UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission File Number: 33-28417
SITEK, INCORPORATED
(FORMERLY KNOWN AS DENTMART GROUP, INC. AND ELGIN CORPORATION)
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(Exact name of small business issuer as specified in its charter)
Delaware 95-4585824
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(State of other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1817 West 4th Street, Tempe, Arizona 85281
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(Address of principal executive offices) (Zip Code)
(602) 921-8555
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(Issuer's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 12,230,813 shares of common
stock outstanding as of February 12, 1999.
Transitional Small Business Disclosure Format (check one): Yes No X
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Financial Position December 31, 1998 ...................1
Consolidated Income Statement
Three Months ended December 31, 1998 and 1997 .....................3
Consolidated Statement of Cash Flow
Three Months ended December 31, 1998 and 1997 .....................5
Notes to Financial Statements .....................................6
Item 2. Management's Plan of Operations ................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .............................................13
Item 5. Other Information .............................................13
Item 6. Exhibits and Reports on Form 8-K ..............................13
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
ASSETS December 31, 1998
-----------------
CURRENT ASSETS
CHECKING/SAVINGS
M & I T-Bird Checking $ 18,228
Money Market 139
-----------
Total Checking/Savings 18,367
ACCOUNTS RECEIVABLE
Accounts Receivable 939,841
-----------
Total Accounts Receivable 939,841
OTHER CURRENT ASSETS
Employee Advances $ 4,000
-----------
Total Other Current Assets $ 4,000
-----------
TOTAL CURRENT ASSETS $ 962,208
FIXED ASSETS
Accumulated Depreciation (33,683)
Machine & Equipment 416,804
Leasehold Improvement 86,102
-----------
TOTAL FIXED ASSETS $ 469,224
OTHER ASSETS
Deposits 4,500
Organization Cost 63,396
Prepaid Expenses 3,503
Prepaid Inventory 6,500
TOTAL OTHER ASSETS $ 77,899
-----------
TOTAL ASSETS $ 1,509,331
===========
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LIABILITIES AND EQUITY
LIABILITIES
CURRENT LIABILITIES
ACCOUNTS PAYABLE
Accounts Payable $ 299,178
----------
Total Accounts Payable $ 299,178
OTHER CURRENT LIABILITIES
Accrued Interest Payable 52,260
Loan from MFR 258,800
Loan from Spinneret 17,000
----------
Total Other Current
Liabilities $ 328,060
----------
TOTAL CURRENT LIABILITIES $ 627,238
LONG TERM LIABILITIES
LOANS PAYABLE
Loan from GST 263,349
Loan from Cal. Brokerage 340,000
Svcs
Loan from Owner 123,191
Loan Payable-Other 75,000
TOTAL LOANS PAYABLE $ 801,540
----------
TOTAL LONG TERM LIABILITIES $ 801,540
----------
TOTAL LIABILITIES $1,428,778
==========
EQUITY
Capital Stock $ 1,000
Net Income 79,553
----------
TOTAL EQUITY $ 80,553
----------
TOTAL LIABILITIES AND EQUITY $1,509,331
==========
SEE NOTES TO FINANCIAL STATEMENTS
2
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SITEK, INCORPORATED
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31
-----------------------------
1998 1997
---------- ----------
ORDINARY INCOME/EXPENSE
INCOME
Service Sales $ 1,250 $ 0
Resale Income 2,585,000 0
---------- ----------
TOTAL INCOME $2,586,250 $ 0
Cost of Goods Sold
Cost of Goods Sold 1,841,941 $ 0
---------- ----------
TOTAL COST OF GOODS SOLD $1,841,941 0
---------- ----------
GROSS PROFIT $ 744,309 $ 0
EXPENSE
Automobile Expense 575 0
Bank Service Charge 143 0
Consulting Expense 29,753 0
Contributions -- --
Dues and Subscriptions -- --
Engineering Expenses -- --
Dues and Subscriptions 139 0
Depreciation Expense 33,683 0
Equipment Rental 2,230 0
Filing Fees 573 0
Financing Fees 20,000 0
Interest Expense 87,404 0
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Other Insurances 20,850 0
Health Insurance 2,243 0
License and Permit 60 0
Marketing Expense 18,796 0
Office Supplies 3,009 0
Payroll Processing Fee 589 0
Postage and Delivery (3,394) 0
Printing and Reproduction 2,988 0
Professional Fees 49,519 0
Rent 13,227 0
Repairs and Maintenance 1,285 0
Salaries & Wages 154,656 0
Taxes 1,306 0
Telephone 18,270 0
Travel & Entertainment 10,064 0
Utilities 3,757 0
Warehouse Supplies 3,310 0
--------- ---------
TOTAL EXPENSE $ 475,035 $ 0
--------- ---------
NET ORDINARY INCOME $ 269,278 $ 0
========= =========
OTHER INCOME/EXPENSE
Other Income
Interest Income 1 0
Rent Income 0 0
--------- ---------
TOTAL OTHER INCOME $ 1 $ 0
--------- ---------
Net Other Income $ 1 $ 0
--------- ---------
NET INCOME $ 269,279 $ 0
========= =========
SEE NOTES TO FINANCIAL STATEMENTS
4
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SITEK, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31
--------------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING AND
NON-OPERATING ACTIVITIES:
Net Income (Loss), December 1998 $ 269,279 $ 0
Depreciation 33,683 0
ADJUSTMENTS TO RECONCILE OPERATING
INCOME TO NET CASH USED FOR
OPERATING ACTIVITIES:
Decrease (Increase) in Accounts (842,841) 0
Receivable
Decrease (Increase) in Other Current 9,000 0
Assets
Decrease (Increase) in Other Assets (7,404) 0
Increase (Decrease) in Accounts 161,662 0
Payable
Increase (Decrease) in Other Current
Liabilities 175,257 0
--------- ---------
Net Change in Working Capital $(504,326) $ 0
========= =========
CASH FLOWS FROM CAPITAL AND
RELATED FINANCING ACTIVITIES:
Decrease (Increase) in Fixed Assets (109,499) 0
Increase (Decrease) in Long Term 278,349 0
Liabilities
Cash Provided by (used in) Capital 168,850 0
Financing Activities
Beginning Cash 50,882 0
--------- ---------
ENDING CASH, DECEMBER 31, 1998 $ 18,367 $ 0
========= =========
SEE NOTES TO FINANCIAL STATEMENTS
5
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SITEK, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of SITEK,
Incorporated (the "Company").
The statements of financial position as of December 31, 1998 and the
statements of operations and cash flows for the three-month periods ended
December 31, 1998 and 1997 have been prepared by the Company without audit. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position at December 31,
1998 and the results of operations and cash flows for the three-month periods
ended December 31, 1998 and 1997 have been made. The results of operations for
the interim periods are not necessarily indicative of the results to be expected
for the complete fiscal year. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's most recent reports on Forms 10-K and 10-Q.
2. ORGANIZATION AND BUSINESS
The Company is the successor to Elgin Corporation. Elgin Corporation
was incorporated under the laws of the State of Delaware on April 5, 1989. On
February 6, 1991, Elgin Corporation merged with Home Indemnity, Incorporated, a
Nevada corporation, the assets of which consisted of a portfolio of securities
and a wholly-owned subsidiary, Dentmart Incorporated. On February 8, 1991, Elgin
Corporation amended its Articles of Incorporation to change its name to Dentmart
Group, Inc.
On February 15, 1991, Dentmart Group, Inc. (the successor Delaware
corporation to Elgin Corporation) merged with Dentmart Group, Inc. (a Colorado
corporation). The Colorado corporation was the successor entity.
