<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
AMENDMENT 1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
CETEK TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 84-0925366
--------- -----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
19 Commerce Street
Poughkeepsie, New York 12603
(Address of principal executive offices)
(914) 452-3510
(Issuer's telephone number, including area code)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
Not applicable Not applicable
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.001 per share
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<PAGE>
ITEM 1. Description of Business
Introduction General
Introduction
Cetek Technologies, Inc. (the "Company"), through its wholly owned subsidiary
Cetek Corporation (the "Subsidiary"), is engaged in the manufacturing and
development of materials such as ceramics. The Company has derived substantially
all its revenues from the fulfillment of orders for its contract manufacturing
operations. Nevertheless, its main focus since 1993 has been directed towards
the research and development of an improved manufacturing process for advanced
ceramics. Advanced ceramics are ceramics that require special engineering and
are used in electronics and other specialized applications. In 1999 the Company
did not derive any revenues from the sale of products utilizing its process.
The Subsidiary has been in continuous operation since November, 1987. In 1994
the Subsidiary was acquired by Darcy Corporation. Darcy had previously acquired
all of the issued and outstanding shares of capital stock of Cetek in a share
exchange, pursuant to which Darcy issued an aggregate of 13,845,000 of its
common stock to the holders of all the issued and outstanding shares of stock of
Cetek (approximately 91% of the outstanding Darcy shares, post acquisition).
The Company's executive offices and manufacturing facility are located at 19
Commerce Street, Poughkeepsie, New York 12603, telephone (914) 452-3510, fax
number (914) 454-3524. As used herein, unless otherwise indicated by the context
the term "Company" refers to the Company and its Subsidiary.
Contract Manufacturing
The Company has operated a contract manufacturing operation since 1988, handling
general precision machining, sheet metal fabrication and welding, electronic
manufacturing and testing, and general design of metal components and systems.
The Company as a contract manufacturer completes orders for original equipment
manufacturers and others. The Company completes the manufacturing in accordance
with the specifications of its customer. Upon completion the products are
shipped to the customer or other parties for assembly by the client. The Company
has a full array of equipment to fulfill its contracts which are obtained by an
officer of the Company. The Company does not maintain a separate sales force for
this purpose.
The equipment and personnel of the Company's fabricating facilities are also
utilized in the Company's proposed ceramic business. There are 14 employees
engaged in this business.
In connection with its contract manufacturing, since 1997 the Company has
maintained business relations with Pitney Bowes and Circon ACMI both of which
are unaffiliated with the Company. The Company's relationships with these
clients have accounted for approximately 80% of the Company's sales in 1998 and
1999. Pitney Bowes accounted for 61.3% and 55.7% of the Company's revenues in
1999 and 1998 respectively. Circon ACMI accounted for 22.6% and 31.6% of the
Company's revenues in 1998 and 1999 respectively.
<PAGE>
Ceramic Industry Background
Ceramics have been used by man for centuries in the form of bricks, tile, and
glass. In recent years, the processing methods have dramatically improved,
creating a new generation of advanced ceramic material which is lighter,
stronger and more durable than its metal counterparts. Advanced ceramic
materials can be broadly categorized as electronic ceramics and structural
ceramics. Electronic ceramics are used as substrates (or the base upon which
circuits and other components are affixed for electronic products.) The
substrates are used in computers, medical equipment, communication equipment and
consumer products. Structural ceramics used in aerospace defense design,
bioceramics and environmental products, heat engines, wear parts and cutting
tools. Structural ceramics, for example, have been used in car engines and
military aircraft and helicopters as form of bullet-proof window protection.
Advanced ceramics are expected to continue their growth. It is estimated that
the electronic ceramics will continue to hold the largest market share of the
U.S. advanced ceramics materials, while substantial growth will occur in the
structural ceramics market.
Cetek Process
The Company has been engaged in developing a process (the "Cetek Process") to
produce ceramic products at lower production costs with possible enhanced
qualities. Most ceramic products are produced by mixing various raw materials
(alumina, silica and dozens of other compounds) and then sintered or heated in a
high temperature furnace until the mixture becomes hard. Varying mixing
procedures may also be used as well as different sintering methods varying
temperature, heating duration and other factors. Thus, there are wide array of
variables in manufacturing specific ceramic products. The final ceramic products
have different properties of hardness, thickness, heat resistance, durability,
electric resistance and other properties depending on the various elements of
process used.
Generally, the surface of the final ceramic product is not smooth. This requires
machining, grinding and polishing to smooth the ceramic surface. These machining
steps add cost to the final product. Machining also lessens the ability to affix
electronic circuitry to a substrate. In addition, machining may lead to breakage
of the product and in some instances cause microfissures which reduces the
quality of the product.
Over the last several years the Company has been engaged in the development of
the Cetek Process. The process involves proprietary formulations, mixing and
sintering procedures and results in a ceramic product which is smooth and
requires little or no machining thereby reducing or eliminating machining costs.
Products manufactured with the Cetek Process have enhanced qualities because of
the absence of microfissures caused by the machining process. The Company has
utilized the Cetek Process to produce mulite, cordierit, perovsite, and otters,
commonly used ceramic materials.
In the first quarter of 2000, 1998 and 1999 the Company produced various samples
utilizing the Cetek Process and have had the resulting products tested
internally and by third parties including an independent laboratory of a
university at which a director was employed. While the Company has not received
orders it has engaged in marketing activity. It has had discussions with several
potential customers and supplied products for internal testing by these
potential customers.
<PAGE>
It is also working with a customer to develop a specification and testing a
product which the customer may utilize. The customer has agreed to reimburse a
portion of the expense involved
During the development period the Company has derived no revenues from its
ceramic operations. However, in 1997 it performed an agreement by New York State
Energy Research and Development Authority relating to development of certain
sintering procedures used in the development of the Cetek Process. The Company
has entered into an additional grant to further develop the process. Under the
grant the state contributes funds to demonstrate the effectiveness of the
sintering process (which is utilized in the Cetek Process) by building,
operating and documenting the performance of the process. The Company is
obligated to expend funds for this purpose. The State is to receive a royalty on
future sales.
Nature of Company's Products and Services to be Offered
The Company does not anticipate maintaining an inventory or manufacturing
products for sale of off-the-shelf products. Rather, it anticipates its sales
will be made to fulfill orders for ceramic products in accordance with the
specifications of a customer. The Company anticipates products made with the
Cetek Process will be utilized for substrates for electronic components and for
structural materials.
Substrates are made in a variety of sizes and are used as base for electronic
circuitry. Each electronic product may require a different substrate. Generally
after a ceramic manufacturer produce the substrates for an electronic customer
specifications either a subcontractor or the customer attaches or sets plugs or
pins where the wiring and components are to be attached to the substrate for a
completed product. The Company intends to acquire the equipment necessary for
insertion of the plugs at a future stage of its development. Whether simply as a
supplier of ceramic material or full service contractor the Company intends to
market its services to manufacturers of various electronic components.
