate the amount of any dilution that may result from the purchase of these
shares. However, the net tangible book value of our common stock on March 31,
2000, was $0.016 per share. Net tangible book value per share is determined
by subtracting our total liabilities from our total tangible assets and
dividing the remainder by the number of shares of common stock outstanding.
We can not assure you that any public market for our common stock
will equal or exceed the sales price of the shares of common stock sold by our
stockholders. Purchasers of the shares face the risk that their shares will
not be worth what they paid for them.
SELLING SECURITY HOLDER
------------------------
The following table shows the following information for Verity:
The number of shares of our common stock that it beneficially owned as
of June 15, 2000 and covered by this prospectus; and
The number of shares to be retained after this offering, if any.
8
<PAGE>
Common Stock (1)
----------------
Number of Shares
Owned Prior to Number of Shares
and Registered Beneficially Owned
Name of Selling Stockholder in the Offering after the Offering
--------------------------- --------------- ------------------
Verity Global Financial, LLC 1,000,000 (2) 1,000,000 (3)
(1) We assume no purchase in this offering by Verity of any shares of our
common stock.
(2) All of these shares underlie warrants to purchase such shares at a
price of $0.25 per share.
(3) In addition to the 1,000,000 shares that underlie warrants and that
are covered by this prospectus, Verity owns 200,000 "unregistered" and
"restricted" shares of our common stock. It has also agreed to purchase an
additional 800,000 such shares within 90 days of the effective date of the
Registration Statement of which this prospectus is a part.
PLAN OF DISTRIBUTION
--------------------
We are registering the shares of our common stock covered by this
prospectus.
We will pay the costs, expenses and fees of registering the common
stock, but Verity will pay any underwriting or brokerage commissions and
similar selling expenses relating to the sale of shares of its common stock.
Verity may sell our common stock at market prices prevailing at the
time of the sale, at prices related to the prevailing market prices, at
negotiated prices or at fixed prices, any of which may change. Verity may
sell some or all of its common stock through:
Ordinary broker's transactions, which may include long or short
sales;
Purchases by brokers, dealers or underwriters as principal and
resale by those purchasers for their own accounts under this
prospectus;
Market makers or into an existing market for the common stock;
Transactions in options, swaps or other derivatives; or
9
<PAGE>
Any combination of the selling options described in this
prospectus, or by any other legally available means.
In addition, Verity may enter into hedging transactions with broker-
dealers, who may engage in short sales of our common stock in the course of
hedging the positions they assume. Finally, Verity may enter into options or
other transactions with broker-dealers that require the delivery of our common
stock to those broker-dealers. Subsequently, the shares may be resold under
this prospectus.
In its selling activities, Verity will be subject to applicable
provisions of the Securities Exchange Act of 1934, and its rules and
regulations, including Regulation M, which may limit Verity's timing of
purchases and sales of our common stock.
Verity and any broker-dealers involved in the sale or resale of our
common stock may qualify as "underwriters" within the meaning of Section 2(11)
of the Securities Act of 1933. In addition, the broker-dealers' commissions,
discounts or concessions may qualify as underwriters' compensation under the
Securities Act of 1933. If any broker-dealer or Verity qualifies as an
"underwriter," it will be subject to the prospectus delivery requirements of
Section 154 of the Securities Act of 1933.
In conjunction with sales to or through brokers, dealers or agents,
Verity may agree to indemnify such brokers, dealers or agents against
liabilities arising under the Securities Act of 1933. We do not know of any
existing arrangements between Verity and any other stockholder, broker,
dealer, underwriter or agent relating to the sale or distribution of our
common stock.
In addition to selling its common stock under this prospectus,
Verity may:
Transfer its common stock in other ways not involving market
makers or established trading markets, including by gift,
distribution or other transfer; or
Sell its common stock under Rule 144 of the Securities Act of
1933, if the transaction meets the requirements of Rule 144.
We have advised Verity that, during the time it is engaged in
distribution of its common stock, it must comply with Rule 10b-5 and
Regulation M under the Securities Exchange Act of 1934. It must do all of the
following under those rules:
Not engage in any stabilization activity in connection with our
common stock;
Furnish each broker who may be offering our common stock on its
behalf the number of copies of this prospectus required by each
broker; and
10
<PAGE>
Not bid for or purchase any of our common stock or attempt to
induce any person to purchase any of our common stock, other
than
as permitted under the Securities Exchange Act of 1934.
To the extent that it may be an "affiliated purchaser," as defined
in Regulation M, Verity has been further advised that it must coordinate its
sales under this prospectus with us for the purposes of Regulation M.
To the extent required by the Securities Act of 1933, a supplemental
prospectus will be filed, disclosing:
The name of any such broker-dealers;
The number of securities involved;
The price at which such securities are to be sold;
The commissions paid or discounts or concessions allowed to
such
broker-dealers, where applicable;
That such broker-dealers did not conduct any investigation to
verify the information set out in this prospectus, as
supplemented; and
Other facts material to the transaction.
There is no assurance that Verity will sell any of our common stock.
LEGAL PROCEEDINGS
-----------------
We are not a party to any pending legal proceeding. To the
knowledge of management, no federal, state or local governmental agency is
presently contemplating any proceeding against us. No director, executive
officer or other person who may be deemed to be an "affiliate" of Galtech or
owner of record or beneficially of more than five percent of our common stock
is a party adverse to Galtech or has a material interest adverse to Galtech in
any proceeding.
A judgment in the amount of $40,563 was entered against us in
December, 1992. This amount is included as an account payable in the
Company's consolidated financial statements.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
------------------------------------------------------------
The following table sets forth the names of all of our current
directors and executive officers. These persons will serve until the
next annual meeting of the stockholders or until their successors are elected
or appointed and qualified, or their prior resignations or terminations.
11
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<TABLE>
<CAPTION>
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
---- ---- ----------- --------------
<S> <C> <C> <C>
William F. Pratt CEO 8/98 *
President 8/98 *
S. Kent Holt Executive VP 8/98 *
Director 8/98 *
Worth P. Allred VP, Research
& Development 9/91 *
Director 9/91 *
David R. Porter Secretary/ 8/98 *
Treasurer 8/98 *
Director 8/98 *
</TABLE>
* These persons presently serve in the capacities
indicated.
Business Experience.
--------------------
William F. Pratt, Chief Executive Officer and President. Dr. Pratt
is 51 years old. He received his undergraduate engineering degree in 1970
from the United States Military Academy at West Point. He also holds a
Masters in Engineering Management degree from the Brigham Young University
Marriott School of Management and a Ph.D. in Mechanical Engineering from
Brigham Young University. From 1970 to 1990, he served as an armored cavalry
officer in the U. S. Army with qualifications in special operations. From
1991 to 1993, he was the New Business Development Manager for EDO
Corporation's Active Noise and Vibration Control business initiative to
commercialize piezoelectronic technology developed for the U. S. Navy. Dr.
Pratt consulted for the Defense Advanced Research Projects Agency, Metron,
Cimetrix and Galtech from 1994 to 1997. Dr. Pratt is the inventor of
several patent-pending technologies dealing with composite materials and
machine design, and has been the President of a startup software and
engineering company that developed products for the aerospace and sports
equipment markets.
S. Kent Holt, Executive Vice President and Director. Mr. Holt, age
47, holds an executive MBA degree from Washington University in St. Louis and
Bachelor of Science degrees in Nutrition and Food Science and Business
Administration from Utah State University. He was employed by Ralston
Purina's Protein Technologies International Division for nine years, serving
from 1977 to 1982 as Ralston Purina's resident joint venture manager in Japan.
12
<PAGE>
In this position, he was responsible for the marketing and sale of Ralston
Purina's products in that country. From 1991 to 1998, Mr. Holt was Director,
New Products with the Corn Products Division of CPC International, where he
directed the New Product Marketing, Product Development and Applications
Research groups, and directed cross-functional product development teams vital
to creating new business for the company. Mr. Holt has been awarded two
patents in his field of expertise and is fluent in Japanese.
Worth P. Allred, Vice President, Research and Development, Director.
Mr. Allred is 73 years of age. He has over 40 years of experience in
semiconductor compound materials and is one of the world's leading experts in
the field of crystal growth. Mr. Allred received a Masters degree in Nuclear
Physics from Brigham Young University in 1953. For six years, he was a
faculty member at the University of Southern California's Materials Science
Department. Mr. Allred also worked for six years at Bell and Howell, Pasadena
Research Center, where he headed the Gallium Arsenide Research and Production
Facility. Prior to that he spent seven years conducting primary research in
crystal growth at the Batelle Memorial Institute in Columbus, Ohio. He was
also the founder and President of Crystal Specialties, Inc., a gallium
arsenide manufacturer that was located in Monrovia, California. Mr. Allred
has published over 33 papers in the area of crystal growth and has been
granted several patents, with others pending.
David R. Porter, Secretary/Treasurer and Director. Mr. Porter, age
42, worked for the Maricopa County Facilities Department in Phoenix Arizona,
from 1991 to 1997, in addition to consulting with Galtech in the development
of a crystal growth furnace and software for control systems. Mr. Porter is
currently employed by Patterned Fiber Composites, Inc., which shares its
facilities with Galtech. He continues to direct our manufacturing facilities
development.
Significant Employees.
----------------------
We do not currently have any employees who are not executive
officers, but who are expected to make a significant contribution to our
business.
Family Relationships.
---------------------
There are no family relationships between any director or executive
officer.
Involvement in Certain Legal Proceedings.
-----------------------------------------
During the past five years, no present or former director, executive
officer or person nominated to become a director or an executive officer of
Galtech:
13
<PAGE>
(1) was a general partner or executive officer of any business
against which any bankruptcy petition was filed, either at the time of the
bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activities; or
(4) was found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment
has not been reversed, suspended or vacated.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth the share holdings of our directors
and executive officers and those persons who owned more than five percent of
our common stock as of April 18, 2000:
<TABLE>
<CAPTION>
Number of Shares Percentage
Name and Address Beneficially Owned of Class
---------------- ------------------ --------
<S> <C> <C>
William F. Pratt 1,000,000 6.7%
1184 East 830 South
Pleasant Grove, Utah
84062
S. Kent Holt 382,560 (1) 2.6%
18320 Lochner Road
Spencerville, Indiana
46788
Worth P. Allred 1,000,000 (2) 6.7%
Post Office Box 120
Moroni, Utah
84646
David R. Porter 1,009,717 6.8%
286 W. Thorneberry Way
Pleasant Grove, Utah
84062
14
<PAGE>
William Tunnell 1,000,000 6.7%
20165 N. 67th Ave., #122A
Glendale, Arizona 85308
Russell R. Chapman 500,003 3.3%
1242 N. Palm Springs Dr.
Gilbert, Arizona
85234
W. D. Newman 1,000,000 6.7%
3647 Sky Harbor Drive
Coeur d'Alene, Idaho
83814
</TABLE>
(1) Does not include options to acquire an additional 500,000
shares. See the caption "Executive Compensation" of this
prospectus.
(2) A total of 800,000 of these shares are held in joint tenancy
with Mr. Allred's wife.
Changes in Control.
-------------------
To the knowledge of management, there are no present arrangements or
pledges of our securities which may result in a change in control of Galtech.
DESCRIPTION OF SECURITIES
-------------------------
We have one class of securities authorized. This class consists of
200,000,000 shares of common voting stock with a par value of $0.00025 per
share. The holders of our common stock are entitled to one vote per share on
each matter submitted to a vote at a meeting of stockholders. The shares of
common stock do not carry cumulative voting rights in the election of
directors.
Our common stockholders have no pre-emptive rights to acquire
additional shares of common stock or other securities. The common stock
carries no subscription or conversion rights. All shares of common stock now
outstanding are fully paid and non-assessable.
Our shares of common stock are "penny stock" as defined in Rule
3a51-1 of the Securities and Exchange Commission. See the Risk Factor "Our
Stock is 'Penny Stock'" of this prospectus.
Of the 14,844,018 shares of our common stock that were issued and
outstanding on June 15, 2000, 8,062,213 shares are "restricted."