As of June 30, 1998, the Company had not engaged in any business
activity since 1992.
The Company completed an acquisition of CMP Solutions, Inc., an Arizona
corporation ("CMP Solutions"), on July 31, 1998 pursuant to a Stock Purchase and
Exchange Agreement dated as of July 14, 1998. The terms of the acquisition are
more fully described in the Company's Report on Form 8-K filed on August 17,
1998, which is incorporated herein by reference.
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In July, 1998 the Company formed a wholly owned subsidiary, Advanced
Technology Services, Inc., an Arizona corporation ("ATSI"). ATSI buys and sells
pre-owned semiconductor manufacturing equipment. Sales revenues for SITEK for
the quarter ending December 31, 1998 were generated by ATSI.
Effective March 31, 1998, the Company changed its year end for both
accounting and tax purposes from December 31 to March 31.
3. COMMITMENTS AND CONTINGENCIES
The Company has no outstanding commitments or obligations. On November
20, 1998 the Company was named as a co-defendant in a civil lawsuit brought by
Robert Russo, Sr., a shareholder of Global Semiconductor Technologies, Inc., an
Arizona Corporation ("GST"). This lawsuit has since been settled. (See "Legal
Proceedings" in Part II, Item 1.) The Company presently shares office space with
a shareholder for which it pays nominal rent.
As of December 31, 1998, the Company has outstanding debt obligations
of $263,349 to GST, for expenses incurred on behalf of the Company for
management, technical and administrative services between June and December
1998. The Company is considering the acquisition of GST. As of December 31,
1998, the Company owed a major shareholder $340,000 that was utilized to
purchase processing equipment for CMP Solutions in July 1998. The Company also
owed the president of ATSI $108,190, which was utilized for startup expenses for
CMP Solutions and SITEK. The Company sold a $75,000 convertible debenture to a
relative of one of the principals of SITEK in September, 1998. This debenture is
shown as long term debt on the Company's balance sheet.
4. INCOME TAXES
The Company owes no federal income taxes. Operating loss carry-forwards
have been disallowed due to the change in majority ownership of the Company
during 1994 and 1995.
5. SHAREHOLDERS' EQUITY
On April 7, 1989, Elgin Corporation issued 3,500,000 shares of Common
Stock to its officers and directors for an aggregate amount of $3,500. On June
21, 1989, the Company issued 1,500,000 shares of its Common Stock for an
aggregate amount of $1,500.
On December 8, 1990, 250,000 shares of it Common Stock pursuant to a
Public Offering at a purchase price of $.10 per share for a total amount of
$25,000.
On February 6, 1991, Elgin corporation amended its Articles of
Incorporation to authorize a stock split of five shares for one of Common Stock.
This increased the number of issued and outstanding shares of the Company's
Common Stock in Elgin Corporation to 26,250,000.
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On February 6, 1991, Elgin Corporation entered into a merger agreement
with Home Indemnity, Incorporated (a Nevada corporation). The agreement provided
for the conversion of one share of Home Indemnity, Incorporated stock into four
shares of Elgin Corporation. As a result, Elgin Corporation issued 20,000,000
shares of its Common Stock in exchange for all of Home Indemnity's stock.
On February 7, 1991, the then two majority shareholders each
surrendered 6235,000 shares of Elgin Corporation's Common Stock.
On February 8, 1991, Elgin Corporation changed its name to Dentmart
Group, Inc. On February 15, 1991 Dentmart Group, Inc. (Delaware) merged with
Dentmart Group, Inc. (Colorado). The Company's shareholders were given one share
of Dentmart Group, Inc. (Colorado) for every ten shares of Dentmart Group, Inc.
(Delaware), resulting in the net issued and outstanding shares of Dentmart
Group, Inc. (Colorado) Common Stock amounting to 4,500,000.
On April 2, 1991, the Company issued to its shareholders new
certificates for its Common Stock to reflect a reverse stock split of 1 for 5
shares resulting in a total of 900,000 issued and outstanding shares.
In September 1991, the Company traded its marketable securities
obtained in the Home Indemnity, Incorporated merger in exchange for the purchase
of 300,000 shares of the Company's own Common Stock which were subsequently
canceled by the Company. To complete this transaction, the Company canceled an
additional 21,360 shares of Common Stock during March 1997.
During the period February 14, 1994 to February 25, 1995, a new group
of investors purchased from the Company's then-majority shareholders, their
shares of the Company's Common Stock which gave the new investors a controlling
interest in the Company.
Effective November 19, 1997, the then-majority shareholder surrendered
to the Company, 315,483 shares of the Company's Common Stock.
Effective November 26, 1997, the Company effected a forward stock split
of 19 for 1 shares of Common Stock, resulting in a total of 4,999,983 shares
being issued and outstanding.
Effective July 14, 1998, the Company effected a reverse stock split of
1 for 1.65 shares of Common Stock resulting in a total of 3,030,813 issued and
outstanding shares.
In connection with the merger with CMP Solutions in July 1998, the
Company issued 9,200,000 restricted shares of Common Stock to the shareholders
of CMP Solutions in exchange for all the capital stock of CMP Solutions. As a
result, the Company had 12,230,813 common shares issued and outstanding as of
February 12, 1999.
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ITEM 2. MANAGEMENT'S PLAN OF OPERATIONS
As the Company did not have any revenues from operations in each of the
last two fiscal years, the following is Management's discussion of the Company's
plan of operations for the next 12 months. This plan of operations should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's annual report on
Form 10-K for the year ended March 31, 1998, and the Company's quarterly reports
on Forms 10-Q for the three-month periods ending June 30, 1998 and September 30,
1998.
GENERAL PLAN OF OPERATIONS
The Company commenced operations on August 1, 1998 with two operating
subsidiaries, CMP Solutions and ATSI, both located in Tempe, Arizona. ATSI
commenced its marketing efforts with sales revenues coming mostly from sales to
one customer. ATSI located equipment for installation in the CMP Solutions
facility, however, the Company does not consider such inter-company transfers as
revenues. During the quarter ending December 31, 1998, CMP Solutions continued
in the development phase and made efforts in initial marketing and in building
its silicon wafer processing facility. Therefore, CMP Solutions had no revenues
during this quarter.
For the current fiscal year, the Company anticipates incurring a loss
as a result of expenses associated with: (i) resumption of reporting under the
Securities Exchange Act of 1934; (ii) locating and evaluating acquisition
candidates; and (iii) the acquisition of CMP Solutions. ATSI generated $2.5
million in sales revenue for the quarter. The Company expects ATSI to sustain
this rate of sales during calendar year 1999 due to favorable market conditions.
The Company believes CMP Solutions will begin generating revenue after March 1,
1999, when it completes its silicon wafer processing facility and begins field
service operations. The Company expects that continued costs of developing the
business of ATSI and CMP Solutions, along with the possible creation or
acquisition of new operating subsidiaries, will exceed its revenues for the
remainder of fiscal year 1999 and all of fiscal year 2000.
During the next 12 months, the Company expects to engage in funding
efforts and acquisitions, completing CMP Solutions' manufacturing facilities and
increasing ATSI's revenues. The Company also expects to acquire all of the
capital stock of Global Semiconductor Technologies, Inc., an Arizona corporation
("GST") and Advanced Control Technologies, Inc., an Arizona corporation ("ACT"),
both located in Tempe, Arizona. At the present time, the Company shares office
space and staff with GST and ACT. All expenditures to date by ACT and GST on
behalf of SITEK have been attributed as loans from SITEK to these entities. In
addition, the Company expects to enter into an agreement with VSM, Inc., an
equipment manufacturing company based in Tempe, Arizona, under which the Company
will have a 90-day option to purchase all the assets or capital stock of VSM for
approximately $1,000,000.
