10QSB 1 form10qsb.txt FORM 10-QSB PERIOD 06/30/02 ________________________________________________________________________________ SEC POTENTIAL PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION 2334(6- CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM 00) DISPLAYS A CURRENTLY VALID OMB CONTROL NUMBER. ________________________________________________________________________________ __________________________ OMB APPROVAL OMB Number: 3235-0416 Expires: April 30, 2003 Estimated average burden hours per response: 32.00 __________________________ 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, 2002 [ ] 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 (IRS Employer Identification No.) of incorporation or organization) 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: 199,927,145 as of August 7, 2002. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] PART I -- FINANCIAL INFORMATION This report includes "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. 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 and the SeaPatch/ProMag), (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. INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholders 21st Century Technologies, Inc. and Subsidiaries Haltom City, Texas We have reviewed the accompanying consolidated balance sheet of 21st Century Technologies, Inc. and subsidiaries as of June 30, 2002 and the related consolidated statements of operations and cash flows for the six months then ended. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying June 30, 2002 consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. /s/ TURNER, STONE & Company, L.L.P. ____________________________________ Turner, Stone & Company, L.L.P. Certified Public Accountants Dallas, Texas August 14, 2002
21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED) JUNE 30, 2002 JUNE 30, 2001 _____________ _____________ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 15,810 48,876 Accounts Receivable, Net 477,492 381,213 Inventories 857,061 901,107 Advances to Stockholders 200,883 462,474 ____________ ___________ Total Current Assets 1,551,246 1,793,670 Property, Plant, and Equipment, Net 1,537,538 2,005,622 Other Assets, Net 658,562 791,016 ____________ ___________ Total Assets $ 3,747,346 $ 4,590,308 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable-trade $ 113,163 478,638 Accounts Payable-other 581,188 144,476 ____________ ___________ Total Current Liabilities 694,351 623,114 OTHER LIABILITIES: Working Capital Advances 0 1,941,451 Customer Deposits 0 (274) Deferred Revenue 0 225,000 Advances from Stockholders 262,847 0 Notes Payable 540,866 162,272 ____________ ___________ Total Other Liabilities 803,713 2,328,449 ____________ ___________ TOTAL LIABILITIES: 1,498,064 2,951,563 MINORITY INTEREST-MMC 3,158 0 STOCKHOLDERS' EQUITY: Common Stock, issued 183,314,550 and 94,716,590 and outstanding shares at $.001 par value at June 30, 2002 & 2001 respectively 183,315 94,717 Paid-in Capital 13,707,552 8,437,163 Common Stock Earned, but not Issued 0 360,000 Retained Earnings (Deficit) (11,265,299) (7,216,507) Treasury Stock (376,444) (33,628) Stock Subscriptions (3,000) (3,000) ____________ ___________ Total Stockholders' Equity 2,246,124 1,638,745 Total Liabilities and Stockholders' Equity $ 3,747,346 $ 4,590,308 ============ =========== The accompanying notes are an integral part of the financial statements.
