-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QD438eSOEFMSU+7xAc45mVz3AK3V1ojSPI5e7yPTF7dyZ+pBPNcaoaC2a4i04XlM AcBSqx5VLp6EDls3I9UvSg== 0001092306-03-000152.txt : 20030417 0001092306-03-000152.hdr.sgml : 20030417 20030417145639 ACCESSION NUMBER: 0001092306-03-000152 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 21ST CENTURY TECHNOLOGIES INC CENTRAL INDEX KEY: 0001090870 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 481110566 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-29209 FILM NUMBER: 03654137 BUSINESS ADDRESS: STREET 1: 5050 EAST BELKNAP CITY: HALTOM CITY STATE: TX ZIP: 76117 BUSINESS PHONE: 8172840099 MAIL ADDRESS: STREET 1: 5050 EAST BELKNAP CITY: HALTOM CITY STATE: TX ZIP: 76117 10KSB 1 form10ksb.txt FORM 10-KSB FOR THE PERIOD ENDING 12/31/02 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 ___________________________________________ [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to _____________ Commission file number:000-29209 _________ 21ST CENTURY TECHNOLOGIES, INC. ______________________________________________ (Name of small business issuer in its charter) NEVADA 48-111056 _______________________________ ____________________________________ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5707 CORSA AVENUE, SUITE 103, WESTLAKE VILLAGE, CALIFORNIA 91362 ________________________________________________________________ (Address of principal executive offices) (Zip Code) Issuer's telephone number (817) 838-8011 ______________ Securities registered under Section 12(b) of the Exchange Act: NONE Securities registered under Section 12(g) of the Exchange Act: $0.001 PAR VALUE COMMON VOTING STOCK ________________________________________________________________________________ (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Check if there is no disclosure of delinquent filers in response to ITEM 405 OF REGULATION S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. ________________________________ State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) NOTE: If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated. (APPLICABLE ONLY TO CORPORATE REGISTRANTS) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 112,080,802 ISSUED COMMON SHARES AS OF April 11, 2003. DOCUMENTS INCORPORATED BY REFERENCE NOT APPLICABLE. Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X] PART I ITEM 1. DESCRIPTION OF BUSINESS. (a) Business Development. 21st Century Technologies, Inc. ("the Company") is a Nevada corporation. The Company merged into a "public shell" (formerly First National Holding Corporation) after acquiring certain assets of Innovative Weaponry, Inc., a debtor in bankruptcy, and commenced trading on June 1, 1995. The name of the Company was changed from Innovative Weaponry, Inc. to 21st Century Technologies, Inc. on September 25, 1995. SUBSIDIARIES, THEIR PRODUCTS, SERVICES, AND MARKETS. The Company had eight subsidiaries at the end of the reporting fiscal year: 1. Innovative Weaponry Inc. Innovative Weaponry is a manufacturer of night sights utilizing tritium, a radioactive isotope of hydrogen. Products are available to both public entities and private gun owners. Encapsulated in phosphor-lined glass sight inserts, the tritium causes the phosphors to glow, making the sights useful in low-light and no-light conditions. 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, members of the United States military (including Navy Seal Teams, United States Customs, Drug Enforcement agencies, Fish and Game departments, and numerous state and local police departments nationwide. Innovative Weaponry sells under the federal trade mark 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's domestic competition is: (1) Trijicon (2) Meprolight and (3) Trilux. Each of these companies is private and no public sales figures are available. Page 1 of 23 Tritium is a radioactive product that is regulated by the U.S. Nuclear Regulatory Commission ("NRC") and the Texas Department of Health (TDH). Innovative Weaponry is licensed with the NRC and TDH to import tritium in connection with the manufacture of its night sights and low-light sights. IWI's licensing by the NRC is currently under review to expand legal applications of different configurations of PT NIGHT SIGHTS (TM). Innovative Weaponry is a New Mexico corporation and is owned 100% by the Company. 2. Trident Technologies, Inc. Trident Technologies, Inc. ("Trident") manufactures a series of products based upon permanent magnets, which use patented technology employing rare earths and sophisticated circuitry. Trident is a Nevada corporation and is owned 100% by the Company. The magnets are used to attach leak-sealing devices to ferrous surfaces. The devices are made in several configurations. One series is engineered for maritime applications and is known in its various configurations as "SeaPatch." The series engineered for land-based applications is known in its various configurations as "ProMag." The magnetic force exerted by the adhesion magnets employed by SeaPatch and ProMag is so powerful that a cam-lever device is required to detach the devices once they are deployed on ferrous surfaces. This technique is known as "cam-on cam-off". The SeaPatch and ProMag have applications in both the disaster and environmental markets. The technology is based on a patented magnetic means of implementing emergency ship, storage container, pipeline and other repairs where surface integrity has been breached as in the case of a rip or