The Company expects its revenues for the 12 months ending December 31,
1999 will be approximately $4.0 million from CMP Solutions and $11.0 million
from ATSI. The Company also expects its acquisitions of GSTI and ACT will add
revenues of approximately $1.0 million during calendar year 1999.
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The Company expects to raise additional capital during the quarter
ending March 31, 1999 through lease financing of production equipment for CMP
Solutions, and a possible private placement of an undetermined number of shares
of the Company's Common Stock. The Company expects to apply any such additional
capital to product development, equipment and corporate acquisitions, but only
if revenues from the Company's operations meet its operating capital needs.
Otherwise, the Company may use for operations expenses any additional capital it
raises.
CASH REQUIREMENTS AND NEED TO RAISE ADDITIONAL FUNDS IN NEXT TWELVE MONTHS
The Company believes that it will need additional capital during the
next 12 months to meet the Company's funding needs, including the costs of
compliance with the continuing reporting requirements of the Securities Exchange
Act of 1934, as amended, and the costs associated with funding efforts,
acquisitions and product development. CMP Solutions will need additional funding
before it is able to generate revenues. There is no assurance that the Company
will be able to acquire additional capital or that the funds, if acquired, will
be adequate to complete and integrate the acquisitions of GST, VSM and ACT, or
to meet the Company's product development or operating capital requirements.
Neither management nor other of the Company's stockholders have made
commitments to provide additional funds to the Company. Accordingly, there can
be no assurance that any additional funds will be available to the Company to
allow it to cover its capital needs. Management has a contingency plan to allow
the Company to sustain itself without additional funding. However, the success
of this plan depends upon: (i) ATSI retaining its market position and continuing
to generate similar revenues as it did during the quarter ending December 31,
1998; (ii) CMP Solutions reaching production status with minimal additional
funding; and (iii) ACT and GST generating approximately a total of $1.0 million
in revenues during fiscal year 2000, assuming the Company acquires ACT and GST.
Irrespective of whether the Company's cash assets meet the Company's
operational capital needs during the next 12 months, the Company might
compensate providers of services by issuances of the Company's Common Stock in
lieu of cash.
PRODUCT DEVELOPMENT
The Company has initiated a development program to produce an improved
chemical-mechanical planarization ("CMP") wafer carrier for existing Integrated
Process Equipment Corporation's ("IPEC") CMP tools. There are approximately
1,000 IPEC CMP tools installed around the world which could use the Company's
new product. The Company needs additional funding to complete development and
bring this product to market in calendar year 2000.
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The Company has initiated a development program to produce a CMP
system. The Company needs additional funding to complete development and bring
this product to market in calendar year 2000.
The Company has also initiated a development program to produce an
epitaxial reactor system for the production of lower cost silicon wafers that
may be required for future high density integrated circuits. While The Company
needs additional funding to complete development and bring this product to
market, the Company has engaged in preliminary negotiations with a semiconductor
manufacturer that has expressed an interest in a joint development program and
investment in the Company. However, it is less likely than more that this
potential joint venturer will enter into an agreement with the Company to
develop, manufacture or market this epitaxial reactor system.
EXPECTED PURCHASES OF SIGNIFICANT EQUIPMENT
Depending on market conditions, demand, and the availability of
funding, the Company expects to purchase certain silicon wafer processing and
metrology equipment during calendar year 1999. The Company believes this
equipment will materially increase the likelihood of the Company's efforts to
produce ultra-flat, ultra-uniform silicon wafers for future electronic circuit
production.
During the next 12 months, the Company expects to update business and
manufacturing controls for all aspects of the Company. The Company also expects
to implement a system that connects all of its operations and equipment, which
will allow for remote operation and service of Company equipment in the field.
In order to conserve cash, the Company may choose to lease rather than purchase
this control system.
YEAR 2000 COMPLIANCE
Many of the Company's currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
Beginning in the calendar year 2000, these date code fields will need to accept
date entries that distinguish 21st century dates from 20th century dates. As a
result, the Company will need to upgrade or certify its systems to comply with
such "Y2K" requirements. Significant uncertainty exists in the software industry
concerning the potential effects associated with such compliance efforts.
The Company relies exclusively on personal computer ("PC") based
systems and does not use mainframe or medium sized computer systems that employ
older software programs written in "COBAL." In recent weeks, numerous software
packages have become available at nominal cost that will evaluate PC systems for
Y2K compliance, and in many cases apply corrections to the PC system or its
software. The Company has begun certifying all PC systems under its control. The
Company has also scheduled hardware and software upgrades to its
business-critical systems and manufacturing equipment to make them compliant
well before the end of calendar year 1999. However, there can be no assurance
that such upgrades or adjustments to hardware and software will be sufficient to
make the Company's computers or equipment Y2K compliant in a timely manner
11
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or that allocated resources will be sufficient. A failure to become Y2K
compliant on its computers or equipment could disrupt materially the Company's
operating results and financial condition.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this document that are not
historical facts, including statements of future expectations, projections of
results of operations and financial condition, statements of future economic
performance and other forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to differ materially from
those contemplated in such forward-looking statements. There can be no
assurances that the forward-looking information will be accurate. In addition to
the specific matters referred to herein, important factors which may cause
actual results to differ from those contemplated in such forward-looking
statements include: the future supply of silicon; the future demand for
semiconductor and CMP products; world economic conditions; potential costs and
delays in integrating acquisitions; timing of market introductions; the
availability and cost of additional funding; and higher-than-expected costs of
product development.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On November 20, 1998, Robert F. Russo, Sr. filed a lawsuit in the
Superior Court of the State of Arizona located in Maricopa County against the
Company, GST and several other defendants. Mr. Russo alleged that as a
shareholder of GST, he was entitled to an ownership interest in the Company
because several other GST shareholders had invested in CMP Solutions prior to
its merger with the Company. Mr. Russo alleged that he should have been given
the opportunity to also invest in CMP Solutions on a pro rata basis with GST's
other shareholders. Russo sought unspecified damages and shares of the Company's
Common Stock, in addition to attorneys' fees and costs. The Company and its
co-defendants entered into a settlement agreement with Mr. Russo on February 12,
1999 under which Mr. Russo sold his entire ownership interest in GST to GST and
released the defendants from all liabilities, claims, damages, losses, demands
and obligations of any kind arising at any time before the settlement agreement.
GST agreed to pay Russo $170,000 for this release and all his ownership interest
in GST. The lawsuit will be dismissed with prejudice pursuant to the settlement
agreement.
ITEM 5. OTHER INFORMATION.
The Company entered into an equipment lease with Cee and Gee Funding,
Inc., an Arizona corporation d/b/a TLD Funding Group, on February 5, 1999 for
equipment and clean room facilities for CMP Solutions' operations. The Company
expects this leased equipment will be sufficient for CMP Solutions' operations
needs for six months. A copy of this equipment lease and its amendments are
attached as Exhibit 10.
ITEM 6. EXHIBITS
(a) See Exhibit Index following the signature page which is
incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SITEK, INCORPORATED
(Registrant)
Date: February ___, 1999 By: /s/ Don M. Jackson, Jr.
-----------------------------
Don M. Jackson, Jr., President
(Authorized Officer)
Date: February ___, 1999 By: /s/ Don M. Jackson, Jr.
