U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999
[ ] TRANSITION REPORT UNDER 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
(Exact name of registrant as specified in its charter)
Delaware 86-0923886
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
1817 West Fourth Street
Tempe, Arizona 85281
(Address of principal executive offices)
Issuer's telephone number: (480) 921-8555
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s)), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant, based upon the closing bid price of
the registrant's Common Stock as reported on the OTC Bulletin Board on June 15,
1999 was approximately $49,249,492. Shares of Common Stock held by each officer
and director and by each person who owns 30% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily conclusive.
The number of outstanding shares of the registrant's Common Stock on
June 15, 1999 was 12,302,813.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on September 28, 1999 are incorporated by reference in
Part III of this Form 10-K.
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SITEK, INCORPORATED
FORM 10-K ANNUAL REPORT
YEAR ENDED MARCH 31, 1999
TABLE OF CONTENTS
PART I
Item 1. Business........................................................... 1
Item 2. Properties......................................................... 4
Item 3. Legal Proceedings.................................................. 4
Item 4. Submission of Matters to a Vote of Security Holders................ 4
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.......................................................... 4
Item 6. Selected Financial Data............................................ 7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 7
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......... 13
Item 8. Financial Statements and Supplementary Data........................ 14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................. 15
PART III
Item 10. Directors and Executive Officers of the Registrant................. 15
Item 11. Executive Compensation............................................. 17
Item 12. Security Ownership of Certain Beneficial Owners and Management..... 17
Item 13. Certain Relationships and Related Transactions..................... 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 17
SIGNATURES.................................................................. S-1
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
SITEK, INCORPORATED
SITEK, Incorporated, a Delaware corporation ("SITEK"), is a holding company
which provides administrative and business support functions for its
semiconductor industry subsidiary companies. As of March 31, 1999, SITEK
operated two wholly-owned subsidiaries: CMP Solutions, Inc., an Arizona
corporation which provides engineering and manufacturing services to the
semiconductor industry and Advanced Technology Services, Inc., an Arizona
corporation which buys and sells pre-owned semiconductor capital equipment to a
world wide market. SITEK handles all the human resources, accounting, finance,
benefits administration and other general business services of its subsidiaries,
allowing them to focus their attention on generating revenues. On April 28,
1999, SITEK acquired a new subsidiary, VSM Corporation, an Arizona corporation
involved in semiconductor process equipment and subassembly manufacturing and
refurbishment. SITEK intends to continue diversifying the services and products
it supplies the semiconductor industry through acquisitions of established
companies in the next fiscal year.
SITEK's executive offices are located at 1817 West Fourth Street, Tempe,
Arizona 85281, and its telephone number is (480) 921-8555.
Although SITEK was incorporated in Delaware on June 30, 1998, its
predecessor has been in existence for over 10 years, the majority of which its
predecessor remained dormant and did not engage in any commercial operations.
SITEK is the successor to the Elgin Corporation, a publicly traded company
established under the laws of Delaware on April 5, 1989. The Elgin Corporation
entered into a merger from which the ultimate surviving corporation was Dentmart
Group, Inc. on February 15, 1991. On July 14, 1998, Dentmart then merged into
and became part of its wholly owned subsidiary, SITEK. SITEK then entered into a
Stock Purchase Agreement with CMP Solutions, Inc., an Arizona corporation to
acquire all the outstanding stock of CMP Solutions, Inc. on July 14, 1998.
Elgin was originally established to create a publicly held corporation in
which a suitable privately held company or companies could be merged. Toward
that goal, Elgin filed a registration statement with the United States
Securities and Exchange Commission on Form S-18 that was declared effective on
November 30, 1989. Elgin filed a certification and notice of suspension of duty
to file reports under Section 15(d) of the Securities Exchange Act of 1934 on
Form 15 in February 1991 and remained dormant until April 14, 1998 when Dentmart
filed a current report with the Securities and Exchange Commission reporting its
change in fiscal year from December 31 to March 31, its number of shareholders
exceeding 300 and its intention to resume filing of periodic reports under
Section 15(d) of the Securities Exchange Act of 1934.
CMP SOLUTIONS, INC.
SITEK completed an acquisition of CMP Solutions, Inc., an Arizona
corporation, pursuant to a Stock Purchase and Exchange Agreement dated as of
July 14, 1998. The terms of the acquisition are more fully described in SITEK's
Report on Form 8-K filed on August 17, 1998, which is incorporated herein by
reference.
"CMP" refers to "chemical mechanical planarization," the process by which
surface materials on a silicon wafer are removed or polished to make it possible
to add new layers of integrated circuit metal and insulator on the wafer. This
technology is primarily used by integrated circuit manufacturers who use this
process in their most advanced circuits. Most recently, smaller integrated
circuit and micro machine manufacturers have been leading the demand for new and
used CMP systems and CMP foundry services. Although the large companies which
use the CMP process on its wafer have the capability to manufacture their own
customized CMP treated wafer, the high cost associated with equipment
procurement, process design and the scarcity of qualified technicians makes
in-house
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CMP wafer treatment out of the reach of smaller companies. CMP Solutions uses
its team of qualified and experienced engineers to produce customized CMP
processed wafers for the smaller company market as the industry's major
outsource provider of CMP wafer processing. To provide these products, CMP
Solutions has its own "foundry" to which customers submit their wafers for CMP
processing. CMP Solutions also expects to have the capability to install and
operate a CMP operation on-site at the customer's plant.
In addition to the manufacture of CMP processed wafers, CMP Solutions makes
its engineers available on a consulting basis for customers who have purchased
equipment, but need assistance designing and utilizing the CMP equipment. During
the fiscal year ending March 31, 1999, CMP Solutions continued in the
development phase, initial marketing and in establishing its silicon wafer
processing facility. Therefore, CMP Solutions revenues during the last fiscal
year were less than 5% of the total revenues.
ADVANCED TECHNOLOGY SERVICES, INC.
In July 1998 all the outstanding stock of Advanced Technology Services,
Inc., an Arizona corporation ("ATSI") was contributed to SITEK as a whollyowned
subsidiary. ATSI is a business unit that buys and sells pre-owned semiconductor
processing and manufacturing equipment to the world-wide market of semiconductor
companies. ATSI generated nearly all of SITEK's sales revenues for the year
ending March 31, 1999.
Because of the high capital expenditures a semiconductor company must make
in purchasing new equipment, ASTI provides an alternative in pre-owned
equipment. ASTI sells mostly to semiconductor companies who seek to cut
production costs by purchasing pre-owned semiconductor manufacturing and
processing equipment.
MARKETS
SITEK currently has two principal markets: (i) pre-owned semiconductor
manufacturing equipment; and (ii) CMP services. The semiconductor market
contracted dramatically in 1997 and 1998, but SITEK believes the market is
expanding in 1999. SITEK believes there is significant pressure, especially as a
result of the 1997-98 downturn in semiconductor demand, on semiconductor
manufacturers to reduce capital equipment acquisition costs by purchasing
pre-owned equipment rather than new equipment. Also resulting from the 1997-98
downturn, several semiconductor fabricating facilities have closed in the past
two years, putting an unusually high amount of pre-owned semiconductor
manufacturing equipment on the market. As a result, SITEK, through ATSI, has
been able to successfully acquire pre-owned equipment at favorable prices and
sell it to semiconductor manufacturers on a global basis. In the pre-owned
equipment market, SITEK's principal customer during the fiscal year ending March
31, 1999 was Philips N.V. in Europe.
SITEK has begun differentiating itself from the other participants in the
pre-owned equipment market by providing total equipment turnkey solutions in a
number of cases, which include both process and hardware qualification. This has
been done either through contracting with companies with equipment-specific
expertise or from internally developed capabilities specifically in diffusion,
low pressure chemical vapor deposition ("LPCVD") equipment and CMP equipment
markets. SITEK has focused on building a reputation for excellent service and
ethical business practices.
SITEK believes the CMP services market was created due to the high cost of
owning and operating CMP equipment making in-house CMP operations prohibitive
for some semiconductor manufacturers. SITEK believes that semiconductor
manufacturers are seeking reductions in costs of production. SITEK, through CMP
Solutions, intends to provide to semiconductor manufacturers a lower cost, high
quality source for CMP out-source production. This will allow semiconductor
manufacturers the ability to utilize CMP processing technology with no
expenditures for capital equipment and related facilitization. For semiconductor
manufacturers that desire in-house CMP processing capability, SITEK intends to
provide them with technical support for CMP process development a well as CMP
equipment upgrades to increase yields and reduce costs of production.
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MARKETING AND SALES
SITEK has relied upon a few sales employees to generate its revenues in the
pre-owned equipment market during fiscal year 1999. SITEK intends to expand its
sales and marketing staff significantly in fiscal year 2000. SITEK expects to
use a combination of its own sales and marketing staff along with independent
sales representative companies that SITEK believes have excellent relations with
its target market customers in their respective regional markets, such as Asia
and Europe. See Note 12 of the Consolidated Financial Statements for revenue by
country and segment.
Substantially all of SITEK's sales revenue was generated in Europe during
fiscal year 1999. However, SITEK invoices primarily in U.S. dollars. Therefore,
foreign currency exchange issues were not material for SITEK in fiscal year
1999.
Almost all of SITEK's sales revenues for the fiscal year ending March 31,
1999 was generated in the sale of pre-owned semiconductor equipment, supplies of
which may be sporadic in the future if the semiconductor industry improves and
fewer semiconductor companies close. See "Special Risks --Sporadic Supply of
Pre-owned Equipment." In addition, nearly all of the Company's pre-owned
semiconductor equipment sales were to a single customer, Phillips, N.V. A
reduction in orders could have a materially adverse effect on business. See
"Special Risks -- Dependence on Single Customer."
RESEARCH AND DEVELOPMENT
SITEK did not have any expenditures for product development in fiscal year
1999. SITEK expects to increase its product development expenditures in fiscal
year 2000. SITEK expects its first product development project to be an improved
CMP wafer carrier designed to improve yields from silicon wafers.
COMPETITION
PRE-OWNED EQUIPMENT
SITEK's competition in the pre-owned semiconductor fabrication equipment
market consists primarily of Comdisco, Inc., a large company that specializes in
financing new equipment and reselling pre-owned equipment, and semiconductor
fabrication OEMs such as Applied Materials, Inc. and Varian Semiconductor
Equipment Associates, Inc. However, several small pre-owned equipment brokerage
companies have recently begun operations as a result of: (i) the demand for
pre-owned equipment generated by semiconductor devices manufacturers attempting
to reduce their capital equipment expenditures; and (ii) a large supply of
pre-owned fabrication equipment currently on the market due to several
semiconductor fabrication facilities being closed in 1997 and 1998.
CMP SERVICES
There currently is no competition for SITEK, through CMP Solutions, in the
CMP services market - - other than the OEM demonstration labs doing CMP foundry
work. SITEK expects other competitors to enter the market during fiscal year
2000. SITEK intends to retain its leadership position in the CMP services market
by providing a comprehensive range of CMP services to all levels of end-users as
well as key CMP equipment suppliers.