The Company will also actively market its special ceramic material to be used in
the flat display panel. With the increased interest in the development of flat
panel display, the industry has attracted federal investment. The Company also
believes that the ceramic back plane for the flat panel display will further be
applied for use on aircraft panels, operating room electronics and other medical
applications.
Proposed Marketing and Sales
At the present time the Company is seeking to pursue its ceramic business in the
small to medium sized quantity order market for electronic ceramic products and
flat panel display product.
The marketing and sales effort will be carried by the President and independent
non-exclusive sales representative. The Company intends to enter into agreements
with several sales organizations for domestic sales and two for international
sales.
The Company further believes that its marketing strengths lie in the fact that
the Company will offer a quality products at competitive prices due to its
manufacturing process as well as its ability to offer a complete manufacturing
and service facility in one location.
Employees
<PAGE>
As of March 15, 2000 the Company employees 21 full-time employees, none of which
are subject to employment agreements. None of the employees are members of labor
unions. Management believes that it enjoys satisfactory relations with its
employees.
Competition
If the Company obtains sufficient funds and is able to commence production of
ceramic material in commercial quantities the Company will compete with other
manufacturers of ceramic products. Many of these firms have greater financial,
managerial and technical resources than the Company. The Company will be in
direct competition with large companies such as Kyocera (Japan), Coors (US) and
Phillips of the Netherlands, as well as a large number of smaller companies. The
Company's ability to be competitive in the future will depend on its ability to
demonstrate the cost and structural advantage of products made with the Cetek
Process. There can be no assurance that the Company will be able to enter into
such agreements and be competitive. The Company is an insignificant factor in
the contract manufacturing industry.
Research and Development
The Company has expended $351,058 for research and development in 1999 and
$19,171 in 1998. The research expenses included the expenses of employees,
various consultants, and the costs of supplies and independent testing.
The Company has had its products tested by a number of independent laboratories.
The primary purpose of these tests is to enable the Company to gauge the
effectiveness of the Company's Cetek Process. The results of these tests are
made available to potential customers which generally also conduct their own
tests. Until his retirement in 1997 from Alfred University, one of the Company's
director's was a professor at this university, which provided testing. The
Company does not believe this relationship effected the validity of the tests in
any manner.
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion and analysis should be read in conjunction with the
Financial Statements and related footnotes.
Plan of Operation
The Company has incurred losses since inception. The Company has completed the
development of its Cetek Process for commercial purposes. During 2000, the
Company will seek to change the emphasis of its business operations from
contract manufacturing work to its ceramic operations. The Company is satisfied
that it is ready to market products utilizing the Cetek Process. Its main focus
during the year 2000 will be to explore the marketability of product
manufactured through the Cetek Process. The Company has held discussions with
several potential customers and supplied these potential customers with samples.
If it obtains sufficient customer interest it will seek financing of its ceramic
operation necessary to purchase any needed equipment and for operating expenses.
The Company will also hire additional employees for production and marketing of
its product. The Company also intends to pursue contract manufacturing operation
but will allocate more of its resources to its ceramic operations if the ceramic
operations increase.
<PAGE>
Statement of Operations June 30, 1999 Compared to June 30, 1998
- Year Ended 1999 Compared to Year Ended 1998
The Company had slightly less revenues in 1999 from 1998 ($354,030 in 1999 and
$373,884 in 1998). The Company however incurred a net loss of approximately
$842,000 compared to 301,000 in 1998. This loss resulted primarily from
increased cost and expenses which increased from approximately $674,750 in 1998
to approximately $1,196,000 in 1999. The increase in expenses was in significant
part attributable to an increase as in research expenses from $19,171 in 1998 to
351,085 in 1999 for the development of the Cetek Process. In addition, interest
expenses rose from $72,047 in 1998 to $285,400 in 1999, due to a non-cash charge
of $186,000 to reflect the conversion of debentures below market value.
Liquidity
The Company had a working capital deficit of approximately $173,000 as of
December 31, 1999 compared to a working capital deficit of approximately
($450,000) as of December 31, 1998. The reduction of deficit is primarily
attributable to the sale of the Company's securities in 1999.
The Company however does not have sufficient working capital to sustain its
current levels of operations. During 1999 the Company has been unable to pay its
indebtedness on a timely basis. It has defaulted on several obligations
including a loan from Dutchess County Economic Development Corp. and amounts due
on equipment leases. In addition it has been unable to make rent payments for
its facility or to pay its chief executive officer salary. These payments
aggregating $100,000 have been waived and the amount thereof has been treated as
a capital contribution.
The Company was only able to survive by financing activity pursuant to which it
received $1,000,000. In March 1999, the Company completed a private placement of
its securities by issuing 2% Series A Senior Subordinated Convertible
Debentures. Through such placement, the Company obtained gross proceeds of
$600,000. It also obtained additional funds of $_______________ in 1999 from the
sale of equity. Unless the Company obtains additional funds from financing or
other sources it may not be able to survive and will not be able to promote the
Cetek Process.
The Company's present liquidity problem stems from the funding requirements
necessary to develop the Cetek Process. The Company utilized the funds to
produce samples of its product which it either had tested by independent
laboratories or provided to potential customers. It also acquired and converted
equipment for the Cetek Process. The Company has estimated it needs additional
funds to commence commercial operations in order, among other things, to
purchase additional equipment estimated to cost approximately $450,000.
ITEM 3. Description of property
The Company's executive offices and facilities are located at 19 Commerce
Street, Poughkeepsie, New York where it leases approximately 20,000 square feet
pursuant to a lease that expires in October, 2001 The annual base rental for
this space, which was renovated in 1991, is approximately $90,000. The landlord,
who is the principal stockholder and chief executive officer of the Company, has
agreed to waive all payments for the rent while the Company is in default to a
lender.
<PAGE>
ITEM 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of May 15, 1999 certain information
concerning the shares of Common Stock beneficially owned by each director and
executive officer of the Company, by all officers and directors of the Company
as a group, and by each stockholder known by the Company to be a beneficial
owner of more than 5% of the outstanding shares of Common Stock.
Shares of Beneficial Ownership
Common Stock Percentage
------------------------------------- ------------------- ----------------------
Fayiz K. Hilal (1) 5,162,000 -
Christopher G. Hilal (3) 1,200,000 (1) -
Dr. Gordon Love 30,000 (2) -
Dr. Richard Spriggs 30,000 (2) -
Thomas Aposporos 30,000 (2) -
Dr. Ellen Tormey 20,000 (2) -
Hilal Family Trust 4,000,000 -
John P. Hilal (3) 1,200,000 -
David M. Hilal (3) 1,200,000 -
Bridget M. Hilal (3) 1,200,000 -
All officers and directors as a group 10,472,000 (1) -
(a total of 6 persons)
------------------------------------- ------------------- ----------------------
(1) Includes the 4,000,000 shares of the Company's common stock owned by
the Hilal Family Trust of which Christopher G. Hilal is Trustee and has
sole voting power over these shares.