Approximately 7,862,213 of these "restricted" shares are currently eligible
for resale under Rule 144 of the Securities and Exchange Commission. The
remaining 200,000 "restricted" shares will become eligible for resale under
15
<PAGE>
Rule 144 by March, 2001. The future sale of any of these "restricted" shares
may have an adverse effect on any market that may develop for our common
stock.
Outstanding Options, Warrants and Calls
---------------------------------------
On May 26, 2000, Galtech and Verity executed a Securities Purchase
Agreement under which we issued to Verity warrants to purchase up to 1,000,000
shares of our common stock at a price of $0.25 per share. A total of 600,000
of these warrants were designated "Initial Warrants" and are exercisable for
30 days after the effective date of the Registration Statement of which this
prospectus is a part. The remaining 400,000 warrants are called "Supplemental
Warrants." They are exercisable for a 30-day period beginning 90 calendar
days after the effective date of the Registration Statement. The 1,000,000
shares of common stock underlying the warrants are the only securities covered
by this prospectus or the Registration Statement.
In addition to the warrants, Verity agreed to purchase 800,000
"unregistered" and "restricted" shares of our common stock for a total
purchase price of $200,000. The purchase price is payable 90 calendar days
after the effective date of the Registration Statement. See the caption
"Management's Discussion and Analysis" of this prospectus.
Other than the warrants and Mr. Holt's options to acquire up to
500,000 shares of the our common stock at a price of $0.27 per share, there
are no outstanding warrants, options or calls with respect to our common
stock. See the caption "Executive Compensation" of this prospectus.
INTEREST OF NAMED EXPERTS AND COUNSEL
-------------------------------------
Our financial statements as of December 31, 1999, have been included
herein in reliance on the report of Jones, Jensen & Company (now known as "HJ
& Associates, LLC"), independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
We have not hired any expert or counsel on a contingent basis. No
expert or counsel will receive a direct or indirect interest in Galtech, and
no such person was a promoter, underwriter, voting trustee, director, officer
or employee of Galtech.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
-----------
Section 16-10a-902(1) of the Utah Revised Business Corporation Act
authorizes a Utah corporation to indemnify any director against liability
incurred in any proceeding if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of
16
<PAGE>
the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his or her conduct was unlawful.
Section 16-10a-902(4) prohibits a Utah corporation from
indemnifying a director in a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation or in a
proceeding in which the director was adjudged liable on the basis that he or
she improperly received a personal benefit. Otherwise, Section 16-10a-902(5)
allows indemnification for reasonable expenses incurred in connection with a
proceeding by or in the right of a corporation.
Unless limited by the Articles of Incorporation, Section 16-10a-905
authorizes a director to apply for indemnification to the court conducting the
proceeding or another court of competent jurisdiction. Section 16-10a-907(1)
extends this right to officers of a corporation as well.
Unless limited by the Articles of Incorporation, Section 16-10a-903
requires that a corporation indemnify a director who was successful, on the
merits or otherwise, in defending any proceeding to which he or she was a
party against reasonable expenses incurred in connection therewith. Section
16-10a-907(1) extends this protection to officers of a corporation as well.
Pursuant to Section 16-10a-904(1), the corporation may advance a
director's expenses incurred in defending any proceeding upon receipt of an
undertaking and a written affirmation of his or her good faith belief that he
or she has met the standard of conduct specified in Section 16-10a-902.
Unless limited by the Articles of Incorporation, Section 16-10a-907(2)
extends this protection to officers, employees, fiduciaries and agents of a
corporation as well.
Regardless of whether a director, officer, employee, fiduciary or
agent has the right to indemnity under the Utah Revised Business Corporation
Act, Section 16-10a-908 allows the corporation to purchase and maintain
insurance on his or her behalf against liability resulting from his or her
corporate role.
This is only a summary of the indemnification provisions of the Utah
Revised Business Corporation Act.
Neither our Articles of Incorporation, as amended, nor our Bylaws
contain any provisions about indemnification of our directors and executive
officers. However, the provisions of the Utah Revised Business Corporation
Act will apply.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Galtech pursuant to the foregoing provisions, or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
17
<PAGE>
DESCRIPTION OF BUSINESS
-----------------------
Business Development.
---------------------
Galtech was organized on June 18, 1984, for the purpose of investing
"in new products, properties and/or businesses which may have potential for
profit."
At inception, Galtech was authorized to issue 50,000,000 shares
of common voting stock, par value one mill ($0.001) per share, with fully-paid
stock not to be liable for further call or assessment.
Charter Amendments
------------------
Since its inception, Galtech has amended its Articles of
Incorporation as follows:
Changed its name to "Galtech, Inc. and amended Article IV of
the
Articles of Incorporation to provide the authority to issue
200,000,000 shares of $0.00025 par value common stock, with fully
paid stock not to be liable for further call or assessment
(Amendment filed January 29, 1986).
Changed its name to "Galtech Semiconductor Materials
Corporation
(Amendment filed September 9, 1986).
Effected a 20-to-one reverse split of its outstanding shares,
with
fractional shares rounded to a whole share (Amendment filed
February 24, 1995).
Unless otherwise indicated, all computations in this prospectus take
into account these adjustments.
General History
---------------
Galtech began operating in approximately January, 1986. We
conducted research and development of a process for manufacturing cadmium
telluride and the renovation of a manufacturing facility to produce our
products. Cadmium telluride is a compound used in the production of
semiconductors. A fire destroyed our facilities in 1990 and we have only
recently recommenced our semiconductor development activities.
On February 28, 1995, we acquired all of the issued and outstanding
common stock of Commodity Recovery Corporation, a Utah corporation ("CRC"), in
exchange for 500,000 "unregistered" and "restricted" shares of our common
stock. CRC was organized on October 31, 1994, for the purpose of marketing
products for destroying aflatoxin, a cancer-causing substance found in grain
and other foodstuffs.
18
<PAGE>
Also on February 28, 1995, we issued 4,200,000 "unregistered" and
"restricted" shares of common stock in exchange for all of the issued and
outstanding common stock of Energy Recovery Corporation, an Arizona
corporation ("ERC"). ERC was incorporated on February 7, 1994, for the
purpose of developing and producing alternative energy sources.
When we acquired them, neither CRC nor ERC had any assets or
operations. After its acquisition, CRC developed a treatment method using
ammonia vapor to destroy aflatoxin. In 1997, management decided to narrow its
focus to the development of its semiconductor materials and ceased further
development of its aflatoxin technology. The State of Utah has
administratively dissolved CRC for failure to file its annual report.
On April 29, 1997, ERC was awarded a patent on a carousel electric
generator that was designed to provide a high level of electrical power in a
compact structure. We have conducted preliminary testing on the generator and
believes that it has potential for use in electric-powered vehicles. We have
built an electric vehicle for additional testing. However, due to
management's decision to focus on our semiconductor materials operations, we
do not plan to spend very much money on our generator project in the
foreseeable future. The State of Arizona has administratively dissolved ERC
for failure to file its annual report.
After reviewing the current market for semiconductor materials, in
1997, we began work on modernizing and redesigning our antiquated
semiconductor equipment for the purpose of developing a reliable and
repeatable process for growing large area, single crystal, bulk cadmium
telluride and cadmium zinc telluride semiconductor material. We are
configuring a research and development and production facility in Lindon,
Utah, for this purpose.
Business.
---------
Our principal operations focus on the development and commercial
exploitation of a new and more economical method of growing II-VI
semiconductor compounds than current methods.
The semiconductor industry is a multi-billion dollar market that has
been supplied predominantly by silicon materials. However, other materials
also have general and specific semiconductor applications. Cadmium telluride
and cadmium zinc telluride are semiconductor materials used in electronic
equipment such as infrared detectors, weapons guidance systems, satellite
surveillance, solar cells, deep space communications, light emitting diodes,
infrared night vision devices, laser applications, tumor detectors, nuclear
radiation and gamma detectors, spectrometers for chemical identification,
nuclear medicine and related applications.
Prior to a 1990 fire in our facilities, we had successfully
produced cadmium telluride crystal substrates (i.e., wafers) of up to four to
six square inches. Previous commercially manufactured cadmium telluride
substrates had been only one to two square inches. In addition, we were able
to produce round wafers, rather than the customary D-shaped and rectangular
wafers. Industry users prefer round wafers.
19
<PAGE>
We are now concentrating our efforts on refining our methods for
producing cadmium telluride and cadmium zinc telluride substrates and
reproducing our earlier production results. In the future, depending on the
success of our research and development efforts, market conditions and our
success with our principal operations, we will consider developing
monocrystalline substrates and polycrystalline substrates and ingots made from
the following compounds: Indium Phosphide; Indium Antimonide; Gallium
Antimonide; and Gallium Arsenide, as well as metal organic chemical vapor
depositor epitaxial layers on each of these substrates. The term "epitaxial"
refers to the overgrowth in layers of a crystalline substance deposited in a
definite orientation on a base or substratum composed of different crystals.
Principal Products or Services and Their Markets.
-------------------------------------------------
We are trying to develop a reliable and repeatable process for
growing large area, single crystal bulk compound semiconductor material. We
are focusing our effort on creating a viable and cheap production method for
cadmium telluride and cadmium zinc telluride.
Each class of semiconductor material seems to have its own unique
properties that make it useful for specified applications. The II-VI
compounds as shown on the Periodic Table of Elements, which include cadmium
telluride and cadmium zinc telluride, are useful in photo electronics.
Devices such as photo cathodes (for night vision instruments), solar cells and
radiation detectors (used for applications such as medical imaging equipment)
are particularly well suited for the II-VI compounds. The market for these
devices has traditionally been military applications. As these devices are
adapted for consumer use, we expect the market for these compound
semiconductor materials to expand. Management also believes that cadmium
telluride can also be used in medical imaging devices market, which currently
exceeds $2 billion per year. The use of II-VI compounds to produce images in
a digital format would be a revolutionary development in the medical imaging
device industry.
In 1990, Worth P. Allred, our Vice President for Research and
Development, was able to produce large (four to six square inches)
crystalline substrates of cadmium telluride with rocking curve measurements of
9.6 to 20 arc seconds. Previous best measurements were 34 to 50 arc seconds.
Independent analyses performed at the University of Washington and California
State University, Fresno, showed these substrates to have extremely low
imperfections. We are focusing our current business operations on the
development of a reliable, low cost method for reproducing these results and
beginning large-scale production of cadmium telluride semiconductor
materials.
Most of our target markets are in the United States, but potential
opportunities are global. The major areas of concentration outside of the
United States are Japan, Taiwan, China, Korea, the United Kingdom, West
Germany, France and Italy.
20
<PAGE>
Subject to the perfection of our production model, we intend to
serve the II-VI compound semiconductor market with both mono and
polycrystalline ingots and substrates. Presently, the only suppliers of
specialty semiconductor materials such as cadmium telluride are doing so at
extremely high prices and in very small and inconsistent quantities. Supply
is so uncertain that some users of this material find it necessary to
internally produce material to supplement the short and uncertain supply.
These users have expressed a desire for additional suppliers to supplement or
improve their current sources of material. Our goal will be to provide
cadmium telluride materials in wafer form at potentially lower cost and in
larger amounts than other suppliers.
Cadmium telluride has properties that make it a good substrate for
the epitaxial growth of mercury cadmium telluride, a material with critical
applications for infrared photodetectors. Its advantages include infrared
transparency, lattice constancy, coefficient of expansion and ability to reach
into the far infrared regions.
There is also a small market for polycrystalline cadmium telluride
for use in optics. We expect that any sales in this market would be
secondary to our principal markets.
Distribution Methods of the Products or Services.
-------------------------------------------------
Companies such as Rockwell, Santa Barbara Research, Texas
Instruments, Hewlett-Packard, General Dynamics, ITT, McDonnell Douglas and
General Electric have done work in cadmium telluride device technology
development or production. Each would be a potential customer for Galtech.
Demand for cadmium telluride far exceeds the supply. Current
prices are about $900 per square inch at a thickness of 20 to 30
thousandths of an inch. Management estimates that a six inch boule of
monocrystalline cadmium telluride would retail for approximately $500,000.