INTELLECTUAL PROPERTY
SITEK believes that name recognition of its primary trade name "SITEK,
Incorporated" is important to its sales program. Although the "SITEK" name is
not available for federal trademark registration, SITEK has registered the
"SITEK" name as a trade name for exclusive use in the State of Arizona. However,
other companies may use or may already be using the SITEK name in other
jurisdictions. The Company owns no federal patents or trademarks.
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EMPLOYEES
As of March 31, 1999, SITEK employed nine people, all of whom were full-time
employees. Two employees were engaged in sales and service, two were full-time
employees engaged in administrative activities and five were production workers.
As of June 15, 1999, following the acquisition of VSM, the Company employed 39
employees. None of the employees is covered by a collective bargaining
agreement, and management believes that its relations with its employees are
good.
REPORTS TO SHAREHOLDERS
Although SITEK is not required by the Securities and Exchange Commission
rules or stock exchange requirements to send an annual report to stockholders
for fiscal year 1999, SITEK intends to send an annual report which will include
audited financial statements to stockholders.
ITEM 2. DESCRIPTION OF PROPERTY
SITEK currently subleases on a month-to-month basis from a company with
related officers approximately 2,251 square feet of executive office space at
1817 W. Fourth Street, Tempe, Arizona which lease will expire on December 31,
2000. The Company also leases 4,284 square feet used for office space and clean
room operations by its subsidiaries at 2450 W. 12th Street, Tempe, Arizona. This
lease expires on September 30, 2001. Subsequent to March 31, 1999, the Company
has leased an additional 2,804 square feet adjacent to this facility.
Management believes the facilities leased by SITEK are adequate for its
current and foreseeable future operations or that adequate alternative space is
readily available.
ITEM 3. LEGAL PROCEEDINGS
SITEK was named as a defendant in a lawsuit that was filed on April 1, 1999.
The lawsuit involves two separate claims by two plaintiffs; Edmond L. Lonergan
and Robert F. Russo, Jr. v. SITEK, Incorporated, et al., Superior Court for the
State of Arizona, County of Maricopa, Case No. CV 99-05785. The first plaintiff,
Edmond Lonergan, alleges that he was not paid for consulting services by Global
Semiconductor Technologies, Inc., a company controlled by certain shareholders
of SITEK. Mr. Lonergan also claims that Global Semiconductor Technologies, Inc.
and/or the other defendants misappropriated trade secrets in conducting the
reverse merger of Dentmart into SITEK. The second plaintiff, Robert Russo, Jr.,
was a former employee of Global Semiconductor Technologies, Inc. Mr. Russo
claims that he was wrongfully terminated. SITEK filed its answer denying these
allegations and intends to defend itself vigorously. Mr. Lonergan and Mr. Russo
have demanded the value of 1,000,000 shares of SITEK's capital stock and other
damages to be proven at trial in their complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1999.
PART II.
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
SITEK's common stock, $.005 par value, trades on the OTC Bulletin Board
under the symbol "SITK." However, because of the limited and sporadic nature of
SITEK's stock during the last fiscal year, SITEK does not believe an established
public trading market or an accurate trading per share price has been created
for SITEK's stock.
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The range of high and low bid quotations for the quarterly periods of the
current and prior fiscal years were as follows:
Year Ended March 31, 1999 High* Low*
- ------------------------- ----- ----
First Fiscal Quarter N/A (1) N/A (1)
Second Fiscal Quarter $ 7 $ 5
Third Fiscal Quarter $ 6 (2) $ 6 (2)
Fourth Fiscal Quarter $6.50 $5.50
Year Ended March 31, 1998 High* Low*
- ------------------------- ----- ----
First Fiscal Quarter N/A (1) N/A (1)
Second Fiscal Quarter N/A (1) N/A (1)
Third Fiscal Quarter N/A (1) N/A (1)
Fourth Fiscal Quarter N/A (1) N/A (1)
* Bid quotations as reported by the OTC Bulletin Board reflect inter-dealer
prices, without retail mark-up, mark-down, or commission and may not represent
actual transactions. Because of the limited and sporadic trading of SITEK's
stock, SITEK does not believe an established public trading market has been
created for the common stock.
(1) SITEK was formed in June 1998 and therefore its common stock had no trading
activity prior to that date.
(2) SITEK's trading activity in the third quarter was limited to one day's
trading, which accounts for the identical high and low bids for the third
quarter.
SITEK has never paid any cash dividends on its common stock, nor does it
anticipate paying dividends on its common stock in the foreseeable future. SITEK
currently has no preferred stock issued or outstanding.
The number of stockholders of record of SITEK's common stock as of June 15,
1999 was 557. This figure does not include individual participants in securities
position listings of registered clearing agencies. The number of beneficial
stockholders was approximately 550 as of June 15, 1999. Trading activity with
respect to the common stock has been limited and the volume of transactions
should not of itself be deemed to constitute an "established public trading
market." A public trading market having the characteristics of depth, liquidity
and orderliness depends upon the existence of market makers as well as the
presence of willing buyers and sellers, which are circumstances over which SITEK
does not have control.
During the fiscal year ending March 31, 1999 SITEK was involved in four
transactions involving the sale of unregistered securities. For each of the four
transactions listed below, SITEK claims an exemption from registration under
section 4 (2) of the Securities Act of 1933, because the transactions did not
involve any public offerings as described further below.
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1. On September 29, 1998 SITEK issued a series of convertible debentures in
the aggregate of $80,000 maturing on September 29, 2000 and bearing an interest
rate of 6% per year. The convertible debentures were sold in two allotments, the
first for $75,000 and the second for $5,000, solely to accredited investors. The
convertible debentures were sold for cash. The terms of the conversion are
described in Note 7 of the Consolidated Financial Statements. No underwriter was
involved in this transaction.
2. On October 29, 1998 the SITEK Board of Directors, for the purpose of
providing incentives to the outside members of the Board of Directors, voted in
favor of a grant of options to each of the outside members of the Board of
Directors. Each outside director would be granted an option for an aggregate of
100,000 shares of SITEK's common stock at a price of $1.00 per share with 25% of
the options vesting immediately on the date of the grant with the remaining
options vesting at a rate of 25% of the total on each anniversary of the grant
until all of the options had vested. To date these options have not yet been
issued to the outside directors. No underwriter was involved in this
transaction.
3. On January 1, 1999 the SITEK Board of Directors voted in favor of a
proposal to compensate each outside member of its Board of Directors with
$24,000 in the form of cash or SITEK common stock at a price of $1.00 per share
for past and future duties performed by the outside directors on behalf of
SITEK. No underwriter was involved in this transaction.
4. On February 5, 1999 in connection with certain financing provided by Cee
& Gee Funding, Inc., SITEK issued 2,500 shares of the Company's common stock to
Cee & Gee Funding, Inc.; 2,500 shares of the Company's common stock to Hayden
Stone Financial, Inc.; and a warrant to Cee & Gee Funding, Inc. dba TLD Funding
Group for up to 20,000 shares of the Company's common stock at a price of $6.00
per share. The warrant is exercisable anytime before February 5, 2004. No
underwriter was involved in this transaction.
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ITEM 6. SELECTED FINANCIAL DATA
Period from June 23, 1998,
date of inception, to March 31, 1999
(in thousands)
------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
Net sales $ 2,721
Gross profit 690
Operating expenses 1,341
Loss from operations (651)
Net (loss) (924)
CASH FLOW
Net cash (used in) operating activities (5,387)
Net cash (used in) investing activities (143)
Net cash provided by financing activities 5,532
BALANCE SHEET DATA
Cash 1
Total assets 7,380
Current liabilities 8,047
Long-term liabilities 254
Shareholders' deficit (921)
(LOSS) PER COMMON SHARE OUTSTANDING, BASIC AND DILUTED (0.08)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SITEK began operations on July 14, 1998 when it acquired all the outstanding
stock of CMP Solutions, Inc. (CMP). On July 24, 1998, all of the outstanding
stock of Advanced Technology Services, Inc. (ATSI) was
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contributed to SITEK as a wholly owned subsidiary. ATSI was formed on July 23,
1998. As SITEK is in its initial year of operations, there are no prior year
financial statements.
Net sales of $2,721,000 in the current fiscal year were principally due to
sales by ATSI of pre-owned semiconductor capital equipment, which resulted in a
gross profit of 25.4% of net sales.
CMP began initial operations late in the fiscal year and generated minimal
net sales. Engineering expenses of $426,000 were incurred primarily to set up
CMP cleanroom operations, install equipment and develop planarization
processes.
SITEK incurred $915,000 or 33.6% of net sales in selling, general and
administrative expense primarily relating to start-up activities and other
general business activities.
Interest expense of $277,000 or 10.2% of net sales relates to borrowings
mainly from TLD Funding Group. SITEK entered into a short-term note payable
agreement with TLD on March 15, 1999 for funds used to acquire substantially all
of the pre-owned semiconductor production equipment from a semiconductor plant
in Durham County, United Kingdom. The note includes $656,000 of financing fees,
which are amortized over the life of the loan. Payment is due on July 13, 1999.
A 5% penalty per month will be assessed on the outstanding balance if such
amount is not covered by a customer purchase order after the 91st day. If not
paid in full by 120 days, the outstanding balance will be assessed a monthly fee
of 5% until paid in full. The balance due on the note at March 31, 1999 is
$5,729,000.
In February, 1999, SITEK borrowed $207,000 from TLD under a line of credit,
which will expire on February 4, 2001. Interest is due monthly on the unpaid
balance at 1.5%. The line is personally guaranteed by two of SITEK's
shareholders and two related companies.
SITEK also has available a line of credit with TLD for amounts up to $1
million to be utilized to purchase equipment for resale. The line bears interest
on each advance at 1% of the advance amount for the initial 30 days and 2% per
month thereafter. SITEK also must pay a financing fee of 7% at the time of each
advance under the line. At March 31, 1999, SITEK owed $154,000 under this line
of credit.
Income taxes credits due on operating losses have been offset by a deferred
tax asset valuation allowance as management feels it is more likely than not the
deferred tax assets will not be realized.
SITEK owes $910,000 in Value Added Tax ("VAT") associated with the purchase
of the Durham County, UK inventory. The VAT will be refundable by the UK
government upon filing appropriate returns. This amount is reflected as both a
liability and a prepaid asset.
SITEK has sold convertible debentures totaling $80,000 during the fiscal
period. The debentures earn interest at the rate of 6% and may be converted into
SITEK's common stock at favorable terms or repaid in cash after 90 days from
purchase through 24 months at which time they mature. The debentures are subject
to mandatory conversion to common stock after 24 months.
Advances from a shareholder and a related company have been received by
SITEK, of which $388,000 is outstanding on March 31, 1999.
PLAN OF OPERATIONS
As SITEK's predecessors were dormant until April, 1998 and did not have any
revenues from operations in any of the last three fiscal years, the following is
management's discussion of SITEK's plan of operations for the next
12 months.
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SITEK began operations on July 14, 1998 with one operating subsidiary, CMP
Solutions, and acquired all of the outstanding stock of a second operating
subsidiary, ATSI, on July 24, 1998. Both subsidiaries had no activities prior to
these dates.
ATSI commenced its marketing efforts with sales revenues coming mostly from
sales to one customer. In March, 1999, ATSI purchased substantially all of the
pre-owned semiconductor production equipment from a semiconductor plant in the
United Kingdom. As a result, SITEK expects ATSI net revenues from equipment
resale operations during the fiscal year ending March 31, 2000 to significantly
exceed revenues earned in the current fiscal period.