21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) 3 MOS. ENDED 3 MOS. ENDED 6 MOS. ENDED 6 MOS. ENDED JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2002 JUNE 30, 2001 _____________ _____________ _____________ _____________ Revenues, Net $ 479,710 $ 548,804 $1,208,468 $ 790,304 Cost of Revenues 276,739 170,646 566,646 376,879 _________ _________ __________ ___________ Gross Profit 202,971 378,158 641,822 418,425 General and administrative expenses 137,439 411,210 292,402 756,228 Advertising & Selling 26,046 151,384 60,639 232,246 Compensation Costs 74,788 292,027 199,402 736,899 Depreciation and Amortization 70,004 47,826 152,127 90,420 _________ _________ __________ ___________ Income (Loss) from Operations $(105,306) $(554,936) $ (62,748) $(1,455,789) Gain on Sale of Assets 324,739 0 324,739 0 Estimated Income Taxes 0 0 0 0 _________ _________ __________ ___________ NET INCOME (LOSS) $ 219,433 $(554,936) $ 261,991 $(1,455,789) ========= ========= ========== =========== EARNINGS (LOSS) PER COMMON SHARE: Basic & Diluted $ 0.00 $ (0.01) $ 0.00 $ (0.02) The accompanying notes are an integral part of the consolidated financial statements
21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 2002 2001 _________ ___________ Cash flows from operating activities: Net income (loss) $ 261,991 $(1,455,789) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 79,854 117,533 Amortization 72,273 31,308 Allowance for doubtful accounts - 480 Common stock issued for services 37,500 171,456 Gain on disposition of net assets (324,739) - Changes in operating assets and liabilities Accounts receivable, trade (91,587) 393,528 Inventories (32,849) (455,478) Prepaid expenses 25,093 - Other assets (172,706) (279,582) Accounts payable, trade (711,232) 213,096 Accrued expenses 582,416 94,202 _________ ___________ (535,977) 286,543 _________ ___________ Cash used in operations (273,986) (1,169,246) _________ ___________ Cash flows from investing activities: Purchase of property and equipment (1,164,304) Repayment of stockholder advances 3,679 _________ ___________ Cash provided by (used in) investing activities 3,679 (1,164,304) _________ ___________ Cash flows from financing activities: Advances from officer - (12,267) Treasury stock - (250) Proceeds from notes payable 200,000 91,088 Repayment of notes payable (84,269) (290,591) Advances from stockholders 162,747 1,770,371 Issuance of common stock 418 735,731 _________ ___________ Cash provided by financing activities 278,896 2,294,082 _________ ___________ Net increase (decrease) in cash 8,589 (39,468) Cash at beginning of period 7,221 88,344 _________ ___________ Cash at end of period 15,810 48,876 _________ ___________ The accompanying notes are an integral part of the consolidated financial statements
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, SeaPatch and ProMag 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, 2001. NOTE 2: OTHER ASSETS 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 3: 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, 2002, there are 183,314,550 shares of common stock issued and outstanding. 19,000,000 shares of common stock was earned under a previous consulting agreement with the prior Chairman. These shares were not issued to Mr. Wilson because the Company needed the shares to raise equity capital. Additionally, it was discovered that the authorized shares had not been properly filed with the State of Nevada. The Company retroactively corrected this issue during the second quarter of 2000. Mr. Wilson's shares were represented in the Equity section of the balance sheet as common stock earned but not issued. An adjustment to the 1997 ending retained earnings was recorded to record the compensation expense incurred by the Company. Mr. Wilson resigned May 1, 2002 and transferred his rights to the stock to ES, Inc. in settlement of a personal obligation, which are held in treasury stock. NOTE 4: 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 2002 and 2001. There were no common stock equivalents outstanding during the years 2002 and 2001. 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, 2002 INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ___________ _____________ _________ Income $219,433 BASIC EPS Income available to Common Stockholders $219,433 183,314,550 $ 0.00 DILUTED EPS Income available to common stockholders plus assumed conversions $219,433 183,314,550 $ 0.00 ======== ======
