10QSB 1 texn2q01.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _________________ to _________________ Commission file number: 000-29209 21st Century Technologies, Inc. (Exact name of small business issuer as specified in its charter) Nevada 48-1110566 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 5050 East Belknap, Haltom City, Texas, 76117 (Address of principal executive offices) (817) 838-8011 (Issuer's telephone number) ____________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 94,716,590 as of June 30, 2001 Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] PART I - FINANCIAL INFORMATION This report includes "forward looking statements". All statements other than statements of historical fact included in this report are forward looking statements. Such forward looking statements include, without limitation, statements as to estimates, expectations, beliefs, plans, and objectives concerning the Company's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources" regarding the Company's estimate of sufficiency of existing capital resources and its ability to raise additional capital to fund cash requirements for future operations and acquisitions. The forward looking statements are subject to assumptions and beliefs based on current information known to the Company and factors that are subject to uncertainties, risk and other influences, which are outside the Company's control, and could yield results differing materially from those anticipated. The ability to achieve the Company's expectations is contingent upon a number of factors which include (i) availability of sufficient capital and capital market conditions, (ii) the Company's ability to produce and market its products as produced by its various subsidiaries (including, but not limited to, the PT Night Sights, MMC gun sights, Sea Patch, Gripper, Griffon 1911 Colt 45 replica sidearm, and tire sealant), (iii) effect of any current or future competitive products, (iv) on going cost of research and development activities, and (v) the retention of key personnel. "PT Night Sights", "Sea Patch", "Gripper" and "Griffon" are our trademarks. This report may contain trademarks and service marks of other companies. Item 1. Financial Statements. 21st Century Technologies, Inc. and Subsidiaries Consolidated Balance Sheet (Unaudited) June 30, 2001 June 30, 2000 Assets Current Assets: Cash and cash equivalents $48,876 $374,389 Accounts Receivable, Net 381,213 38,339 Inventories 901,107 509,146 Notes Receivable 462,474 826,245 Total Current Assets 1,793,670 1,748,119 Property, Plant, and Equipment, 2,005,622 454,607 Net Other Assets, Net 791,016 560,795 ------------- ------------ Total Assets $4,590.308 $2,763,521 ============= ============ Liabilities and Stockholders' Equity Current Liabilities: Accounts Payable-trade $478,638 $65,230 Accounts Payable-other 144,476 43,707 ------------ ------------ Total Current Liabilities 623,114 108,937 Other Liabilities: Working Capital Advances 1,941,451 1,765,458 Customer Deposits (274) (4,243) Deferred Revenue 225,000 - Notes Payable 162,272 12,685 ------------ ------------ Total Other Liabilities 2,328,449 1,773,900 ------------ ------------ Total Liabilities: $2,951,563 $1,882,837 Stockholders' Equity: Common Stock, 94,716,590 and 52,657,240, issued and outstanding shares at $.001 par value at June 30, 2001 & 2000 respectively 94,717 52,657 Paid-in Capital 8,437,163 4,607,583 Common Stock Earned, but not Issued 360,000 360,000 Retained Earnings (Deficit) (7,216,507) (4,104,928) Treasury Stock (33,628) (31,628) Stock Subscriptions (3,000) (3,000) ------------ ------------ Total Stockholders' Equity 1,638,745 880,684 ------------ ------------ Total Liabilities and Stockholders' Equity $4,590,308 $2,763,521 ============ ============
See Notes to Consolidated Financial Statements 21st Century Technologies, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) (Restated) (Restated) 3 Mos. Ended 3 Mos. Ended 6 mos. Ended 6 mos. Ended June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000 Revenues, Net $548,804 $213,953 $790,304 $448,346 Cost of Revenues 170,646 235,681 371,879 489,611 ----------- ----------- --------------- ------------- Gross Profit 378,158 (21,728) 418,425 (41,265) General and administrative 428,137 231,559 918,355 428,684 expenses Advertising & Selling 151,384 40,460 232,820 109,661 Compensation Costs 397,482 216,453 736,899 386,494 Depreciation and Amortization 47,826 41,411 90,420 74,108 ----------- ----------- --------------- ------------- Net Income (Loss) (646,671) (551,611) $(1,560,069) $(1,040,212) Estimated Income Taxes 0 0 0 0 ----------- ----------- --------------- ------------- Net Income (Loss) $(646,671) $(551,611) $(1,560,069) $(1,040,212) =========== =========== =============== ============= Earnings (Loss) Per Common Share: Basic & Diluted $(0.01) $(0.01) $(0.02) $(0.02)