During the fiscal year, CMP continued in the development phase and made
efforts in initial marketing activities as well as in building its silicon wafer
processing clean room facility. CMP had minimal revenues during the current
fiscal year due to start-up activities. SITEK expects continued development and
facilitization expenses for CMP during the next 12 months and anticipates CMP
revenues to commence in the second half of its fiscal year ending March 31,
2000.
On April 28, 1999, SITEK purchased all the outstanding shares of VSM
Corporation ("VSM") for $1,000,000, of which $50,000 had been paid prior to
March 31, 1999, in cash and for $200,000 to settle an outstanding liability to
the current shareholders of the target company. VSM is located in Tempe, Arizona
and is engaged in the manufacture and/or refurbishment of semiconductor process
equipment and subassemblies. The VSM ultra-pure gas and chemical handling
systems have wide applications in wafer manufacturing operations and plant
facilities. VSM has recently introduced a proprietary furnace system that is
utilized in the fabrication of nonvolatile semiconductor memory circuits and
other devices.
SITEK has hired advanced development engineers and intends to develop a new
CMP wafer carrier, which is expected to improve customer device yields. The
carrier head is anticipated to be available for initial beta site sales in the
second quarter of fiscal 2000 with production versions available in the third
quarter of fiscal 2000.
During the next 12 months, SITEK expects to engage in funding efforts and
acquisitions, complete CMP's manufacturing facilities, increase ATSI's revenues,
introduce the new carrier head product, and develop VSM's business. SITEK 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, SITEK shares office space and staff with GST and
ACT. All expenditures to date between the companies have been treated as loans
to or from these entities.
SITEK plans to raise additional capital during the next 12 months with a
private placement of up to $ 3 million in convertible debentures which earn
interest at 9.5% and are convertible into SITEK's common stock based upon a
formula, but in no case at a price per share lower than $3.50 or higher than
$5.00. SITEK also expects a possible private placement and/or public offering of
an undetermined number of shares of SITEK capital stock. SITEK intends to apply
any such additional capital to product development, equipment, and corporate
acquisitions in addition to working capital requirements above those funded from
operations.
FUNDING REQUIREMENTS
SITEK believes it will need additional capital during the next 12 months to
meet its funding needs, including repayment of debt obligations when due, future
acquisitions, product development, and the continued costs of compliance with
reporting requirements of the Securities Exchange Act of 1934. CMP will need
additional funding before it is able to generate material revenues. There is no
assurance that SITEK will be able to attract additional capital or that the
funds, if acquired, will be sufficient to complete and integrate the
acquisitions of GST or ACT, or to meet SITEK's product development or operating
capital requirements.
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Neither management nor other of SITEK's shareholders has made commitments to
provide additional funds to SITEK. Accordingly, there can be no assurance that
any additional funds will be available to SITEK to allow it to cover its capital
needs. Management has a contingency plan to allow SITEK to sustain itself
without additional funding. However, the success of this plan depends upon: (i)
ATSI retaining its market position and substantially increasing its sales
revenues in fiscal 2000; (ii) CMP reaching production status and attracting
customers with minimal funding; (iii) VSM generating sufficient revenues to fund
its operations; and (iv) ACT and GST generating approximately $ 1.0 million in
revenues during fiscal 2000, assuming SITEK acquires ACT and GST.
Irrespective of whether SITEK's cash assets meet SITEK's operational capital
needs during the next 12 months, SITEK might compensate providers of services by
issuances of SITEK's common stock in lieu of cash.
EXPECTED PURCHASES OF SIGNIFICANT EQUIPMENT
Depending on market conditions, demand, and the availability of funding,
SITEK expects to purchase approximately $1,000,000 worth of certain silicon
wafer processing and metrology equipment during fiscal year 2000. SITEK believes
this equipment will materially increase the likelihood of SITEK's efforts to
develop improved CMP processes as well as expand capacity at its CMP foundry and
engineering/manufacturing services operation.
During the next 12 months, SITEK expects to update business and
manufacturing systems for all aspects of SITEK. To conserve cash, SITEK may
elect to lease rather than purchase these systems.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. Statement No. 133 requires that an
enterprise recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
statement is effective for the Company's fiscal year ending March 31, 2001. The
Company has not completed evaluating the impact of implementing the provisions
of Statement No. 133.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 Compliance issue. As the
Year 2000 approaches, such systems may be unable to accurately process certain
data-based information.
Most of SITEK's currently installed computer systems and software products
have been updated and made Year 2000 compliant.
SITEK 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 Year 2000
compliance, and in many cases apply corrections to the PC system or its
software. SITEK has begun certifying all PC systems under its control. All
accounting programs and the PC system hardware have been upgraded and made Year
2000 compliant. Approximately 20 percent of the Company's word processing and
spreadsheet software applications continue to use the two-digit date code and
are not Year 2000 compliant. Software upgrades for these programs are available
at a cost of approximately $500. The Company intends on purchasing the upgrades
and plans to have all its software Year 2000 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 SITEK's
computers or equipment Year 2000 compliant in a timely manner or that allocated
resources will be sufficient. A failure to become Year 2000 compliant on its
computers or equipment could disrupt materially SITEK's operating results and
financial condition.
10
<PAGE>
Because there are a large number of potential vendors and customers for
pre-owned semiconductor equipment and because the Year 2000 compliance of these
potential vendors and customers is unknown and is unreasonably burdensome to
ascertain, SITEK is unable to determine the impact, if any, of Year 2000
compliant issues on its pre-owned semiconductor equipment sales. If SITEK is
unable to address its Year 2000 compliance successfully or in a timely fashion,
the Company may need to devote more resources to the process and additional
costs may be incurred.
SPECIAL RISKS
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 SITEK 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.
Developments in any of these areas, which are more fully described elsewhere
in "Item 1. Description of Business" which is incorporated into this section by
reference, could cause SITEK' s results to differ materially from results that
have been or may be projected by or on behalf of SITEK.
SITEK cautions that the foregoing list of important factors is not
exclusive. SITEK does not undertake to update any forward-looking statement that
may be made from time to time by or on behalf of SITEK.
NEED FOR ADDITIONAL FINANCING. SITEK has limited funds, and such funds may
not be adequate to take advantage of any available business opportunities. Even
if SITEK's funds prove to be sufficient to acquire an interest in, or complete a
transaction with, a business opportunity, SITEK may not have enough capital to
exploit the opportunity. SITEK's ultimate success may depend upon its ability to
raise additional capital. SITEK has not investigated the availability, source,
or terms that might govern the acquisition of additional capital and will not do
so until it determines a need for additional financing. If additional capital is
needed, there is no assurance that funds will be available from any source or,
if available, that they can be obtained on terms acceptable to SITEK. If not
available, SITEK's operations will be limited to those that can be financed with
its modest capital.
REGULATION OF PENNY STOCKS. SITEK's securities are subject to a Securities
and Exchange Commission rule that imposes special sales practice requirements
upon broker-dealers who sell such securities to persons other than established
customers or accredited investors. For purposes of the rule, the phrase
"accredited investors" means, in general terms, institutions with assets in
excess of $5,000,000, or individuals having a net worth in excess of $1,000,000
or having an annual income that exceeds $200,000 (or that, when combined with a
spouse's income, exceeds $300,000). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Consequently, the rule may affect the ability of broker-dealers to sell
SITEK's securities and also may affect the ability of purchasers in this
offering to sell their securities in any market that might develop therefor.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, and 15g-7 under the Securities Exchange Act of 1934.
Because SITEK's securities constitute "penny stocks" within the meaning of the
rules, the rules apply to SITEK and to its securities. The rules may further
affect the ability of owners of shares to sell SITEK's securities in any market
that might develop for them.
11
<PAGE>
Stockholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include: (i)
control of the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press
releases; (iii) "boiler room" practices involving high-pressure sales tactics
and unrealistic price projections by inexperienced sales persons; (iv) excessive
and undisclosed bid-ask differentials and markups by selling broker-dealers; and
(v) the wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor losses. SITEK's
management is aware of the abuses that have occurred historically in the penny
stock market. Although SITEK does not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to SITEK's
securities.
LIMITED OPERATING HISTORY. SITEK's predecessor was formed in April 1989, but
had no operations for several years before July 1998. Therefore, SITEK has
limited operating history, revenues from operations, or assets other than cash
from sales of stock. SITEK faces all of the same risks as a new business and the
special risks inherent in the investigation, acquisition, or involvement in a
new business opportunity. SITEK must be regarded as a developmental stage
company with all of the unforeseen costs, expenses, problems, and difficulties
to which such ventures are subject.
SPORADIC SUPPLY OF PRE-OWNED EQUIPMENT. During the fiscal year ending March
31, 1999 most all of SITEK's revenues were generated by its subsidiary involved
in the sale of pre-owned semiconductor equipment. However, the availability of
pre-owned semiconductor equipment is sporadic and determined in part by the age
of semiconductor equipment currently used by companies in the industry
semiconductor companies' decision to sell their capital equipment, both factors
which are beyond the control of SITEK. A material reduction in the availability
of pre-owned semiconductor equipment may have a material adverse effect on
SITEK's business, financial condition, and the results of operations.
NO FORESEEABLE DIVIDENDS. SITEK has not paid dividends on its stock and does
not anticipate paying such dividends in the foreseeable future.
LOSS OF CONTROL BY PRESENT MANAGEMENT AND STOCKHOLDERS. SITEK may consider
an acquisition in which it would issue as consideration for the business
opportunity to be acquired an amount of SITEK's authorized but unissued common
stock that would, upon issuance, represent the great majority of the voting
power and equity of SITEK. The result of such an acquisition would be that the
acquired company's stockholders and management would control SITEK, and SITEK's
management could be replaced by persons unknown at this time. Such a merger
would result in a greatly reduced percentage of ownership of SITEK by its
current shareholders.
LIMITED PUBLIC MARKET. There is a limited public market for SITEK's common
stock, and no assurance can be given that a market will develop or that a
shareholder ever will be able to liquidate his investment without considerable
delay, if at all. If a market should develop, the price may be highly volatile.
Factors such as those discussed in this "Risk Factors" section may have a
significant impact upon the market price of the securities offered hereby. Owing
to the low price of the securities, many brokerage firms may not be willing to
effect transactions in the securities. Even if a purchaser finds a broker
willing to effect a transaction in these securities, the combination of
brokerage commissions, state transfer taxes, if any, and any other selling costs
may exceed the selling price. Further, many lending institutions will not permit
the use of such securities as collateral for any loans.
ABSENCE OF PROFITS. SITEK has not and may not become profitable for some
time or not at all. In order to become profitable, SITEK must, among other
things, achieve sufficient sales to cover operating costs. In order to increase
sales, SITEK must continue to organize its sales force, attract more sales
people and create a market awareness of SITEK and its products and services.
Failure to achieve these requirements would have an adverse effect on SITEK.