NOTE 5: INCOME TAXES At December 31, 2001, the Company has available net operating loss carry forwards of approximately $11,000,000 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 of $3,781,915. 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 $3,781,915 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 6: 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 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. NOTE 7: 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, 2001 and 2000 represent fair value. NOTE 8: 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 9: BUSINESS SEGMENTS The Company has two business segments: (a) Manufacture of night sights for handguns and other firearms (b) manufacture of an Emergency Magnetic SeaPatch/ProMag System The majority of the Company's sales are derived from sales of night sights. NOTE 10: CHANGE OF OFFICERS AND DIRECTORS On May 1, 2002, Kenneth W. Wilson submitted his resignation as President and Chairman of the Board of the Company. Arland D. Dunn was elected to serve as President and Chairman of the Board. Additionally, the Board of Directors appointed Duane Cocheneur to serve an unexpired term on the Board of Directors. Larry Bach was appointed Secretary-Treasurer. NOTE 11: SALE OF ASSETS On June 26, 2002, the Company completed the sale of the assets of 2826 Elm St., Inc. to ES, Inc., a Nevada Corporation. The corporate shell was retained as an asset of the Company. The assets of 2826 Elm, Inc. were sold for $360,000.00 plus assumption of notes payable and all its current liabilities. ES, Inc. tendered the common stock rights it had received from Kenneth Wilson to 2826 Elm St., Inc. This is now represented in the equity section as Treasury Stock. During April of 2002, a preliminary contract was signed which will allow the sale of Unertl Optical, Inc. Details between the Company and the purchaser are being negotiated and it is believed that a finalized document will be executed during the third quarter. NOTE 12: SUBSEQUENT EVENTS On July 23, 2002, an auction was held on the Company's premises. Certain unused and surplus machinery and equipment and tire sealant inventory was sold. The auction raised approximately $75,000.00 in additional working capital. Following surgery for an injury and effective July 25, 2002 James Mydlach resigned as a Director and Vice-Chairman of the Board. Richard Grob resigned effective the same day to pursue other business opportunities. On August 9, 2002, Dwane Cochenhour submitted his resignation from the Board of Directors. The resignation was accepted on August 14, 2002. 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 first quarter of 2002. The seven subsidiaries with active operations include: 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") manufactures and distributes the SeaPatch and ProMag magnetic sealing devices. The products are designed for use on many designs of ferrous containers including the metal hulls of ships, railroad tank cars, above ground storage tanks and some pipeline applications. The SeaPatch, formerly called the Underwater Seal, and the ProMag, is marketed and distributed under patent pending application number 20020000697. 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 ProMag is designed to stop leaks on rail cars, tankers and pipeline. The ProMag 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. The inventory for Griffon U.S.A., Inc. has been liquidated, with the exception of about 20 units for service and repair, and operations for this subsidiary have been discontinued. 4. 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. Operations of this subsidiary have been discontinued. Management is actively seeking a buyer for the corporation and associated licenses. 5. 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, 21st Century Technologies 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. As of June 30, 2002, the Company has entered into a sales agreement for Unertl. Completion of the sale is expected in the third quarter. 6. 2826 Elm Street, Inc. On June 20, 2002, 21st Century Technologies, Inc. sold the assets of 2826 Elm Street, Inc., a nightclub in the historic Deep Ellum entertainment district of Dallas, TX. See Note 11 for information regarding the sale. 7. 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, while MMC's sights are adjustable. The Company believes that MMC will integrate smoothly into its business plan and provides some economy of scale. 8. Trade Partners International Operations of this subsidiary have been discontinued. RESULTS OF OPERATIONS INCOME STATEMENT 21st Century Technologies, Inc. ended the second quarter of 2002 with a net profit of $219,433, including $324,739 on a gain from the sale of the assets of 2826 Elm St., Inc, reflecting a large turnaround from comparable periods in 2001. Year-to-date the combined operations of 21st Century Technologies, Inc. show a net profit of $261,991. In 2001, at the end of the second quarter, 21st Century Technologies, Inc. had a net loss of $1,455,789. Revenue for the second quarter reflected the seasonal decline historically experienced by the firearms industry. Revenue decreased from comparable second quarter periods due primarily to a large sale to a group of customers with common ownership in the second quarter of 2001. If this transaction, totaling approximately $150,000, were removed, comparable quarter core revenue would reflect an increase in 2002. Management continues to concentrate on expense control with additional reductions in General and Administrative expenses at $137,439 for the second quarter compared with $154,963 for the first quarter of 2002. Year-to-date general and administrative expenses $292,402. In 2001, the respective periods of second quarter and year-to-date were $411,210 and $756,228. Compensation costs have