tear to a ship's hull or a ruptured railroad tank car. The technology utilizes the rare-earth magnetic pack and cam-on/cam-off technology to attach a compression patch to tears, stress fractures and punctures in a ship's hull above or below the waterline, or any of many various applications for the stopping of land-based leaks, as occur in pipelines, storage tanks, tank cars and numerous other ferrous-based containers of liquids or gases. This technology provides a new approach to resolving a problem having high public visibility due to the extensive environmental focus on potentially hazardous chemical and oil spills from pipelines, storage containers, railroad cars and marine transport vessels. Trident markets its products to private industry, including the maritime and salvage industries, as well as governmental entities. 3. Griffon USA, Inc. Griffon USA, Inc. ("Griffon"), was an importer of .45 caliber Page 2 of 23 semi-automatic pistols from Continental Weapons (Pty) located in South Africa. It no longer engages in business of any kind 4. Net Construction, Inc. On June 19, 2001, the name of CQB Armor, Inc., a 100% owned subsidiary of the Company, 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 in order to effect the acquisition of Net Construction, a telecommunications and networking company originally founded in 1999. It was the Company's intent to offer through Net Construction a variety of telecommunications services. Due to higher than anticipated overhead expense, the Company discontinued operations of Net Construction. 5. Trade Partners International, Inc. Trade Partners International, Inc. ("Trade Partners") did not engage in business activities during the year 2002. 6. Hallmark Human Resources, Inc. Hallmark Human Resources, Inc. ("Hallmark"), a wholly owned subsidiary of the Company, did not engage in business during the year 2002. 7. Miniature Machine Corporation, Inc. In March 2001, the Company acquired the stock of Miniature Machine Corporation, Inc. {"MMC"}, a manufacturer and distributor of gun sights. The primary difference between the products is that Innovative Weaponry markets fixed sights, while MMC sights are adjustable. The subject of precision machining, the open sights offered by MMC are favorites of gun enthusiasts and serious hobbyists. The manufacture and sale of MMC sights has been integrated smoothly into the manufacture and sale of PT Night Sights offered by Innovative Weaponry, Inc. 8. 2628 Elm St., Inc. On June 20, 2002, the Company sold the assets of its wholly-owned subsidiary, 2628 Elm Street, Inc. to ES, Inc., in consideration of the assumption of all debt arising from Club operations and purchase by the purchaser in the sum of Page 3 of 23 $350,000.00. The company retained the corporate shell, which did not transact any business subsequent to June 20, 2002. DISTRIBUTION METHOD OF THE PRODUCTS AND SERVICES. The Company's distribution methods vary with each subsidiary. The Innovative Weaponry and Miniature Machine Corporation subsidiaries sell their products and services through a combination of (1) direct sales, (2) sales through distribution agents, and (3) sales through manufacturers and supply houses. The distribution of Trident products utilizes both direct sales and agency representation, and is directed to both the private sector, such as the maritime shipping, salvage and repair industries, and the governmental sector, both domestic and foreign. COMPETITIVE BUSINESS CONDITIONS. The Company, particularly with regard to its Innovative Weaponry and Miniature Machine subsidiaries, depends on the quality of its products and a discounted pricing strategy in comparison to its competitors. The risk associated with this strategy is that a seller must operate at a lower profit margin to gain market share. Innovative Weaponry is one of only three U.S. manufacturers who produce tritium gun sights. Innovative Weaponry is currently the only importer of tritium from South Africa. Its major competitors import from either Switzerland or Canada. The license to import tritium is issued by the U.S. Nuclear Regulatory Commission. This license confers competitive advantage in that any new manufacturer of tritium gun sights would need to obtain regulatory approval to import tritium. Although it is possible that a new manufacturer could obtain the necessary license to import tritium in order to compete with Innovative Weaponry, the time involved in obtaining such a license could delay market entry, thereby providing the Company with a slight competitive advantage over a new entrant into the market. PT Night Sights (TM) appeals to gun users who desire help in alleviating the poor level of accuracy in low light conditions. PT Night Sights (TM) are sold primarily to the military, sportsmen, law enforcement, government agencies and gun enthusiasts. Page 4 of 23 The future growth of Trident will depend on the acceptance of its products. As the market for Trident's products expands it can be expected that competitors will seek to introduce alternative products. Trident will seek to differentiate its products with reliance upon superior design, functionality and customer support. There also exists the possibility that foreign manufacturers may seek to duplicate Trident's products and technology and attempt to distribute them in foreign markets, which might require foreign patent litigation if Trident intends to enforce its patent rights in these foreign markets. PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSION, ROYALTY