12
<PAGE>
DEPENDENCE ON SINGLE CUSTOMER. Approximately $2.6 million, or 96%, of our
revenues in the fiscal year ended March 31, 1999 were generated from sales to
one customer. We cannot be certain that this significant customer will order as
much product in 1999 as we anticipate. A reduction in orders from our principal
customer or a failure to receive significant purchase commitments from
prospective customers could hinder our anticipated growth and may have a
material adverse effect on our business, financial condition and results of
operations.
COMPETITION. There are other companies in both the CMP services and
pre-owned semiconductor equipment businesses which may be better funded and/or
better established than SITEK.
RELIANCE ON KEY EXECUTIVES. SITEK's success depends on the efforts of Dr.
Don M. Jackson, Jr. , Chief Executive Officer; Julian Gates, President of ATSI;
Paul Jackson, Secretary of Sitek; and Mark Simon, President of CMP Solutions,
Inc. Dr. Jackson has been the key individual responsible for financing for the
development of SITEK. Mr. Gates has been primarily responsible for sales
activities of ATSI that consisted of nearly all of SITEK's revenues during the
fiscal year ended March 31, 1999. Messrs. Paul Jackson and Mark Simon were,
along with Dr. Don Jackson, co-founders of CMP Solutions, Inc. SITEK believes
its relationships with these individuals are good. However, it cannot ensure
that the services of these individuals will continue to be available to us in
the future as each individual's employment is "at will."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk that losses may occur in the values of
financial instruments as a result of movements in interest rates, foreign
currency exchange rates and commodity prices.
Interest Rate Risk - The company's primary market risk exposure for changes in
interest rates relates to the company's long-term debt obligations. The company
currently has short-term debt with an effective interest rate of 38% which is
due July 13, 1999. In the event the note is not repaid at the due date, a 5%
penalty will be assessed on the outstanding balance every 30 days. Assuming a $2
million outstanding balance at July 13, 1999 the company would owe $100,000 in
penalty payments. This assessment would continue on the 13th day of each month
thereafter until the note is paid off.
The company evaluated the potential effect that near term changes in interest
rates would have had on the fair value of its interest rate risk sensitive
financial instruments at year-end. Since the company's current debt has high
interest rates, any near term changes in interest rates would not have a
material adverse affect.
Foreign Exchange Rate Risk - The company conducts business in various parts of
the world and in various foreign currencies. As of March 31, 1999, the company
did not have any material foreign currency transactions. The company expects to
have foreign currency exchange rate risk in the future.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Page
Report of Independent Certified Public Accountants.......................... F-1
Financial Statements:
Consolidated Balance Sheet as of March 31, 1999........................... F-2
Consolidated Statements of Operations for
the period from June 23, 1998, date of inception,
to March 31, 1999....................................................... F-4
Consolidated Statements of Stockholders' Deficit for
the period from June 23, 1998, date of inception,
to March 31, 1999....................................................... F-5
Consolidated Statements of Cash Flows for
the period from June 23, 1998, date of inception,
to March 31, 1999....................................................... F-6
Notes to Consolidated Financial Statements................................ F-8
Schedules other than those listed above have been omitted because they are
either not required, inapplicable, or the required information is included in
the Consolidated Financial Statements or notes thereto.
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Effective November 30, 1998, Gerald R. Perlstein, CPA ("Perlstein"), SITEK,
Incorporated's (the "Registrant") principal independent accountant, resigned.
Perlstein's report on the Registrant's financial statements for either of the
past two years did not contain an adverse opinion or disclaimer of opinion, and
was not qualified or modified in any manner. During the Registrant's two most
recent fiscal years, and the subsequent quarters preceding Perlstein's
resignation, there were no disagreements with Perlstein on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope of procedure.
Effective December 1, 1998, the Registrant engaged McGladrey & Pullen, LLP
("McGladrey") as its new independent accountant to audit its financial
statements. Registrant's Audit Committee recommended the appointment of
McGladrey.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Under the securities laws of the United States, SITEK's directors, its
executive officers, and any persons holding more than 10% of SITEK's common
stock are required to report their initial ownership of SITEK's common stock and
any subsequent changes in that ownership to the Securities and Exchange
Commission. Specific due dates for these reports have been established, and
SITEK is required to disclose any failure to file by these dates. SITEK believes
that all of these filing requirements were not satisfied during the fiscal year
ended March 31, 1999. In making these disclosures, SITEK has relied solely on
written representations of its directors and executive officers and copies of
the reports that they have filed with the Commission.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the directors and
executive officers of the Company and certain subsidiaries:
Name Age Title
- ---- --- -----
Dr. Don M. Jackson, Jr. 64 Chairman of the Board, President,
and Chief Executive Officer
Maurice McGill (1) 62 Director
L. Richard Myers (1) 67 Director
Dan Shunk (1) 51 Director
Paul Jackson 40 Secretary
Mark Simon 35 President of CMP Solutions, Inc.
Julian Gates 28 President of Advanced Technology
Services, Inc.
(1) Member of the Audit and Compensation Committees.
15
<PAGE>
DR. DON M. JACKSON, JR. is one of the founders of CMP Solutions, Inc.
and has served as Chairman of the Board, President, and Chief Executive Officer
since the inception of SITEK, Incorporated operations. Dr. Jackson joined the
company after an extensive career in various executive positions in technology
companies such as ASM America, Inc., Superwave Technology, Inc., Microelectronic
Packaging, Inc., Integrated Process Equipment Corporation, Westech Systems,
Inc., Global Semiconductor Technologies, L.L.C., and Motorola. Dr. Jackson holds
a Ph.D. from Arizona State University in Electrical Engineering. Dr. Jackson
presently also is a director of Flexpoint Sensor Systems, Inc. in Midvale, Utah
and M&I Thunderbird Bank in Phoenix, Arizona.
MAURICE MCGILL became a Director of SITEK, Incorporated when it began
operations in 1998. Mr. McGill is the Chairman of the Audit Committee. He
presently serves as a Director of Bluebonnet Savings Bank and Premium Standard
Farms, Inc. Mr. McGill held the positions of Executive V.P., CFO, and Director
of IBP, Inc. in Dakota City, Nebraska from which he retired in 1988. Mr. McGill
previously served as a Partner and National Director of Services for the meat
industry for Touche Ross & Co. in Phoenix, Arizona. He holds a BS in accounting
and business administration from the University of Missouri and is a CPA.
L. RICHARD MYERS has been a Director of SITEK, Incorporated since
inception of its operations and serves as the Chairman of the Compensation
Committee. He is a retired Rear Admiral of the U.S. Navy and formerly was the
Commanding Officer of the USS John F. Kennedy. Mr. Myers served as Team Leader
on President Reagan's Private Sector Study formed to reduce waste in government
spending. He holds a MS in International Affairs from American University and a
BA in Business Administration and Economics from Fresno State College.
DR. DAN SHUNK became a Director of SITEK, Incorporated when it began
operations. Dr. Shunk is an Associate Professor of Engineering at Arizona State
University and formerly functioned as its CIM Systems Research Center Director.
He previously has held various executive and management positions in GCA
Corporation, International Harvester, and Rockwell. Dr. Shunk has received
several awards including the SME International Manufacturing Education Award in
1996 and Industrial Engineering Faculty of the Year Award in 1991. He received
his Ph.D. in Industrial Engineering from Purdue University.
PAUL JACKSON is a founder of CMP Solutions, Inc. and serves as
Secretary to SITEK, Incorporated. Mr. Jackson was employed as the Executive V.P.
and General Manager of Global Semiconductor Technologies and previously held the
position of V.P. of Advanced Technology at Integrated Process Equipment
Corporation. He has also served in various management and engineering positions
at McDonald Douglas Corporation. Mr. Jackson holds a BS in Aerospace Engineering
from the University of Kansas. Paul Jackson is the son of Dr. Don M. Jackson,
Jr.
MARK SIMON is a founder of CMP Solutions, Inc. and currently serves as
its President. Mr. Simon previously held several management positions at
Integrated Process Equipment Corporation in the field operations and process
engineering areas. Mr. Simon holds an AS degree in Electro Mechanical Technology
from St. Phillips College in San Antonio, TX.
JULIAN GATES is the President of Advanced Technology Services, Inc. and
a founder of CMP Solutions, Inc. Mr. Gates previously was the President of
Alternative Technical Services, Inc. and a Vice President of European
Semiconductor, Inc. He holds a BS degree in Business Administration from Chapman
University.
Information in response to this Item is incorporated by reference to
(i) the biographical information relating to the Company's directors under the
caption "Election of Directors" and the information relating to Section 16
compliance under the caption, "Section 16(a) Beneficial Ownership Reporting
Compliance" in SITEK's definitive Proxy Statement for its Annual Meeting of
Stockholders to be held September 28, 1999 (the "Proxy Statement.") SITEK
anticipates filing the Proxy Statement within 120 days after March 31, 1999.
16
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation" and
"Compensation of Directors" in the Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the heading "Voting Securities and Principal
Holders Thereof - Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Certain Transactions" in the Proxy
Statement is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(a) FINANCIAL STATEMENTS
(b) REPORTS ON FORM 8-K.
None.
(c) EXHIBITS
See the Exhibit Index immediately following the signature page of
this report, which Index is incorporated herein by reference.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: July 14, 1999 By /s/ Don M. Jackson, Jr.
-------------------------------------
Dr. Don M. Jackson, Jr.
President
By /s/ Gloria Zemla
-------------------------------------
Gloria Zemla
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Don M. Jackson, Jr. Director July 14, 1999
- ---------------------------
Dr. Don M. Jackson, Jr.
/s/ Daniel L. Shunk Director July 14, 1999
- ---------------------------
Dr. Daniel L. Shunk
/s/ Maurice McGill Director July 14, 1999
- ---------------------------
Mr. Maurice McGill
S-1
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION INCORPORATED BY REFERENCE TO:
- ----------- ----------- -----------------------------
2.1 A copy of the Certificate of Form 8-K filed with the SEC on
Ownership and Merger merging August 17, 1998
DentMart into SITEK, including
the Plan and Agreement of Merger
2.2 A copy of the Articles of Merger Form 8-K filed with the SEC on
or Share Exchange filed in the August 17, 1998
State of Colorado
3.1 Articles of Incorporation of Form 8-K filed with the SEC on
Registrant August 17, 1998
3.2 Bylaws of Registrant Form 10-K filed with the SEC
on April 17, 1998
10.1 A copy of the Exchange Agreement Form 8-K filed with the SEC on
August 17, 1998
10.2 A copy of the Registration Form 8-K filed with the SEC on
Rights Agreement August 17, 1998
10.3 Equipment Lease dated February Form 10-Q Filed with the SEC
5, 1999, as Amended on February 26, 1999
10.4 Line of Credit Agreement with Filed herewith
TLD Funding Group dated
February 5, 1999
10.5 Finance Agreement with Filed herewith
TLD Funding Group dated
March 19, 1999
10.6 $5.2 million Promissory Note and Filed herewith
Equipment Finance Agreement
dated March 11, 1999
10.7 Amendment to Equipment Finance Filed herewith
Agreement
10.8 Warrant Agreement Filed herewith
16.1 Letter from Gerald R. Perlstein, Form 8-K filed with the SEC on
C.P.A. to Securities and December 7, 1998
Exchange Commission regarding
resignation as Registrant's
principal accountant
16.2 Resignation Letter from Filed herewith
Gereld R. Perlstein to SITEK
Board of Directors
21.1 Subsidiaries Filed herewith
27.1 Financial Data Schedule Filed herewith
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Audit Committee
SITEK, Incorporated and Subsidiaries
(A Development Stage Company)
Tempe, Arizona
We have audited the accompanying consolidated balance sheet of SITEK,
Incorporated and Subsidiaries (A Development Stage Company) as of March 31,
1999, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for the period from June 23, 1998 (date of inception) to
March 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SITEK, Incorporated
and Subsidiaries (A Development Stage Company) as of March 31, 1999, and the
results of their operations and their cash flows for the period from June 23,
1998 (date of inception) to March 31, 1999, in conformity with generally
accepted accounting principles.