21st Century Technologies, Inc. and Consolidated Subsidiaries Notes to Consolidated Financial Statements For the Three Months Ended June 30, 2001 and 2000 (Unaudited) Note 1: Summary of Significant Accounting Policies: A. Organization and Business Activities 21st Century Technologies, Inc. was incorporated under the laws of the State of Delaware on May 15, 1967 as Satcom Corporation. On November 6, 1991, the Company changed its name to Hughes Pharmaceutical Corporation. Subsequent to 1991, the Company changed its name from Hughes Pharmaceutical Corporation to First National Holding Corporation (FNHC) Delaware. The Company became public in 1985 through a merger with International Fluidics Control, Inc. (formerly Sensory Systems, Inc., Training With The Pros, Inc., and/or M-H Studios, Inc.). International Fluidics Control, Inc. successfully completed a public offering of its securities in 1969 under Regulation A of the Securities Act of 1933. As of December 31, 1985, the Company had liquidated all business operations and began the search for a suitable merger or acquisition candidate. As a result of this action, the Board of Directors approved a quasi-reorganization for accounting purposes, effective January 1, 1986, whereby all accumulated deficits in shareholders' equity were offset against additional paid-in capital and common stock balance sheet accounts to the extent of reducing these accounts to equal the par value of the issued and outstanding shares of common stock. During the third quarter of 1994, in conjunction with the execution of a letter of intent to acquire Innovative Weaponry, Inc. (a New Mexico corporation), the Company consummated a plan of merger between FNHC Nevada and FNHC Delaware whereby the Nevada Corporation was the survivor (see below) and changed its corporate name to Innovative Weaponry, Inc. to better reflect its future actions and pending relationship with the acquisition target. On September 15, 1997, the Board of Directors approved a name change to 21st Century Technologies, Inc. Innovative Weaponry, Inc. - New Mexico was incorporated on June 22, 1988 under the laws of the State of New Mexico. The Company was formed for the development and sale of specialized firearms, firearm systems and related equipment. On September 14, 1992, Innovative Weaponry, Inc. filed a petition for relief under Chapter 11 of the Federal Bankruptcy Laws in the United States Bankruptcy Court of the District of New Mexico. Under Chapter 11, certain claims are stayed while the Debtor continues business operations as Debtor-in-Possession. On August 19, 1994, IWI-NV (now 21st Century Technologies, Inc.) and IWI-NM entered into a letter of intent whereby IWI-NV would use its unregistered, restricted common stock and cash to satisfy certain obligations of IWI-NM in settlement of IWI-NM's bankruptcy action. On February 1, 1995, the U. S. Bankruptcy Court of the District of New Mexico confirmed the IWI-NM's plan of reorganization. The plan became effective 30 days after its confirmation. IWI-NM became a wholly owned subsidiary of Innovative Weaponry, Inc. (IWI-NV) (formerly First National Holding Corporation) (FNHC Nevada) (now known as 21st Century Technologies, Inc.), a publicly owned company. B. Cash and Cash Equivalents: For purposes of reporting cash flows, the Company considers all cash on hand and in banks, certificates of deposit and other highly liquid debt instruments with maturity of three months or less at the date of purchase to be cash and cash equivalents. C. Revenue recognition and credit policies: In the normal course of business, the Company sells its goods on "cash in advance" or "cash on delivery", but primarily extends unsecured credit to its customers involved in the retail and wholesale sale of the Company's products. Revenue is recognized when products are shipped to the wholesale or retail purchaser. All products are shipped F.O.B. the Company's facilities. Management has provided an allowance for doubtful accounts, which reflects its opinion of amounts, which will eventually become uncollectible. In the event of complete non-performance by the Company's customers, the maximum exposure to the Company is the outstanding trade accounts receivable balance at the date of non- performance. D. Inventory: Inventory consists of raw materials used in the manufacture of firearm products, sea patch and pro-mag products, work in process, and finished goods imported for resale. Inventory is carried at the lower of cost or market value, using the first-in, first-out method (FIFO). E. Property and equipment: Property and equipment is recorded at its historical cost. Depreciation is provided in amounts sufficient to relate the asset cost to operations over the estimated useful life (three to seven years) using the straight-line method for financial reporting purposes. Gains and losses from disposition of property and equipment are recognized as incurred and are included in operations. F. Income Taxes: The Company uses the asset and liability method as identified in SFAS 109, Accounting for Income Taxes. G. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. H. Asset Impairment: The Company adopted the provisions of SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, in its financial statements for the year ended December 31, 1995. The Company prepares an undiscounted estimate of future cash flows for each long-lived asset (excluding production equipment) on an annual basis. If the carrying value of the asset exceeds undiscounted future cash flows expected to be produced by the asset, the Company recognizes an impairment loss. The Company measures the amount of the impairment loss as the amount by which the carrying value of the asset exceeds its fair value. The Subsidiary Bankruptcy Excess Reorganization Value is evaluated annually for events or conditions that would indicate impairment. Management estimates cash flows, which can be expected for continuing to use the asset, and then compares these estimated cash flows to the asset's carrying amount. If the estimated cash flows resulting from continuing to use the asset exceed the carrying amount of the asset, an impairment adjustment is not necessary. There has been no effect as of December 31, 2000 of adopting SFAS 121. I. Stock-Based Compensation: The Company will follow the fair value based method of accounting as prescribed by SFAS No. 123, Accounting for Stock-Based Compensation, for its stock-based compensation. The Company currently does not have a stock option plan. J. Principles of Consolidation and Presentation -Wholly Owned Subsidiaries: The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and accounts have been eliminated in the consolidation. K. License Agreement: The License agreement is amortized over the life of the related patent technology (generally 17 years) using the straight-line method. L. Research and Development Costs: The Company expenses any research and development costs in the period, which they are incurred. There are no research and development costs incurred in the periods presented. M. Treasury Stock: The Company utilizes the cost method to account for the acquisition of Treasury Stock. N. Basis of Presentation: Financial information presented as of any date other than December 31 has been prepared from the books and records without audit. The accompanying financial statements have been prepared in accordance with the instructions to Form 10QSB and do not include all of the information and the footnotes required by generally accepted accounting principles for complete statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such financial statements, have been included. These financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2000. Note 2: Accounts Receivable On November 6, 1998, Innovative Weaponry received a purchase order from Continental Weapons Ltd for 32,103 Night Sights. Continental was invoiced and a quantity of sights was shipped to South Africa. The balance of the order (approximately 1,000 sights) has been manufactured and is being held at the Company's manufacturing facility to be installed on the Griffon replica of the Colt 45 as the Company receives them. The Company is receiving the first 1000 pistols sightless and is invoiced for a pistol without sights. The receivable is decreased by the number of sights used when they are installed on the pistols and income is credited for the sights installed. Due to Continental's inability to ship the entire 1000 pistol order, the receivable was not decreased materially during 1999. The Continental Weapons invoice remained unpaid as of December 31, 1999; however, the Company negotiated an agreement to sell the receivable for the full invoice value. The sale was consummated April 1, 2000 to Great Mughal Trade Associates, Ltd. (GMTA). GMTA purchased the receivable and the rights to 31,103 Night Sights for $900,000.00 paying $50,000.00 down and a note for $850,000.00 payable $85,000.00 per month for 10 months. $900,000 was removed from Continental's receivable account and was placed in a note receivable-GMTA account as a current asset due within one year. This is a non-recourse transaction (Griffon has surrendered control and has no obligation to buy the receivable back) and has been accounted for as a secured note rather than the sale of a financial asset under Statement of Financial Accounting Standards No. 125. The night sights, which under lay the receivable, were valued at the original sales price to Continental for the purpose of the sale of the receivable. The $900,000 sales price represents the balance of the receivable after subtracting the sale of the 1000 night sights installed on the first 1000 pistols. GMTA has the right to repossess the sights and resell them to another purchaser should they be unable to collect from Continental. 6/30/01 3/31/01 12/31/00 9/30/00 6/30/00 Outstanding Invoice -Continental 0 0 0 $7432 $23,422 Receivable-GMTA $290,591 $290,591 $450,591 $725,000 $815,000