We believe that our production model will allow for semiconductor crystal
growth that produces much higher yields at high quality and will help
us to penetrate the market more easily. As the supply increases,
management expects that the demand for the material will increase,
particularly in the military market for infrared detectors and sensors.
The estimated market for cadmium telluride has grown from $30
million to approximately $60 million from 1994 to 1998. Users have also
questioned the quality of material currently on the market. Management
believes that Galtech will be able to produce wafers approximately 300%
larger and with a higher quality monocrystalline structure.
If it is able to perfect its production model, Galtech's first
aim will be to expand the market for cadmium telluride semiconductor materials
by producing them for approximately one-half the cost of current production.
This savings will be reflected in the prices at which we will sell our
materials. Management believes that these reduced prices, coupled with
increased product quality, will increase the demand for cadmium telluride
products. We will then provide the products necessary to meet this demand.
21
<PAGE>
We have personnel with contacts in the semiconductor industry. We
will place whole cadmium telluride ingots in the hands of potential users so
they can sample, test and evaluate them. Once potential customers have
evaluated the materials and are ready to make a purchase, the parties will
negotiate a price.
In order to place itself in a leadership position, Galtech will
market its scientific staff as leaders and experts in the industry. Worth P.
Allred, our Vice President for Research and Development, is the world's
leading expert in the field of Horizontal Bridgman crystal growth, the
method used to produce our materials. Part of our marketing strategy will be
to have the research and development staff prepare research papers for
presentation at crystal growth conferences and tradeshows, and to co-author
papers and projects with other leaders in the industry. Mr. Allred has
written several papers and participated in several conferences on this
subject.
We plan to use both an in-house sales force and contract brokers to
market our products. As sales increase, management intends to increase its
sales force. The marketing department will be given a budget for advertising,
promotion, sales visits with potential customers and informational materials.
However, in management's experience, the best and most enduring sales in the
semiconductor industry are made through personal contacts and visits to the
customer's plant. As a result, the sales manager's focus will be on getting
to know customers, their processes and products. As sales increase, we plan
to hire regional representatives for areas that the sales manager can not
handle personally or that require constant attention that can not be given by
our in-house sales people. Regional representatives will report to the sales
manager.
Status of any Publicly Announced New Product or Service.
--------------------------------------------------------
None; not applicable.
Competitive Business Conditions.
---------------------------------
Crystal growth yields; wafer size and quality; and overhead costs
are the three problems that beleaguer each of the companies providing
semiconductor materials. The most successful materials suppliers are those
that master these problems best.
Yields. All of our present competitors have difficulty growing
crystals with a single or monocrystalline structure. Our process is designed
to allow the manufacture of large (greater than two square inches) wafers of a
completely single crystalline structure.
Our process includes a method that provides for the production of
large ingots that are three to 15 inches in length. This will allow more of
the ingot that is grown to be used in the end product. The result will be
larger wafers at a lower or equal price than competitors' products. This
22
<PAGE>
reduced cost stems largely from the less expensive growth furnace that we will
use. We have also developed a process for lower wafer processing costs that
should increase the yields of usable material by over 50 percent.
Wafer Size and Quality. Due to the current small size of cadmium
telluride wafers, many device manufacturers have begun experimenting with
other substrate materials that could replace cadmium telluride. These
manufacturers have met with moderate success, but would prefer to use cadmium
telluride substrate if it were available in sufficient quantities and
qualities.
We can match the size and quality of materials that are currently
being produced. We are conducting research to develop larger ingots
with consistency and of a quality of substrate that is not otherwise present
in today's market. The dislocation counts (a measurement of undesirable
lattice mismatch and stress) will be on the order of 10,000 dislocations or
less per square centimeter, rather than the usual 100,000 or more dislocations
in other products.
Management expects that other parameters of wafer quality and size
will exceed or equal all present customer specifications and that initial
introduction of our product will take six to 12 months after we perfect the
production method. Once potential customers have had the chance to test our
products, management believes that small evaluation orders of one to
50 square inches will grow to larger orders of more than 100 square inches,
and even "original equipment manufacturer" accounts.
Overhead Costs. Using its production protocol, management believes
that the manufacturing costs of Galtech's semiconductor compound materials
will be approximately one-fourth of the overhead and capital equipment costs
of its competitors' methods. Normally, 25 to 50 people are required to
operate a small crystal growth facility. We have calculated that we will be
able to operate our facility with 15 to 20 people. This should reduce our
overhead.
Major competitors in the production of cadmium telluride are II-VI,
Inc., located in Saxonburg, Pennsylvania, and Nippon Mining, Ltd., of Japan.
II-VI, Inc., employs approximately 150 people and controls approximately
75 percent of the market for cadmium telluride of one to three square
centimeters. Its product is generally cut from large three-inch
polycrystalline ingots. Nippon Mining is a major supplier of cadmium
telluride to the Japanese market. It also ships to United States users and
its materials are reported to be of good quality. We estimate Nippon Mining's
market share at approximately five to 10 percent. Each of these competitors
has financial, personnel, marketing and other resources significantly greater
than ours. They also have larger customer bases. We can not assure you that
we will be able to compete successfully in our industry.
23
<PAGE>
Sources and Availability of Raw Materials.
------------------------------------------
Our source of cadmium telluride is Alfa Aesar, a Johnston Matthey
Company, located in Ward Hill, Massachusetts. Alfa Aesar provides cadmium
telluride in a variety of forms, including powder and lumps of various
sizes. The product is available in purities of 99.999% and 99.99999%. Alfa
Aesar's most recent catalog lists a retail price of $1182 for 100 grams of
cadmium telluride of 99.99999% purity, and $228 for 100 grams of 99.999%
purity. We generally purchase in five kilogram quantities; an average
production run uses approximately two kilograms. Cadmium telluride is
reusable, with a loss of approximately five percent of the original material
with each additional production run.
Alfa Aesar is a well-established company and management believes
that it will be able to provide as much raw material as Galtech requires.
However, a disruption in availability for an extended period of time would
hurt our operations, particularly if it makes us unable to fill customer
orders.
Dependence on One or a Few Major Customers.
-------------------------------------------
There is a substantial worldwide shortage of cadmium telluride
suppliers and quality products. Management believes that demand will exceed
supply for the next 10 to 15 years. We expect that there will be sufficient
demand for our products for the foreseeable future. However, the development
of a better quality, less expensive alternative to cadmium telluride would
probably make our technology and product obsolete.
Need for Governmental Approval of Principal Products or Services.
-----------------------------------------------------------------
To the knowledge of management, our processes and products
will not be subject to governmental approval.
Effect of Existing or Probable Governmental Regulations on the Business.
------------------------------------------------------------------------
As with other manufacturing companies, Galtech's operations will
be subject to state and federal workplace safety and environmental emissions
regulations. We intend to take all steps necessary to ensure compliance with
these laws and regulations.
Cadmium telluride is a stable, odorless material when in a solid
form. It has a melting point of 1905.8 degrees Fahrenheit. Heat, sparks and
open flame can cause it to become unstable. Exposure to cadmium telluride can
cause irritation to the eyes, skin and mucous membranes, as well as lung
cancer and liver damage. Precautions for safe handling include the use of a
respirator, chemical goggles and protective clothing. We will ensure that all
employees that handle cadmium telluride comply with these workplace safety
requirements. In addition, we have installed an air scrubber in our
production furnace to remove cadmium telluride from the air.
Cadmium telluride tends to stay within approximately one inch of the
soil surface and does not generally leach into groundwater. Galtech intends
24
<PAGE>
to dispose of waste in accordance with federal, state and local regulations.
Management believes that the costs of compliance with applicable regulations
will be less than one percent of gross profits.
Research and Development.
-------------------------
During the calendar years ended December 31, 1999, and 1998, we
spent $25,411 and $9,553, respectively, on research and development.
Costs and Effects of Compliance with Environmental Laws.
--------------------------------------------------------
See the heading "Effect of Existing or Probable Governmental
Regulations on Business."
Number of Employees.
--------------------
Galtech has nine unpaid part-time employees and no full-time
employees. During the next 12 months, management expects that we will have
approximately 12 to 15 full-time employees and no part-time employees.
Reports to Security Holders.
----------------------------
The National Association of Securities Dealers, Inc. requires that
all issuers maintaining quotations of their securities on the OTC Bulletin
Board file periodic reports under the Securities Exchange Act of 1934, and
Galtech does file periodic reports with the Securities and Exchange Commission
under Section 13 of the 1934 Act.
The public may read and copy any materials that we file with the
Securities and Exchange Commission at the Commission's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains an Internet site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The address
of that site is http://www.sec.gov.
We intend to furnish to our stockholders annual reports containing
financial statements audited and reported upon by our independent accounting
firm and such other periodic reports as we may determine to be appropriate or
as may be required by law.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
During the next six months, following receipt of funding, we plan to
perform test production runs to test the model developed by Dr. Pratt. Each
production run requires approximately three to four weeks to heat the metal in
our furnace and allow it to cool. We have a fully instrumented,
custom-designed control program that will allow us to compare actual
production data to our model and make appropriate adjustments in the
production process. We have sufficient equipment, supplies and materials to
continue this process for six months. We expect that any funds required at
this stage will be minimal.
In the second six month period after funding, management expects to
refocus our engineering effort from the "proof-of-principle" effort of the
preceding six months, to a pilot production level. We will need to raise
substantial additional funding to purchase the necessary equipment and upgrade
our software. We will seek sufficient funds to allow us to continue our
research and development efforts for two years without the need for additional
capital. In this regard, on May 26, 2000, we executed the Securities Purchase
Agreement with Verity, by which Verity is to give us a total of $500,000 in
exchange for 2,000,000 shares of our common stock.
The terms of the Verity funding are as follows:
In March, 2000, Verity purchased 200,000 "unregistered" and
"restricted" shares of our common stock for $50,000;
Upon the effectiveness of our Registration Statement on Form
SB-2,
Verity will have 30 days to exercise a warrant to purchase
600,000
shares at a price of $150,000;
Beginning on the date that is 90 days after the effective date
of
the Registration Statement, Verity will have 30 days to exercise
a
warrant to purchase 400,000 shares at a price of $100,000;
On the 90th day after the effective date of the Registration
Statement, Verity will purchase 800,000 "unregistered" and
"restricted" shares of common stock for $200,000.
Also on May 26, 2000, we executed a Registration Rights Agreement
with Verity, under which we agreed to register the 1,000,000 shares of common
stock underlying the warrants. These shares are all of the securities covered
by this prospectus and the Registration Statement.
We have allocated the proceeds from this funding to research and
development and working capital.
Once our production process has been refined and we are able to
produce cadmium telluride substrates of consistently high quality and size, we
intend to provide samples of our product to potential customers such as Texas
Instruments, Sandia and Santa Barbara Research for analysis. If our research
and development efforts are successful, and if we are able to raise sufficient
capital, we expect to be able to begin full-scale production in two years
after funding.
26
<PAGE>
The foregoing contains "forward-looking" statements and information,
all of which is modified by reference to the caption "Risk Factors."
Results of Operations.
----------------------
We have not had any material operations since approximately
1990. In anticipation of renewed operations, we have conducted three test
crystal growths in the last two years. In January, 2000, we began another
experimental crystal growth. We have sent the crystal to a nationally
recognized laboratory for analysis, but we have not yet received any results.
Liquidity and Capital Resources.
--------------------------------
We received no revenues during the calendar years ended December 31,
1999, and 1998. Net loss for these periods were $729,731 and $464,211,
respectively.
We did not receive any revenues during the quarterly period ended
March 31, 2000. Our net loss during that period was $198,591, as compared to
a net loss of $38,308 during the quarterly period ended March 31, 1999.
During that period, we raised $50,000 through the sale of 200,000
"unregistered" and "restricted" shares of our common stock to Verity.