(2) Represents significantly less than 1% of the issued and outstanding
shares of the Company's common stock.
(3) John Hilal, Christopher Hilal, Bridget Hilal and David Hilal are all
children of Fayiz Hilal none of whom are dependent children. Each of
these children are beneficiaries of the Hilal Family Trust. Except in
the case of Christopher Hilal who is sole Trustee none of the shares
owned by the Trust are included in the number of shares owned by any of
these beneficiaries.
ITEM 5. Directors, Executive Officers, Promoters and Control Persons
The directors and executive officers of the Company are as follows;
<PAGE>
Name Age Position
---- --- --------
Fayiz Hilal 59 President and Chairman of the
Board
John Hilal 30 Vice President of Operations,
Director
[ Dr. Gordon Love 64 Vice President of Strategic
Planning, Technical Director,
Director]
Dr. Richard Spriggs 64 Director
Thomas C. Aposporos 45 Director
Dr. Ellen Tormey 38 Director
All directors serve for a term of one year or until their respective successors
have been duly elected.
JOHN HILAL. Mr. John Hilal is the son of Fayiz Hilal.
FAYIZ HILAL. Mr. Hilal is the founder of Cetek Technologies, Inc. and has served
as its President and Chairman of the Board since its inception. Prior to
establishing the Company, Mr. Hilal served as Chairman and Chief Executive
Officer of Tratron, Inc., which he established in 1976 specializing in custom
engineering and technical design services. In addition, Mr. Hilal held technical
and managerial positions with Honeywell, Inc., Chemical Rubber and I.B.M.
Corporation.
JOHN HILAL. Mr. Hilal has been employed by the Company since 1994 and has served
as Vice President of Manufacturing and Director of the Company since 1996. Mr.
Hilal received his undergraduate degree in Business and Marketing from the
University of Notre Dame in 1994.
DR. GORDON LOVE. Dr. Love has been Vice President of Strategic Planning,
Technical Director and a Director of the Company since 1993. From 1987 to 1992,
he served as Technical Director of the ceramic division of ALCOA. From 1978 to
1987, Dr. Love served as Vice President of Technology at Sprague Electric
Company. Dr. Love received his B.S. degree in Metallurgy from Case-Western
Reserve University in 1958 and his M.S. degree and PhD in Metallurgy from
Carnegie-Mellon University in 1960 and 1963, respectively.]
DR. RICHARD SPRIGGS. Dr. Spriggs has served as a director of the Company since
1993. From 1987 to the present, he has served as and continues to serve as a
John F. McMahon professor of ceramic technology at the New York State College of
Ceramics at Alfred University. Prior thereto,
<PAGE>
Dr. Spriggs served nine years as a staff officer and staff director of the
National Research Counsel at the National Academy of Sciences. Dr. Spriggs
received his B.S. degree in Ceramics from Pennsylvania State University and his
M.S. and PhD degrees in Ceramic Engineering from the University of Illinois.
DR. ELLEN TORMEY. Dr. Tormey has served as a Director of the Company since
November, 1995. For more than the last five years she has been Senior Engineer
with David Sarnoff Research Center. From 1991 to 1995, she was a Principal
Engineer with Ceramics Process Systems Corporation. From 1989 to 1990, Dr.
Tormey was Manager of Laminated Product R&D Group. Prior thereto, Dr. Tormey
held management positions with several companies, as well as spending three
years as Senior Engineer with Digital Equipment Corporation. Dr. Tormey received
her B.S. degree in Ceramic Engineering from Alfred University in 1976 and her
PhD in Ceramic Science from the Massachusetts Institute of Technology in 1982.
THOMAS C. APOSPOROS. Mr. Aposporos has served as a director of the company since
1995 . For the last five years Mr. Aposporos is the principal in Aposporos &
Son, a commercial real estate brokerage firm. He also serves as chairman of
Progressive Bank, Inc. PSBK-NASDQ and as a director of Progressive's subsidiary,
Pawling Savings Bank.
All directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors. Executive officers are elected
annually by the Board of Directors to hold office until the first meeting of the
Board following the next annual meeting of stockholders and until their
successors are chosen and qualified.
ITEM 6. Executive Compensation
Mr. Fayiz Hilal, Chief Executive Officer of the Company, has not received any
compensation during the last three fiscal years. During 1998 through 1999 he
accrued $100,000 of salary all of which he has waived. There are no employment
agreements with any officer. The Company does not pay any compensation to
director.
ITEM 7. Certain Relationships and Transactions
During the years ended December 31, 1999 and 1998 Mr. Fayiz Hilal, the Company's
president and principal shareholder advanced the Company approximately $5,000
and $38,302 respectively. Interest in the amount of $15,334 and $12,643 accrued
respectively in each such year. The amount owing to Mr. Hilal is represented by
a note in the amount of $237,801 which includes advances and accrued interest.
The Company leases its executive office space and manufacturing facility under a
lease from Mr. Hilal on a month-to-month basis. Mr. Hilal has waived all rent
payments until debt obligations to the U.S. Small Business Administration and
Dutchess County Economic Development Corp. have been paid in full, in accordance
with the terms of the loans.
ITEM 8. Description of Securities
General
The Company's authorized capital stock consists of 150,000,000 shares of Common
Stock, par value $.001 per share, and 1,000,000 shares of Preferred Stock, par
value $.001 per share.
<PAGE>
Common Stock
Each share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of the shareholders. The holders of Common Stock are
entitled to receive dividends, when, as and if declared by the Board of
Directors, in its discretion, from funds legally available therefore. The
Company does not currently intend to declare to pay cash dividends in the
foreseeable future, but rather intends to retain any future earnings to finance
the expansion of its businesses. Upon liquidation or dissolution of the Company,
the holders of Common Stock are entitled to share ratably in the assets of the
Company, if any, legally available for distribution to shareholders after the
payment of all debts and liabilities of the Company and the liquidation
preference of any outstanding Preferred Stock.
The Common Stock has no preemptive rights and no subscription, redemption or
conversion privileges. The Common Stock does not have cumulative voting rights,
which means that the holders of a majority of the outstanding shares of Common
Stock voting for the election of directors can elect all members of the Board of
Directors. A majority vote is also sufficient for other actions that require the
vote or concurrence of shareholders. All of the outstanding shares of Common
Stock are and the share to be sold in this Offering will be, when issued and
paid for, fully paid and nonassessable.
Preferred Stock
The Board of Directors has the authority to issue up to 1,000,000 shares of
Preferred Stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designation, preferences and
relative participation, option or other special rights and qualifications,
limitations or restrictions thereof, including the dividend rights and dividend
rate, terms of redemption (including sinking fund provisions), redemption price
or prices, conversion rights and liquidation preferences of the shares
constituting any series, without any further vote or action by the shareholders.
Transfer Agent
The transfer agent for the Company's Common Stock is Jersey Transfer and Trust
Co. located at 201 Bloomfield Avenue, P.O. Box 36, Verona, New Jersey 07044.