Note 3: Other Assets License Agreement: In June 1995, Trident, a wholly owned subsidiary of the Company, entered into a license agreement (Agreement) with Trade Partners International, Inc. (TPI) to acquire the exclusive license to certain patent rights conveyed to TPI by The University of California as operators of Los Alamos National Laboratory (patent holder) related to the development, marketing and sales rights to certain specified magnetic and/or magnet technology. The agreed-upon and negotiated value of the Agreement at acquisition date was $75,000. Subsequently, the transaction was re-negotiated and 21st Century acquired all of the common stock of TPI in a Type B reorganization. Trident, as sub-licensee, is obligated to pay a royalty fee of 8.0% on net income (as defined in the Agreement) of products sold using the patented technology. Further, Trident is to pay an annual maintenance fee, which was $24,000 for the third and all subsequent years of the Agreement. All royalty fees paid during a specific year are to be credited to that year's maintenance fee and the maintenance fee requirement is considered met if the royalty payments during an Agreement year are equal to or exceed the required maintenance fee. Trademark: The trademark "PT Night Sights" has been capitalized at cost and is being amortized over 17 years. Bankruptcy excess Re-Organization Cost: Innovative Weaponry, Inc. (IWI) emerged from a bankruptcy filing under Chapter 11 of the US Bankruptcy Code, effective March 1, 1995. As a result of the Plan of Reorganization, IWI became a wholly owned subsidiary of 21st Century Technologies, Inc. and all prior IWI shareholders retained less that a 50% interest in the combined reorganized entities. In conjunction with IWI's emergence from protection under Chapter 11, IWI adopted "fresh-start" accounting as a result of its acquisition by 21st Century. "Fresh start" accounting allows for the restatement of all assets and liabilities being set to the fair market value of each respective category and the restatement of retained earnings to "0". The resulting amount was debited to the account "Reorganization value in excess of amounts allocable to identifiable assets". This balance is being amortized over ten (10) years using the straight-line method. The amortization period began on March 1, 1995, concurrent with the effective date of IWI's Plan of Reorganization. The adjustment necessary to reflect the "fresh-start" accounting, as prescribed by Statement of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" issued by the American Institute of Certified Public Accountants reflected a Reorganization value in excess of amounts allocable to identifiable assets. Note 4: Stockholders' Equity The total number of all classes of authorized capital stock is 200,000,000 shares, all of which are Common Stock, $0.001 par value per share. As of June 30, 2001, there are 94,716,590 shares of common stock issued. An additional 19,000,000 shares of common stock has been earned under a previous consulting agreement with the Chairman. These shares were not issued to Mr. Wilson because the Company needed the shares to raise equity capital. Mr. Wilson's shares are represented in the Equity section of the balance sheet as common stock earned but not issued. Note 5: Earnings (Loss) Per Common Share Earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the years 2001 and 2000. There were no common stock equivalents outstanding during the years 2001 and 2000. SFAS No. 128, Earnings per Share applies to entities with publicly held common stock and establishes standards for computing and presenting earnings per share (EPS). Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For the Quarter Ended June 30, 2001 Income Shares Per-Share (Numerator) (Denominator) Amount Income ($646,671) Basic EPS Income available to Common Stockholders ($646,671) 92,712,588 $(0.00) Effect of Dilutive Securities Common Stock earned but not 19,000,000 Issued Diluted EPS Income available to common stockholders plus assumed conversions ($646,671) 111,712,58 $(0.00) =========== =========== ===========