Galtech is presently located in a facility leased by Patterned
Fiber Composites, Inc. We use the facility rent-free. We have sufficient
equipment, supplies and materials to continue our process improvements and
engineering analysis for the next six months after funding. Current
operations may be characterized as a "proof-of-principle" effort, during which
we are testing and refining our production processes. At the end of this six
month period, management expects that Galtech will need to raise substantial
additional capital from Verity or another source in order to allow it to
proceed to the pilot production level.
DESCRIPTION OF PROPERTY
-----------------------
Galtech is presently using the facilities of Patterned Fiber
Composites, Inc., which employs the Company's President and CEO, William F.
Pratt, and its Secretary/Treasurer, David R. Porter. The facilities are
located in Lindon, Utah, and are provided rent-free. They consist of
approximately 4,800 square feet, of which approximately 1600 square feet is
office space and 3,200 is a warehouse and production facility. Patterned
Fiber Composites has a two-year lease on the facility, with approximately one
year remaining.
If Galtech is able to raise sufficient funds through its fundraising
efforts, it will enter into a lease with Patterned Fiber Composites at a
monthly rental of $450. If Carbon Fiber Products' lease is terminated or is
not renewed after the end of the term, depending on the success of its
research and development efforts and the availability of sufficient funds, we
will seek out a facility of our own to rent or purchase.
27
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Transactions with Management and Others.
----------------------------------------
During the past two years, the only transactions between members of
management, nominees to become a director or executive officer, five percent
stockholders, or promoters or persons who may be deemed to be parents of the
Company are:
Issued 550,000 shares of our common stock to William F. Pratt;
Issued 500,000 shares of our common stock to S. Kent Holt;
Granted to S. Kent Holt options to purchase up to 500,000
shares
of our common stock at a price of $0.27 per share;
Issued 800,000 shares of our common stock to Worth P. Allred;
and
Received advances totaling $80,691 from Russell Chapman to
cover
operating expenses and equipment acquisitions. These advances
have been recorded as a note payable which is unsecured, non-
interest bearing and due upon demand;
Received advances totaling $8,410 from William F. Pratt and two
other related parties. These advances bear interest at 10%,
are
unsecured and are due on demand.
Issued 1,000,000 shares of our common stock to David R. Porter;
Issued 1,000,000 shares of our common stock to William Tunnell;
Issued 1,000,000 shares of our common stock to Russell R.
Chapman;
and
Issued 1,000,000 shares of our common stock to W. D. Newman.
See the caption "Security Ownership of Certain Beneficial Owners and
Management" of this prospectus.
Parents of the Issuer.
----------------------
Galtech has no parents.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
Market Information.
-------------------
Our common stock is quoted on the OTC Bulletin Board of the NASD,
but there is currently no established market for such stock. We can not
assure you that one will develop or be maintained. For any market that
develops for our common stock, the sale of "restricted securities" pursuant to
Rule 144 of the Securities and Exchange Commission may hurt our stock price.
28
<PAGE>
Rule 144 requires that the selling stockholder has held his or her
shares for at least one year. The public must also have access to information
about us. Sellers under Rule 144 may not sell more than a certain number of
shares during any three month period. Their sales must be through unsolicited
broker's transactions, and the sellers must file with the Securities and
Exchange Commission a Notice of Sale on Form 144.
The National Quotation Bureau, LLC, provided the following
quotations. They do not represent actual transactions and they do not
reflect dealer markups, markdowns or commissions.
<TABLE>
<CAPTION>
STOCK QUOTATIONS*
CLOSING BID
Quarter ended: High Low
-------------- ---- ---
<S> <C> <C>
March 31, 1998 0.65 0.22
June 30, 1998 0.55 0.21
September 30, 1998 0.31 0.16
December 31, 1998 0.17 0.07
March 31, 1999 0.19 0.08
June 30, 1999 0.27 0.10
September 30, 1999 0.78125 0.19
December 31, 1999 0.4375 0.19
March 31, 2000 4.3125 0.44
</TABLE>
Holders.
--------
As of the date of this prospectus, we have about 1,662 stockholders.
This figure does not include an indeterminate number of stockholders who may
hold their shares in "street name."
29
<PAGE>
Dividends.
----------
Galtech has not declared any cash dividends with respect to its
common stock. We do not intend to declare dividends in the foreseeable
future. We will not know our future dividend policy until we sell any of our
products. We do not have any material restrictions on our ability to
pay dividends on our securities.
EXECUTIVE COMPENSATION
----------------------
Cash Compensation
-----------------
The following table sets forth the aggregate compensation that
Galtech has paid for services rendered during the periods indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual rictedlying Pay- Comp-
Position Ended ($) ($) Compen-Stock Options outs ensat'n
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William F. 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Pratt 12/31/98 -0- -0- -0- 550,000 -0- -0- -0-
CEO, Pres. 12/31/99 -0- -0- -0- -0- -0- -0- -0-
and Director 3/31/00 -0- -0- -0- -0- -0- -0- -0-
S. Kent Holt 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Exec. Vice 12/31/98 -0- -0- -0- 500,000 500,000 (1)-0- -0-
President 12/31/99 -0- -0- -0- -0- -0- -0- -0-
and Director 3/31/00 -0- -0- -0- -0- -0- -0- -0-
Worth P. 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Allred 12/31/98 -0- -0- -0- 800,000 -0- -0- -0-
Vice Pres., 12/31/99 -0- -0- -0- -0- -0- -0- -0-
R & D 3/31/00 -0- -0- -0- -0- -0- -0- -0-
and Director
David R. 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Porter 12/31/98 -0- -0- -0- -0- -0- -0- -0-
Secretary/ 12/31/99 -0- -0- -0- -0- -0- -0- -0-
Treasurer 3/31/00 -0- -0- -0- -0- -0- -0- -0-
and Director
30
</TABLE>
<PAGE>
(1) On July 1, 1998, we granted Mr. Holt options to purchase
500,000 "unregistered" and "restricted" shares of our
common stock at the average closing price of
such stock for the 10 days immediately preceding the
notification of our stockholders of Mr. Holt's
appointment as a director and executive officer. Based
on this formula, the exercise price of the options is
$0.27 per share. Options to purchase 250,000 shares
vested on July 1, 1999, and the options to purchase
the remaining 250,000 shares vested on July 1, 2000.
The options are exercisable for three years from the
date of vesting. Unless otherwise prohibited, Mr. Holt
has had the right to vote all 500,000 shares since
July 1, 1998.
We did not grant any cash compensation, deferred compensation or
long-term incentive plan awards to our management during the years ended
December 31, 1999, or 1998. Other than Mr. Holt's options, we have not
granted any member of management any option or stock appreciation rights.
Bonuses and Deferred Compensation
---------------------------------
None.
Compensation Pursuant to Plans
------------------------------
None.
Pension Table
-------------
None; not applicable.
Other Compensation
------------------
None.
Compensation of Directors
-------------------------
Galtech does not have any standard arrangements to compensate
directors for their services as directors. We do not pay our directors for
committee participation or special assignments.
31
<PAGE>
Employment Contracts and Termination of Employment and Change in Control
Arrangements.
-------------
We do not have any employment contracts, compensatory plans or
arrangements, including payments to be received from us, with respect
to any director or executive officer which would result in payments to any
such person because of his or her resignation, retirement or other termination
of employment, any change in control of Galtech, or a change in the person's
responsibilities following a change in control of Galtech.
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
Each of our directors and executive officers filed a Form 3 Initial
Statement of Beneficial Ownership of Securities with the Securities and
Exchange Commission on February 8, 2000.
FINANCIAL STATEMENTS
--------------------
(i) Consolidated Financial Statements for the
years ended December 31, 1999, and 1998
Independent Auditors' Report
Consolidated Balance Sheet - December 31, 1999
Consolidated Statements of Operations for the
Years Ended December 31, 1999, and 1998, and
from Inception on June 18, 1984, through
December 31, 1999
Consolidated Statements of Stockholders' Equity
from Inception on June 18, 1984, to December 31,
1999
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, and 1998, and
from Inception on June 18, 1984, through
December 31, 1999
Notes to Consolidated Financial Statements
(ii) Consolidated Financial Statements
March 31, 2000 and December 31, 1999
Independent Accountant's Review Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Galtech Semiconductor Materials Corporation
and Subsidiaries
(A Development Stage Company)
Lindon, Utah
We have audited the accompanying consolidated balance sheet of Galtech
Semiconductor Materials Corporation and Subsidiaries (A Development Stage
Company) as of December 31, 1999 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December
31, 1999 and 1998 and from inception on June 18, 1984 through December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Galtech
Semiconductor Materials Corporation and Subsidiaries (A Development Stage
Company) as of December 31, 1999 and the results of their operations and their
cash flows for the years ended December 31, 1999 and 1998 and from inception
on June 18, 1984 through December 31, 1999, in conformity with generally
accepted accounting principles.
The financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 6 to the financial
statements, the Company is a Development Stage Company with no significant
operating results to date. These conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 6. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
February 8, 2000
33
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
December 31,
1999
CURRENT ASSETS
Inventory $ 160,000
Total Current Assets 160,000
EQUIPMENT, NET (Note 2) 58,797
TOTAL ASSETS $ 218,797
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (Note 5) $ 40,563
Note payable - related (Note 3) 1,424
Accrued expenses 72
Total Current Liabilities 42,059
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $0.00025 par value, 200,000,000 shares
authorized; 14,644,018 shares issued and outstanding 3,663
Additional paid-in capital 4,884,723
Stock subscription receivable (388,002)
Deficit accumulated during the development stage (4,323,646)
Total Stockholders' Equity 176,738
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 218,797
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
From
Inception on
June 18, 1984
For the Years Ended Through
December 31, December 31,
1999 1998 1999
<S> <C> <C> <C>
SALES $ - $ - $ 599,609
COST OF PRODUCT SOLD - - 676,198
GROSS MARGIN - - (76,589)
OPERATING EXPENSES
General and administrative 636,755 47,084 2,285,463
Legal and professional 31,256 356,400 830,828
Research and development 25,411 9,553 536,099
Depreciation 36,237 31,997 364,371
Total Expenses 729,659 (445,034) 4,016,761
Net Loss From Operations (729,659) (445,034) (4,093,350)
OTHER INCOME (EXPENSE)
Interest expense (72) - (84,991)
Interest income - 106 93,427
Loss on disposal of assets - (19,283) (241,238)
Miscellaneous - - 2,506
Total Other Income (Expense) (72) (19,177) (230,296)
NET LOSS $ (729,731) $ (464,211) $(4,323,646)
BASIC LOSS PER SHARE $ (0.06) $ (0.05)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 12,605,662 9,211,908
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance, June 18, 1984 - $ - $ - $ -
Stock issued for cash at
$0.0143 per share 140,173 35 1,965 -
Balance,
December 31, 1984 140,173 35 1,965 -
Stock issued for cash at
$0.05 per share 400,000 100 19,900 -
Stock issuance costs - - (4,450) -
Purchase of treasury
stock - - - -
Sale of treasury stock at
$2.11 per share - - 411,073 -
Stock issued to officers
for services at $0.005
per share 438,600 110 2,083 -
Net loss for the year
ended December 31, 1985 - - - (146,384)
Balance,
December 31, 1985 978,773 $ 245 $ 430,571 $ (146,384)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<S> <C> <C> <C> <C>
Balance, June 18, 1984 - $ - $ - $ -
Stock issued for cash at
$0.0143 per share - - - 2,000
Balance,
December 31, 1984 - - - 2,000
Stock issued for cash at
$0.05 per share - - - 20,000
Stock issuance costs - - - (4,450)
Purchase of treasury
stock (403,976) (5,950) - (5,950)
Sale of treasury stock at
$2.11 per share 196,658 2,896 - 413,969
Stock issued to officers
for services at $0.005
per share - - - 2,193
Net loss for the year
ended December 31, 1985 - - - (146,384)
Balance,
December 31, 1985 (207,318) $ (3,054) $ - 281,378
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance forward 978,773 $ 245 $ 430,571 $ (146,384)
Purchase of treasury
stock - - - -
Sale of treasury stock at
$29.65 per share - - 1,838,032 -
Net loss for the year
ended December 31, 1986 - - - (542,930)
Balance,
December 31, 1986 978,773 245 2,268,603 (689,314)
Net loss for the year
ended December 31, 1987 - - - (509,693)
Balance,
December 31, 1987 978,773 245 2,268,603 (1,199,007)
Stock issued for services
at $0.60 per share 25,000 6 14,994 -
Net loss for the year
ended December 31, 1988 - - - (501,513)
Balance,
December 31, 1988 1,003,773 $ 251 $2,283,597 $(1,700,520)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<S> <C> <C> <C> <C>
Balance forward (207,318) $ (3,054) $ - $ 281,378
Purchase of treasury
stock (13,997) (13,500) - (13,500)
Sale of treasury stock at
$29.65 per share (62,000) 768 (732,300) 1,106,500
Net loss for the year
ended December 31, 1986 - - - (542,930)
Balance,
December 31, 1986 (159,315) (15,786) (732,300) 831,448
Net loss for the year
ended December 31, 1987 - - - (509,693)
Balance,
December 31, 1987 (159,315) (15,786) (732,300) 321,755
Stock issued for services
at $0.60 per share - - - 15,000
Net loss for the year
ended December 31, 1988 - - - (501,513)
Balance,
December 31, 1988 (159,315) $ (15,786) $ (732,300) $ (164,758)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance forward 1,003,773 $ 251 $ 2,283,597 $(1,700,520)
Stock issued for cash at
$2.00 per share 10,000 3 19,997 -
Stock issued for cash
at $0.575 per share 20,000 5 11,495 -
Sale of treasury stock
and subscription
receivable - - (34,786) -
Net loss for the year
ended December 31, 1989 - - - (306,612)
Balance
December 31, 1989 1,033,773 259 2,280,303 (2,007,132)
Cancellation of shares (5) - - -
Stock issued for cash
at $0.10 per share 25,000 6 2,494 -
Stock issued for cash
at $0.005 per share 3,150 1 15 -
Additional compensation
for treasury stock - - 34,701 -
Balance 1,061,918 $ 266 $ 2,317,513 $(2,007,132)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<S> <C> <C> <C> <C>
Balance forward (159,315) $ (15,786) $ (732,300) $ (164,758)
Stock issued for cash at
$2.00 per share - - - 20,000
Stock issued for cash
at $0.575 per share - - - 11,500
Sale of treasury stock
and subscription
receivable 159,315 15,786 732,300 713,300
Net loss for the year
ended December 31, 1989 - - - (306,612)
Balance
December 31, 1989 - - - 273,430
Cancellation of shares - - - -
Stock issued for cash
at $0.10 per share - - - 2,500
Stock issued for cash
at $0.005 per share - - - 16
Additional compensation
for treasury stock - - - 34,701
Balance - $ - $ - $ 310,647
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance forward 1,061,918 $ 266 $ 2,317,513 $ 2,007,132)
Net loss for the year
ended December 31, 1990 - - - (123,676)
Balance,
December 31, 1990 1,061,918 266 2,317,513 (2,130,808)
Stock issued for services
at $0.12 per share 20,400 5 2,395 -
Net loss for the year
ended December 31, 1991 - - - (207,142)
Balance,
December 31, 1991 1,082,318 271 2,319,908 (2,337,950)
Net loss for the year
ended December 31, 1992 - - - -
Balance,
December 31, 1992 1,082,318 271 2,319,908 (2,337,950)
Net loss for the year
ended December 31, 1993 - - - -
Balance,
December 31, 1993 1,082,318 $ 271 $ 2,319,908 $(2,337,950)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<S> <C> <C> <C> <C>
Balance forward - $ - $ - $ 310,647
Net loss for the year
ended December 31, 1990 - - - (123,676)
Balance,
December 31, 1990 - - - 186,971
Stock issued for services
at $0.12 per share - - - 2,400
Net loss for the year
ended December 31, 1991 - - - (207,142)
Balance,
December 31, 1991 - - - (17,771)
Net loss for the year
ended December 31, 1992 - - - -
Balance,
December 31, 1992 - - - (17,771)
Net loss for the year
ended December 31, 1993 - - - -
Balance,
December 31, 1993 - $ - $ - $ (17,771)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance,
December 31, 1993 1,082,318 $ 271 $ 2,319,908 $(2,337,950)
Net loss for the year
endedDecember 31, 1994 - - - (10,964)
Balance,
December 31, 1994 1,082,318 271 2,319,908 (2,348,914)
Stock issued for
Commodity Recovery
Corporation valued at
predessor cost of $0.00 500,000 125 (125) -
Stock issued for Energy
Research Corporation
valued at predessor cost
of $0.00 4,200,000 1,050 (1,050) -
Conversion of debt to
equity - - 3,500 -
Net loss for the year
ended December 31, 1995 - - - (89,740)
Balance,
December 31, 1995 5,782,318 $ 1,446 $ 2,322,233 $(2,438,654)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<S> <C> <C> <C> <C>
Balance,
December 31, 1993 - $ - $ - $ (17,771)
Net loss for the year
ended December 31, 1994 - - - (10,964)
Balance,
December 31, 1994 - - - (28,735)
Stock issued for
Commodity Recovery
Corporation valued at
predessor cost of $0.00 - - - -
Stock issued for Energy
Research Corporation
valued at predessor cost
of $0.00 - - - -
Conversion of debt to
equity - - - 3,500
Net loss for the year
ended December 31, 1995 - - - (89,740)
Balance,
December 31, 1995 - $ - $ - $ (114,975)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
40
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance,
December 31, 1995 5,782,318 $ 1,446 $ 2,322,233 $(2,438,654)
Stock issued for cash
cash at $0.60 per share 150,000 38 89,962 -
Stock issued for
services valued at $1.00
per share 288,000 73 287,927 -
Stock subscription
receivable at $0.50 per
share 40,000 10 19,990 -
Net loss for the year
ended December 31, 1996 - - (400,501) -
Balance,
December 31, 1996 6,260,318 1,567 2,720,112 (2,839,155)
Stock issued for cash
at $0.50 per share 1,163,700 291 575,773 -
Stock issued for services
at $0.50 per share 250,000 63 124,937 -
Receipt of stock
subscription - - - -
Net loss for the year
ended December 31, 1997 - - - (290,549)
Balance,
December 31, 1997 7,674,018 $ 1,921 $ 3,420,822 $(3,129,704)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<S> <C> <C> <C> <C>
Balance,
December 31, 1995 - $ - $ - $ (114,975)
Stock issued for cash
cash at $0.60 per share - - - 90,000
Stock issued for
services valued at $1.00
per share - - - 288,000
Stock subscription
receivable at $0.50 per
share - - (20,000) -
Net loss for the year
ended December 31, 1996 - - - (400,501)
Balance,
December 31, 1996 - - (20,000) (137,476)
Stock issued for cash
at $0.50 per share - - - 576,064
Stock issued for services
at $0.50 per share - - - 125,000
Receipt of stock
subscription - - 20,000 20,000
Net loss for the year
ended December 31, 1997 - - - (290,549)
Balance,
December 31, 1997 - $ - $ - $ 293,039
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
41
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance,
December 31, 1997 7,674,018 $ 1,921 $ 3,420,822 $(3,129,704)
Stock issued for services
valued at $0.12 per
share 2,970,000 742 355,658 -
Contribution of capital
by shareholder - - 29,243 -
Net loss for the year
ended December 31, 1998 - - - (464,211)
Balance,
December 31, 1998 10,644,018 2,663 3,805,723 (3,593,915)
Stock Issued for
services valued at
$0.27 per share 1,000,000 250 269,750 -
Stock issued for
services to be rendered
valued at $0.27 per
share 2,000,000 500 539,500 -
Stock issued for debt and
subscription valued at
$0.27 per share 1,000,000 250 269,750 -
Net loss for the year
ended December 31, 1999 - - - (729,731)
Balance,
December 31, 1999 14,644,018 $ 3,663 $ 4,884,723 $(4,323,646)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<S> <C> <C> <C> <C>
Balance,
December 31, 1997 - $ - $ - $ 293,039
Stock issued for services
valued at $0.12 per
share - - - 356,400
Contribution of capital
by shareholder - - - 29,243
Net loss for the year
ended December 31, 1998 - - - (464,211)
Balance,
December 31, 1998 - - - 214,471
Stock Issued for
services valued at
$0.27 per share - - - 270,000
Stock issued for
services to be rendered
valued at $0.27 per
share - - (180,000) 360,000
Stock issued for debt and
subscription valued at
$0.27 per share - - (208,002) 61,998
Net loss for the year
ended December 31, 1999 - - - (729,731)
Balance,
December 31, 1999 - $ - $ (388,002) $ 176,738
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
42
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
From
Inception on
June 18, 1984
For the Years Ended Through
December 31, December 31,
1999 1998 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(729,731) $ (464,211) $(4,323,646)
Adjustment to reconcile net loss to net
cash used by operating activities:
Depreciation 36,237 31,997 364,371
Common stock issued for services 630,000 356,400 1,399,400
Loss on disposal of property - 19,283 241,238
Changes in operating assets and
liabilities: (Increase) in inventory - - (160,000)
(Increase) decrease in note receivable - 8,510 -
Increase (decrease) in accrued
liabilities 72 - 59,742
Net Cash (Used) by Operating
Activities (63,422) (48,021) (2,418,895)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - (13,545) (718,191)
Purchase of treasury stock - - (19,450)
Stock subscription - - (732,300)
Net Cash (Used) from Investing
Activities - (13,545) (1,469,941)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable - related 63,422 13,000 540,798
Repayments of note payable - related - (31,933) (443,761)
Sale of treasury stock - - 1,911,183
Cancellation of stock subscription - - 732,300
Common stock issued for cash - - 1,148,316
Net Cash (Used) Provided by Financing
Activities $ 63,422 $ (18,933) $ 3,888,836
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
43
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
From
Inception on
June 18, 1984
For the Years Ended Through
December 31, December 31,
1999 1998 1999
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ - $ (80,499) $ -
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD - 80,499 -
CASH AND CASH EQUIVALENTS
END OF PERIOD $ - $ - $ -
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR
Interest $ - $ - $ 84,919
Income taxes $ - $ - $ -
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Common stock issued for services $ 630,000 $ 356,400 $1,399,400
Common stock issued for debt $ 61,998 $ - $ 61,998
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
44
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements presented are those of Galtech
Semiconductor Materials Corporation (the Company) and its wholly-owned
subsidiaries Energy Research Corporation (ERC) and Commodity Recovery
Corporation (CRC). The Company was incorporated on June 18, 1984 under
the laws of the State of Utah as Versa tech, Inc. On April 30, 1985,
the Company changed its name to Galtech, Inc., and on June 18, 1986,
the Company changed its name to Galtech Semiconductor Materials
Corporation. The Company was engaged in the manufacture of compound
semiconductor materials, but ceased all operations in 1990 when a fire
destroyed the Company's research and development as well as the
Company's operations center. Principal operations have not yet
resumed. On February 28, 1995, the Company issued 500,000 shares of
common stock in exchange for 100% of the issued and outstanding common
stock of CRC. On February 28, 1995, the Company issued 4,200,000
shares of common stock in exchange for 100% of the issued and
outstanding shares of ERC.
(Note 4)
Energy Research Corporation (ERC) was incorporated on February 7, 1994
under the laws of the State of Arizona. ERC was incorporated to
develop and produce alternative sources of energy.
Commodity Recovery Corporation (CRC) was incorporated on October 31,
1994 under the laws of the State of Utah. CRC was incorporated to
develop and market products relating to the decontamination of
aflatoxin.
At the time of acquisition of CRC and ERC, the Company was essentially
inactive, with no operations and minimal assets. Neither CRC or ERC
had any assets or operations. As such, the acquisition was recorded at
predessor cost which was $0. The Company is the continuing entity for
accounting and legal purposes.
a. Accounting Methods
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year end.
b. Equipment
Depreciation of equipment is provided using the straight-line method
over the estimated lives of five years.