also seen dramatic reductions $74,788 for the second quarter, compared with $124,614 in the first quarter of 2002. As a percentage of sales, administrative salaries were at 16% of revenue for the quarter and 17% year-to-date compared with the 2001 respective periods at 53% and 93% of sales. BALANCE SHEET 21st Century Technologies, Inc. continues to streamline operations of the company. In addition to operating expenses reflected above, the efficiency efforts are reflected in the reduction of total assets in the second quarter of 2002 to $3,747,346 from $4,590,308. Liabilities have seen a significant reduction in the past twelve months from $2,328,449 in June of 2001 to $1,498,064 in June of 2002. Liquidity, as a current ratio excluding advances, remains acceptable at 1:95:1 compared with 2.14:1 one year ago. The leverage position of the company continues to improve at .67X versus 1.80X 12 months ago. 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 line is fully established. The Company will finance further growth through both public and private financing, including equity offerings, which will 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. 1) Patricia Wilson Litigation-Suit by former officer, director and shareholder against the company and individual directors for breach of employment contract, wrongful termination, negligent investigation, breach of fiduciary duty and defamation. This suit is pending in the 153rd District court of Tarrant County, Texas in Cause No. 153-189311-01. It appears at this time that Plaintiff cannot legally prevail on many of her claims because they do not belong to her individually. As to the breach of contract claim, we believe that Plaintiff will be unable to establish a legally enforceable contract 2) Industrial Magnetics, Inc. - This is a trade claim pending in the 33rd Circuit court of Charlevoix County, Michigan, Cause No. 01-1138-19-GC, in the face amount of $742,500.00 for specially fabricated magnets, which were ordered by Trident. Trident, however, only accepted a portion of the order and has been sued for the balanced due under the contract. We believe that Trident has a valid counter claim because the magnets that were delivered were defective and unsuitable for their intended purpose. 3) Bike Doctor - In the year 2000 21st Century agreed to purchase the assets of Bike Doctor, a manufacturer of bicycle tire sealant, for $150,000. 21st Century made an initial payment of $5000.00 but failed to pay the balance and has now indicated that it does not intend to go through with the deal. Suit was subsequently filed in March 2002 in U.S. District Court for the State of California, Central Division, Cause No. CV-0201927 for the balance of the contract amount ($145,000.00) and punitive damages. This suit has recently been filed and is in the discovery phase. 4) U. S. Optics Suit was filed in 2001 against U.S. Optics and its principal John Williams in cause number 01CC02407 in Superior Court for the State of California, Orange County Division for conversion, trademark infringement, false advertising and breach of contract, among other caused of action arising from Defendants' interference 21st Century's purchase of Unertl Optical. The Defendants counterclaimed against 21st Century, its subsidiaries and individual present and former officers and directors of those entities, alleging breach of contract, fraud, conspiracy and other counts related to 21st Century's purchase of Unertl and its dealings with U.S. Optics and Williams. The litigation was successfully resolved in favor of 21st Century and the counterclaim was dismissed in all respects. The defendant judgment in favor of 21st Century Technologies, Inc. was for $25,000, which will be repaid over 24 months. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS UNTO A VOTE OF SECURITY MATTERS None ITEM 5. OTHER INFORMATION Subsequent to the end of the second quarter, on August 6, 2002, the Company filed a Form S-8 with the Securities and Exchange Commission. This filing authorizes the Company to issue stock to various employees, officers, directors and consultants. ITEM 6(A). EXHIBITS 99.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ITEM 6(B). REPORTS ON FORM 8-K. On August 15, 2002, a Form 8-K was submitted to the Securities and Exchange Commission regarding the change in management that occurred on May 1, 2002. No financial statements were presented with this filing. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Additionally, the undersigned hereby certify the correctness and completeness, in all material respects, of the information contained in this quarterly report and their responsibility for the Company's internal controls and the periodic evaluation of such internal controls. 21ST CENTURY TECHNOLOGIES, INC. _______________________________ (Registrant) Date 8/16/02 /s/ ARLAND D. DUNN _______ ______________________________________ Arland D. Dunn, Chief Executive Officer/President Date 8/16/02 /s/ ALVIN L. DAHL _______ ______________________________________ Alvin L. Dahl, Chief Financial Officer *Print the name and title of each signing officer under his signature.