Note 6: Income Taxes At December 31, 2000, the Company has available net operating loss carry forwards of approximately $2,704,715 for federal income tax purposes that begin to expire in 2008. The federal carry forwards resulted from losses generated in prior years and have created a deferred tax asset o $919,603. It is believed to be "more likely than not" that taxable income in the periods prior to the expiration of the deferred tax assets will not be sufficient for the deferred tax assets to be recognized; therefore, a valuation allowance of $919,603 has been recognized to offset the deferred tax assets. There are no deferred tax liabilities. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Note 7: Risks and Uncertainties The Company operates in highly specialized industries. There are only four companies worldwide who manufacture and sell night sights using tritium. The Company ranks number three out of four. The gun sight industry is highly dependent on major firearms manufacturers as well as consumer and governmental demand for weapons. World conditions and economies can affect the future sales of this product. The Company's magnetic and hydraulic-magnetic technologies have been tested and approved by the American Bureau of Shipping and are being used by Louisiana Emergency Response Training facilities in Holden, LA.; Texas A&M Emergency Services Training Institute in College Station, TX; and Transportation Technology Center Emergency Response Training facility in Pueblo, CO. Demand for these products from governmental and industrial sources is largely estimated and while the Company has studied various markets, no assurance can be given that these products can be successfully marketed. These products have been marketed outside the United States. In future marketing, the Company may be subject to foreign currency fluctuation risks. The Company's firearm replica and tire sealant import division has not been tested in the U. S. market and the estimated demand for these products may not reach the Company's expectations. Note 8: Fair Values of Financial Instruments The following methods and assumptions were used to estimate the fair value of financial instruments: Cash and Cash Equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Accounts Receivable and Accounts Payable. The carrying amount of accounts receivable and accounts payable in the balance sheet approximates fair value. Short-Term and Long-Term Debt. The carrying amount of the debts recorded in the balance sheet approximates fair value. The carrying amounts of the Company's financial instruments at December 31, 1999 and 1998 represent fair value. Note 9: Comprehensive Income SFAS No. 130, Reporting Comprehensive Income establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. It requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 130 requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid in capital in the equity section of a statement of financial position. The Company's comprehensive income does not differ from its reported net income. Note 10: Business Segments The Company has eight business segments: (a) Manufacture of night sights for handguns and other firearms (b) Manufacture of "the Gripper", a patented device used for climbing steel surfaces, and manufacture of an Emergency Magnetic-Hydraulic Sea Patch System (c) Importation and resale of firearms and (d) Manufacture and Distribution of a Tire Sealant product(inactive) (e) Professional Employer Organization (f) Manufacture of telescopic sights (g) Internet Services (formerly CQB Armor, Inc) (h) 2826 Elm Street, a night club. The majority of the Company's sales are derived from sales of night sights. Segments sales are not material to these financial statements. Note 11: Deferred Revenue During the quarter-ended September 30, 2000, Trident received an order from Great Mughal Trade Associates, or GMTA, for 500 units of its Sea Patches. Under the terms of the contract, GMTA will pay Trident $600,000.00 for delivering the first 100 units. GMTA paid a non-refundable advance payment of $200,000.00 at the time it placed the order, a second installment of $200,000.00 during the manufacture of the units, and a final payment of $200,000.00 when Trident delivers the units. In September 2000, Trident received a non-refundable advance payment of $225,000.00 from GMTA. The amount was recorded as deferred revenue on the balance sheet, and will be recognized as revenue when we have fulfilled our obligation under the contract. The second installment payment will be reduced by $25,000.00 received in excess of the scheduled advance payment. Note 12: Restated Financial Statement The Statement of Operations for this quarter and the six months ended 6/30/00 has been restated for comparative purposes. There are no changes to the financial statement other than breaking out expenses for ease of comparison. Statement of 3 months ended 6/30/00 6months ended 6 /30/00 operations: As As Restated As As previously previously Restated Issued Issued General & Admin Exp 448,472 231,559 924,539 428,684 Advertising & Selling - 40,460 - 109,661 Compensation Costs - 216,453 - 386,494