Maintenance and repairs of the equipment that do not improve or extend
the lives of the respective assets are charged to expense as incurred.
Major renewals and betterments are treated as capital expenditures and
depreciated accordingly.
When assets are retired or otherwise disposed of, or become fully
depreciated, the cost of the assets and the related accumulated
depreciation are removed from the accounts with any gain or loss on
disposition reflected in the statement of operations.
45
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Income Taxes
No provision for taxes has been made, due to cumulative operating
losses at December 31, 1999. The Company has net operating loss
carryforwards of approximately $4,300,000 which will expire by 2019.
The potential tax benefits of the loss carryforwards are offset by a
valuation allowance of the same amount.
d. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
e. Basic Loss Per Share
For the Year Ended
December 31, 1999
Loss Shares Per Share
(Numerator) (Denominator) Amount
Net loss $ (729,731) 12,605,662 $ (0.06)
For the Year Ended
December 31, 1998
Loss Shares Per Share
(Numerator) (Denominator) Amount
Net loss $ (464,211) 9,211,908 $ (0.05)
The computations of basic loss per share of common stock is based on
the weighted average number of shares outstanding during the period.
f. Principles of Consolidation
The consolidated financial statements include those of Galtech
Semiconductor Materials Corporation (the Company) and its 100% owned
subsidiaries Energy Research Corporation and Commodity Recovery
Corporation. All significant intercompany accounts and transactions
have been eliminated.
g. Use of 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.
46
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Inventory
The inventory of raw materials for crystal growing is stated at the
lower of cost or market and is accounted for on a first-in-first-out
basis.
i. Revenue Recognition
When the Company begins operations, revenue will be recorded upon the
sale and delivery of the finished products.
NOTE 2 - EQUIPMENT
December 31,
1999
Equipment consists of the following:
Research equipment $ 181,187
Less: accumulated depreciation (122,390)
Net Equipment
$ 58,797
Amounts charged to depreciation expense were $36,237 and $31,997 for
the years ended December 31, 1999 and 1998, respectively.
NOTE 3 - RELATED PARTY TRANSACTIONS
The former president of the Company has provided advances to the
Company to cover operating expenses as well as equipment acquisitions
which have been recorded as a note payable - related. This note is
unsecured, non-interest bearing and is due upon demand. The advances
are repaid as the Company's cash needs allow. During the year ended
December 31, 1998, the former President advanced $13,000 to the
Company, was repaid $31,933 and contributed the balance of the advance
payable to him of $29,243, to the Company.
In 1999, the former president paid expenses of $61,998 toward the stock
subscription of $270,000. Additionally, the current president made
advances to the Company of $1,434 which bear interest at 10%, are
unsecured and due on demand.
NOTE 4 - STOCK TRANSACTIONS
On February 8, 1995, the Board of Directors approved a 20 to 1 reverse
stock split. All references to shares outstanding and earnings per
share have been retroactively restated to reflect the reverse stock
split.
47
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 4 - STOCK TRANSACTIONS (Continued)
On February 28, 1995, the Board of Directors issued 500,000 shares of
common stock to acquire Commodity Research Corporation (CRC). CRC has
no assets or operating history and the acquisition was valued at $0.
On February 28, 1995, the Board of Directors issued 4,200,000 shares of
common stock to acquire Energy Research Corporation (ERC). ERC had no
assets or operating history, and the acquisition was valued at
predecessor cost of $0.
In November 1995, the Company issued 125,000 shares of common stock for
public relations services to be performed. The contract was canceled
in December, 1995 and the stock was returned and canceled.
Accordingly, the financial statements do not reflect the issuance and
cancellation of the 125,000 shares.
In 1996, the Company issued 150,000 shares of common stock for cash at
$0.60 per share.
In 1996, the Company issued 40,000 shares of common stock for a
subscription receivable valued at $0.50 per share.
In 1996, the Company issued 288,000 shares of common stock for legal
and professional services rendered, valued at $1.00 per share.
In 1997, the Company issued 1,163,700 shares of common stock for cash
at $0.50 per share.
In 1997, the Company issued 250,000 shares of common stock for
services, valued at $0.50 per share.
In 1998, the Company issued 2,970,000 shares of common stock for
services valued at $0.12 per share.
In 1999, the Company issued 3,000,000 shares of common stock for
services valued at $0.27 per share.
In 1999, the Company issued 1,000,000 shares of common stock for debt
and subscription valued at $0.27 per share.
48
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 5 - COMMITMENTS AND CONTINGENCIES
On December 18, 1992, a judgment was entered against the Company for
$40,563 for non-payment of an account payable. This amount has been
included in the accounts payable for December 31, 1999. The Company
has written off other accounts payable which were incurred prior to
1990. The Company's legal counsel has represented that the statute of
limitations for collection of the payables has expired. The Company
does not intend to pay the liabilities however there is no assurance
that the creditors will not make claims against the Company.
NOTE 6 - GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to going concern which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. However, the Company has little cash
and without realization of additional adequate financing, it would be
unlikely for the Company to pursue and realize its objective of
operating profitably. The Company plans to continue the research and
development process prior to the sales of its product. In the interim,
management has committed to covering the operating expenses of the
Company.
49
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS
CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and December 31, 1999
50
<PAGE>
C O N T E N T S
Independent Accountants' Review Report . . . . . . . . . . . 3
Consolidated Balance Sheets . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations . . . . . . . . . . . 5
Consolidated Statements of Stockholders' Equity. . . . . . . 6
Consolidated Statements of Cash Flows. . . . . . . . . . . 14
Notes to the Consolidated Financial Statements . . . . . . 16
51
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Galtech Semiconductor Materials Corporation
and Subsidiaries
(A Development Stage Company)
Lindon, Utah
We have reviewed the accompanying consolidated balance sheets of Galtech
Semiconductor Materials Corporation and Subsidiaries (a development stage
company) as of March 31, 2000 and the related statements of operations,
stockholders' equity and cash flows for the periods ended March 31, 2000 and
1999. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed financial statements referred to
above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the balance sheet of Galtech Semiconductor
Materials Corporation and Subsidiaries (a development stage company) as of
December 31, 1999, and the related statements of operations, stockholders'
equity, and cash flows for the year then ended (not presented herein) and in
our report dated February 8, 2000, we expressed an unqualified opinion on
those consolidated financial statements.
HJ & Associates, LLC
Salt Lake City, Utah
May 4, 2000
52
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1999 1999
<S> <C> <C>
CURRENT ASSETS
Cash $ 73,079 $ -
Inventory 160,000 160,000
Total Current Assets 233,079 160,000
EQUIPMENT, NET (Note 2) 49,738 58,797
TOTAL ASSETS $ 282,817 $ 218,797
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 487 $ -
Accounts payable (Note 5) 40,563 40,563
Note payable - related (Note 3) 8,410 1,424
Accrued expenses 210 72
Total Current Liabilities 49,670 42,059
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $0.00025 par value, 200,000,000
shares authorized; 14,814,018 and
14,644,018 shares issued and
outstanding, respectively 3,713 3,663
Additional paid-in capital 4,934,673 4,884,723
Stock subscription receivable (183,002) (388,002)
Deficit accumulated during the development stage (4,522,237) (4,323,646)
Total Stockholders' Equity 233,147 176,738
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 282,817 $ 218,797
</TABLE>
See Accountants' Review Report and the accompanying notes to the reviewed
financial statements.
53
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
From
Inception on
June 18, 1984
For the Three Months Ended Through
March 31, March 31,
2000 1999 2000
<S> <C> <C> <C>
SALES $ - $ - $ 599,609
COST OF PRODUCT SOLD - - 676,198
GROSS MARGIN - - (76,589)
OPERATING EXPENSES
General and administrative 183,695 3,049 2,469,158
Legal and professional 5,816 1,200 836,644
Research and development - 25,000 536,099
Depreciation 9,059 9,059 373,430
Total Expenses 198,570 38,308 4,215,331
Net Loss From Operations (198,570) (38,308) (4,291,920)
OTHER INCOME (EXPENSE)
Interest expense (210) - (85,201)
Interest income 189 - 93,616
Loss on disposal of assets - - (241,238)
Miscellaneous - - 2,506
Total Other Income (Expense) (21) - (230,317)
NET LOSS $ (198,591) $ (38,308)$(4,522,237)
BASIC LOSS PER SHARE $ (0.01) $ (0.00)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 14,662,370 10,644,018
</TABLE>
See Accountants' Review Report and the accompanying notes to the reviewed
financial statements.
54
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance, June 18, 1984 - $ - $ - $ -
Stock issued for cash at
$0.0143 per share 140,173 35 1,965 -
Balance,
December 31, 1984 140,173 35 1,965 -
Stock issued for cash at
$0.05 per share 400,000 100 19,900 -
Stock issuance costs - - (4,450) -
Purchase of treasury
stock - - - -
Sale of treasury stock at - - 411,073 -
$2.11 per share
Stock issued to officers for
services at $0.005
per share 438,600 110 2,083 -
Net loss for the year ended
December 31, 1985 - - - (146,384)
Balance,
December 31, 1985 978,773 $ 245 $ 430,571 $ (146,384)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<C> <C> <C> <C>
Balance, June 18, 1984 $ - $ - $ - $ -
Stock issued for cash at
$0.0143 per share - - - 2,000
Balance,
December 31, 1984 - - - 2,000
Stock issued for cash at
$0.05 per share - - - 20,000
Stock issuance costs - - - (4,450)
Purchase of treasury (403,976) (5,950) - (5,950)
stock
Sale of treasury stock at
$2.11 per share 196,658 2,896 - 413,969
Stock issued to officers for
services at $0.005 per share - - - 2,193
Net loss for the year ended
December 31, 1985 - - - (146,384)
Balance,
December 31, 1985 $ (207,318)$ (3,054)$ - $ 281,378
</TABLE>
See Accountants' Review Report and the accompanying notes to the reviewed
financial statements.
55
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance forward 978,773 $ 245 $ 430,571 $ (146,384)
Purchase of treasury stock - - - -
Sale of treasury stock at
$29.65 per share - - 1,838,032 -
Net loss for the year ended
December 31, 1986 - - - (542,930)
Balance,
December 31, 1986 978,773 245 2,268,603 (689,314)
Net loss for the year ended
December 31, 1987 - - - (509,693)
Balance,
December 31, 1987 978,773 245 2,268,603 (1,199,007)
Stock issued for services
at $0.60 per share 25,000 6 14,994 -
Net loss for the year ended
December 31, 1988 - - - (501,513)
Balance,
December 31, 1988 1,003,773 $ 251 $ 2,283,597 $(1,700,520)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<C> <C> <C> <C>
Balance forward (207,318)$ (3,054)$ - $ 281,378
Purchase of treasury stock (13,997) (13,500) - (13,500)
Sale of treasury stock at
$29.65 per share 62,000 768 (732,300) 1,106,500
Net loss for the year ended
December 31, 1986 - - - (542,930)
Balance,
December 31, 1986 (159,315) (15,786) (732,300) 831,448
Net loss for the year ended
December 31, 1987 - - - (509,693)
Balance,
December 31, 1987 (159,315) (15,786) (732,300) 321,755
Stock issued for services at
$0.60 per share - - - 15,000
Net loss for the year ended
December 31, 1988 - - - (501,513)
Balance,
December 31, 1988 $ (159,786)$ (15,786)$ (732,300)$ (164,758)
</TABLE>
See Accountants' Review Report and the accompanying notes to the reviewed
financial statements.