PAYMENTS OR LABOR CONTRACTS, AND DURATION. The Innovative Weaponry subsidiary has a license from the Nuclear Regulatory Commission to import tritium from South Africa. NEED FOR GOVERNMENTAL APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES. The Company is currently regulated by three agencies of the United States and by the Texas Department of Health in connection with its activities involving firearms and tritium. The federal regulatory agencies are the Nuclear Regulatory Commission (the "NRC"); and the Occupational Health and Safety Administration ("OSHA") and the Bureau of Alcohol, Tobacco and Firearms ("BATF"), now integrated into the Department of Homeland Security. The NRC regulates the importation of tritium and its use in the manufacture of PT Night Sights (TM). Each of these agencies has granted Innovative Weaponry and all necessary permits, licenses and/or grants of authority to transact business. Substantial rules and regulations control the manner in which these subsidiaries transact business. The Company is required to maintain books and records in connection with their firearms business and are subject to onsite inspection by these agencies. Both the Innovative Weaponry and MMC subsidiaries will continue to need BATF and NRC approval to do business. The grant of these licenses from governmental agencies is subject to certain record requirements, periodic inspections, and timely reporting. If these subsidiaries failed to comply with Page 5 of 23 these requirements, it is possible that the responsible government agencies could cancel, suspend, or qualify those companies' rights to do business in regulated fields. EFFECT OF EXISTING OR PROBABLE GOVERNMENT REGULATIONS ON BUSINESS. We are closely regulated in the importation, storage, and distribution of tritium. Tritium, as a commodity, is supplied by various countries including Canada, Russia, South Africa, and Switzerland. Tritium is a radioactive isotope of hydrogen and is highly regulated to prevent over-exposure which can be dangerous and even life threatening to humans. Tritium emits low energy beta particles and almost no gamma rays transforming itself into helium. This process is called radioactive decay and proceeds at an unalterable rate for each type of radioisotope. The time required for a radioactive isotope to decay to half of its original strength or to lose half of its activity is called "half-life" which is 12.3 years for tritium. The conventional unit of measurement of radioactivity is the Curie (symbol Ci) (3.7 x 10 disintegration per second). The newer, S.l., unit is the Becquerel (symbol Bq) (1 disintegration per second). Ionizing radiation is part of our natural surroundings. The natural sources of radiation include: minerals in the earth; radioactive gasses in the air; cosmic rays from outer space and the sun. All of these sources are referred to as "natural background" radiation. Some manufactured products, such as building materials and luminous paints, as well as, our food and water, contain small quantities of radioactive material. Also, for many years, x-rays have been used for medical purposes. When a person is exposed to radiation, some of it is absorbed by the body causing ionization of molecules of tissue. The amount of radiation that is absorbed is measured as a "radiation dose". Two units of dose measurement are currently in use. The conventional unit is the "rem". The other unit is Sievert (Sv) with 1 Sv equal to 100 rems. In terms of strength, 1 rem and 1 Sv are relatively large doses of radiation. It is more usual to refer to millirem (abbreviated as mrem), which represents one-thousandth of a rem and a milliSiever or mSv. In everyday life, we are exposed to different sources of radiation as follows: Natural Background 1 to 3.5 msv per year Chest 0.06 mSv per year Skull 0.20 mSv per year Spinal Column 1.30 mSv per year Upper GI 2.45 mSv per year Abdomen 0.55 mSv per year Barium Enema 4.05 msv per year Pelvis 0.65 mSv per year Bone Fracture 0.01 mSv per year Tritium Encapsulated 0.001 mSv per year or less Page 6 of 23 The Company has insurance coverage as follows: $1,550,000 building, $2,215,000 business personal property, $1MM product aggregate and $2MM general aggregate. The Company does not believe that it is subject to environmental or personal injury liability with respect to human exposure to its tritium based products (even assuming the destruction of the encapsulated tritium in its entirety). Nonetheless, the Company maintains strict safety guidelines in the handling, storage and manufacture of its tritium products. RESEARCH AND DEVELOPMENT. The Company currently has no research and development group. Periodically, we make refinements to our products on a line production basis. NUMBER OF EMPLOYEES. As of the close of the reporting period, the Company had approximately 21 employees, with one being part-time. ITEM 2. DESCRIPTION OF PROPERTY. All of the manufacturing endeavors of the Company and it subsidiaries are conducted out of the Company's facilities located at 5050 East Belknap, Haltom City, Texas, 76117. The property consists of 38,512 square feet of office, warehouse and production facilities located on 2.38 acres of land. The Company's executive offices are located at 5707 Corsa Avenue, Suite 103, Westlake Village, California, 91362. Page 7 of 23 LEGAL PROCEEDINGS. On September 5, 2001, Patricia Wilson, a former officer, director and employee of the Company, filed suit against the Company and directors Ken Wilson, Jim Mydlach and Dave Gregor. The suit is pending in the 153rd District Court of Tarrant County, Texas in Cause Number 153-189311-01. The suit arises out of Ms. Wilson's termination as an officer and director of the company on August 31, 2001. The causes of action asserted against the Defendants include breach of fiduciary duty, breach of contract, defamation and negligent investigation. The Petition seeks actual damages of $500,000.00, exemplary damages of $10,000,000, and 9,000,000 shares of Company stock. A further discussion of the litigation is included in the Company's Form 8- K filed as of September 26, 2001. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Our common stock is traded over the counter and quoted on the OTC NASDAQ Electronic Bulletin Board under the Signal "TFCT." That symbol became effective after the accomplishment of the recapitalization above described on February 20, 2003. The following table represents the range of the high and low bid prices of the Company's stock for each fiscal quarter for the last two fiscal years ending December 31, 2002. Such quotations represent prices between dealers and may not include markups, markdowns, or commissions and may not necessarily represent actual transactions. As Restated ________________ Year Quarter High Low High Low 2001 First Quarter 1.03 .13 103.00 13.00 Second Quarter .48 .12 48.00 12.00 Third Quarter .11 .02 11.00 2.00 Fourth Quarter .05 .02 5.00 2.00 2002 First Quarter .04 .02 4.00 2.00 Second Quarter .04 .02 4.00 2.00 Third Quarter .03 .01 3.00 1.00 Fourth Quarter .02 .01 2.00 1.00 Page 8 of 23 Our market has traded sporadically and is often thinly traded with large changes in volume of shares traded on any particular day. Shareholders should consider the possibility of the loss of the entire value of their shares. As of December 31, 2002 the authorized capital of the company is 200,000,000 shares of common voting stock par value $.001 per share. The Company has outstanding 199,927,145 shares of stock. Prior to restating for the 100:1 reverse stock split which was effective February 20, 2003, the Company had issued an outstanding capital of 132,811,192 shares of $.001 par value common voting stock and 67,115,953 preferred warrants outstanding at December 31, 2002. After the recapitalization effective February 20, 2003, there are 300,000,000 shares of $.001 par value common stock authorized with 86,744,065 issued and outstanding. There are 50,000,000 shares of $.001 par value preferred stock authorized with 1,200,000 shares issued and outstanding. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. During the fiscal year 2002, new management assumed the reins of the Company on May 1, 2002. It immediately set about to increase efficiencies, reduce overhead and turn the Company from large losses to break-even or profitability. Overhead was substantially reduced by reducing the number of employees, simplifying systems and careful cost control. On the sales side, the Company's primary focus was on building recognition and sales of the Sea Patch and ProMag series through its Trident Technologies, Inc. wholly owned subsidiary, increasing its market share of the Innovative Weaponry night sight business through a combination of marketing and competitive bidding. Trident now offers the SeaPatch Kit as well as the ProMag Kit in an all stainless steel version, an all carbon steel version as well as the Standard Aluminum/Stainless Steel version. All components are powder or Teflon coated giving them superior corrosion resistance as well as cosmetic appeal. The magnets are covered with a high-tech aerospace-developed coating which prevents sparking, is resistant to corrosion and is chemically inert, making it resistant to damage from exposure to powerful reactive chemicals, reducing the potential for electrical spark, making SeaPatch and ProMag even more useful in flammable and chemical HAZMAT situations or combinations thereof. ProMag Kits have been accepted as both classroom and field training tools at three of the largest HAZMAT training facilities in the world: The Louisiana Emergency Response Training Center in Holden, LA, The Emergency Response Training Program at the Transportation Technology Center in Pueblo, CO, and the Page 9 of 23 Texas Engineering Extension Service, Emergency Services Training Institute at Texas A&M, in College Station, TX. Every HAZMAT technician that trains at one of these facilities now has the opportunity to train in an actual leak scenario using the ProMag Systems. Trident continues to try to establish name recognition of its products by conducting demonstrations for fire fighting and HAZMAT personnel and attending trade shows.. FACTORS AFFECTING LIQUIDITY. 