Item 2. Management's Discussion and Analysis or Plan of Operation. Description of Subsidiaries. The Company had nine wholly owned subsidiaries at the end of the second quarter of 2001: 1. Innovative Weaponry Inc. Innovative Weaponry is a manufacturer of tritium products available in night sights and other "night seeing" sights in the weapons industry. Both military and private gun owners currently purchase tritium based night sights with additional applications currently under research and development. The Innovative Weaponry products feature multi-color tritium sights with the front sight brighter than the rear sight thereby enhancing low light sighting. Innovative Weaponry products have been sold to original equipment manufacturers, certain members of the United States military (including two Navy Seal Teams, United States Customs, Drug Enforcement, Fish and Game, and state and local police departments nationwide. . Innovative Weaponry sells under the federal trademark protected name "PT Night Sights"TM a multi-color 3-dot night sight using the radioactive isotope "tritium" in encapsulated form to provide light in low light and no light situations. Innovative Weaponry has also designed and manufactured some prototype sights using fiber optic material. Fiber optics utilizes ultra-violet rays and transmits these rays through a tube giving the shooter a phenomenal daytime sight picture. 2. Trident Technologies Inc. Trident Technologies Corporation ("Trident"), is a manufacturer of the Gripper (a magnetic climbing device worn on the hand and feet), the Sea Patch formerly called the Underwater Seal and the Pro Mag. The Sea Patch is a magnetic "cam-on/cam-off" device used to seal leaks in the metal hulls of ships with both disaster and environmental markets. The magnetic technology utilized by Trident in its products is licensed from the Los Alamos National Laboratory ("Los Alamos National Lab") in Los Alamos, New Mexico. The Grippers are "worn" on hands and feet to enable the user to climb or traverse any steel surface. It is a lightweight magnetic device (each Gripper weighs only 1.5 pounds) that attaches to any ferromagnetic material-iron, steel, or their alloys. It fastens smoothly to a surface and can be attached or detached with only one hand or foot. Using a set of Grippers (i.e. two devices on the hands and two on the feet) the user can climb a vertical surface, releasing and repositioning the Grippers as he ascends. Wearing Grippers, a person can move up, down, or sideways with relative ease. The Pro Mag is designed to stop leaks on rail cars, tankers and pipeline. The Pro Mag can be applied to rounded surfaces and corners, as well as other applications. 3. Griffon USA, Inc. Griffon USA, Inc. ("Griffon"), imports a .45 caliber semi- automatic pistol from continental Weapons (Pty) located in South Africa. Griffon is regulated by the U.S. Bureau of Alcohol, Tobacco and Firearms. 4. Net Construction, Inc. On June 19, 2001, the name of company subsidiary CQB Armor, Inc. was changed to Net Construction, Inc. CQB Armor had been an inactive subsidiary since its formation due to the failure of a planned acquisition to close. The name was changed on order to effect the acquisition of Net Construction, a telecommunications and networking company originally founded in 1999. Net Construction currently offers a variety of services to its clients, including networking, telecommunication services, web hosting and development; security and access control systems and custom cabling design services. 5. Trade Partners International, Inc. Trade Partners International, Inc. ("Trade Partners") is acquiring a privately held California partnership, which manufactures and distributes bicycle tire sealant. 6. Hallmark Human Resources, Inc. Hallmark commenced business effective January 1, 2001. Hallmark was established to operate as a Professional Employer Organization ("PEO"), more commonly known as an employee leasing company. PEO's hire the employees of existing businesses and then lease the employees back to the company. This relieves the company of much of the "red tape" associated with maintaining permanent employees, and provides reduced administrative expense, workers' compensation premiums and similar costs due to the benefits of an economy of scale. Similarly, employees are afforded reduced costs for medical coverage, childcare and other benefits. Prior to Hallmark's creation, the Company and its subsidiaries had used the services of another PEO at a cost of approximately $4000.00 a month. Hallmark has now assumed this role. Hallmark intends to aggressively market its services to other employers in the current fiscal year. 7. Unertl Optical Company, Inc. In fiscal year 2000, the Company purchased the assets of the former John Unertl Optical Company, Inc. of Mars, Pennsylvania, a long time manufacturer of high quality rifle scopes and optical equipment and formed Unertl Optical Company, Inc. ("Unertl") as a wholly owned subsidiary to carry on the business. During the fourth quarter of 2000, we acquired the assets of the former John Unertl Optical Company. During the first quarter of 2001, the machinery, equipment and work in process inventory was relocated to our Ft. Worth, Texas manufacturing facility. We will retain the machinery and equipment necessary to commence production of the scopes. 