56
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance forward 1,003,773 $ 251 $ 2,283,597 $(1,700,520)
Stock issued for cash at
$2.00 per share 10,000 3 19,997 -
Stock issued for cash
at $0.575 per share 20,000 5 11,495 -
Sale of treasury stock
and subscription receivable - - (34,786) -
Net loss for the year ended
December 31, 1989 - - - (306,612)
Balance
December 31, 1989 1,033,773 259 2,280,303 (2,007,132)
Cancellation of shares (5) - - -
Stock issued for cash
at $0.10 per share 25,000 6 2,494 -
Stock issued for cash
at $0.005 per share 3,150 1 15 -
Additional compensation
for treasury stock - - 34,701 -
Balance 1,061,918 $ 266 $ 2,317,513 $(2,007,132)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<C> <C> <C> <C>
Balance forward $ (159,315)$ (15,786)$ (732,300)$ (164,758)
Stock issued for cash at - - - 20,000
$2.00 per share
Stock issued for cash
at $0.575 per share - - - 11,500
Sale of treasury stock
and subscription receivable 159,315 15,786 732,300 713,300
Net loss for the year ended
December 31, 1989 - - - (306,612)
Balance
December 31, 1989 - - - 273,430
Cancellation of shares - - - -
Stock issued for cash
at $0.10 per share - - - 2,500
Stock issued for cash
at $0.005 per share - - - 16
Additional compensation
for treasury stock - - - 34,701
Balance $ - $ - $ - $ 310,647
</TABLE>
See Accountants' Review Report and the accompanying notes to the reviewed
financial statements.
57
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance forward 1,061,918 $ 266 $ 2,317,513 $(2,007,132)
Net loss for the year ended
December 31, 1990 - - - (123,676)
Balance,
December 31, 1990 1,061,918 266 2,317,513 (2,130,808)
Stock issued for services
at $0.12 per share 20,400 5 2,395 -
Net loss for the year ended
December 31, 1991 - - - (207,142)
Balance,
December 31, 1991 1,082,318 271 2,319,908 (2,337,950)
Net loss for the year ended
December 31, 1992 - - - -
Balance,
December 31, 1992 1,082,318 271 2,319,908 (2,337,950)
Net loss for the year ended
December 31, 1993 - - - -
Balance,
December 31, 1993 1,082,318 $ 271 $ 2,319,908 $(2,337,950)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<C> <C> <C> <C>
Balance forward $ - $ - $ - $ 310,647
Net loss for the year ended
December 31, 1990 - - - (123,676)
Balance,
December 31, 1990 - - - 186,971
Stock issued for services
at $0.12 per share - - - 2,400
Net loss for the year ended
December 31, 1991 - - - (207,142)
Balance,
December 31, 1991 - - - (17,771)
Net loss for the year ended
December 31, 1992 - - - -
Balance,
December 31, 1992 - - - (17,771)
Net loss for the year ended
December 31, 1993 - - - -
Balance,
December 31, 1993 $ - $ - $ - $ (17,771)
</TABLE
See Accountants' Review Report and the accompanying notes to the reviewed
financial statements.
58
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
</TABLE>
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance,
December 31, 1993 1,082,318 $ 271 $ 2,319,908 $(2,337,950)
Net loss for the year ended
December 31, 1994 - - - (10,964)
Balance,
December 31, 1994 1,082,318 271 2,319,908 (2,348,914)
Stock issued for
Commodity Recovery
Corporation valued at
predessor cost of $0.00 500,000 125 (125) -
Stock issued for Energy
Research Corporation
valued at predessor cost
of $0.00 4,200,000 1,050 (1,050) -
Conversion of debt to
equity - - 3,500 -
Net loss for the year ended
December 31, 1995 - - - (89,740)
Balance,
December 31, 1995 5,782,318 $ 1,446 $ 2,322,233 $(2,438,654)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<C> <C> <C> <C>
Balance,
December 31, 1993 $ - $ - $ - $ (17,771)
Net loss for the year ended
December 31, 1994 - - - (10,964)
Balance,
December 31, 1994 - - - (28,735)
Stock issued for
Commodity Recovery
Corporation valued at
predessor cost of $0.00 - - - -
Stock issued for Energy
Research Corporation
valued at predessor cost
of $0.00 - - - -
Conversion of debt to
equity - - - 3,500
Net loss for the year ended
December 31, 1995 - - - (89,740)
Balance,
December 31, 1995 $ - $ - $ - $ (114,975)
</TABLE>
See Accountants' Review Report and the accompanying notes to the reviewed
financial statements.
59
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance,
December 31, 1995 5,782,318 $ 1,446 $ 2,322,233 $(2,438,654)
Stock issued for cash
cash at $0.60 per share 150,000 38 89,962 -
Stock issued for
services valued at $1.00
per share 288,000 73 287,927 -
Stock subscription receivable
at $0.50 per share 40,000 10 19,990 -
Net loss for the year ended
December 31, 1996 - - - (400,501)
Balance,
December 31, 1996 6,260,318 1,567 2,720,112 (2,839,155)
Stock issued for cash
at $0.50 per share 1,163,700 291 575,773 -
Stock issued for services
at $0.50 per share 250,000 63 124,937 -
Receipt of stock
subscription - - - -
Net loss for the year ended
December 31, 1997 - - - (290,549)
Balance,
December 31, 1997 7,674,018 $ 1,921 $ 3,420,822 $(3,129,704)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<C> <C> <C> <C>
Balance,
December 31, 1995 $ - $ - $ - $ (114,975)
Stock issued for cash
cash at $0.60 per share - - - 90,000
Stock issued for
services valued at $1.00
per share - - - 288,000
Stock subscription receivable
at $0.50 per share - - (20,000) -
Net loss for the year ended
December 31, 1996 - - - (400,501)
Balance,
December 31, 1996 - - (20,000) (137,476)
Stock issued for cash
at $0.50 per share - - - 576,064
Stock issued for services
at $0.50 per share - - - 125,000
Receipt of stock
subscription - - 20,000 20,000
Net loss for the year ended
December 31, 1997 - - - (290,549)
Balance,
December 31, 1997 $ - $ - $ - $ 293,039
</TABLE>
See Accountants' Review Report and the accompanying notes to the reviewed
financial statements.
60
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance,
December 31, 1997 7,674,018 $ 1,921 $ 3,420,822 $(3,129,704)
Stock issued for services
valued at $0.12 per share 2,970,000 742 355,658 -
Contribution of capital by
shareholder - - 29,243 -
Net loss for the year ended
December 31, 1998 - - - (464,211)
Balance,
December 31, 1998 10,644,018 2,663 3,805,723 (3,593,915)
Stock Issued for services
valued at $0.27 per share 1,000,000 250 269,750 -
Stock issued for services
to be rendered valued at
$0.27 per share 2,000,000 500 539,500 -
Stock issued for debt and
subscription valued at
$0.27 per share 1,000,000 250 269,750 -
Net loss for the year ended
December 31, 1999 - - - (729,731)
Balance,
December 31, 1999 14,644,018 $ 3,663 $ 4,884,723 $(4,323,646)
Treasury Stock Subscription Total
Shares Amount Receivable Equity
Balance,
December 31, 1997 $ - $ - $ - $ 293,039
Stock issued for services
valued at $0.12 per share - - - 356,400
Contribution of capital by
shareholder - - - 29,243
Net loss for the year ended
December 31, 1998 - - - (464,211)
Balance,
December 31, 1998 - - - 214,471
Stock Issued for services
valued at $0.27 per share - - - 270,000
Stock issued for services
to be rendered valued at - - (180,000) 360,000
$0.27 per share
Stock issued for debt and
subscription valued at
$0.27 per share - - (208,998) 61,998
Net loss for the year ended
December 31, 1999 - - - (729,731)
Balance,
December 31, 1999 $ - $ - $ (388,002)$ 176,738
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
61
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance,
December 31, 1999 14,644,018 $ 3,663 $ 4,884,723 $(4,323,646)
Expense of subscription
receivable - - - -
Receipt of stock
subscription - - - -
Stock issued for cash at
$0.25 per share 200,000 50 49,950 -
Net loss for the period
ended March 31, 2000 - - - (198,591)
Balance,
March 31, 2000 14,844,018 $ 3,713 $ 4,934,673 $ 4,522,237
Treasury Stock Subscription Total
Shares Amount Receivable Equity
<C> <C> <C> <C>
Balance,
December 31, 1999 $ - $ - $ (388,002)$ 176,738
Expense of subscription
receivable - - 180,000 180,000
Receipt of stock
subscription - - 25,000 25,000
Stock issued for cash at
$0.25 per share - - - 50,000
Net loss for the period
ended March 31, 2000 - - - (198,591)
Balance,
March 31, 2000 $ - $ - $ 183,002 $ 233,147
</TABLE>
See Accountants' Review Report and the accompanying notes to the reviewed
financial statements.
62
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
From
Inception on
For the June 18, 1984
Three Months Ended Through
March 31, March 31,
2000 1999 2000
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (198,591) $ (38,308) $ (4,522,237)
Adjustment to reconcile net loss to net
cash used by operating activities:
Depreciation 9,059 9,059 373,430
Common stock issued for services 205,000 - 1,604,400
Loss on disposal of property - - 241,238
Changes in operating assets and liabilities:
(Increase) in inventory - - (160,000)
Increase (decrease) in accounts payable 487 - 487
Increase (decrease) in accrued
liabilities 138 - 59,880
Net Cash (Used) by Operating
Activities 16,093 (29,249) (2,402,802)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - - (718,191)
Purchase of treasury stock - - (19,450)
Stock subscription - - (732,300)
Net Cash (Used) from Investing
Activities - - (1,469,941)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable - related 6,986 29,249 547,784
Repayments of note payable - related - - (443,761)
Sale of treasury stock - - 1,911,183
Cancellation of stock subscription - - 732,300
Common stock issued for cash 50,000 - 1,198,316
Net Cash (Used) Provided by Financing
Activities $ 56,986 $ 29,249 $ 3,945,822
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
63
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
From
Inception on
For the June 18, 1984
Three Months Ended Through
March 31, March 31,
2000 1999 2000
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 73,079 $ - $ 73,079
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD - - -
CASH AND CASH EQUIVALENTS
END OF PERIOD $ 73,079 $ - $ 73,079
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR
Interest $ - $ - $ 84,919
Income taxes $ - $ - $ -
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Common stock issued for services $ 205,000 $ - $ 1,604,400
Common stock issued for debt $ - $ - $ 61,998
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
64
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements presented are those of Galtech
Semiconductor Materials Corporation (the Company) and its wholly-owned
subsidiaries Energy Research Corporation (ERC) and Commodity Recovery
Corporation (CRC). The Company was incorporated on June 18, 1984 under the
laws of the State of Utah as Versa tech, Inc. On April 30, 1985, the Company
changed its name to Galtech, Inc., and on June 18, 1986, the Company changed
its name to Galtech Semiconductor Materials Corporation. The Company was
engaged in the manufacture of compound semiconductor materials, but ceased all
operations in 1990 when a fire destroyed the Company's research and
development as well as the Company's operations center. Principal operations
have not yet resumed. On February 28, 1995, the Company issued 500,000 shares
of common stock in exchange for 100% of the issued and outstanding common
stock of CRC. On February 28, 1995, the Company issued 4,200,000 shares of
common stock in exchange for 100% of the issued and outstanding shares of ERC.
(Note 4)
Energy Research Corporation (ERC) was incorporated on February 7, 1994 under
the laws of the State of Arizona. ERC was incorporated to develop and produce
alternative sources of energy.
Commodity Recovery Corporation (CRC) was incorporated on October 31, 1994
under the laws of the State of Utah. CRC was incorporated to develop and
market products relating to the decontamination of aflatoxin.
At the time of acquisition of CRC and ERC, the Company was essentially
inactive, with no operations and minimal assets. Neither CRC or ERC had any
assets or operations. As such, the acquisition was recorded at predessor cost
which was $0. The Company is the continuing entity for accounting and legal
purposes.
a. Accounting Methods
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a December 31 year end.
b. Equipment
Depreciation of equipment is provided using the straight-line method over the
estimated lives of five years.
Maintenance and repairs of the equipment that do not improve or extend the
lives of the respective assets are charged to expense as incurred. Major
renewals and betterments are treated as capital expenditures and depreciated
accordingly.
When assets are retired or otherwise disposed of, or become fully depreciated,
the cost of the assets and the related accumulated depreciation are removed
from the accounts with any gain or loss on disposition reflected in the
statement of operations.