<PAGE>
PART II
ITEM 1. Market For Common Equity and Other Related Stockholder Matters
Until October 1999 our common stock was quoted on the OTC Bulletin Board;
thereafter quotations are published in the "pink sheets" maintained by National
Quotation Bureau.
Set forth below are the high and low closing bid quotations for our common stock
for quotes for the stock have appeared in the pink sheets published by the
National Quotation Bureau. The quotations reflect interdealer prices without
retail mark-up, mark-down or commissions, and may not reflect actual
transactions.
Period Ending High Asked Low Bid
------------- ---------- -------
December 31, 1999 - -
September 30, 1999 - -
June 30, 1999 $0.1600 $0.0600
March 31, 1999 0.3700 0.0600
December 31, 1998 0.0625 0.0300
September 30, 1998 0.1300 0.1300
June 30, 1998 0.4300 0.3125
March 31, 1998 * *
December 31, 1997 * *
September 30, 1997 * *
June 30, 1997 * *
March 31, 1997 0.1250 0.1250
August 15, 1999
* no quote
As of June 14, 2000, there were approximately 125 recordholders of the our
common stock, although we believe that there are more than five hundred
beneficial owners of our common stock. There are no shares of preferred stock
currently outstanding.
ITEM 2. Legal Proceedings
Management of the Company is not aware of any legal proceedings, threatened
pending legal proceedings, to which the Company is a party or to which the
property of the Company is subject as a defendant.
ITEM 3. Changes in and Disagreements with Accountants
None of the events described in Item 304 of Regulation S-B has occurred within
the past twenty-four months.
<PAGE>
ITEM 4. Recent Sales of Unregistered Securities
The following sets forth information relating to all unregistered securities of
the Company sold by it in the last 3 years.
In March, 1999, the Company completed a private placement of its securities by
issuing 2% Series A Senior Subordinated Convertible Debentures. The Company
received gross proceeds of $600,000 from the sale of these debentures. The
debentures and interest were due March17, 2001, with interest accruing at 2% per
annum. The Company, at its option, at maturity may pay any remaining principal
plus all accrued interest in cash or common stock of the Company. The holder of
debentures are entitled, at their option, to convert all or any amount of the
debentures into shares of the Company's Common Stock at a conversion price equal
to 75% of market. The notes were issued pursuant to the provision of Rule 504 of
Regulation D. The holders of the debentures converted the entire amount of
debentures into 678,745 shares of common stock. The issuance of these shares was
exempt from the registration provisions of the Securities Act of 1933 pursuant
to Section 3(a)(9) thereof.
During 1998 the Company issued approximately 7,240,381 shares for cash,
satisfying of debt or revenues. These shares were issued pursuant to an
exception pursuant to Section 4(2) of the Securities Act of 1933 (the "Act") or
Rule 504 thereunder.
ITEM 5. Indemnification of Directors and Officers
The Certification of Incorporation of the Company provides with respect to the
indemnification of directors and officers that the Company shall indemnify to
the fullest extent permitted by Sections 102(b)(7) and 145 of the Delaware
General Corporation Law, as amended from time to time, each person that such
Sections grant the Company the power to indemnify. Article Seventh of the
Certificate of Incorporation of the Company also provides that no director shall
be liable to the corporation or any of its stockholders for monetary damages for
breach of fiduciary duty as a director, except with respect to (1) a breach of
the director's duty of loyalty to the corporation or its stockholders, (2) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) liability under Section 174 of the Delaware
General Corporation Law or (4) a transaction from which the director derived an
improper personal benefit, it being the intention of the foregoing provision to
eliminate the liability of the corporation's directors to the corporation or its
stockholders to the fullest extent permitted by Section 102(b)(7) of Delaware
General Corporation Law, as amended from time to time.
<PAGE>
PART F/S
See Index to Financial Statements and Financial Statements attached hereto.
<PAGE>
CETEK TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report 1 - 2
Financial Statements:
Consolidated Balance Sheets, March 31, 2000
(Unaudited), December 31, 1999 and 1998 3
Consolidated Statements of Operations, Three
Months Ended March 31, 2000 and 1999 (Unaudited)
Years Ended December 31, 1999, 1998 and 1997 4
Consolidated Statements of Stockholders'
(Deficiency), Period Ended March 31, 2000
(Unaudited), Years Ended December 31, 1999,
1998 and 1997 5 - 6
Consolidated Statements of Cash Flows, Three
Months Ended March 31, 2000 and 1999 (Unaudited),
Years Ended December 31, 1999, 1998 and 1997 7 - 9
Notes to Consolidated Financial Statements 10 - 21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Cetek Technologies, Inc.
Poughkeepsie, New York
We have audited the accompanying consolidated balance sheets of Cetek
Technologies, Inc. and its subsidiary (the "Company"), as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
(deficiency), and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Cetek Technologies, Inc. and
its subsidiary at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
-1-
<PAGE>
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has recurring losses from operations, is in
default on its loan obligations, has accumulated stockholders' deficit and a
working capital deficit. This raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
WIENER, GOODMAN & COMPANY P.C.