8. 2826 Elm Street, Inc. In order to evaluate the potential for involvement in areas unrelated to present operations, the Company in January 2001 acquired the stock of 2826 Elm Street, Inc., the operator of a nightclub in the historic Deep Ellum entertainment district of Dallas, Texas. Within the past fifteen years the Deep Ellum area has evolved from a rundown warehouse district into an entertainment district of national prominence containing live music venues, restaurants, condominium projects and art galleries. This acquisition was made in order to evaluate the potential for future investments in this industry with a minimal investment by Company. Depending upon the results of operations from this venture, the Company may determine to seek additional projects in the entertainment business or may elect to dispose of 2826 Elm Street, Inc. 9. Miniature Machine Corporation, Inc. In March 2001 the Company acquired the stock of Miniature Machine Corporation, Inc. ("MMC"). Like Innovative Weaponry, MMC manufactures and distributes gun sights. The primary difference between the products of the two subsidiaries is that Innovative Weaponry markets fixed sights with tritium, while MMC's sights are adjustable and do not use tritium. The Company believes that MMC will integrate smoothly into its business plan and will ultimately provide some economy of scale, which could not be achieved if two such operations were operated separately. . Results of Operations. The Company completed the second quarter of 2001 with total assets of $4,590,308, compared with $2,960,903 at the end of fiscal year 2000, and $2,763,521 at the end of the second quarter of 2000. The company's fixed assets consisting of property, plant and equipment were valued at $2,005,622 at the end of the second quarter of 2001, compared with $949,351 at the end of fiscal year 2000 and $454,607 at the end of the second quarter of 2000. This was due to several factors, which included the company's purchases of a new manufacturing and office facility in Haltom City, Texas, new computer equipment, and the assets of Miniature Machines Corporation, all of which took place during the first quarter of 2001, and the earlier purchase of the assets of the Unertl Optical Company in the fourth quarter of 2000. The Company had net revenues for the second quarter of 2001 of $548,804 and total net revenues for the first two quarters of 2001 of $790,304. This compares with net revenues for the second quarter of 2000 of $213,953, and for the first two quarters of 2000 of $448,346. Gross profit on sales for the second quarter of 2001 was $378,158 and was $418,425 for the first two quarters of 2001, compared with a gross profit of ($21,738) for the second quarter of 2000 and ($41,265) for the first two quarters of 2000. Advertising and selling expenses for the first quarter of 2001 were $151,384 and $232,820 for the first two quarters of 2001, compared with $40,460 for the first quarter of 2000, $109,661 for the first two quarters of 2000 and $407,719 for fiscal year 2000. This increase over comparable 2000 periods was due to increased print advertising costs (i.e.; magazine advertising, sales catalogs and brochures) as well as the development of internet advertising and websites, and upgraded exposure at trade shows. General and administrative expenses were $428,137 for the second quarter of 2001 and $918,355 for the first two quarters of 2001, compared with $231,559 for the first quarter of 2000 and $428,684 for the first two quarters of 2000. Compensation costs for the first quarter 2000 were $397,482 and were $736,899 for the first two quarters of 2001, compared with $216,453 in the first quarter of 2000 and $386,494 in the first two quarters of 2000. These increases were attributable to costs associated with moving into the company's new facility in Haltom City, Texas and upgrading the companies computer system. They were also attributable to cash associated with hiring additional employees and developing a Human Resource Department and personnel necessary to properly staff the company's subsidiary Hallmark Human Resources. Factors Affecting Liquidity and Capital Resources. The Company is dependent upon cash on hand, revenues from the sales of its products, and its ability to raise cash through the sale of its shares. At present, the Company needs cash for monthly operating expenses in excess of its historic sales revenues. The Company will continue to require additional