65
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Income Taxes
No provision for taxes has been made, due to cumulative operating losses at
March 31, 2000. The Company has net operating loss carryforwards of
approximately $4,522,000 which will expire by 2020. The potential tax
benefits of the loss carryforwards are offset by a valuation allowance of the
same amount.
d. Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
e. Basic Loss Per Share
For the Three Months Ended
March 31, 2000
Loss Shares Per Share
(Numerator) (Denominator) Amount
Net loss $ (198,591) 14,662,370 $ (0.01)
For the Three Months Ended
March 31, 1999
Loss Shares Per Share
(Numerator) (Denominator) Amount
Net loss $ (38,308) 10,644,018 $ (0.00)
The computations of basic loss per share of common stock is based on the
weighted average number of shares outstanding during the period.
f. Principles of Consolidation
The consolidated financial statements include those of Galtech Semiconductor
Materials Corporation (the Company) and its 100% owned subsidiaries Energy
Research Corporation and Commodity Recovery Corporation. All significant
intercompany accounts and transactions have been eliminated.
g. Use of 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.
66
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Inventory
The inventory of raw materials for crystal growing is stated at the lower of
cost or market and is accounted for on a first-in-first-out basis.
i. Revenue Recognition
When the Company begins operations, revenue will be recorded upon the sale and
delivery of the finished products.
NOTE 2 -EQUIPMENT
March 31, December 31,
2000 1999
Equipment consists of the following:
Research equipment $ 181,187 $ 181,187
Less: accumulated depreciation (131,449) (122,390)
Net Equipment $ 49,738 $ 58,797
Amounts charged to depreciation expense were $9,059 and $36,237 for the period
ended March 31, 2000 and December 31, 1999, respectively.
NOTE 3 -RELATED PARTY TRANSACTIONS
In 1999, the former president of the Company, paid expenses of $61,998 toward
the stock subscription of $270,000. In March of 2000, an additional $25,000
was paid toward the stock subscription. Additionally, the current president
made advances to the Company of $3,294 which bear interest at 10%, are
unsecured and due on demand.
Two other related parties made advances to the Company to cover operating
expenses of $5,116, which also bear interest at 10%, are unsecured and due on
demand. Thus, making total related part debt $8,410 at March 31, 2000.
NOTE 4 -STOCK TRANSACTIONS
On February 8, 1995, the Board of Directors approved a 20 to 1 reverse stock
split. All references to shares outstanding and earnings per share have been
retroactively restated to reflect the reverse stock split.
67
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 4 - STOCK TRANSACTIONS (Continued)
On February 28, 1995, the Board of Directors issued 500,000 shares of common
stock to acquire Commodity Research Corporation (CRC). CRC has no assets or
operating history and the acquisition was valued at $0.
On February 28, 1995, the Board of Directors issued 4,200,000 shares of common
stock to acquire Energy Research Corporation (ERC). ERC had no assets or
operating history, and the acquisition was valued at predecessor cost of $0.
In November 1995, the Company issued 125,000 shares of common stock for public
relations services to be performed. The contract was canceled in December,
1995 and the stock was returned and canceled. Accordingly, the financial
statements do not reflect the issuance and cancellation of the 125,000 shares.
In 1996, the Company issued 150,000 shares of common stock for cash at $0.60
per share.
In 1996, the Company issued 40,000 shares of common stock for a subscription
receivable valued at $0.50 per share.
In 1996, the Company issued 288,000 shares of common stock for legal and
professional services rendered, valued at $1.00 per share.
In 1997, the Company issued 1,163,700 shares of common stock for cash at $0.50
per share.
In 1997, the Company issued 250,000 shares of common stock for services,
valued at $0.50 per share.
In 1998, the Company issued 2,970,000 shares of common stock for services
valued at $0.12 per share.
In 1999, the Company issued 3,000,000 shares of common stock for services
valued at $0.27 per share.
In 1999, the Company issued 1,000,000 shares of common stock for debt and
subscription valued at $0.27 per share.
In March 2000, the Company issued 200,000 shares of common stock for cash at
$0.25 per share.
68
<PAGE>
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 5 - COMMITMENTS AND CONTINGENCIES
On December 18, 1992, a judgment was entered against the Company for $40,563
for non-payment of an account payable. This amount has been included in the
accounts payable for March 31, 2000. The Company has written off other
accounts payable which were incurred prior to 1990. The Company's legal
counsel has represented that the statute of limitations for collection of the
payables has expired. The Company does not intend to pay the liabilities
however there is no assurance that the creditors will not make claims against
the Company.
NOTE 6 -GOING CONCERN
The Company's financial statements are prepared using the generally accepted
accounting principles applicable to going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company has little cash and without realization of
additional adequate financing, it would be unlikely for the Company to pursue
and realize its objective of operating profitably. The Company plans to
continue the research and development process prior to the sales of its
product. In the interim, management has committed to covering the operating
expenses of the Company.
69
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
----------
During our two most recent calendar years, and since then, our
principal independent accountant has not resigned or declined to stand for re-
election, and we have not dismissed our principal independent accountant
during that period.
70
------------------------------------------------------------------------------
-
------------------------------------------------------------------------------
-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors And Officers
-----------------------------------------
Section 16-10a-902(1) of the Utah Revised Business Corporation Act
authorizes a Utah corporation to indemnify any director against liability
incurred in any proceeding if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his or her conduct was unlawful.
Section 16-10a-902(4) prohibits a Utah corporation from
indemnifying a director in a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation or in a
proceeding in which the director was adjudged liable on the basis that he or
she improperly received a personal benefit. Otherwise, Section 16-10a-902(5)
allows indemnification for reasonable expenses incurred in connection with a
proceeding by or in the right of a corporation.
Unless limited by the Articles of Incorporation, Section 16-10a-905
authorizes a director to apply for indemnification to the court conducting the
proceeding or another court of competent jurisdiction. Section 16-10a-907(1)
extends this right to officers of a corporation as well.
Unless limited by the Articles of Incorporation, Section 16-10a-903
requires that a corporation indemnify a director who was successful, on the
merits or otherwise, in defending any proceeding to which he or she was a
party against reasonable expenses incurred in connection therewith. Section
16-10a-907(1) extends this protection to officers of a corporation as well.
Pursuant to Section 16-10a-904(1), the corporation may advance a
director's expenses incurred in defending any proceeding upon receipt of an
undertaking and a written affirmation of his or her good faith belief that he
or she has met the standard of conduct specified in Section 16-10a-902.
Unless limited by the Articles of Incorporation, Section 16-10a-907(2)
extends this protection to officers, employees, fiduciaries and agents of a
corporation as well.
Regardless of whether a director, officer, employee, fiduciary or
agent has the right to indemnity under the Utah Revised Business Corporation
Act, Section 16-10a-908 allows the corporation to purchase and maintain
insurance on his or her behalf against liability resulting from his or her
corporate role.
This is only a summary of the indemnification provisions of the Utah
Revised Business Corporation Act.
Neither our Articles of Incorporation, as amended, nor our Bylaws
contain any provisions about indemnification of our directors and executive
officers. However, the provisions of the Utah Revised Business Corporation
Act will apply.
Item 25. Other Expenses of Issuance And Distribution
-------------------------------------------
The following table sets forth the expenses which we expect to incur
in connection with the registration of the shares of common stock being
registered hereby. All of these expenses, except for the Commission
registration fee, are estimated:
Securities and Exchange Commission registration fee........$ 338.25
Legal fees and expenses....................................$25,000
Accounting fees............................................$ 1,250
Printing and engraving expenses............................$ 0
Transfer agent fees........................................$ 500
Miscellaneous..............................................$ 500
--------
Total................................................$27,588.25
Item 26. Recent Sales of Unregistered Securities
---------------------------------------
Common Stock
------------
<TABLE>
<CAPTION>
Date Number of Aggregate
Name Acquired Shares Consideration
---- -------- --------- -------------
<S> <C> <C> <C>
Two subscribers 1/15/97 100,000 Services valued at
under Rule 504 $0.50 per share
offering
Five subscribers 1/22/97 771,700 (1) $385,850 (1)
under Rule 504
offering
One subscriber 2/13/97 272,000 $136,000
under Rule 504
offering
North American 7/31/97 150,000 $ 75,000
Corporate
Consultants, Inc.
North American 11/11/97 150,000 Services valued at
Corporate $0.50 per share
Consultants, Inc.
William F. Pratt 6/25/98 550,000 Services valued at
$0.12 per share
Worth P. Allred 6/25/98 800,000 Services valued at
$0.12 per share
S. Kent Holt 6/25/98 500,000 Services valued at
$0.12 per share
Flood Thomas 6/25/98 50,000 Services valued at
$0.12 per share
Jay Reynolds 6/25/98 20,000 Services valued at
$0.12 per share
Jim Whiting 6/25/98 10,000 Services valued at
$0.12 per share
James G. and 6/25/98 20,000 Services valued at
Tracy Davis $0.12 per share
C. Greg Jensen 6/25/98 20,000 Services valued at
$0.12 per share
Firm International 6/25/98 1,000,000 Services valued at
Group Trust $0.12 per share
David R. Porter 7/6/99 1,000,000 Services valued at
$0.27 per share
William Tunnell 7/6/99 1,000,000 Services valued at
$0.27 per share
W. D. Newman 7/6/99 1,000,000 Services valued at
$0.27 per share
Russell R. Chapman 7/6/99 1,000,000 Debt and subscrip-
tion valued at
$0.27 per share
Verity Global 3/24/00 200,000 $50,000
Financial, LLC (2)
</TABLE>
(1) A total of 30,000 of these shares were subsequently canceled.
(2) Under our Securities Purchase Agreement, Verity will also
become obligated to buy 800,000 "unregistered" and "restricted"
shares of our common stock 90 days after the effective date of
this Registration Statement. The purchase price will be
$200,000.
Management believes each of the foregoing persons or entities was
either an "accredited investor," or a "sophisticated investor" as defined in
Rule 506 of Regulation D of the Securities and Exchange Commission. Each had
access to all material information about Galtech prior to the offer, sale or
issuance of these "restricted securities." We believe these shares were
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "1933 Act"), pursuant to Section 4(2) and/or 3(b) thereof.
Item 27. Exhibits
--------
The following exhibits are filed as a part of this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ ------------
<S> <C>
3.1 Articles of Incorporation filed June 18, 1984.
3.2 Articles of Amendment filed on April 30, 1985.
3.3 Articles of Amendment filed September 9, 1986.
3.4 Articles of Amendment filed February 24, 1995.
3.5 Bylaws
5.1 Opinion of Branden T. Burningham, Esq. regarding legality
10.1 Securities Purchase Agreement, with exhibits
23.1 Consent of HJ & Associates, LLC (formerly known as "Jones, Jensen
& Company")
23.2 Consent of Branden T. Burningham, Esq.
27.1 Financial Data Schedule
Item 28. Undertakings
------------
Galtech hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and, notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) include any additional or changed material
information
on the plan of distribution.
(2) For determining liability under the Securities Act, to treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to our directors, executive officers
and controlling persons the foregoing provisions or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than our payment of expenses incurred or paid by any of our
directors, executive officers or controlling persons in the successful defense
of any action, suit or proceeding) is asserted by such director, executive
officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
----------
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing of Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned in the
City of Lindon, State of Utah, on June 24, 2000.
GALTECH SEMICONDUCTOR MATERIALS
CORPORATION
By /s/ William F. Pratt
------------------------------
William F. Pratt
CEO, President and Director
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates stated.
Dated: 6-24-00 /s/ William F. Pratt
------- -------------------------------------
William F. Pratt
CEO, President and Director
Dated: 6/24/00 /s/ S. Kent Holt
------- -------------------------------------
S. Kent Holt
Executive Vice President and
Director
Dated: 6/30/2000 /s/ Worth P. Allred
--------- -------------------------------------
Worth P. Allred
Vice President, Research and
Development, and Director
Dated: 6-30-00 /s/ David R. Porter
------- -------------------------------------
David R. Porter
Secretary/Treasurer and Director
<PAGE>
Date Filed: July 13, 2000 SEC File No. _________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
GALTECH SEMICONDUCTOR MATERIALS CORPORATION
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