-----------------------------
Don M. Jackson, Jr., President
(Principal Financial Officer)
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SITEK, INCORPORATED
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
EXHIBIT NO. INCORPORATED BY
FILED HEREWITH DESCRIPTION REFERENCE TO:
3.1 Articles of Incorporation of Form 8-K filed with the SEC
Registrant on August 17, 1998
3.2 Bylaws of Registrant Form 10-K filed with the
SEC on April 17, 1998
10 Equipment Lease dated Filed Herewith
February 5, 1999, as
Amended
27 Financial Data Schedule Filed Herewith
15
<TABLE>
<CAPTION>
<S> <C> <C>
LESSOR TLD FUNDING GROUP, a division of Cee and Gee Funding, Inc. LEASE NUMBER
8900 N Central Ave, #214 903601-001-15
Phoenix, Az 85020
LESSEE VENDOR
SITEK, INCORPORATED AND CMP SOLUTIONS, INC. Multiple Vendors
1817 West Fourth Street
Tempe, Arizona 85281
JOINTLY AND SEVERALLY RESPONSIBLE
QUANTITY DESCRIPTION MODEL #, CATALOG #, SERIAL # OR OTHER IDENTIFICATION
**SEE EXHIBIT 'A' ATTACHED AND MADE APART HEREOF**
Amount of Each Payment w/Use Tax Term of Lease in Months No of Monthly Payments Security Deposit
SEE EXHIBIT B 36 36 $30,328.12
</TABLE>
TERMS AND CONDITIONS OF LEASE
1. LEASE. Lessee hereby leases from Lessor, and Lessor leases to Lessee, the
personal property described above, together with any replacement parts,
additions, repairs or accessories now or hereafter in or affixed to it
(hereinafter referred to as the "Equipment")
2. ACCEPTANCE OF EQUIPMENT. Lessee agrees to inspect the Equipment and to
execute an Acknowledgment and Acceptance of Equipment by Lessee notice, as
provided by Lessor, after the Equipment has been delivered and after Lessee is
satisfied that the Equipment is satisfactory in every respect. Lessee hereby
authorizes Lessor to insert in this Lease serial number or other identifying
data with respect to the Equipment.
3. DISCLAIMER OF WARRANTIES AND CLAIMS; LIMITATION OF REMEDIES. THERE ARE NO
WARRANTIES BY OR ON BEHALF OF LESSOR. Lessee acknowledges and agrees by his
signature below as follows:
(a) LESSOR MAKES NO WARRANTIES EITHER EXPRESS OR IMPLIED AS TO THE
CONDITION OF THE EQUIPMENT ITS MERCHANTABILITY ITS FITNESS OR SUITABILITY FOR
ANY PARTICULAR PURPOSE, ITS DESIGN, ITS CAPACITY, ITS QUALITY, OR WITH RESPECT
TO ANY CHARACTERISTICS OF THE EQUIPMENT.
(b) Lessee has fully inspected the equipment which it has requested Lessor
to acquired and lease to Lessee, and the Equipment is in good condition and to
Lessee's complete satisfaction;
(c) Lessee leases the Equipment "as Is" and with all faults;
(d) Lessee specifically acknowledges that the Equipment is leased to Lessee
solely for commercial or business purposes and not for personal family
household, or agricultural purposes;
<PAGE>
(e) If the Equipment is not properly installed does not operate as
represented or warranted by the supplier or manufacturer, or is unsatisfactory
for any reason regardless of cause or conse quence, Lessee's only remedy, if
any, shall be against the supplier or manufacturer of the equipment and not
against Lessor;
(f) Provided Lessee is not in default under this Lease, Lessor assigns to
Lessee any warran ties made by the supplier or manufacturer of the Equipment;
(g) LESSEE SHALL HAVE NO REMEDY FOR CONSEQUENTLY OR INCIDENTAL DAMAGES
AGAINST LESSOR; and
(h) NO DEFECT, DAMAGE, OR UNFITNESS OF THE EQUIPMENT FOR ANY PURPOSE SHALL
RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR RELIEVE LESSEE OF ANY OTHER
OBLIGATION UNDER THIS LEASE.
4. STATUTORY FINANCE LEASE. Lessee agrees and acknowledges that it qualify as a
statutory finance lease under Article 2A of the Uniform Commercial Code. Lessee
acknowledges and agrees that lessee has selected both: (1) the Equipment; and
(2) the supplier from whom Lessor is to purchase the Equipment. Lessee
acknowledges that Lessor has not participated in any way in Lessee's selection
of the Equipment or of the supplier, and Lessor has not selected, manufactured
or supplied the Equipment.
LESSEE IS ADVISED THAT IT MAY HAVE RIGHTS UNDER THE CONTRACT EVIDENCING THE
LESSOR'S PURCHASE OF THE EQUIPMENT FROM THE SUPPLIER CHOSEN BY LESSEE AND THAT
LESSEE SHOULD CONTACT THE SUPPLIER OF THE EQUIPMENT FOR A DESCRIPTION OF ANY
SUCH RIGHTS.
5. ASSIGNMENT BY LESSEE PROHIBITED. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT,
LESSEE SHALL NOT ASSIGN THIS LEASE OR SUBLEASE THE EQUIP MENT OR ANY INTEREST
THEREIN, OR PLEDGE OR TRANSFER THIS LEASE, OR OTHERWISE DISPOSE OF THE EQUIPMENT
COVERED HEREBY.
6. COMMENCEMENT; RENTALS PAYMENTS; INTERIM RENTALS. This Lease shall commence
upon the written acceptance hereof by Lessor and shall end upon full performance
and observance by Lessee of each and every term, condition and covenant set
forth in this Lease, any Schedules hereto and any extensions hereof. Rental
payments shall be in the amounts and frequency as set forth on the face of this
Lease or any Schedules hereto. In this Lease, any Schedules hereto and any
extensions hereof Rental payments shall be in the amounts and frequency as set
forth on the face of this Lease or any Schedules hereto. In addition to regular
rentals, Lessee shall pay to Lessor interim rent for the use of the Equipment
prior to the due date of the first payment. Interim rent shall be in an amount
equal to 1/30th of the monthly rental, multiplied by the number of days elapsing
between the date on which the Equipment is accepted by Lessee and the
commencement date of this lease, together with the number of days elapsing
between commencement of the Lease and the due date of the first payment. The
payment of interim rent shall be due and payable upon Lessee's receipt of
invoice from Lessor. The rental period under the Lease shall terminate following
the last day of the terms stated on the face hereof or in any Schedule hereto
unless such Lease or Schedule has been extended or otherwise
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modified. Lessor shall have no obligation to Lessee under this Lease if Lessee
fails to execute or deliver to Lessor Acknowledgment and Acceptance of Equipment
by Lessee acknowledging its acceptance of the equipment within thirty (30) days
after it is delivered to Lessee, with respect to this Lease or any Schedule
hereto. THIS LEASE IS NOT CANCELABLE OR TERMINABLE BY LESSEE SEE REVERSE SIDE
FOR ADDITIONAL TERMS AND CONDITIONS WHICH ARE PART OF THIS LEASE. LESSEE
UNDERSTANDS AND ACKNOWLEDGES THAT NO BROKER OR SUPPLIER, NOR ANY SALESMAN,
BROKER, OR AGENT OF ANY BROKER OR SUPPLIER, IS AN AGENT OF LESSOR, NO BROKER OR
SUPPLIER, NOR ANY SALESMAN, BROKER, OR AGENT OF ANY BROKER OR SUPPLIER, IS
AUTHORIZED TO WAIVE OR ALTER ANY TERM OR CONDITION OF THIS LEASE, AND NO
REPRESENTATION AS TO THE EQUIPMENT OR ANY OTHER MATTER BY THE BROKER OR
SUPPLIER, NOR ANY SALESMAN, BROKER, OR AGENT OF ANY BROKER OR SUPPLIER, SHALL IN
ANY WAY AFFECT LESSEE'S DUTY TO PAY THE RENTALS AND TO PERFORM LESSEE'S
OBLIGATIONS SET FORTH IN THIS LEASE
7. CHOICE OF LAW. This Lease shall not be effective until signed by Lessor at
its principal office listed above This Lease shall be considered to have been
made in the state of Lessor's principal place of business listed above and shall
be interpreted in accordance with the laws and regulations of the state of
Lessor's principal place of business. Lessee agrees to jurisdiction the state of
Lessor's principal place of business listed above by any action, suit or
proceeding regarding this Lease, and concedes that it, and each of them,
transacted business in the state of Lessor's principal place of business listed
above by entering into this Lease. In the event of any legal action with regard
to this lease or the equipment covered hereby, Lessee agrees that venue may be
laid in the County of Lessor's principal place of business.