Phoenix, Arizona
May 28, 1999
F-1
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
ASSETS
- --------------------------------------------------------------------------------
CURRENT ASSETS
Cash $ 863
Accounts receivable (NOTE 11) 207,934
Related party receivables (NOTE 14) 58,161
Inventory (NOTES 2, 5 AND 6) 5,389,000
Prepaid financing fees (NOTE 6) 568,533
Prepaid VAT (NOTE 2) 910,000
Prepaid expenses and other assets, including $3,000
employee advance 117,592
----------
Total current assets 7,252,083
----------
LEASEHOLD IMPROVEMENTS AND EQUIPMENT, net of
accumulated depreciation and amortization (NOTES 3 AND 4) 90,707
----------
DEPOSITS 37,466
----------
$7,380,256
==========
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
- --------------------------------------------------------------------------------
Current liabilities
Line of credit (NOTE 5) $ 154,000
Convertible debentures (NOTE 7) 80,000
Advances from related parties (NOTE 14) 388,418
Notes payable (NOTE 6) 5,745,510
Accounts payable 268,774
Customer deposits 171,250
Accrued expenses, including $72,000 in directors fees 183,080
Accrued expense - promoter/stockholder (NOTE 14) 125,000
VAT payable (NOTE 2) 910,000
Deferred revenue (NOTE 4) 20,644
-----------
Total current liabilities 8,046,676
-----------
Deferred revenue, long-term portion (NOTE 4) 37,848
-----------
Deferred rent payable (NOTE 10) 9,367
-----------
LINE OF CREDIT (NOTE 5) 207,181
-----------
COMMITMENTS AND CONTINGENCIES (NOTES 10, 13 AND 15)
STOCKHOLDERS' DEFICIT (NOTES 5, 7 AND 8)
Preferred stock, $.01 par value, 2,000,000 shares authorized,
none issued --
Common stock, $.005 par value, 50,000,000 shares authorized,
12,230,813 shares issued and outstanding, 5,000 shares
issuable (NOTE 5) 61,179
Additional paid-in capital 2,475
Deficit accumulated during the development stage (984,470)
-----------
(920,816)
-----------
$ 7,380,256
===========
F-3
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM JUNE 23, 1998, DATE OF INCEPTION, TO MARCH 31, 1999
Period from
June 23, 1998,
date of
inception, to
March 31, 1999
- --------------------------------------------------------------------------------
Net sales (NOTE 11) $ 2,720,898
Cost of goods sold 2,030,900
------------
Gross profit 689,998
------------
Operating expenses (NOTES 4 AND 14):
Selling, general and administrative 915,109
Engineering 425,828
------------
1,340,937
------------
(Loss) from operations (650,939)
------------
Other income (expense):
Interest expense and financing costs (277,177)
Gain on sale of equipment and miscellaneous income 3,800
------------
(273,377)
------------
Net (loss) $ (924,316)
============
(Loss) per common share, basic and diluted $ (0.08)
============
Weighted average shares outstanding, basic and diluted 11,396,001
============
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
PERIOD FROM JUNE 23, 1998, DATE OF INCEPTION, TO MARCH 31, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Common stock Additional during the
------------------------ paid-in development
Shares Amount capital stage Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of stock, June 23, 1998 1,000,000 $ 1,000 $ -- $ -- $ 1,000
Effect of merger/recapitalization 11,230,813 60,154 -- (60,154) --
Stock issuable for services (NOTE 5) 5,000 25 2,475 -- 2,500
Net (loss) -- -- -- (924,316) (924,316)
---------- ---------- ---------- ---------- ----------
Balance, March 31, 1999 12,235,813 $ 61,179 $ 2,475 $ (984,470) $ (920,816)
========== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JUNE 23, 1998, DATE OF INCEPTION, TO MARCH 31, 1999
Period from
June 23, 1998,
date of
inception, to
March 31, 1999
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (924,316)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Amortization of prepaid financing fees 87,467
Depreciation and amortization 18,998
Gain recognized on sale leaseback transaction (3,441)
Stock issuable for services 2,500
Deferred rent expense 9,367
Changes in assets and liabilities:
Accounts receivable (207,934)
Inventory (5,389,000)
Prepaid expenses and other assets (117,592)
Advances from related parties 388,418
Accounts payable 268,774
Customer deposits 171,250
Accrued expenses 308,080
-----------
Net cash (used in) operating activities (5,387,429)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Related party advances (58,161)
Proceeds from sale leaseback transaction 792,819
Purchase of leasehold improvements and equipment,
$340,000 from a stockholder (NOTE 4) (840,591)
Payments on deposits (37,466)
-----------
Net cash (used in) investing activities (143,399)
-----------
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
PERIOD FROM JUNE 23, 1998, DATE OF INCEPTION, TO MARCH 31, 1999
Period from
June 23, 1998,
date of
inception, to
March 31, 1999
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on lines of credit $ 361,181
Proceeds from issuance of convertible debentures 80,000
Issuance of common stock 1,000
Repayment of notes payable (850,490)
Proceeds from notes payable 5,940,000
-----------
Net cash provided by financing activities 5,531,691
-----------
Net increase in cash 863
Cash, beginning of period --
Cash, end of period $ 863
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for interest $ 162,462
===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Financing costs $ 656,000
===========
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
SITEK, Incorporated and Subsidiaries (the Company) plan to be engaged in
providing engineering and manufacturing services to the semiconductor industry.
The Company also buys and sells pre-owned semiconductor processing and
manufacturing equipment to the worldwide market of semiconductor companies.
During its development stage, the Company has been raising capital, establishing
the infrastructure, acquiring equipment, setting up a clean room and obtaining
loans. The Company sales relate primarily to the equipment resale operations. It
is still devoting substantial efforts to establishing the business.
REORGANIZATION:
On July 14, 1998, Dentmart Group, Inc., (Dentmart) an inactive public reporting
entity, was merged into its wholly-owned subsidiary SITEK, Incorporated (SITEK),
with SITEK as the surviving corporation. Each stockholder of Dentmart received
one share of SITEK's common stock for every 1.65 shares of Dentmart's common
stock resulting in 3,030,273 shares of SITEK's common shares outstanding.
On July 14, 1998, a share exchange agreement between SITEK, Incorporated (SITEK)
and CMP Solutions, Inc. (CMP) occurred resulting in CMP being a 100%
wholly-owned subsidiary of SITEK. SITEK acquired all of the issued and
outstanding shares of CMP in exchange for 9,200,000 shares of SITEK common
stock. CMP was incorporated on June 23, 1998 and had no activity prior to the
merger. For accounting purposes, this transaction has been accounted for as a
reverse acquisition with CMP being treated as the accounting acquirer and no
step up in basis of the assets. In connection with the share exchange agreement,
the stockholders have the right to require their stock to be registered in
conjunction with another future registration of the Company's common stock.
On July 24, 1998, two stockholders contributed all of the outstanding stock of
Advanced Technology Services, Inc. (ATSI) as a 100% wholly-owned subsidiary of
SITEK. ATSI had no activity prior to the merger.
A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES FOLLOWS:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the amounts of SITEK and its
wholly owned subsidiaries, Advanced Technology Services, Inc. (ATSI) and CMP
Solutions, Inc. (CMP). All material intercompany accounts and transactions have
been eliminated in consolidation.
INVENTORY:
Inventory consist of equipment held for resale and is stated at the lower of
cost (specific identification method) or market.
F-8
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREPAID FINANCING FEES:
Prepaid financing fees represent additional costs incurred by the Company to
borrow funds. Prepaid financing fees are amortized over the term of the debt.
LEASEHOLD IMPROVEMENTS AND EQUIPMENT:
Leasehold improvements and equipment are stated at cost. The equipment is being
depreciated over its useful life, which is estimated to be between three and
five years. Leasehold improvements are depreciated over the shorter of the lease
term or the estimated useful lives of the improvements. Depreciation and
amortization is computed using the straight-line method.
INCOME TAXES:
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying values of cash, accounts receivable, accounts payable and notes
payable approximate fair values due to the short-term maturities of these
instruments.
LOSS PER COMMON SHARE:
Basic loss per common share is computed by dividing the loss attributable to the
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted loss per share is computed using the weighted average
number of shares of common stock outstanding plus the dilutive effect of any
stock options or warrants. The effect of the options and warrants have not been
included in the computation of diluted loss per common share because their
inclusion would have had an anti-dilutive effect.
F-9
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, the FASB issued Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. Statement No. 133 requires that an
enterprise recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
statement is effective for the Company's fiscal year ending March 31, 2001. The
Company has not completed evaluating the impact of implementing the provisions
of Statement No. 133.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NOTE 2. VALUE ADDED TAX
In connection with the Company's purchase of $5,200,000 of inventory in the
United Kingdom they are liable for $910,000 in Value Added Tax (VAT). The tax
will be paid back to the Company. This amount is recorded as both a liability
and a prepaid asset. As of March 31, 1999, this inventory was located in the
United Kingdom.
NOTE 3. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment as of March 31, 1999 consists of the
following:
Leasehold improvements $ 70,151
Machinery and equipment 34,770
---------
104,921
Less accumulated depreciation and amortization 14,214
---------
$ 90,707
=========
F-10
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. SALE LEASEBACK TRANSACTION
During 1999, the Company sold several pieces of equipment for $792,819 to TLD
Funding Group realizing a gain of $61,993. Simultaneous with the sale, the
Company entered into an agreement to lease back the equipment for a term of
three years under a noncancelable operating lease. The future minimum lease
payments are included in the total future commitments at Note 10. The gain
resulting from the sale has been recorded as deferred revenue and is being
amortized over the lease term. Included as a deferred item in liabilities is the
unamortized balance of $58,492 at March 31, 1999.
Prior to the sale leaseback transaction the Company leased a portion of this
equipment from a stockholder for six months at a total cost of $42,000. At the
end of the six months the Company purchased equipment for $340,000 from the
stockholder.
NOTE 5. LINES OF CREDIT
The Company has borrowings available under terms of a line of credit with TLD
Funding Group expiring March 2000, with maximum borrowings of $1,000,000.
Borrowings under this agreement must be utilized to purchase equipment for
resale, and bears interest at 1% of the advanced amount for the first 30 days
and 2% monthly of the advanced amount, thereafter. The Company must pay
additional financing fees of 7% for each advance at the time of payment by the
vendor. The line of credit is secured by the purchased equipment for resale.
Outstanding borrowings under this agreement were $154,000 at March 31, 1999.