Certified Public Accountant
Eatontown, NJ
Date: March 21, 2000
-2-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
December 31,
March 31, 2000 ---------------------------------
(Unaudited) 1999 1998
------------- ---------- ----------
<S> <C> <C> <C>
Current Assets:
Cash $ 218,313 $377,673 $ 17,350
Accounts receivable 49,736 30,693 54,298
Inventory 35,514 32,296 53,036
Prepaid expenses - 18,236 -
---------- ---------- -------
Total Current Assets 303,563 458,898 124,684
Property and equipment - net 463,110 474,200 270,350
Other assets 3,936 4,575 7,130
---------- ---------- -------
TOTAL ASSETS $ 770,609 $ 937,673 $402,164
========== ========== =======
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
------------------------------------------
Current Liabilities:
Short-term debt $ 80,000 $ 138,000 $ 108,000
Current portion of long-term debt 73,297 69,284 67,823
Current maturities of capitalized
lease obligations 149,123 145,804 137,123
Accounts payable 54,707 46,975 48,164
Accrued expenses 226,831 222,696 213,017
---------- ---------- -------
Total Current Liabilities 583,958 622,759 574,127
Long term capital lease obligation 32,029 36,680
Long term debt 49,322 59,066 95,248
Note payable to officer 237,801 237,801 232,792
---------- ---------- --------
Total Liabilities 903,110 956,306 902,167
---------- ---------- --------
Stockholders' (Deficiency):
Preferred stock, par value $.001 per
share - authorized 1,000,000 shares;
none issued - - -
Common stock, par value $.001 per
share - authorized 50,000,000 shares;
outstanding 47,538,842, 46,977,516
and 22,562,279 shares 47,539 46,978 22,563
Paid-in-capital 2,014,721 1,937,515 626,601
(Deficit) (2,194,761) (2,003,126) (1,149,167)
---------- ---------- -----------
Total Stockholders'(Deficiency) (132,501) (18,633) (500,003)
---------- ---------- ----------
TOTAL LIABILITIES AND STOCK-
HOLDERS'(DEFICIENCY) $ 770,609 $ 937,673 $ 402,164
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------------ ----------------------------------------------------
2000 1999 1999 1998 1997
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Sales-net $ 71,279 $ 66,263 $ 354,030 $ 373,884 $ 367,111
------------ ------------ ------------ ------------ ------------
Cost and Expenses:
Cost of sales 129,165 127,272 344,225 366,840 429,311
Selling, general and
administrative 56,584 53,432 206,679 216,693 169,238
Research and development 41,747 1,522 351,058 19,171 15,037
Interest expense 38,433 135,842 297,442 72,047 75,368
Loss on sale of assets -- -- -- -- 24,200
Dividend income 3,015 -- 18,065 -- --
Loss on sale of marketable
securities -- -- 26,650 -- --
------------ ------------ ------------ ------------ ------------
262,914 318,068 1,207,989 674,751 713,154
------------ ------------ ------------ ------------ ------------
Net (loss) $ (191,635) $ (251,805) $ (853,959) $ (300,867) $ (346,043)
============ ============ ============ ============ ============
(Loss) per common share -
basic and diluted $ -- $ .01 $ (.02) $ (.02) $ (.02)
============ ============ ============ ============ ============
Weighted average number of
common shares outstanding -
basic and diluted 47,486,554 30,621,527 36,444,154 17,636,422 15,321,898
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Common Stock
Shares Par Paid-In
Outstanding Value Capital (Deficit) Total
----------- ----- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January
1, 1997 as restated 15,321,898 $15,322 $343,568 $ (502,257) $(143,367)
Forgiveness of rent
obligation - - 50,000 - 50,000
Issuance of warrants - - 5,800 - 5,800
Net (loss) - - - (346,043) (346,043)
---------- ------ ------- --------- --------
Balance, December
31, 1997 15,321,898 15,322 399,368 (848,300) (433,610)
Forgiveness of officer
salary - - 50,000 - 50,000
Forgiveness of rent
obligation - - 50,000 - 50,000
Sale of common stock
(at $.0333 per share) 3,224,020 3,225 104,096 - 107,321
Conversion of
convertible debt to
common stock
(at $.0333 per share) 46,361 46 23,137 - 23,183
Issuance of common stock
for services, valued
at $.001 per share 3,970,000 3,970 - - 3,970
Net (loss) - - - (300,867) (300,867)
---------- ------ ------- ---------- --------
Balance, December
31, 1998 22,562,279 22,563 626,601 (1,149,167) (500,003)
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Common Stock
Shares Par Paid-In
Outstanding Value Capital (Deficit) Total
----------- ----- --------- --------- ---------
<S> <C> <C> <C> <C>
Forgiveness of officer
salary -- -- 50,000 -- 50,000
Forgiveness of rent
obligation -- -- 50,000 -- 50,000
Sale of common stock
(at $.0544 per share) 8,297,818 8,298 443,459 -- 451,757
Conversion of debentures
(at $.0113-$.0562 per
share) 16,117,419 16,117 541,883 -- 558,000
Conversion of debentures
to common stock at below
fair market value -- -- 202,100 -- 202,100
Issuance of warrants
in connection with
loan financing -- -- 23,472 -- 23,472
Net (loss) -- -- -- (853,959) (853,959)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1999 46,977,516 46,978 1,937,515 (2,003,126) (18,633)
Conversion of debentures
(at $.08 per share) 561,326 561 45,338 45,899
Forgiveness of officer
salary 12,500 12,500
Forgiveness of rent
obligation 12,500 12,500
Issuance of warrants
in connection with
loan financing -- -- 6,868 -- 6,868
Net (loss) -- -- -- (191,635) (191,635)
----------- ----------- ----------- ----------- -----------
Balance, March
31, 2000 47,538,842 $ 47,539 $ 2,014,721 $(2,194,761) $ (132,501)
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financia statements.
-6-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------- -----------------------------------------
2000 1999 1999 1998 1997
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $(191,635) $(251,805) $(853,959) $(300,867) $(346,043)
Adjustments to reconcile net
(loss) to net cash provided
by operating activities:
Depreciation 31,789 22,000 101,731 92,178 98,958
Loss on sale of fixed
assets -- -- -- -- 24,200
Non-cash rent expense 12,500 12,500 50,000 50,000 50,000
Non-cash compensation 12,500 12,500 50,000 50,000 --
Non-cash interest expense 10,767 116,000 225,572 3,183 5,800
Issuance of stock for services -- -- -- 3,970 --
Loss on sale of marketable
securities -- -- 26,650 -- --
Changes in operating assets
and liabilities 8,481 (20,298) 37,154 617 209,046
--------- --------- --------- --------- ---------
Net Cash Provided by
(Used in)Operating
Activities (115,598) (109,103) (362,852) (100,919) 41,961
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchases of equipment (20,699) -- (255,581) -- (300,000)
Proceeds from sale of fixed
assets -- -- -- -- 250,000
Purchase of marketable
securities -- -- -- -- --
--------- --------- --------- --------- ---------
Net Cash (Used in) Pro-
vided by Investment
Activities (20,699) -- (255,581) -- (50,000)
--------- --------- --------- --------- ---------
</TABLE>
(Continued)
See notes to consolidated financial statements.
-7-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
--------------------- ------------------------------------
2000 1999 1999 1998 1997
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing acti-
vities:
Proceeds from sale of common
stock -- 170,423 451,757 107,321 --
Proceeds from sale of conver-
tible debentures -- 600,000 600,000 -- 16,000
Repayment of borrowings (23,063) (13,278) (51,360) (32,035) (39,583)
Proceeds from officer loan -- -- 5,009 38,292 27,500
Proceeds from sale of
marketable securities -- -- 537,251 -- --
Purchase of marketable
securities -- -- (563,901) -- --
--------- --------- --------- --------- ---------
Net Cash Provided by
Financing Activities (23,063) 757,145 978,756 113,578 3,917
--------- --------- --------- --------- ---------
Net Increase (Decrease) in Cash (159,360) 648,042 360,323 12,659 (4,122)
Cash - beginning of year 377,673 17,350 17,350 4,691 8,813
--------- --------- --------- --------- ---------
Cash - end of year $ 218,313 $ 665,392 $ 377,673 $ 17,350 $ 4,691
========= ========= ========= ========= =========
Changes in operating assets and
liabilities consist of:
(Increase) decrease in
accounts receivable $ (19,043) $ 30,352 $ 23,605 $ 4,830 $ (16,046)
Decrease (increase) in
inventory (3,218) 4,759 20,740 (44,045) 2,213
Decrease (increase) in
prepaid expenses 18,236 (45,935) (18,236) 3,696 33
Decrease in other assets 639 639 2,555 2,555 102,554
Increase (decrease) in
accounts payable 7,732 (19,868) (1,189) (51,720) 59,835
</TABLE>
(Continued)
See notes to consolidated financial statements.