8. SECURITY DEPOSIT. As security for the prompt and full payment of the amounts
due under this Lease, and Lessee's complete performance of all of its
obligations under this Lease, and any extension or renewal hereof, Lessee has
deposited with Lessor the security amount set forth in the section shown as
"Security Deposit" In the event any default shall be made in the performance of
any of Lessee's obligations under this Lease, Lessor shall have the right, but
shall not be obligated, to apply the security deposit to the curing of such
default. Within 15 days alter Lessor mails notice to Lessee that Lessor has
applied any portion of the security deposit to the curing of any default, Lessee
shall restore said security deposit to the full amount set forth above On the
expiration or earlier termination or cancellation of this Lease, or any
extension or renewal hereof, provided Lessee has paid all of the rent called for
and fully performed all other provisions of this Lease, Lessor will return to
the Lessee any then remaining balance of said security deposit, without interest
Said security deposit may be commingled with Lessor's other funds.
9. LIMITED PREARRANGED AMENDMENTS; SPECIFIC POWER OF ATTORNEY. In the event it
is necessary to amend the terms of this Lease to reflect a change in one or more
of the following conditions:
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<PAGE>
(a) Lessor's actual cost of procuring the Equipment, or
(b) Lessor's actual cost of providing the Equipment to Lessee, or
(c) A change in rental payments as a result of (1) or (2), above, or
(d) Description of the Equipment;
Lessee agrees that any such amendment shall be described in a letter from Lessor
to Lessee, and unless within 15 days after the date of such letter Lessee
objects in writing to Lessor, this Lease shall be deemed amended and such
amendments shall be incorporated in this Lease herein as if originally set forth
Lessee grants to Lessor a specific power of attorney for Lessor to use as
follows (1) Lessor may sign and file on Lessee's behalf any document Lessor
deems necessary to perfect or protect Lessor's interest in the Equipment or
pursuant to the Uniform Commercial Code; and (2) Lessor may sign, endorse or
negotiate for Lessor's benefit any instrument representing proceeds from any
policy of insurance covering the Equipment.
10. LOCATION. The Equipment shall be kept at the location specified above or, if
none is specified, at Lessee's address as set forth above and shall not be
removed without Lessor's prior written consent.
11. USE. Lessee shall use the Equipment in a careful manner, make all necessary
repairs at Lessee's expense, shall comply with all laws relating to its
possession, use, or maintenance, and shall not make any alterations, additions,
or improvements to the Equipment without Lessor's prior written consent All
additions, repairs or improvements made to the Equipment shall belong to Lessor
12. OWNERSHIP; PERSONALTY. The Equipment is, and shall remain, the properly of
Lessor, and Lessee shall have no right, title, or interest in the Equipment
except as expressly set forth in this Lease. The Equipment shall remain personal
properly even though installed in or attached to real properly.
13. SURRENDER. By this Lease, Lessee acquires no ownership rights in the
Equipment, and has no option to purchase same. Upon the expiration, or earlier
termination or cancellation of this Lease, or in the event of a default under
Paragraph 21, hereof, Lessee, at its expense, shall return the Equipment in good
repair, ordinary wear and tear resulting from proper use thereof alone excepted,
by delivering it, packed and ready for shipment, to such place or carrier as
Lessor may specify.
14. RENEWAL. At the expiration of the Lease, Lessee shall return the Equipment
in accordance with Paragraph 13, hereof. At Lessor's option, this Lease may be
continued on a month-to-month basis until 30 days after Lessee returns the
Equipment to Lessor In the event the Lease is so continued, Lessee shall pay to
Lessor rentals in the same periodic amounts indicated un der"Amount of Each
Payment," above.
15. LOSS AND DAMAGE. Lessee shall at all times after signing this Lease bear the
entire risk of loss, theft, damage or destruction of the Equipment from any
cause whatsoever, and no loss,
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<PAGE>
theft, damage or destruction of the Equipment shall relieve Lessee of the
obligation to pay rent or to comply with any other obligation under this Lease
In the event of damage to any part of the Equipment, Lessee shall immediately
place the same in good repair at Lessee's expense. If Lessor determines that any
part of the Equipment is lost, stolen, destroyed, or damaged beyond repair,
Lessee shall, at Lessee's option, do one of the following:
(a) Replace the same with like equipment in good repair, acceptable to
Lessor; or
(b) Pay Lessor in cash the following: (i) all amounts due by Lessee to
Lessor under this Lease up to the date of the loss; (ii) the accelerated balance
of the total amounts due for the remaining term of this Lease attributable to
said item, discounted to present value at a discount rate of 9% as of the date
of loss; and; (iii) the Lessor's estimate as of the time this Lease was entered
into of Lessor's residual interest in the Equipment discounted to present value
at a discount rate of 9%, as of the date of loss Upon Lessor's receipt of
payment as set forth above, Lessee shall be entitled to title to the Equipment
without any warranties. If insurance proceeds are used to fully comply with this
subparagraph, the balance of any such proceeds shall go to Lessee to compensate
for loss of use of the Equipment for the remaining term of the Lease.
16. INSURANCE; LIENS; TAXES. Lessee shall provide and maintain insurance against
loss, theft, damage, or destruction of the Equipment in an amount not less than
the full replacement value of the Equipment, with loss payable to Lessor. Lessee
also shall provide and maintain comprehensive general all-risk liability
insurance including but not limited to product liability coverage, insuring
Lessor and Lessee, with a severability of interest endorsement, or its
equivalent, against any and all loss or liability for all damages, either to
persons or properly or otherwise, which might result from or happen in
connection with the condition, use, or operation of the Equipment, with such
limits and with an insurer satisfactory to Lessor Each policy shall expressly
provide that said insurance as to Lessor and its assigns shall not be
invalidated by any act, omission, or neglect of Lessee and cannot be canceled
without 30 days' prior written notice to Lessor As to each policy Lessee shall
furnish to Lessor a certificate of insurance from the insurer, which certificate
shall evidence the insurance coverage required by this paragraph Lessor shall
have no obligation to ascertain the existence of or provide any insurance
coverage for the Equipment or for Lessee's benefit If Lessee fails to provide
such insurance, Lessor will have the right, but no obligation, to have such
insurance protecting Lessor placed at Lessee's expense Such placement will
result in an increase in Lessee's periodic payments, such increase being
attributed to Lessor's costs of obtaining such insurance and any customary
charges or fees of Lessor's or its designee associated with such insurance
Lessee shall keep the Equipment free and clear of all levies, liens, and
encumbrances Lessee shall pay all charges and taxes (local, state, and federal)
which may now or hereafter be imposed upon the ownership, leasing, rental, sale,
purchase, possession, or use of the Equipment, excluding, however, all taxes on
or measured by Lessor's net income If Lessee fails to pay said charges or taxes,
Lessor shall have the right, but shall not be obligated, to pay such charges or
taxes In that event, Lessor shall notify Lessee of such payment and Lessee shall
repay to Lessor the cost thereof within 15 days after such notice is mailed to
Lessee.