The Company also has borrowings available under terms of a line of credit with
TLD Funding Group expiring February 4, 2001, with maximum borrowings of $207,181
at any time on or before February 4, 2001. Interest is due monthly on the unpaid
balance at 1.5%. The collateral for this line of credit consists of the personal
guarantee of two stockholders and two related companies. Outstanding borrowings
under this agreement were $207,181 at March 31, 1999.
As additional consideration, the Company granted TLD Funding Group warrants to
purchase 20,000 shares of its common stock at an option price of $6 per share.
The warrants are exercisable immediately anytime before February 5, 2004. No
warrants were exercised during the period ended March 31, 1999. The Company also
approved a grant to TLD Funding Group of 5,000 shares of stock for services in
1999. The shares have not been issued as of March 31, 1999.
F-11
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. NOTES PAYABLE
A summary of the Company's notes payable and collateral pledged thereon
consisted of the following at March 31, 1999:
Note payable, lending group, interest payable at 2%
every 10 days, due upon receipt of funds from customer,
secured by the equipment purchased for resale. $ 17,000
120 day short term note payable, TLD Funding Group,
outstanding balance due July 13, 1999, effective
interest rate of 38%; collateralized by inventory. The
note payable includes $656,000 of financing fees which
are being amortized over the life of the loan. A 5%
monthly penalty will be assessed on the outstanding
balance due if any amount is not covered by a purchase
order after the 91st day. In the event the note is not
repaid at the due date, the 5% monthly penalty will be
assessed. The two 5% penalties are not cumulative but
are assessed every 30 days on outstanding balance. 5,728,510
-----------
$ 5,745,510
===========
NOTE 7. CONVERTIBLE DEBENTURES
At March 31, 1999, the Company has convertible debentures of $80,000. A relative
of a stockholder purchased $75,000 of the total convertible debentures. The
debentures are convertible into the Company's common stock at anytime after 90
days from purchase through their maturity date, 24 months subsequent to the date
of purchase. Also, the debentures bear interest at 6%, payable annually on the
anniversary date. The debentures, plus accrued interest, are convertible in cash
or common stock at the option of the purchaser. If paid in common stock, the
debentures are convertible into common stock at the lessor of (a) 80% of the
five day average closing bid price, as reported by Bloomberg, for the five
consecutive trading days immediately preceding the applicable conversion date or
(b) 125% of the five day average closing bid price, as reported by Bloomberg,
for the five consecutive trading days immediately preceding the purchase date.
The debentures are subject to a mandatory 24 month conversion feature at the end
of which all debentures outstanding will be automatically converted to shares of
common stock. There is no beneficial conversion feature associated with the
convertible debentures as the fair market value, as determined by an independent
valuation, is lower than the bid price.
F-12
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. STOCK OPTIONS
Effective January 19, 1999, the Board of Director's approved a stock option plan
(1999 plan). This plan provides for the granting of incentive and nonqualified
stock options to officers, directors or employees of the Company. The plan also
provides for the granting of nonqualified stock options to any director,
consultant or other individual whose participation the Board determines to be in
the best interest of the Company. Total number of shares of company stock that
may be issued under the plan, shall in aggregate not exceed 1,500,000 shares. As
of March 31, 1999, no options had been granted under this plan.
On October 28, 1998, the Company granted 300,000 options to three directors with
an exercise price of $1. The options vest over four years and expire ten years
after the grant date. As of March 31, 1999, no options had been exercised,
forfeited or expired and 106,250 were exercisable. The weighted average fair
value of the options granted during the period was seventeen cents. The options
outstanding have a weighted average remaining contractual life of 9.5 years. The
fair value of the stock option grants is estimated on the date of grant in
accordance with FASB No. 123 with the following assumptions: no dividends;
risk-free interest rate 5%; expected life 10 years; and a volatility rate of 45.
As permitted by FASB No. 123, the Company has elected to measure cost for its
stock-based compensation plans with employees and directors using the intrinsic
value method of accounting prescribed by Accounting Principles Board Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Accordingly, no compensation cost
has been recognized as the option prices are equal to or greater than the fair
market value on the grant dates. Had compensation for the Company's stock
options granted to employees and directors been determined based upon the fair
value at the grant date for awards consistent with a methodology prescribed in
FASB No. 123, the Company's net loss attributable to common stock and net loss
per share for the period ended March 31, 1999 would have increased to the pro
forma amounts indicated below:
Net (loss)
As reported $ (924,316)
==========
Pro forma $ (942,172)
==========
Basic and diluted net (loss) per share
As reported $ (0.08)
==========
Pro forma $ (0.08)
==========
F-13
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. INCOME TAXES
Net deferred tax assets consist of the following components as of March 31,
1999:
Deferred tax assets:
Operating loss carryforwards $ 233,000
Other 22,000
----------
255,000
Less valuation allowance (255,000)
----------
$ --
==========
During the period ended March 31, 1999, the Company recorded a valuation
allowance of $255,000 on the deferred tax assets to reduce the total to zero.
Although management believes the full amount of the deferred tax assets will
ultimately be realized, the Company has no history and therefore management
estimates that the Company does not meet the "more likely than not" threshold
for recognizing the assets. Therefore, an allowance has been recorded for the
full amount of the deferred tax assets. Realization of the deferred tax assets
is dependent upon sufficient future taxable income during the period that
temporary differences and carryforwards are expected to be available to reduce
taxable income. There was no other activity in the valuation allowance account
during the period ended March 31, 1999.
The Company's net operating loss carryforward of approximately $581,000 for
federal and state income tax purposes expires in 2014.
The income tax provision differs from the amount of income tax determined by
applying the U.S. Federal income tax rate to pretax income for the period ended
March 31, 1999 due to the following:
Benefit calculated at statutory rate $ 324,000
Increase (decrease) in income taxes resulting from:
State income taxes 32,000
Valuation allowance (255,000)
Nondeductible expenses (101,000)
----------
$ --
==========
F-14
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS:
The Company leases certain facilities and equipment under noncancelable
operating lease agreements, with monthly payments of approximately $22,500.
Deferred rent has been recorded in connection with the equipment lease for
escalating rents. The leases expire through February 2002. The total minimum
rental commitments are as follows:
Years ending March 31:
- ----------------------
2000 $ 278,031
2001 332,687
2002 329,351
----------
$ 940,069
==========
Total rent expense for the period ended March 31, 1999 approximated $132,000.
CONTINGENCIES:
Subsequent to year end, the Company has been named a defendant in a lawsuit from
a former employee and a former consultant alleging wrongful termination, amounts
owed for consulting services and misappropriated trade secrets. Management
denies these allegations and intends to defend itself vigorously. The defendants
have demanded the value of 1,000,000 shares of the Company's stock. No provision
has been made to the financial statements as a result of this lawsuit.
NOTE 11. MAJOR CUSTOMER
During the period ending March 31, 1999, approximately $2,608,000 or 96% of
revenues were from one customer. In addition, at March 31, 1999 the accounts
receivable balance due from this customer was approximately $168,000 or 81% of
total receivables.
NOTE 12. SEGMENT INFORMATION
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business unit requires different strategies.
There are two reportable segments: ATSI and CMP. ATSI buys and sells pre-owned
semiconductor processing and manufacturing equipment to the worldwide market of
semiconductor companies. CMP provides engineering and manufacturing services to
the semiconductor electronics industry. CMP also provides foundry services and
on-site operations, management services and technical support to semiconductor
customers.
F-15
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. SEGMENT INFORMATION (CONTINUED)
The accounting policies applied to determine the segment information are the
same as those described in the summary of significant accounting policies.
Interest expense on long-term debt is allocated based upon the specific
identification of debt incurred to finance leasehold improvements and equipment.
Management evaluates the performance of each segment based on profit or loss
from operations before income taxes, exclusive of nonrecurring gains and losses.
Financial information with respect to the reportable segments follows:
Corporate
and
ATSI CMP unallocated Totals
----------------------------------------------
Revenue from external customers $2,692,250 $ 28,648 $ -- $2,720,898
Interest expense $ 255,390 $ 16,335 $ 5,452 $ 277,177
Depreciation and amortization $ 438 $ 18,560 $ -- $ 18,998
Segment profit (loss) $ 233,775 $(432,485) $(725,606) $ (924,316)
Segment assets $7,150,336 $ 157,869 $ 72,051 $7,380,256
Expenditures for segment assets $ 321,401 $ 519,190 $ -- $ 840,591
The following table presents information about the Company's revenue (attributed
to countries based on the location of the customer) and long-lived assets by
geographic area:
Long-Lived
Revenue assets
---------------------------
Holland $ 2,211,250 $ --
France 396,000 --
United States 113,648 90,707
----------- -----------
$ 2,720,898 $ 90,707
=========== ===========
NOTE 13. SUBSEQUENT EVENTS
DEBT PAYDOWN AND SUBSEQUENT SALES:
During the period subsequent to year end through May 28, 1999, the Company
repaid approximately $2.7 million on the short term note payable due to TLD
Funding Group. Sales subsequent to year end totaled approximately $5 million.
F-16
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. SUBSEQUENT EVENTS (CONTINUED)
STOCK OPTIONS GRANTED:
On April 5, 1999, 150,000 stock options were granted to an employee. These
options have an exercise price of one dollar and expire in 2009. None of these
options had been exercised as of May 28, 1999.
ACQUISITION:
On April 28, 1999, SITEK acquired a company engaged in the manufacturing and
sale of gas cylinder cabinets and gas purging systems used primarily in the
semiconductor industry. The Company completed this transaction by paying
$1,000,000, of which $50,000 had been paid prior to March 31, 1999, in cash for
all of the common stock, and paying $200,000 to settle an outstanding liability
to the current stockholder of the target company. The agreement also calls for a
two-year covenant not to compete. Additional debt was obtained to finance this
acquisition. The acquisition is expected to be accounted for as a purchase.
NOTE 14. RELATED PARTY TRANSACTIONS
Related party receivables consist of the following amounts:
Advances to an entity (ACT) related through common ownership $ 13,000
Advances to an entity (GST) related through common ownership 45,161
-----------
$ 58,161
===========
Advances from related parties consist of the following:
Advances from a entity (GST) related through common ownership $ 227,478
Advances from a stockholder 160,940
-----------
$ 388,418
===========
During the period ended March 31, 1999, GST, an entity related through common
ownership, made advances to SITEK for administrative services and rental
facilities. The advances totaled $227,478 at March 31, 1999 and are included in
operating expenses in the consolidated statements of operations.
In addition, during the period ended March 31, 1999, a stockholder paid certain
expenses on behalf of the Company totaling $160,940. The advances are short-term
and noninterest bearing and will be repaid within twelve months.
The Company has included in operating expense $125,000 which is payable to a
stockholder at March 31, 1999. In addition, $19,200 was paid to this stockholder
for consulting services.
F-17
<PAGE>
SITEK, INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. MANAGEMENT'S PLANS
The Company incurred a loss during its first period of operations due to the
nature of the development stage company. During the period from April 1, 1999
through May 28, 1999, the Company has made sales of approximately $5 million and
has approximately $1.1 million in cash as of May 28, 1999. In addition, the
Company has paid down existing debt by approximately $2.7 million through May
28, 1999.