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 Trident is fully established. The Company intends to finance further growth through both debt and equity offerings, which will further dilute current shareholders' interests. ITEM 7. FINANCIAL STATEMENTS. Our consolidated financial statements and the independent auditors' report appear on pages F-1 through F-19 of this report. Revenues, after the restatement for discontinued operations, in 2002 were $1,262,393, a decrease from $1,714,941 in 2001. Innovative Weaponry, Inc. and the sale of night sights accounted for the majority of revenue at $944,669 in 2002 compared with $1,607,660 in 2001. Trident Technologies sales increased from $158,119 in 2002 compard to $53,323 in 2001. The gross profit margin on all products produced by the company improved significantly, due to management's efforts to control costs and eliminate inefficiencies, from 46% in 2002 compared with 35% in 2001. The Company experienced a loss of $1,930,845 in 2002, which was a significant decrease from the loss of $5,766,572 in 2001. Major items contributing to the loss in 2002 include the write-off of reserving of certain accounts receivable, notes receivable, inventories and licenses in the amount of $582,943 dating from fiscal 2001 and years previous which may be uncollectable or unuseable, as well as significant costs related to the recapitalization of the company. Page 10 of 23 21st Century Technologies, Inc. ended the year 2002 with $2,534,637 in total assets with $768,171 in current assets. Property and equipment is $1,202,265. At year-end 2002, total liabilities were $1,984,410 and the equity position of 21st is $547,069. Managements plans regarding continued operation include the possibility of raising additional equity capital via the sale of stock which can now be accomplished due to the recapitalization. Management is also attempting to sell the building and property located in Haltom City, TX in order to liquidate debt and raise additional capital. Aggressive sales efforts will likely increase sales of product in the coming year. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There were no disagreements with our independent accounting firm during our last two fiscal years. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS. Our directors, executive officers and key employees and their respective ages and positions are set forth below. Biographical information for each of those persons is also presented below. Our executive officers are appointed by our Board of Directors and serve at its discretion. Kenneth E. Wilson resigned as a Chairman of the Board, Chief Executive Officer and President of the Company on May 1, 2002. At the same time, David Gregor resigned as Secretary of the Company. Arland D. Dunn was appointed to be Chairman of the Board, CEO and President of the Company on May 1, 2002. On that date, Larry B. Bach was appointed as Secretary of the Company. Mr. Dunn became President and Director of all of the Company's then-existing subsidiaries. Kevin Romney was appointed General Manager on May 20, 2002. James Mydlach and Richard Grob resigned as directors of the Company on July 25, 2002. Larry B. Bach and Kevin Romney were elected to the Board of Directors of the Company on August 20, 2003. Scott Sheppard resigned as COO on September 16, 2002. Page 11 of 23 Name Age Position Held Arland D. Dunn 63 Chief Executive Officer, President and Chairman of the Board Larry B. Bach 65 Secretary and Director David Gregor 47 Director Fred W. Rausch, Jr. 78 Director Kevin Romney 42 Director (and General Manager, which is not an executive officer Position with the Company Arland D. Dunn, President, CEO and Chairman of the Board Thousand Oaks, California Born in the high desert of eastern California, Mr. Dunn graduated Columbia Law School (With Special Recognition). Business was more appealing to him than the practice of law. Returning to his roots, he joined the Inyo Marble Products Company in his native Inyo County, California. At that time, the company was the largest provider of marble and terrazzo in the United States. Mr. Dunn guided that company through a difficult period of contraction of basic natural resource industries in the United States, including dealing successfully with the then new environmental, safety and ecological regulation, while maintaining profitability and business growth. He earned his substantial equity position in Inyo Marble. Mr. Dunn then chose to broaden his business experience, joining IAP Industries, a force in retail photography and allied services, as executive vice-president. Mr. Dunn learned the popular photography business that would lead to his successful next enterprise. The creation of Traditional Industries, Inc. by Mr. Dunn in the late 1970's led to a most successful organization, boosted by new methods of consumer financing designed by Mr. Dunn. Independent direct sales organizations represented Traditional, aggressively promoting goods and services paid for by consumer installment contracts. Traditional not only sold in its own account, but also bought and sold consumer installment debt paper from other sources, creating a less-then-prime financial network engaged in the buying, selling and trading of consumer installment debt. Revenues went from $0 to $200,000,000 per annum. Traditional was named by Forbes as one of the best managed small businesses in America. Mr. Dunn's most significant contribution to the success of Traditional, among many significant contributions, was the expert dealing in the volatile market for short-term consumer installment contracts, financing the purchasing and reselling of such obligations through public instruments. Profits earned in the high-velocity market, trading in such instruments were greatly enhanced by Mr. Dunn's innovative methods. Page 12 of 23 Always on the lookout for innovative opportunities, Mr. Dunn then entered the then rapidly growing ATM market, which led, in turn to interest in non-bank electronic money transfer. As an outgrowth of the ATM enterprise, a new money-transferring system, which better served the public at less cost and with greater efficiency was developed under Arland's supervision. Following the events of 9/11, Mr. Dunn sought new enterprises to deal with the new world. 