17. INDEMNITY. Lessee shall indemnify Lessor against any claims, actions,
damages, or
5
<PAGE>
liabilities, including all attorney fees, arising out of or connected with
Equipment, without limitation. Such indemnification shall survive the
expiration, cancellation, or termination of this Lease Lessee waives any
immunity Lessee may have under any industrial insurance act, with regard to
indemnification of Lessor.
18. ASSIGNMENT BY LESSOR. Any assignee of Lessor shall have all of the rights
but none of the obligations of Lessor under this Lease Lessee shall recognize
and hereby consents to any assignment of this Lease by Lessor, and shall not
assert against the assignee any defense, counterclaim, or setoff that Lessee may
have against Lessor Subject to the foregoing, this Lease inures to the benefit
of and is binding upon the heirs, devisees, personal representatives, survivors,
successors in interest, and assigns of the parties hereto.
19. SERVICE CHARGES; INTEREST. If Lessee shall fail to make any payment required
by this Lease within 10 days of the due date thereof, Lessee shall pay to Lessor
a service charge of 8% of the amount due; provided, however, that not more than
one such service charge shall be made on any delinquent payment, regardless of
the length of the delinquency In addition to the foregoing service charge,
Lessee shall pay to Lessor a $100 default fee with respect to any payment which
becomes thirty (30) days past due In addition, Lessee shall pay to Lessor any
actual additional expenses incurred by Lessor in collection efforts, including
but not limited to long-distance telephone charges and travel expenses Lessee
shall pay to Lessor interest on any delinquent payment or amount due under this
Lease from the due date thereof until paid, at the lesser of the maximum rate of
interest allowed by law or 18% per annum.
20. TIME OF ESSENCE. Time is of the essence of this Lease, and this provision
shall not be impliedly waived by the acceptance on occasion of late or defective
performance.
21. DEFAULT. Lessee shall be in default if:
(a) Lessee shall fail to make any payment due under the terms of tis Lease
for a period of 10 days from the due date thereof; or
(b) Lessee shall fail to observe, keep, or perform any provision of this
Lease, and such failure shall continue for a period of 10 days; or
(c) Lessee has made any misleading or false statement in connection with
application for or performance of this Lease; or
(d) The Equipment or any part thereof shall be subject to any lien, levy,
seizure, assignment, transfer, bulk transfer, encumbrance, application,
attachment, execution, sublease, or sale without prior written consent
of Lessor, or if Lessee shall abandon the Equipment or permit any other
entity or person to use the Equipment without the prior written consent
of Lessor; or
(e) Lessee dies or ceases to exist; or
(f) Lessee defaults on any other agreement it has with Lessor; or
(g) Any guarantor of this Lease defaults on any obligation to Lessor or any
of the above listed events of default occur with respect to any
guarantor or any such guarantor files or has filed against it a
petition under the bankruptcy laws.
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22. REMEDIES. If Lessee is in default, Lessor, with or without notice to Lessee,
shall have the right to exercise any one or more of the following remedies,
concurrently or separately, and without any election of remedies being deemed to
have been made:
(a) Lessor may enter upon Lessee's premises and without any court order or
other process of law may repossess and remove the Equipment, or render the
Equipment unusable without removal, either with or without notice to Lessee
hereby waives any trespass or right of action for damages by reason of such
entry, removal, or disabling Any such repossession shall not constitute a
termination of this Lease unless Lessor so notifies Lessee in writing;
(b) Lessor may require Lessee, at its expense, to return the Equipment in
good repair, ordinary wear and tear resulting from proper use thereof alone
excepted, by delivering it, packed and ready for shipment, to such place or
carrier as Lessor may specify;
(c) Lessor may cancel or terminate this Lease and may retain any and all
prior payments paid by Lessee;
(d) Lessor may declare all sums due and to become due under this Lease
immediately due and payable, including as to any or all items of Equipment,
without notice or demand to Lessee;
(e) Lessor may re- lease the Equipment, without notice to Lessee, to any
third party, upon such terms and conditions as Lessor alone shall determine, or
may sell the Equipment, without notice to Lessee, at private or public sale, at
which sale Lessor may be the purchaser;
(f) Lessor may sue for and recover from Lessee the sum of all unpaid rents
and other payments due under this Lease then accrued, all accelerated future
payments due under this Lease, discounted to their present value at a discount
rate of 9% as of the date of default, plus Lessor's estimate at the time this
Lease was entered into of Lessor's residual interest in the Equipment, reduced
to present value at a discount rate of 9% as of the date of default, less the
net proceeds of disposition, if any, of the Equipment;
(g) To pursue any other remedy available at law, by statute or in equity No
right or remedy herein conferred upon or reserved to Lessor is exclusive of any
other right or remedy herein or by law or by equity provided or permitted, but
each shall be cumulative of every other right or remedy given herein or now or
hereafter existing by law or equity or by statute or otherwise, and may be
enforced concurrently therewith or from time to time No single or partial
exercise by Lessor of any right or remedy hereunder shall preclude any other or
further exercise of any other right or remedy.
23. MULTIPLE LESSEES. Lessor may, with the consent of any one of the Lessees
hereunder, modify, extend, or change any of the terms hereof without consent or
knowledge of the others, without in any way releasing, waiving, or impairing any
right granted to Lessor against the others Lessees and each of them are jointly
and severally responsible and liable to Lessor under this Lease.
24. EXPENSE OF ENFORCEMENT. In the event of any legal action with respect to
this Lease, the prevailing party In any such action shall be entitled to
reasonable attorney fees, including attorney fees incurred at the trial level,
including action in bankruptcy court, on appeal or review, or incurred without
action, suits, or proceedings, together with all costs and expenses incurred In
pursuit thereof.
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<PAGE>
25. ENTIRE AGREEMENT; NO ORAL MODIFICATIONS; NO WAIVER. This instru ment
constitutes the entire agreement between Lessor and Lessee. No provision of this
Lease shall be modified or rescinded unless in writing signed by a
representative of Lessor Waiver by Lessor of any provision hereof in one
instance shall not constitute a waiver as to any other instance.
26. SEVERABILITY. This Lease Is intended to constitute a valid and enforceable
legal instrument, and no provision of this Lease that may be deemed
unenforceable shall in any way invalidate any other provision or provisions
hereof, all of which shall remain in full force and effect.
LESSEE: SITEK, Incorporated LESSOR: TLD Funding Group, a division
and CMP Solutions, Inc. of Cee and Gee Funding, Inc.