The Company plans to continue its equipment resale operations to fund working
capital and to raise additional capital. The Company intends to begin providing
engineering and manufacturing services. In addition, the Company plans to
develop the business of the company acquired subsequent to year end (Note 13).
If the liquidity of the Company is not such that the debt described in Note 6 is
not paid off by July 13, 1999 the Company will attempt to refinance the
outstanding balance.
F-18
TLD FUNDING GROUP
8900 N CENTRAL, SUITE 214
PHOENIX, ARIZONA 85020
(602) 678-4079
(602) 906-9549 FAX
LINE OF CREDIT AGREEMENT
This agreement entered into on February 5, 1999 by; SITEK, Incorporated and CMP
Solutions, Inc., jointly and severally responsible "debtor" and TLD Funding
Group "maker".
WITNESSETH
The maker agrees to provide the debtor a line of credit for the conditions set
for below.
TERMS AND CONDITIONS
Take down amount: $207,181.00
Term: 24 Months
Interest: 1.5% monthly on unpaid balance
Minimum Monthly Pmt: $3,107.22
Payment Due Date: 15th of each month
Application of Payment: Interest and then principle
Late Payments: Upon failure to make payments within 10 days of due
date, the undersigned shall pay all reasonable legal
fees and cost of collections.
Prepayment Penalty: None
Company: SITEK, Incorporated TLD Funding Group
/s/ Don M. Jackson, Jr. /s/ John Balding
- ------------------------------ ------------------------------
Don M. Jackson, Jr., President John Balding
Company: CMP Solutions, Inc.
/s/ Mark Simon
- ------------------------------
Mark Simon
TLD FUNDING GROUP
A DIVISION OF CEE & GEE FUNDING, INC.
8900 N CENTRAL, SUITE 214
PHOENIX, ARIZONA 85020
(602) 678-4079
(602) 906-9549 FAX
FINANCE AGREEMENT
This agreement entered into on March 19, 1999 by SITEK, Incorporated and
Advanced Technology Services, Inc. as "company" and TLD Funding Group as
"funder".
WITNESSETH
The funder agrees to provide the company financing for the purchases of
equipment for resale. The funder will advance, directly to the seller of
equipment, the net invoice amount upon presentation of the invoice. The invoice
must be signed by the supplier of the product and a pre-approved representative
of the company. The company will invoice the purchaser of the equipment in a
timely manner and designate the remittance of the funds to the funder. The
funder upon receipt of payment from the purchaser will withhold the equipment
cost, appropriate fees, and remit the remainder to the company in a timely
manner.
TERMS AND CONDITIONS
1. Maximum Credit Available $1,000,000.00
2. Advance Rate: One hundred percent (100%) of equipment
requirements, as submitted by company to
funder.
3. Term: 12 Months
4. Fees: RISK FEE of five percent (5%) per
advance will be charged at time of
payment of invoice by purchaser of
product.
INTEREST FEE'S will be charged at the
following rate:
1 - 30 DAYS one percent (1%) of
advanced amount
GREATER THAN 31 DAYS two percent
(2%) of advanced Amount.
MANAGEMENT FEE of two percent (2%) will
be charged for each invoice funded at
time of receipt of payment from
purchaser of equipment.
Company: SITEK, Incorporated and
Advanced Technology Services, Inc. Funder: TLD Funding Group
/s/ Don M. Jackson, Jr. /s/ John Balding
- ----------------------------- -----------------------------
Don M. Jackson, Jr. John Balding
PROMISSORY NOTE
Principle Amount: $5,200,000.00 State of Arizona
FOR VALUE RECEIVED, the undersigned hereby promises to pay to the order
of TLD FUNDING GROUP a division of Cee and Gee Funding, Inc., the sum of Five
Million Two Hundred Thousand Dollars ($5,200,000.00), together with fees and
terms defined in the Equipment Finance Proposal dated March 11, 1999, attached
and made a part hereof.
In the event this note shall be in default, and placed with an attorney
for collection, then the undersigned agree to pay all reasonable attorney fees
and costs of collection. Payments not made within five (5) days of due date
shall be subject to a late charge of 5% of said payment. All Payments hereunder
shall be made to such address as may from time to time be designated by any
holder hereof.
The undersigned and all other parties to this note, whether as
endorsers, guarantors or sureties, agree to remain fully bound hereunder until
this note shall be fully paid and waive demand, presentment and protest and all
notices thereto and further agree to remain bound, notwithstanding any
extension, renewal, modification, waiver, or other indulgence by any holder or
upon the discharge or release of any obligor hereunder or to this note, or upon
the exchange, substitution, or release of any collateral granted as security for
this note. No modification or indulgence by any holder hereof shall be binding
unless in writing; and any indulgence on any on occasion shall not be an
indulgence for any other or future occasion. Any modification or change of
terms, hereunder granted by any holder hereof, shall be valid and binding upon
each of the undersigned, notwithstanding the acknowledgment of any of the
undersigned, and each of the undersigned does hereby irrevocably grant to each
of the others a power of attorney to enter into an such modification on their
behalf. The rights of any holder hereof shall be cumulative and not necessarily
successive. This note shall take effect as a sealed instrument and shall be
construed, governed and enforced in accordance with the laws of the State first
appearing at the head of this note. The undersigned hereby execute this note as
principals and not as sureties.
Debtor(s): SITEK, Inc. Advanced Technology Services, Inc.
/s/ Don M. Jackson, Jr. /s/ Julian Gates
- ------------------------------- -------------------------------
Don M. Jackson, Jr. Julian Gates, President
<PAGE>
TLD FUNDING GROUP
8900 N CENTRAL, SUITE 214
PHOENIX, ARIZONA 85020
(602) 678-4079
(602) 906-9549 FAX
March 11, 1999
SITEK, Inc. and Advanced Technology Services, Inc.
1817 West 4th St
Tempe, Az 85281
Attn: Julian Gates
RE: Equipment Finance Proposal
Dear Mr. Jackson,
TLD Funding Group (TLD) proposes the following structure for an equipment
finance for the terms and conditions set forth below:
Debtor: SITEK, Inc. and Advanced Technology Services, Inc.
Type of Instrument: Promissory Note
Type of Equipment: Fujitsu 6" Wafer Fab equipment line in New Castle,
UK
Term: 120 Days
Equipment Cost: $5,200,000.00
Placement Fee: $500,000.00
Management Fee: 3% of $5,200,000.00
Total Debt: $5,856,000.00
Repayment Method: All funds collected from the proceeds of the
equipment will immediately be transferred to a
joint account established by ATSI and TLD Funding
Group in a mutually agreed to financial
institution. TLD Funding Group will be the only
signor on the account until such time as the total
amount of funds collected exceeds the amount of
the purchase price plus costs of funds. At that
time TLD Funding Group will be removed as the
custodian of the joint account and ATSI will be
assigned full responsibility for this account.
<PAGE>
Penalty for Non Performance: 1. If after 90 days the Total Debt has not been
retired and ATSI has not provided copies of
revelant purchase orders covering the repayment
amount, a 5% penalty will be assessed on the
outstanding balance beginning with the 91st day
and will be accessed every 30 day period until
the debt is retired.
2. If after 120 days the amount collected has not
retired the debt plus cost of funds, ATSI will
be assessed a 5% penalty on the outstanding
balance on the 121st day and will be accessed
every 30 day period the debt is outstanding.
3. The penalties defined in items 1 and 2 above
are not cumulative. Only one penalty may be
applied for any given period.
Other: 1. ATSI will be responsible for all taxes, exports
duties, legal fees, and extraordinary expenses
incurred by TLD Funding Group, its assignee, or
the Funding bank.
2. ATSI will provide TLD Funding Group a list of
contingent customers for the equipment.
3. Prior to transfer of funds from TLD Funding
Group or it assigned bank to Bank of Tokyo -
Mitsubishi on March 18, 1999, ATSI will provide
TLD Funding Group an insurance certificate
naming TLD Funding Group or its assignee as
additionally insured and loss payee.
4. Upon signing of contract between Fujitsu and
ATSI, ATSI will transfer title of equipment to
TLD Funding Group.
5. Any other reasonable and expedient items raised
and agreed to by pertaining parties.
We appreciate the opportunity to present this proposal and look forward to your
positive response. In the meantime, we would be pleased to receive any questions
or comments you have.
Sincerely, Accepted
TLD Funding Group SITEK, Incorporated and Advanced
Technology Services, Inc.
/s/ John Balding /s/ Julian Gates
- --------------------------- ---------------------------
John Balding Julian Gates
2
EXHIBIT 10.8
Amendment to Equipment Finance Agreement
To: John Balding at TLD
Re: $5,200,000 Promissory Note to TLD Funding Group by SITEK,
Inc. And Advanced Technology Services, Inc.
Dear Mr. Balding:
In connection with this matter I want to clarify a point.
Notwithstanding anything to the contrary, it was never the intent of the parties
that TLD would take title to the equipment (as defined in the March 11, 1999
Equipment Finance Proposal between the parties). To the extent that the
documents provide otherwise, we agree that such a provision is in error, has no
force or effect and that the course of dealing between the parties supports
this. I might also point out that such a provision is inconsistent with the
requirement that ATSI must be free to sell the equipment and then deposit
proceeds in the joint account established by TLD and ATSI.
Please return a copy of this letter to me with your signed agreement.
Sincerely,
/s/ Gloria Zemla
--------------------
Gloria Zemla
/s/ John R. Balding
- -----------------------------
Agreed
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
THE COMMON STOCK UNDERLYING THIS WARRANT IS NOT REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
No. 99-001 Warrant to Purchase 20,000 Shares
of Common Stock (subject to
adjustment)
WARRANT TO PURCHASE COMMON STOCK
OF
SITEK INCORPORATED
VOID AFTER FEBRUARY 5, 2004
This certifies that TLD Funding Group (the "Holder"), or assigns, for
value received, is entitled to purchase from SITEK Incorporated, a Delaware
corporation (the "Company"), up to 20,000 shares of Common Stock of the Company,
as adjusted for the events set forth in Section 4, at the Stock Purchase Price
as set forth in Section 1. "Common Stock" means the common stock of the Company.
This Warrant is subject to the following terms and conditions:
1. DETERMINATION OF STOCK PURCHASE PRICE. The exercise price per share of
this Warrant is $6.00 per share, as adjusted pursuant to Section 4 (the
"Stock Purchase Price").
2. EXERCISE; VESTING; PRICING.
2.1 EXERCISE, ISSUANCE OF CERTIFICATES, PAYMENT.
(A) Subject to the vesting provisions in this Section 2, this
Warrant is exercisable at the option of the Holder, at any
time or from time to time, before 5:00 p.m. Mountain
Standard Time on February 5, 2004 (the "Expiration Date").
To
<PAGE>
exercise this Warrant, Holder must surrender this Warrant
to the Company, at its principal office or such other
place as the Company may designate, properly endorsed with
the Form of Subscription (attached to this Warrant) fully
filled in and signed. If applicable, Holder also must
remit payment of the Stock Purchase Price to the Company
at the time of exercising this Warrant, by cashier's check
or wire transfer.