21st Century Technologies, Inc. asked him to become their new leader as chairman of the board and chief executive officer at a time of difficulty. Larry B. Bach, Director and Secretary of the Company A resident of Agoura Hills, California, Mr. Bach has served as Director since August 20, 2002 and Corporate Secretary to the Company since May 1, 2002, serving at the Company's Westlake Village, California executive offices. From 1998 until 2002, he was Vice-President/Secretary of KeyCom, Inc., which developed the XTRAN (TM) money transfer system, which was sold to Emergent Financial Services, Inc. From 1995 until 1998, Mr. Bach served in various executive capacities with Centennial Financial Services, Inc., dealing in the high-velocity and complex business of dealing in short term consumer debt financing, becoming engaged with Centennial as a result acting as counsel and advisor to Churchill-Steele Ltd., a New Orleans-based venture capital firm. Prior to Churchill-Steele, Mr. Bach engaged in the private practice of law, with additional experience as chairman of the Homestead Oil Company, which engaged in drilling and exploration, principally in Oklahoma. Mr. Bach received a Bachelor of Arts (English) from the University of North Texas, followed by a JD from Southern Methodist University, where he served on the Law Review as a member of the Board of Editors of the Journal of Air Law and Commerce. David Gregor, Director Mr. Gregor attended Temple University. From 1984 to 1986, Mr. Gregor was a member of the U.S. Navy Seal Team (Number 6). Mr. Gregor received specialized training at the Pennsylvania gunsmith School; Remington Armory School; Smith and Wesson Armory School; Sig Sauer Armorer School; Heckler and Koch Armory School (Germany); U.S. Marine Corps Marksmanship Unit (Quantico, VA); Department of the Army Armory Training; Certified Armory Training Instructor for the State of New Page 13 of 23 Mexico; and attended cross-training at the Federal Bureau of Investigation Academy (Quantico, VA). Before joining the Company in 1994, Mr. Gregor worked as the chief gunsmith with the U.S. Department of Energy's Central Training Academy in Albuquerque, NM and A&P Arms, Virginia Beach, VA. Fred W. Rausch, Jr., Director Mr. Rausch earned his J.D. Degree from Washburn University Law School. Mr. Rausch has over 30 years experience in various legal tenures including 2 years Assistant Revisor of Kansas Statutes; 7 years Assistant Attorney General, Kansas; 8 years Workers Compensation Fund Director, Kansas; 10 years General Counsel, Kansas Association of School Boards, and 30 years, Municipal Counsel, various Kansas municipalities. Mr. Rausch is admitted to practice law before the U.S. Supreme Court; U.S. Military Court of Appeals; U.S. Court of Appeals for the 10th Circuit; U.S. District Court Kansas, Kansas Supreme Court, and all other Kansas courts. Mr. Rausch is a U.S. Army Reserve Colonel having served duty in World War II and Korea. Kevin D. Romney, CPA, Director (and General Manager) Mr. Romney has been serving the Company as director since August 20, 2002 and General Manager since May 20, 2002. In 1987, Mr. Romney founded The Romney Group, a telemarketing company specializing in the sale of financial products, surveys, subscriptions, lead generation, political calling etc. Clients include Chase, Discover, First USA, Greyhound, NRA, Phillip Morris, Investors Business Daily, American Remodeling, Republican and Democratic candidates. At inception, the company's main product was finding locations for vending machines owned by individual investors. In 1995, The Romney Group expanded to include other types of telemarketing. Explosive growth of 60-70% per year led to recognition of The Romney Group as one of the 15 fastest growing telemarketing companies of its size by Telemarketing Magazine for several years in a row, growing to revenue in excess of $3 million per year. Prior to the founding of The Romney Group, Mr. Romney was an auditor for Ernst & Whinney, a Big Eight CPA firm. Mr. Romney received his BBA from Brigham Young University, with emphasis in accounting. ITEM 10. EXECUTIVE COMPENSATION. The following table sets forth the aggregate compensation paid by the Company for services rendered during the periods indicated. Page 14 of 23
Summary Compensation Table Annual Name and Principal Position Year(s) Salary Bonus ___________________________ _______ ______ _____ Arland D. Dunn May 2002 $150,000 $0 CEO and President Kenneth E. Wilson, Former 1999 - $120,000 $0 Chairman, CEO and President April 2002 Larry B. Bach, Director and Secretary May 2002 $50,000 $0 David Gregor, Director and Former 1997- $70,000 $0 President Of IWI, Inc. Sept. 2002 Kevin Romney, Director (and General Manager) May 2002 $104,000 $0 Alvin L. Dahl 2002 $54,000 $0 Chief Financial Officer
COMPENSATION OF DIRECTORS. The Company does not have any standard arrangement for compensation of our directors for any services provided as Director, including services for committee participation or for special assignments. Employment Contracts and Termination of Employment and Change-in-Control Arrangements through 2002 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table sets forth information as of December 31, 2002, Page 15 of 23 regarding the beneficial ownership of our common stock, Preferred Warrants, and the Note (i) by each person or group known by our management to own more than 5% of the outstanding shares of each such class, (ii) by each director, the chief executive officer and each of the other four executive officers that were paid more than $100,000 during the last fiscal year, and (iii) by all directors and executive officers as a group. Unless otherwise noted, each person has sole voting and investment power over the shares indicated below, subject to applicable community property laws. Except as otherwise stated, the mailing address for each person identified below is 5050 East Belknap, Haltom City, Texas 76117.