-8-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
--------------------------- --------------------------------------------
2000 1999 1999 1998 1997
---------- ---------- ---------- ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Increase in accrued expenses 4,135 9,755 9,679 85,301 62,293
(Decrease) in due to
affiliated company -- -- -- -- (1,836)
---------- ---------- ---------- ---------- ---------
$ 8,481 $ (20,298) $ 37,154 $ (617) $ 209,046
========== ========== ========== ========== =========
Supplementary Information:
Cash paid during the year for:
Interest $ 3,682 $ -- $ 13,933 $ 16,078 $ 27,128
========== ========== ========== ========== =========
Taxes $ 680 $ 600 $ 1,537 $ -- $ 675
========== ========== ========== ========== =========
Non-Cash Financing Activities:
Conversion of
debt to common stock $ 45,899 $ 200,000 $ 558,000 $ 20,000 $ --
========== ========== ========== ========== =========
Fair value of rent
contributed by officer $ 12,500 $ 12,500 $ 50,000 $ 50,000 $ 50,000
========== ========== ========== ========== =========
Issuance of warrants $ -- $ -- $ -- $ -- $ 5,800
========== ========== ========== ========== =========
Capitalized lease obligations $ -- $ -- $ 50,000 $ -- $ --
========== ========== ========== ========== =========
Issuance of stock for services $ -- $ -- $ -- $ 3,970 $ --
========== ========== ========== ========== =========
Conversion of accrued interest
to common stock $ -- $ -- $ -- $ 3,183 $ --
========== ========== ========== ========== =========
Forgiveness of officers
salary $ 12,500 $ 12,500 $ 50,000 $ 50,000 $ --
========== ========== ========== ========== =========
Conversion of debentures to
common stock $ -- $ -- $ 202,100 $ -- $ --
========== ========== ========== ========== =========
Issue of warrants in
connection with loan
financing $ 6,868 $ 7,422 $ 23,472 $ -- $ --
========== ========== ========== ========== =========
</TABLE>
See notes to consolidated financial statements.
-9-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Cetek Technologies, Inc. and its subsidiary (the "Company") are
engaged in developing, marketing and manufacturing ceramic material and
components used in electronics, medical and consumer products. In addition, they
are in the business of general precision machining, sheet metal fabrication and
welding, electronic manufacturing and testing as well as general design of
components and systems.
Nature of Business and Liquidity
The Company's financial statements for the year ended December 31,
1999 have been prepared on a going concern basis which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business.
As described in notes 7 and 12, the Company was in default at
December 31, 1999 and 1998 on its loan agreements and its capitalized lease
obligations. Additionally, the Company has incurred net losses of $854,000,
$301,000, and $346,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. As of December 31, 1999, the Company has a stockholders'
deficiency of $18,600 and a working capital deficiency of $164,000. Management
recognizes that the Company's continued existence is dependent upon its ability
to obtain needed working capital through additional equity and/or debt financing
and increase its sales sufficiently to cover its costs and expenses. In an
effort to increase its sales and profitability, management is aggressively
seeking new business. Management's plans include possible strategic alliances
and mergers or acquisitions with other companies that may be compatible with the
Company.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany
transactions and balances have been eliminated.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect 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.
-10-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Marketable Securities
The Company classifies its investment in equity securities net of
deferred income taxes as "available for sale", and accordingly, reflects
unrealized losses as a separate component of stockholders' equity (deficiency).
The fair value of marketable securities are estimated based on
quoted market prices. Realized gain or losses are based on the specific
identification method. The gross realized loss for the year ended December 31,
1999 was approximately $26,000.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. Exposure to losses on receivables is principally dependant on each
customer's financial condition. The Company controls its exposure to credit risk
through credit approvals, credit limits and monitoring procedures.
The Company places its temporary cash investments with quality
financial institutions.
Inventories
Inventories, consisting of raw materials and finished goods, are
stated at the lower of cost (first-in, first-out) or market.
Revenue Recognition
Revenue from sales is recognized upon shipment to customers.
Provision for discounts and allowances to customers are provided for in the same
period the related sales are recorded.
Depreciation and Amortization
Property and equipment are stated at historical cost less
accumulated depreciation. Depreciation and amortization are calculated using the
straight-line method over their estimated useful lives.
Income Taxes
Deferred taxes are provided to reflect the tax effect of temporary
differences between financial reporting and tax basis of assets and liabilities.
The principal item giving rise to deferred taxes is the net operating loss
carryforward. The Company has not reflected any benefit of such net operating
loss as the realization of this deferred tax asset is not more than likely.
-11-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Allowance for Doubtful Accounts
The Company records bad debt expense on a specific customer basis.
As of December 31, 1999 and 1998 no allowance for doubtful accounts was deemed
necessary.
Stock Based Compensation
The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The standard encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees based on fair value accounting rules.
Evaluation of Long-Lived Assets
Long-lived assets are assessed for recoverability on an ongoing
basis. In evaluating the fair value and future benefits of long-lived assets,
their carrying value would be reduced by the excess, if any, of the long-lived
asset over management's estimate of the anticipated undiscounted future net cash
flows of the related long-lived asset. As of December 31, 1999, management
concluded that no impairment exists.
Loss Per Common Share
Basic earnings (loss) per common share is computed by dividing the
net loss by the weighted average number of common shares outstanding during the
year. Diluted earnings per common share is computed by dividing the net earnings
by the weighted average of common shares and potential common shares outstanding
during the year. Potential common shares outstanding at December 31, 1999, 1998
and 1997 related to 1,023,636, 108,000 and 120,000 warrants and convertible debt
to purchase common stock, respectively. During the three years ending December
31, 1999 potential common shares were not used in the computation of diluted
loss per share as their effect would be antidilutive.
Fair Value of Financial Instruments
For financial instruments including cash, accounts receivable,
prepaid expenses short-term debt, current portion of long-term debt, current
portion of capitalized leases, accounts payable and accrued expenses it was
assumed that the carrying amount approximated fair value because of the short
term nature of these instruments. The estimated fair values of convertible debt
subject to fair value disclosure was determined by multiplying the number of
common shares the debt is convertible into by the quoted market price of the
Company's common stock at December 31, 1999 and 1998, respectively.
-12-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
----------- -----------
<S> <C> <C> <C> <C>
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Convertible debt $138,000 $42,000 $108,000 $5,000
</TABLE>
New Financial Accounting Standards
In June 1998, The Financial Accounting Standards Board issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS No. 133"). This statement establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires the recognition
of all derivatives as either assets or liabilities in the statement of financial
position and measurement of those instruments as either assets or liabilities in
the statement of financial position and measurement of those instruments at fair
value. The accounting for changes in the fair value of a derivative is dependent
upon the intended use of the derivative. SFAS No. 133 will be effective in the
Company's first quarter in the year ending December 31, 2001 and retroactive
application is not permitted. Management does not believe that this Statement
will have a significant impact on the Company.
Unaudited Interim Financial Statements
The financial statements as of March 31, 2000 and for the
three months ended March 31, 2000 and 1999 include, in the opinion of
management, all adjustments consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for these periods. The results of the interim period ended March 31,
2000 are not necessarily indicative of the results that may be expected for the
entire year.