(B) Notwithstanding any provisions in this Warrant to the
contrary, if the fair market value of one share of the
Common Stock is greater than the exercise price (at the
date of calculation, as set forth below), in lieu of
exercising this Warrant for cash, Holder may elect to
receive shares equal to the value (as determined below) of
this Warrant (or the portion of it being canceled) by
surrendering this Warrant to the Company, at its principal
office or such other place as Company may designate,
properly endorsed with the Form of Subscription (attached
to this Warrant) fully filled in and signed. The Company
will then issue to Holder a number of shares of Common
Stock computed using the following formula:
X = Y (A - B)
--------
A
Where X = the number of shares of Common
Stock to be issued to Holder
Y = the number of shares of Common
Stock purchasable under the
Warrant, or, if only a portion
of the Warrant is being
exercised, the portion of the
Warrant being canceled (at the
date of such calculation)
A = the fair market value of one
share of the Common Stock (at
the date of such calculation)
B = Exercise Price (as adjusted to
the date of such calculation)
For purposes of the above calculation, fair market value
for one share of Common Stock will be determined by the
Company's Board of Directors in good faith. However, where
there exists a public market for the Common Stock at the
time of such exercise of this Warrant by Holder, the fair
market value per share will be the average of the five
trading days immediately prior to the date of determining
the fair market value: (i) of the closing bid and asked
prices of the Common Stock; or (ii) of the closing price
quoted on the Nasdaq
2
<PAGE>
National Market or on any exchange on which the Common
Stock is listed, whichever is applicable.
(C) The Company agrees that the shares of Common Stock
purchased under this Warrant shall be and are deemed to be
issued to the Holder as the record owner of such shares as
of the close of business on the date on which this Warrant
shall have been surrendered, properly endorsed, the
completed, executed Form of Subscription (attached to this
Warrant) delivered and payment made by cashier's check or
wire transfer for such shares.
2.2 CERTIFICATES. Certificates for the shares of Common Stock so
purchased, together with any other securities or property to
which the Holder is entitled upon such exercise, shall be
delivered to the Holder by the Company at the Company's expense
within a reasonable time after the rights represented by this
Warrant have been so exercised. In case of a purchase of less
than all the shares which may be purchased under this Warrant,
the Company shall cancel this Warrant and execute and deliver a
new Warrant or Warrants of like tenor for the balance of the
shares purchasable under the Warrant surrendered upon such
purchase to the Holder hereof within a reasonable time.
3. SHARES. The Company covenants and agrees that all shares of Common Stock
which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be free of all taxes, liens and charges
with respect to the issuance thereof (other than income taxes and taxes
in respect of any transfer occurring contemporaneously or otherwise
specified herein).
4. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of
this Warrant will be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 4.
4.1 SUBDIVISION OR COMBINATION OF STOCK. If the Company, at any time
while this Warrant or any portion of it remains outstanding and
unexpired, subdivides its outstanding shares of Common Stock into
a greater number of shares, the Stock Purchase Price in effect
immediately prior to such subdivision will be proportionately
reduced and the number of shares purchaseable upon the exercise
of this Warrant will be proportionately increased. Conversely, in
case the outstanding shares of Common Stock of the Company shall
be combined into a smaller number of shares, the Stock Purchase
Price in effect immediately prior to such combination shall be
proportionately increased and the number of shares purchaseable
upon the exercise of this Warrant will be proportionately
reduced.
4.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If, while this Warrant or any portion of it
remains outstanding and unexpired, the holders of
3
<PAGE>
Common Stock (or any shares of stock or other securities at the
time receivable upon the exercise of this Warrant) receive or
become entitled to receive other or additional securities or
property (other than cash) of the Company by way of dividend
(other than (i) shares of Common Stock issued as a stock split,
adjustments in respect of which shall be covered by the terms of
Section 4.1 or (ii) an event for which adjustment is otherwise
made pursuant to Section 4.4), and do not have to pay for these
securities or property, then and in each such case, the Holder
will, upon the exercise of this Warrant, be entitled to receive,
in addition to the number of shares of Common Stock receivable
thereupon, and without payment of any additional consideration
therefor, the amount of securities or property (other than cash)
of the Company which the Holder would hold on the date of such
exercise had he been the holder of record of such Common Stock as
of the date on which holders of Common Stock received or became
entitled to receive such securities or property.
4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If while this Warrant or any portion of it remains outstanding
and unexpired, any capital reorganization or reclassification of
the capital stock of the Company, any consolidation or merger of
the Company with another entity, or the sale of all or
substantially all of its assets to another entity is effected in
such a way that holders of Common Stock are entitled to receive
stock, securities, or other assets or property (collectively, the
"Consideration") then, as a condition of such reorganization,
transfer, reclassification, consolidation, merger or sale
(collectively, the "M&A Event"), lawful provisions must be made
so that the Holder will have the right to purchase and receive
upon exercise of this Warrant the Consideration that the Holder
would have been entitled to receive in the M&A Event if this
Warrant had been exercised immediately before the M&A Event, all
subject to further adjustment pursuant to this Section 4. In the
event the value of the Consideration (if not in cash or
marketable securities, then the value will be determined in good
faith by the Board of Directors of the Company) issuable or
payable with respect to one share of the Common Stock of the
Company immediately before the M&A Event is in excess of the
Stock Purchase Price effective at the time of the M&A Event, or
if the Consideration consists of publicly traded securities, then
any vested portion of this Warrant will expire unless exercised
prior to the M&A Event. In any M&A Event, appropriate provision
will be made with respect to the rights and interests of the
Holder so that the provisions of this Warrant (including, without
limitation, provisions for adjustments of the Stock Purchase
Price and of the number of shares purchasable and receivable upon
the exercise of this Warrant) will be applicable, as nearly as
may be, in relation to any Consideration deliverable upon the
exercise of this Warrant.
5. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained
in this Warrant will be construed as conferring upon the Holder the
right to vote or to consent or to receive notice as a shareholder of the
Company or any other matters or any rights whatsoever as a shareholder
of the Company. No dividends or interest will be payable or accrued in
respect
4
<PAGE>
of this Warrant or the interest represented by it or the shares
purchasable under it until, and only to the extent that, this Warrant
has been exercised. No provisions of this Warrant, in the absence of
affirmative action by the Holder to purchase shares of Common Stock, and
no mere enumeration in this Warrant of the rights or privileges of the
Holder, will give rise to any liability of such Holder for the Stock
Purchase Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by its creditors.
6. MODIFICATION AND WAIVER. This Warrant and any provision of it may be
changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is
sought.
7. NOTICES. Any notice, request or other document required or permitted to
be given or delivered to the Holder or the Company must be delivered
personally, sent by registered mail, postage prepaid, or by confirmed
fax with copy by first-class mail, to the Holder at the address as shown
on the books of the Company or to the Company at _________________ or
fax number 602-921-8550 or such other address or fax number as either
may from time to time provide to the other in the manner described in
this Section.
8. BINDING EFFECT ON SUCCESSORS; TRANSFERABILITY. This Warrant will be
binding upon any entity succeeding the Company by merger, consolidation
or acquisition of all or substantially all of the Company's assets. All
of the obligations of the Company relating to the Common Stock issuable
upon the exercise of this Warrant will survive the exercise and
termination of this Warrant. All of the covenants and agreements of the
Company will inure to the benefit of the Holder and the Holder's
successors and assigns. The Holder cannot transfer, pledge or assign
this Warrant except to Holder's estate or heirs upon Holder's death.
9. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the
several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This
Warrant will be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the State of
Arizona (exclusive of its choice of law provisions).
10. ARBITRATION. Any controversy or claim arising out of or relating to this
Warrant or the breach or validity of it will be settled exclusively by
arbitration in Phoenix, Arizona, by an arbitrator selected by the
Company and Holder. If the Company and Holder are unable to agree on an
arbitrator, they will petition the Superior Court of Arizona in Maricopa
County to select an arbitrator for the parties. Judgment upon the award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The parties consent to the exclusive jurisdiction
of the courts located in Maricopa County, Arizona for any matters to be
decided by a court.
11. LOST WARRANTS. The Company represents and warrants to the Holder that
upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction, or mutilation of this
5
<PAGE>
Warrant and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in
the case of any such mutilation upon surrender and cancellation of such
Warrant, the Company, at its expense, will make and deliver a new
Warrant, or like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant.
12. FRACTIONAL SHARES. No fractional shares may be issued upon exercise of
this Warrant. The Company will, in lieu of issuing any fractional share,
pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.
DATED February 5, 1999.
HOLDER: COMPANY:
CEE AND GEE FUNDING, INC., SITEK INCORPORATED,
an Arizona corporation d/b/a a Delaware corporation
TLD Funding Group
By: By:
------------------------------ ------------------------------
John R. Balding, President Don M. Jackson, Jr., President
6
<PAGE>
NOTICE OF EXERCISE
To: SITEK Incorporated ("SITEK")
1. The undersigned hereby (i) elects to purchase ____________ shares of
SITEK's Common Stock, pursuant to the provisions of Section 2.1(A) of
the attached Warrant, and tenders herewith payment of the purchase price
for such shares in full, or (ii) elects to exercise this Warrant for the
purchase of ___________________ shares of Common Stock, pursuant to
Section 2.1(B) of the attached Warrant.
2. In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock issued upon conversion of
this Warrant are being acquired solely for the account of the
undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell or otherwise
dispose of any such shares of Common Stock except under circumstances
that will not result in a violation of the Securities Act of 1933, as
amended, or any applicable state securities laws.
3. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
----------------------------------
(Name)
7
GERALD R. PERLSTEIN
CERTIFIED PUBLIC ACCOUNTANT
1260 S. BEVERLY GLEN BLVD, SUITE 108
LOS ANGELES, CA 90024
November 30, 1998
Board of Directors
SITEK, Incorporated
(formerly Dentmart Group, Inc.)
1817 West 4th Street
Tempe, Arizona 85281
Dear Sirs:
Effective this date I respectfully resign as the Independent Public
Accountant for SITEK, Incorporated (formerly Dentmart Group, Inc.).
My resignation is due in part to the major acquisition which the company
has recently consummated. This acquisition has made the company unsuited for my
practice, which is generally limited to small companies.
There were no disagreements between me and the present or prior
management with regard to any accounting principles or practices, auditing
standards, financial statement disclosure or other financial matters.
Yours truly,
/s/ Gerald R. Perlstein
Gerald R. Perlstein
Certified Public Accountant
EXHIBIT 21.1
Subsidiaries
CMP Solutions, Inc. and
Advanced Technology
Services, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 863
<SECURITIES> 0
<RECEIVABLES> 266,095
<ALLOWANCES> 0
<INVENTORY> 5,389,000
<CURRENT-ASSETS> 7,252,083
<PP&E> 104,921
<DEPRECIATION> 14,214
<TOTAL-ASSETS> 7,380,256
<CURRENT-LIABILITIES> 8,046,676
<BONDS> 0
0
0
<COMMON> 61,179
<OTHER-SE> (981,995)
<TOTAL-LIABILITY-AND-EQUITY> 7,380,256
<SALES> 2,720,898
<TOTAL-REVENUES> 2,720,898
<CGS> 2,030,900
<TOTAL-COSTS> 2,030,900
<OTHER-EXPENSES> 1,337,137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 277,177
<INCOME-PRETAX> (924,316)
<INCOME-TAX> 0
<INCOME-CONTINUING> (924,316)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (924,316)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