capital funding until sales of current products increase and sales of products under the Trident and Unertl lines are fully established. The Company may finance further growth through both public and private financing, including equity offerings, which may further dilute current shareholders' interests. If the Company is unable to raise sufficient funds to satisfy either short term or long term needs, there would be substantial doubt as to whether the Company could continue as a going concern on either a consolidated basis or through continued operation of any subsidiary, and it might be required to significantly curtail its operations, significantly alter its business strategy or forego market opportunities. Part II - OTHER INFORMATION Item 1. Legal Proceedings. On April 27, 2001, the Company commenced litigation against former Company director and Trident President Douglas Spring and former Trident Vice President Buren Palmer, II. The circumstances giving rise to this litigation and a copy of the Complaint are included in the Company's Form 8-K filed on May 11, 2001. The litigation was subsequently settled pursuant to a settlement agreement executed by the parties on June 25, 2001. A further discussion of the litigation and the terms of the settlement are included in the company's form 8-K filed on July 13, 2001, after the close of the second quarter. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit Number Description Location ------- ------------- ----------- 1 Articles of Incorporation of First National Holding Corporation dated January 28, 1994 * 2 Certificate of Amendment to Articles of Incorporation filed September 19, 1994 * 3 Certificate of Amendment to Articles of Incorporation filed September 29, 1995 * 4 Articles of Merger filed May 19, 1995 * 5 Bylaws * 6 Lease Agreement between 21st Century * Technologies, Inc. and Landlord 7 Los Alamos Exclusive Patent License * Agreement dated May 23, 1995 between The Regents of the University of California and Trade Partners International Incorporated 8 Trident Technologies Sub-License Agreement * dated July 31, 1996 9 Limited Exclusive Patent License * Agreement between The Regents of the University of California and Trident Technologies Corporation 10 Application and Permit for Firearms * Importation dated November 20, 1998 11 License of Dept. of Treasury, Bureau * Of Alcohol, Tobacco and Firearms 12 Representation Agreement dated * May 3, 1999 13 Registry of Radioactive Sealed Sources * and Devices dated February 20, 1996 14 U.S. Nuclear Regulatory Commission * Materials License dated October 18, 1996 15 NRC Registration Amendment * dated August 22, 1997 16 Request to Rescind Confirmatory Order * dated September 14, 1998 17 Distribution and Agency Agreement * dated October 15, 1999 18 Radioactive Materials License dated * October 09, 1999 19 U.S. Bankruptcy Court Order Confirming ** Plan of Reorganization dated February 1, 1995 20 Asset Purchase Agreement dated September ** 7, 2000 regarding purchase of assets of John Unertl Optical Company, Inc. 21 Purchase Agreement between 21st Century ** Technologies, Inc. and Retired Persons Pharmacy of Texas dated September 25, 2000. 22 Agreement dated April 1, 2000 between ** Great Mughal Trade Associates, Ltd. and 21st Century Technologies, Inc. 23 Purchase Order dated April 3, 2000 ** 24 Subsidiaries of the Registrant ** 99.1 Complaint filed by 21st Century Technologies, *** Inc. and Trident Technologies, Inc. against Doug Spring and Buren Palmer, II, on April 27, 2001; 99.2 Order Partially Granting Application for *** Temporary Restraining Order and Scheduling Preliminary Injunction Hearing signed by Judge Terry Means on April 30, 2001; and 99.3 21st Century Technologies, Inc. press release *** dated April 27, 2001. * Incorporated by reference to the Form 10-SB filed with the SEC on January 27, 2000. ** Incorporated by reference to the Form 10-KSB filed with the SEC on April 12, 2001. *** Incorporated by reference to the Form 8-K filed with the SEC on May 11, 2001 (b) Reports on Form 8-K The company filed one form 8-K during the first quarter of 2001. The 8-K filed on May 11, 2001 reported the commencement of the litigation described in Item I above and the entry of an order in that litigation prohibiting the defendants from attempting to transfer the Company's proprietary information during the course of that litigation. The company filed no other Form 8-K's during the second quarter of 2001. However, on July 13, 2001, subsequent to the close of the second quarter, a Form 8-K was filed in connection with the settlement of the litigation described in Item 1 above. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 21st Century Technologies, Inc. (Registrant) Date 8/14/01 /s/ Kenneth Wilson, President (Signature)* *Print the name and title of each signing officer under his signature.