2. ACQUISITION
During January, 1997, the Company acquired all of the assets of C. W. Inc.,
a company that manufactures ceramic material and components used in electronics,
medical and consumer products for $300,000 cash. The assets purchased consisted
primarily of machinery and equipment and customer lists. Subsequent to the
acquisition, the Company sold a majority of the machinery and equipment for
$250,000. Of the remaining equipment, $25,000 was capitalized and approximately
$25,000 was written off as unusable. The Company has recorded the acquisition as
a purchase. The results of the operations from the date of acquisition to
December 31, 1999 were not material.
3. INVENTORIES
March 31,
2000 December 31,
---- -----------------------
(Unaudited) 1999 1998
---------- ---------
Raw materials $ - $ - $ 4,760
Finished goods 35,514 32,296 48,276
------- --------- ---------
$ 35,514 $ 32,296 $ 53,076
======= ========= =========
-13-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
March 31,
---------
2000 December 31,
---- ------------
(Unaudited) 1999 1998
-------- -------
Machinery and equipment $ 867,599 $ 846,900 $ 564,737
Leasehold improvements 55,608 55,608 32,190
-------- -------- --------
923,207 902,508 596,927
Less accumulated depreci-
ation and amortization 460,097 428,308 326,577
-------- -------- --------
$ 463,110 $ 474,200 $ 270,350
======== ======== ========
5. INCOME TAXES
At December 31, 1999, the Company has a net operating loss ("NOL")
carryforward of approximately $1,991,000 for financial reporting and tax
purposes expiring in the years 2009 through 2013. The Company has not reflected
any benefit of such net operating loss carryforward in the accompanying
financial statements in accordance with Financial Accounting Standards Board
Statement No. 109 as the realization of this deferred tax asset is not more than
likely.
The types of temporary differences between the tax basis of assets
and liabilities and their financial reporting amounts that give rise to the
deferred tax liability and deferred tax asset and their approximate tax effect
are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
2000 1999 1998
---------------------- ------------------------- -------------------------
(Unaudited)
Temporary Tax Temporary Tax Temporary Tax
Difference Effect Difference Effect Difference Effect
----------- -------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net operating loss $(2,195,000) $(966,000) $(2,003,000) $(812,000) $(1,149,000) $(506,000)
Valuation allowance $ 2,195,000 $ 966,000 2,003,000 812,000 1,149,000 506,000
----------- -------- ----------- ---------- ----------- ---------
$ - $ - $ - $ - $ - $ -
=========== ========= =========== ========== =========== =========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes. At December 31, 1999 and 1998 the Company recorded a full
valuation allowance for the deferred tax assets as the Company's ability to
realize these benefits is not "more likely than not". Accordingly, there is no
deferred tax asset included in the accompanying consolidated balance sheets at
December 31, 1999 and 1998, respectively.
-14-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. DEBT
Short-Term Debt
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999 1998
--------- --------- --------
(Unaudited)
<S> <C> <C> <C>
Subordinated convertible deben-
tures to various individuals,
interest at 11% per year, due
on demand (1)(2) $ 80,000 $ 96,000 $108,000
Subordinated convertible deben-
tures to various individuals,
interest at 2% per year, due
on March 17, 2000(4) -- 42,000 --
--------- --------- --------
$ 80,000 $ 138,000 $108,000
========= ========= ========
</TABLE>
6. DEBT (Continued)
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999 1998
-------- -------- --------
(Unaudited)
<S> <C> <C> <C>
Note payable to U.S.
Small Business Administration,
interest at 11.75%, principal
and interest, in the amount of
$3,788 payable monthly,
through May, 2002(3) $ 89,516 $ 95,251 $129,968
Note payable to Dutchess County
Economic Development Corp.,
interest at 3.875%, principal
and interest, in the amount of
$681 payable monthly
through November, 2001(3) 33,103 33,103 33,103
-------- -------- --------
122,619 128,354 163,071
Less amount due in one year 73,297 69,288 67,823
-------- -------- --------
Long-term debt $ 49,322 $ 59,066 $ 95,248
======== ======== ========
</TABLE>
-15-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) During November 1996, the Company entered into a private placement of
securities, in which the Company raised $120,000 through the sale of Units. Each
"Unit" consisted of one $20,000 convertible promissory note bearing interest at
11% per annum and a redeemable common stock warrant exercisable to purchase up
to 20,000 shares of the Company's common stock at $1.50 per share expiring in
five (5) years from the date of issuance and expiring through December, 2001.
The notes are convertible at the option of the holder into shares of the
Company's common stock at a conversion price of $1 per share, and are
convertible any time or by Automatic Conversion (based on the average of the
last bid price of the Company's common stock as listed on NASDAQ or national
securities exchanges, for a period of thirty (30) consecutive trading days if
the price has equaled or exceeded $3.00 per common share). Due to the inability
of the Company to sell the minimum number of units required under the private
placement of securities, the notes are due on demand.
During 1998, one of the debt holders converted his note to 20,000 shares of the
Company's Common Stock. In addition, $3,184 of accrued interest on the debt was
converted into 3,183 of the Company's Common Stock. For the years ending
December 31, 1999 and 1998 the Company repaid $10,000 and $8,000 to various
stockholders, respectively on the subordinated convertible debentures which are
in default.
(2) During June 1997, the Company entered into a private placement of
securities, in which the Company raised $16,000 through the sale of units. Each
"Unit" consisted of one $8,000 convertible promissory note bearing interest at
11% per annum. Each note is convertible under the same terms as (1) above. For
the years ending December 31, 1999 and 1998 the Company repaid $2,000 and $-0-,
respectively on the subordinated convertible debentures which are in default.
(3) On December 31, 1999, the Company was in default under the terms of its loan
agreement with the Dutchess County Economics Development Corp. Consequently, the
remaining principal balance of $33,103 is due on demand and is presented as a
current liability in the accompanying balance sheet.
The notes are secured by substantially all the assets of the
Company and officer life insurance policies in the amount of $235,000.
Additionally, the building owned by Fayiz Hilal ("Hilal"), the Company's
President, Chief Executive Officer and major shareholder, has been pledged as
collateral. No rent payments may be paid to him while the loan is in default.
(See Note 12).
-16-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) In March 1999, the Company completed a private placement of its
securities by issuing 2% Series A Senior Subordinated Convertible Debentures.
The Company raised $600,000 from the sale of these debentures. The debentures
and interest are due March 17, 2001, with interest accruing at 2% per annum. The
Company, at their option, at maturity may pay any remaining principal plus all
accrued interest in cash or common stock of the Company. The holder of
debentures are entitled, at their option, to convert all or any amount of the
debentures into shares of the Company's Common Stock. The conversion price for
each share of Common Stock will be equal to 75% of the closing bid price of
Common Stock as reported on the National Association of Securities Dealers
Electronic Bulletin Board for the day immediately preceding the date of receipt
by the Company of notice of conversion.