/s/ Don M. Jackson, Jr. 2/5/99 /s/ John R. Balding 2/5/99
- -------------------------- ------- ------------------------------ -------
Don M. Jackson, Jr., Date
President, SITEK,
Incorporated
/s/ Mark Simon 2/5/99
- -------------------------- -------
Mark Simon, President,
CMP Solutions
8
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Page 1 of 1
EXHIBIT "A"
EQUIPMENT DESCRIPTION
VENDOR: ATSI
2450 W. 12th Street, Suite 3
Tempe, Arizona 85281
Qty. Description
1 Tencor 6420 S/N 0496-268
1 Prometrix FT-750 S/N 95-1154
1 OmniMap RS75 Sheet Resistance Maping System S/N 960624RS75TCA
1 Tencor P2 S/N 5920179
VENDOR: CMP SOLUTIONS
2450 W. 12th Street, Suite 2
Tempe, Arizona 85281-6933
Qty. Description
2 IPEC 472 Polishers
S/N 043
S/N 044
1 IPEC Avanti 9000 cleaner S/N 006
VENDOR: CIW SERVICES
1909 N. 25th Drive
Phoenix, AZ 85009
Qty. Description
1 Reverse Osmosis Water Purification System S/N HG101398CMP
INCLUDES: 1 ea. Carbon filter; 2 ea. Water Softeners, 1 ea. RO Unit,
1 ea. Storage tank;
2 ea. Distribution pumps, 1 ea. Control Panel; 2 ea. 1.0 micron
prefilter housing;
1 ea. Ultraviolet sterilized unit; 2 ea. 0.2 micron final filter
housing;
1 ea. Resistivity monitor
This Exhibit "A" is attached to and a part of _____________________ Lease No.
903601-001-15 and constitutes a true and accurate description of the equipment.
LESSEE: SITEK, Incorporated and CMP Solutions, Inc.
1817 West Fourth Street
Tempe, Arizona 85281
/s/ Don M. Jackson, Jr.
- ---------------------------------------------------
Don M. Jackson, Jr., President, SITEK, Incorporated
/s/ Mark Simon
- ---------------------------------------------------
Mark Simon, President, CMP Solutions
<PAGE>
Page 1 of 1
EXHIBIT "B"
PAYMENT SCHEDULE
Sitek CMP
Payments 1 - 12 $19,000.00 /S/ DMJ /S/ MSS
-------- --------
Payments 13 - 24 $23,000.00 /S/ DMJ /S/ MSS
-------- --------
Payments 25 - 36 $30,328.12 /S/ DMJ /S/ MSS
-------- --------
This Exhibit "B" is attached to and a part of _____________________________
Lease No. 903601-001-15 and constitutes a payment schedule.
LESSEE: SITEK, INCORPORATED AND CMP SOLUTIONS, INC.
1817 West Fourth Street
Tempe, Arizona 85281
/s/ Don M. Jackson, Jr.
- ---------------------------------------------------
Don M. Jackson, Jr., President, SITEK, Incorporated
/s/ Mark Simon
- ---------------------------------------------------
Mark Simon, President, CMP Solutions
<PAGE>
AMENDMENT TO THE
EQUIPMENT LEASE AGREEMENT
February 5, 1999
This Amendment to the Lease (the "Amendment") is by and among SITEK
Incorporated, a Delaware corporation, CMP Solutions, Inc, an Arizona corporation
(collectively, "Lessee") and Cee and Gee Funding, Inc., an Arizona corporation
d/b/a TLD Funding Group ("Lessor").
1. AMENDMENT AND EFFECTIVE DATE. This Amendment, which is effective as of
February 5, 1999, amends the Equipment Lease Agreement dated February 5,
1999 (the "Lease") between the Lessee and Lessor. Except as modified
specifically by the Amendment, the Lease will remain in full force and
effect.
2. DEFINITIONS. The defined terms in the Lease have the same meanings in this
Amendment.
3. AMENDMENTS TO LEASE. The following sections of the Lease are hereby amended
and restated in their entirety as follows:
"5. ASSIGNMENT BY LESSEE. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT,
WHICH WILL NOT BE WITHHELD UNREASONABLY, LESSEE WILL NOT ASSIGN
THIS LEASE OR SUBLEASE THE EQUIPMENT OR ANY INTEREST IN THE EQUIP
MENT, OR PLEDGE OR TRANSFER THIS LEASE, OR OTHERWISE DISPOSE OF
THE EQUIPMENT COVERED HEREBY."
"7. CHOICE OF LAW. Arizona law governs the construction and enforcement of
this Agreement. The parties will arbitrate any disputes pertaining to this
Lease. The parties will select an arbitrator, who will set the procedural
and evidentiary rules for the arbitra tion. If the parties cannot agree on
an arbitrator, they will ask the Superior Court in Maricopa County, Arizona
to appoint an arbitrator. The arbitrator must set a hearing and issue a
ruling within 90 days after the arbitrator is selected. The arbitrator's
ruling will be binding on the parties. The prevailing party will be
entitled to recover from the other party its attorneys' fees, costs and
expenses incurred in connection with the dispute, including the
arbitrator's fee. Any claim or cause of action pertaining to the
arbitration will be brought only in courts of competent jurisdiction
located in Maricopa County, Arizona. The parties waive any objections
related to jurisdiction or venue, including objections on the grounds of
FORUM NON CONVENIENS."
"11. USE. Lessee will: (i) use the Equipment in a careful manner; (ii) make
all necessary repairs at Lessee's expense; and (iii) use commercially
reasonable efforts comply with all applicable laws relating to the
Equipment's use, possession and maintenance. All repairs to the Equipment
will be deemed part of the Equipment. All improvements made to the
Equipment that can be removed without damaging the Equipment will belong to
Lessee."
<PAGE>
"13. SURRENDER OF EQUIPMENT. Lessee, at its expense, will return the
Equipment to Lessor in good repair, ordinary wear and tear resulting from
proper use of the Equipment excepted, by delivering it to Lessor in
Phoenix, Arizona within 10 days after the expiration or the earlier
termination or cancellation of this Lease, or in the event of a default
under Paragraph 21 of this Lease."
"14. RENEWAL. At the expiration of this Lease, Lessor and Lessee may agree
to continue the Lease on a month-to-month basis pursuant to the terms
described in this Lease. Either party may terminate the month-to-month
Lease by giving the other party 30 days' notice."
"17. INDEMNITY. Each party will indemnify the other parties against any
costs, liabilities or expenses (including attorneys' fees) incurred by the
other parties and arising from the indemnifying party's acts or omissions
in connection with the Equipment. Such indemnifica tion will survive for
three years following the expiration, cancellation or termination of this
Lease."
"18. ASSIGNMENT BY LESSOR. Lessor may assign its rights and obligations
under this Lease. Lessee will recognize and consent to any assignment of
this Lease by Lessor, subject to the assignee assuming all liabilities and
obligations of Lessor under this Lease, including any defenses,
counterclaims or setoffs Lessee may have against Lessor."
"21. DEFAULT. Lessee will be in default of this Lease if any of the
following events or conditions occur and continue for 10 days after
Lessee's receipt of written notice of default from Lessor:
(a) Lessee fails to make any payment due under this Lease on the due date
of such payment;
(b) any Lessee breaches materially any material term of this Lease;
(c) Lessee has made any material false written statement to Lessor in
connection with entering into this Lease;
(d) the Equipment is subject to any lien, levy, seizure, assignment,
transfer, encumbrance, attachment, execution, sublease or sale without
prior written permission of Lessor;
(e) Lessee ceases to exist by way of dissolution, winding-up or otherwise;
(f) Lessee defaults on any other written agreement it has with Lessor; or
(g) any guarantor of Lessee's obligations under this Lease defaults on its
obligations to Lessor or has filed against it a petition of involuntary
bankruptcy that is not dismissed within 90 days of filing."