Before Shares Beneficially Name Class Recapitalization Owned (1) _____________________________________ ______ ________________ ___________________ Fredricks Partners 5707 Corsa, Suite 107 Westlake Village, CA 913652 Common 12,000,000(2) 6% Arland D. Dunn, Chief Executive Officer & Director Common -0- -0- Larry B. Bach, Secretary & Director Common 50,000(3) * Alvin L. Dahl, Chief Financial Officer Common 2,495,000(3) 1.5% Fred Rausch, Director Common 401,000(3) * David Gregor, Director Common 600,000(3) * All Directors and Officers as a group (5 Persons) Common 3,546,000 1.8% Page 16 of 23 __________________ * Less than 1%. (1) Percentage of beneficial ownership is based on 199,927,145 shares of common stock outstanding as of December 31, 2002. In computing an individual's beneficial ownership, the number of shares of common stock subject to options held by that individual that are exercisable as of or within 60 days of January 27, 2003, are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the beneficial ownership of any other person. (2) Issuable upon conversion of a $200,000 promissory note and the conversion of the Series A Convertible Preferred Stock. (3) Issuable upon exercise of warrants. (4) The Company has authorized one class of common voting shares. (5) The addresses of all executive officers are at the Company's headquarters, 5707 Corsa Avenue, Suite 103, Westlake Village, California, 91362 or at the manufacturing facility at 5050 East Belknap, Haltom City, Texas, 76117. (6) The percentage of class has been calculated on a fully diluted basis of 199,927,145 shares.
Page 17 of 23 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Fredericks Partners, a California general partnership, exercised its option to convert $200,000.00 in debt owed it by 21st Century Technologies, Inc. into 1,200,000 shares of Series A and B Preferred Stock of the Company. Fredericks Partners, Arland D. Dunn, Managing Partner, consists of Mr. Dunn, President, Chairman and CEO of the Company, Larry B. Bach, Director and Secretary of the Company, Drew Dunn of Palmdale, California, Citywide Funding, Inc. and Fredericks, Van Horn and Serio, Inc. The preferred stock acquired by Fredericks Partners gives that entity 600,000,000 shareholder votes. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. a) The following Exhibits are filed as a part of, or incorporated by reference into, this Form 10-KSB: Exhibit Number Description Location _______ ___________ ________ 1 Articles of Incorporation of First National Holding Corporation dated January 28, 1994 1 2 Certificate of Amendment to Articles of Incorporation filed September 19, 1994 1 3 Certificate of Amendment to Articles of Incorporation filed September 29, 1995 1 4 Articles of Merger filed May 19, 1995 1 5 Bylaws 1 8 Trident Technologies Sub-License Agreement 1 dated July 31, 1996 9 Limited Exclusive Patent License 1 Agreement between The Regents of the University of California and Trident Technologies Corporation Page 18 of 23 11 License of Dept. of Treasury, Bureau 1 Of Alcohol, Tobacco and Firearms 12 Representation Agreement dated 1 May 3, 1999 13 Registry of Radioactive Sealed Sources 1 and Devices dated February 20, 1996 14 U.S. Nuclear Regulatory Commission 1 Materials License dated October 18, 1996 15 NRC Registration Amendment 1 dated August 22, 1997 16 Request to Rescind Confirmatory Order 1 dated September 14, 1998 17 Distribution and Agency Agreement 1 dated October 15, 1999 18 Radioactive Materials License dated 1 October 09, 1999 19 U.S. Bankruptcy Court Order Confirming 2 Plan of Reorganization dated February 1, 1995 23 Purchase Order dated April 3, 2000 2 Page 19 of 23 24 Subsidiaries of the Registrant 2 99.1 Certification - CEO 99.2 Certification - CFO 1- Incorporated by reference to the Form 10-SB filed with the SEC on January 27, 2000. 2- Incorporated by reference to the Form 10-KSB filed with the SEC on April 12, 2001. 25 MMC Acquisition Agreement b) Several Form 8-Ks were issued and submitted to the Securities and Exchange Commission during the reporting period. August 7, 2002 a Form 8-K was submitted reporting the resignation of Jim Mydlach as a Director and Vice-Chairman of the board and Richard Grob's resignation as a Director of the board. A Form 8-K was submitted on August 9, 2002 announced the resignation of Duane Cocheneur as a Director of the board. 