Debt discount in connection with the issuance of debt with stock
purchase warrants are amortized over the life of the related obligation.
Interest expense for the year ended December 31, 1999 is $36,750.
As of December 31, 1999 the holders of the debentures converted
$558,000 of the debentures into 16,117,419 shares of common stock. The
conversion price for the debentures was 75% of closing bid price upon
conversion. The Company recorded $186,000 of additional interest expense for the
year ended December 31, 1999 to reflect the conversion of the debentures below
the fair market value of the Company's common stock at the date of conversion
and is included in the accompanying statement of operations.
In February 2000, the remaining convertible debentures in the
amount of $42,000 were converted into 523,636 shares of common stock. An
additional 37,690 shares were issued in lieu of interest in February 2000. The
Company recorded additional interest expense for the year ended December 31,
1999 to reflect the interest at below market rate, in the amount of
approximately $16,000 and is included in the accompanying statement of
operations.
7. NOTE PAYABLE TO OFFICER/STOCKHOLDER
<TABLE>
<CAPTION>
March 31, December 31,
--------- --------------------
2000 1999 1998
--------- --------------------
(Unaudited)
<S> <C> <C> <C>
Note payable to officer/
stockholder, interest pay-
able at 6.5 % interest $237,801 $237,801 $232,792
========== ======== ========
</TABLE>
8. RELATED PARTY TRANSACTIONS
(a) During the years ended December 31, 1999, 1998,and 1997, Hilal
advanced the Company $5,009, $38,292, and $27,500, and interest was accrued in
the amount of $15,334, $12,643, and $11,375, respectively. The note payable to
officer at December 31, 1999 and 1998 was $237,801 and $232,801, respectively.
-17-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) The Company leases its facilities from Hilal. Hilal has
forgiven all rent payments until the obligations to U.S. Small Business
Administration and Dutchess County Economic Development Corp. have been paid in
full, in accordance with the terms of the loans. The forgiveness of the rent
obligation of $50,000 for the years ended December 31, 1999, 1998 and 1997, has
been credited to additional paid-in capital.
(c) Hilal has forgiven his officers salary in the amount of $50,000
for the years ended December 31, 1999 and 1998 and the Company has recorded the
forgiveness as a contribution to additional paid-in-capital.
9. MAJOR CUSTOMERS
The Company had sales in excess of ten (10%) percent with two (2)
customers in 1999 and 1998. The amounts and percentage were approximately
$217,000 (61.3%) and $80,000 (22.6%) in 1999 and $215,000 (55.7%) and $122,000
(31.6%) in 1998.
The loss of these customers could have a materially adverse effect
on the Company.
10. WARRANTS
The Company issued warrants in connection with a private placement
debt offering. The Company has adopted the disclosure-only provision of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." Interest expense has been charged for the warrants issued to
non-employees based on the fair value at the grant date consistent with the
provisions of SFAS No. 123. Therefore, the net loss, basic loss per share, and
diluted loss per share for years ended 1999 and 1998 are the same for both
reported and proforma amounts.
-18-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. WARRANTS (Continued)
The fair value of each warrant granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for warrants in 1999: dividend yield of -0- %,
expected volatility of 273.124%, risk free interest rate of 10.0% and expected
life of five (5) years..
Information regarding the Company's Warrants for 1999, 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ------------------------- -------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ --------- ------ ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Warrants outstanding
beginning of year 100,000 $1.50 120,000 $1.50 120,000 $1.50
Warrants granted 1,000,000 .08 -- -- -- $1.50
Warrants exercised (500,000) .08 (20,000) 1.50 -- --
---------- ----- ---------- ----------- ------- ---------
Warrants outstanding
end of year 600,000 $1.50 100,000 $1.50 120,000 $1.50
========== ===== ========== =========== ======= =========
Warrants price range
at end of year $ 1.50 $ 1.50 $ 1.50
Warrant price range
for exercised shares $ .08 $ 1.50 $ -
Weighted-average fair
value of warrants
granted during the year $ .08 $ - $ -
</TABLE>
The following table summarizes information about fixed-price stock
warrants outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Weighted- Number
Number Out- Average Weighted- Exercisable Weighted
Range of standing at Remaining Average at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Price 1999 Life Price 1999 Price
-------- ------------ -------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 1.50 100,000 1 yr. 11 mos. $ 1.50 100,000 $ 1.50
$ .08 500,000 4 yrs. 3 mos. $ .08 500,000 $ .08
------ ------- ------------- ------ ------- ------
600,000 600,000
======= =======
</TABLE>
-19-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES
Leases
(a) The Company leases its facilities under an operating lease with Hilal on a
month-to-month basis. Hilal has waived rent payments until the obligations to
the U.S. Small Business Administration and Dutchess County Economic Development
Corp. have been paid and retired in accordance with the terms of the loans. The
Company has recorded the forgiveness of rent as a contribution to paid-in
capital. (See Note 5 of Notes to Consolidated Financial Statements). Under the
terms of the lease, the Company is responsible for real estate taxes and other
executory charges. The rent and executory charges for the years ended December
31, 1999, 1998 and 1997 were $67,541, $55,706, and $85,040, respectively.
(b) The Company leases equipment under capital leases. The cost of equipment in
the amount of $237,732 and accumulated depreciation of $106,238 is included in
property and equipment.
At December 31, 1999, the Company was in default with Colonial
Pacific Leasing due to non-payment of monthly principal and interest lease
agreements. Consequently, the remaining principle balance of $137,123 is due on
demand and is presented as a current liability in the balance sheet. In
addition, included in accrued expense is $53,103 of interest expense for the
year ended December 31, 1999.
Following is a schedule of future minimum lease payments for
capital leases as of December 31, 1999:
2000 $260,930
2001 12,572
2002 12,572
2003 12,572
2004 5,239
Thereafter -
-------
303,885
Less interest 121,401
-------
Present value of net
minimum obligations 182,484
Less current portion 145,804
-------
Long term obligation $ 36,680
=======
-20-
<PAGE>
CETEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (Continued)
Commitment
In connection with the acquisition of the assets of C. W. Inc. in
January, 1997, the Company entered into an employment agreement with a sales
representative for a term of ten (10) years. The sales representative will be
paid:
1) Commissions on gross sales over a period of ten (10) years as
defined in the agreement.
2) In the event of termination, death, sale or transfer of
ownership of the control of the Company, additional compensation shall be paid
in an amount equal to the sum of $350,000 less the total compensation paid
above.
During 1999 and 1998, no amounts were earned under the terms of the
agreement.
-21-
<PAGE>
Exhibits
--------
Exhibit No. Description
----------- -----------
3.1 CERTIFICATE OF INCORPORATION
3.2 BY LAWS
27 FINANCIAL DATA SCHEDULE
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, hereunto duly authorized.
Date: June ___, 2000
CETEK TECHNOLOGIES, INC.
By: /s/ Fayiz Hilal
----------------------------
Fayiz Hilal, President