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<PAGE>
"25. ENTIRE AGREEMENT; NO ORAL MODIFICATIONS; NO WAIVER. This
Lease, as amended by a written amendment between the Lessee and Lessor
dated February 5, 1999, along with the Exhibits attached to it, constitute
the entire agreement between the parties with respect to the subject matter
of it and supersedes all prior or contemporaneous offers, understandings or
agreements in regard to that subject matter. No modification or addition to
this Lease will be valid unless in writing, specifically referring to this
Lease and signed by all the parties to this Lease. No waiver of any rights
under this Lease will be valid unless in writing and signed by the party to
be charged with such waiver. No waiver of any term or condition contained
in this Lease will be deemed or construed as a further or continuing waiver
of that term or condition, unless the waiver specifically provides
otherwise."
4. PARTIAL AMENDMENT OF PARAGRAPHS 15 AND 22 OF THE LEASE. Paragraphs 15 and
22 of the Lease are amended in part as follows. The remainders of
Paragraphs 15 and 22 will remain in full force and effect.
"15. LOSS AND DAMAGE.
....
(b) Pay Lessor the following: (i) the sum of all unpaid rents and other
payments due under this Lease up to the date of loss; (ii) all future payments
attributable to the lost/destroyed portion of the Equipment due under this
Lease, discounted to their present value at a discount rate of 9% as of the date
of default; (iii) the residual value of the Equipment as of the date this Lease
was entered into, as estimated by an appraiser selected by Lessor and Lessee,
reduced to present value at a discount rate of 9% as of the date of the loss of
use of the Equipment. Upon Lessor's receipt of payment as set forth above,
Lessor will transfer to Lessee title to the Equipment without any warranties
from Lessor. If insurance proceeds are used to fully comply with this
subparagraph, the balance for any such proceeds will go to Lessee to compensate
for loss of use of the Equipment for the remaining term of the Lease."
"22. REMEDIES. If Lessee is in default under this Lease 10 days after
receiving written notice from Lessor pursuant to Paragraph 21, Lessor will
have the right to exercise any one or more of the following remedies,
concurrently or separately, and without any election of remedies being
deemed to have been made:
(a) Lessor may enter upon Lessee's premises during regular business hours
and without any court order or other process of law may repossess and
remove the Equipment without notice to Lessee. Lessee hereby waives any
trespass or right of action for damages incurred by reason of Lessor's
peaceful entry or removal of the Equipment;
....
11
<PAGE>
(c) Lessor may cancel or terminate this Lease and retain any and all prior
payments paid by Lessee, provided that Lessor apply those prior payments,
including Lessee's security deposit, to any amounts due under the Lease;
(d) Lessor may declare all sums due and to become due under this Lease to
be immediately due and payable, with all accelerated sums discounted at the
rate and in the manner set forth in Paragraph 22(f);
(e) Lessor may re-lease the Equipment, without further notice to Lessee, to
any third party on any commercially reasonable terms determined by Lessor,
or sell the Equipment to any party, including itself, at any private or
public sale conducted in accordance with Arizona law; or
(f) Lessor may sue for and recover from Lessee: (i) the sum of all unpaid
rents and other payments due under this Lease then accrued; (ii) all
accelerated future payments due under this Lease, less the security
deposit, discounted to their present value at a discount rate of 9% as of
the date of default; (iii) the residual value of the Equipment as of the
date this Lease was entered into, as estimated by and appraiser selected by
Lessor and Lessee, reduced to present value at a discount rate of 9% as of
the date of default; and (iv) less the net proceeds of disposition from,
including re-leasing, the Equipment."
5. CONSIDERATION. Lessee and Lessor are entering into the Lease simultaneously
with entering into this Amendment. Lessee and Lessor acknowledge the
consideration exchanged between them in the Lease is the same consideration
for this Amendment. The parties acknowledge the receipt and sufficiency of
the consideration for this Amendment.
6. AUTHORIZATION AND SIGNATURES. By signing below, each party represents that
this Amendment has been duly authorized and constitutes an agreement by
which it is bound.
Lessee and Lessor have executed this Amendment as of the date set forth in
the first paragraph of this Amendment.
LESSEE: LESSOR:
SITEK INCORPORATED, CEE AND GEE FUNDING, INC.,
a Delaware corporation an Arizona corporation d/b/a
TLD Funding Group
By: /s/ Don M. Jackson, Jr. By: /s/ John R. Balding
-------------------------------- ----------------------------------
Don M. Jackson, Jr., President John R. Balding, President
12
<PAGE>
CMP SOLUTIONS, INC.,
an Arizona corporation
By: /s/ Mark G. Simon
-------------------------------
Mark G. Simon, President
13
<PAGE>
TLD Funding Group
Division of Cee & Gee Funding, Inc.
(LESSOR)
SITEK INCORPORATED AND
CMP SOLUTIONS, INC.
(LESSEE)
DATED: FEBRUARY 5, 1999
At the expiration of the initial term or any renewal term of the Lease
between Lessor and Lessee of even date herewith, as amended, Lessee will have a
non-assignable exclusive option to purchase not less than all of the Equipment
covered by the Lease for the greater of $336,768.55 or then current fair market
value of the Equipment, which will be determined by a qualified appraiser
acceptable to Lessor and Lessee not more than 60 days nor less than 30 days
prior to the expiration of the initial term or any renewal term of the Lease,
plus all applicable taxes.
Lessee's right to exercise said option is conditioned upon (a) Lessee
having performed all of the terms and conditions of the Lease at the time and in
the manner required therein; (b) Lessor having received written notice of
Lessee's election to exercise said option no less than 30 days prior to the date
upon which the term of the Lease expires; and (c) Lessee's payment to Lessor of
said purchase price, together with all taxes on or measured by such purchase
price, on or before the expiration of the initial term or any renewal term of
the Lease.
In the event Lessee does not exercise the above purchase option, and does
not renew the Lease in accordance with the Lease provisions, Lessee will
surrender the Equipment in accordance with the Lease provisions. The defined
terms in the Lease, as amended by Lessor and Lessee on February 5, 1999 in
writing (the "Amendment") have the same meanings in this Addendum to the Lease.
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS ADDENDUM TO THE LEASE AND THE
AMENDMENT AS OF THE DATE OF THE LEASE. EXCEPT AS MODIFIED SPECIFICALLY BY THIS
ADDENDUM, THE LEASE, AS AMENDED BY THE AMENDMENT, WILL REMAIN IN FULL FORCE AND
EFFECT.
DATED as of the date first written above.
LESSEE LESSOR
SITEK INCORPORATED, CEE AND GEE FUNDING, INC.,
a Delaware corporation an Arizona corporation
d/b/a TLD FUNDING GROUP
By: /s/ Don M. Jackson, Jr. By: /s/ John R. Balding
--------------------------------- ---------------------------------
Don M. Jackson, Jr., President John R. Balding, President
CMP SOLUTIONS, INC.,
an Arizona corporation
By: /s/ Mark G. Simon
---------------------------------
Mark G. Simon, President
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 18,367
<SECURITIES> 0
<RECEIVABLES> 939,841
<ALLOWANCES> 0
<INVENTORY> 6,500
<CURRENT-ASSETS> 962,208
<PP&E> 502,906
<DEPRECIATION> (33,683)
<TOTAL-ASSETS> 1,509,331
<CURRENT-LIABILITIES> 627,238
<BONDS> 0
1,000
0
<COMMON> 0
<OTHER-SE> 79,553
<TOTAL-LIABILITY-AND-EQUITY> 1,509,331
<SALES> 2,585,000
<TOTAL-REVENUES> 2,586,250
<CGS> 1,841,941
<TOTAL-COSTS> 475,032
<OTHER-EXPENSES> (1)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 269,279
<INCOME-TAX> 0
<INCOME-CONTINUING> 269,279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 269,279
<EPS-PRIMARY> 0.022
<EPS-DILUTED> 0.022
</TABLE>