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. A form 8-K issued on August 20, 2002 announced that Larry Bach and Kevin Romney were named as Directors to the Board. September 16, 2002 a form 8-K announced the resignation of Scott Sheppard as the COO of 21st Century Technologies, Inc. A form 8-K issued on October 23, 2002 announced that the Fredericks Partners exercised its option to convert $200,000 in debt to stock. PART F/S Furnish the information required by ITEM 310(A) OF REGULATION S-B. Page 20 of 23 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT YEARS ENDED DECEMBER 31, 2002 AND 2001 C O N T E N T S AUDITORS' REPORT.............................................................F-1 CONSOLIDATED BALANCE SHEETS................................................F-2-3 CONSOLIDATED STATEMENTS OF OPERATIONS........................................F-4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY............................F-5-6 CONSOLIDATED STATEMENTS OF CASH FLOWS........................................F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................F-8-19 INDEPENDENT AUDITORS' REPORT Board of Directors 21st Century Technologies, Inc. and Subsidiaries Fort Worth, Texas We have audited the accompanying consolidated balance sheets of 21st Century Technologies, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 audits provide 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 21st Century Technologies, Inc. and subsidiaries, as of December 31, 2002 and 2001, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered continued operating losses and has a net working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plan in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Certified Public Accountants April 11, 2003 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 AND 2001 2002 2001 __________ __________ ASSETS Current assets: Cash $ - $ 7,221 Accounts receivables, trade net of allowance for doubtful accounts of $290,591 and $6,500, respectively 143,424 385,905 Inventories 501,706 863,004 Prepaid expenses 10,450 25,093 Advances to stockholders, net of allowance for uncollectible amounts of $55,728 and $0, respectively 112,591 204,562 __________ __________ Total current assets 768,171 1,485,785 __________ __________ Property and equipment, at cost, net of accumulated depreciation of $716,457 and $727,192, respectively 1,202,265 1,768,445 __________ __________ Other assets: Intangible assets, net of accumulated amortization of $40,218 and $69,994, respectively 368,188 476,203 Goodwill 43,256 43,256 Reorganization value, net of accumulated amortization of $384,539 and $334,921, respectively 126,764 176,382 Other assets 25,993 31,834 __________ __________ 564,201 727,675 __________ __________ $2,534,637 $3,981,905 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. F-2 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 AND 2001 2002 2001 ____________ ____________ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade $ 908,621 $ 876,461 Accrued expenses 47,524 165,556 Advances from stockholders 577,180 100,100 Notes payable 251,085 425,135 Convertible promissory note payable 200,000 - ____________ ____________ Total current liabilities 1,984,410 1,567,252 ____________ ____________ Commitments and contingencies - - Minority interest 3,158 3,158 Stockholders' equity: Preferred stock, $.001 par value, 50,000,000 shares authorized, no shares issued or outstanding, no rights or privileges designated - - Common stock, $.001 par value, 300,000,000 shares authorized, 1,999,271 and 1,630,635 shares issued and 1,999,271 and 1,629,899 shares outstanding, respectively 1,999 1,631 Paid in capital in excess of par 14,003,205 13,596,598 Stock earned but not issued - 360,000 Accumulated deficit (13,458,135) (11,527,290) Treasury stock, 0 and 736 shares, respectively, at cost - (16,444) Stock subscriptions receivable - (3,000) ____________ ____________ 547,069 2,411,495 ____________ ____________ $ 2,534,637 $ 3,981,905 ============ ============ The accompanying notes are an integral part of the consolidated financial statements. F-3 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2002 AND 2001 2002 2001 ___________ ___________ Revenues, net of returns and allowances $1,262,393 $ 1,714,941 Cost of revenues 677,265 1,106,617 ___________ ___________ Gross profit 585,128 608,324 ___________ ___________ Operating expenses: Advertising and selling 87,604 151,956 Depreciation and amortization 270,852 277,783 General and administrative 2,029,321 5,079,250 Loss on disposal of assets 179,127 242,634 ___________ ___________ 2,566,904 5,751,623 ___________ ___________ Operating loss (1,981,776) (5,143,299) Interest income 12,507 6,218 Interest expense (69,553) (52,429) ___________ ___________ Loss before income taxes (2,038,822) (5,189,510) Provision for income taxes - - ___________ ___________ Loss from continuing operations (2,038,822) (5,189,510) Discontinued operations: Income (loss) from discontinued ELM, including gain on disposal, net of applicable income taxes of $0 188,744 (299,528) Income (loss) from discontinued TPI net of applicable income taxes of $0 (144,744) (99,725) Income (loss) from discontinued NCI net of applicable income taxes on $0 63,977 (177,809) ___________ ___________ Net loss $(1,930,845) $(5,766,572) =========== =========== Loss per share: Basic: Loss from continuing operations $(1.09) $ (4.55) Income (loss) from discontinued operations .06 (.51) ___________ ___________ Net loss $(1.03) $ (5.06) =========== =========== Diluted: Loss from continuing operations $(1.09) $ (4.55) Income (loss) from discontinued operations .06 (.51) ___________ ___________ Net loss $(1.03) $ (5.06) =========== =========== The accompanying notes are an integral part of the consolidated financial statements. F-4
21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2002 AND 2001 Stock Common Stock Paid-In Earned Accumulated Treasury Stock Shares Amount Capital Not Issued Deficit Stock Subscriptions Total _________ ______ __________ __________ ___________ ________ _____________ __________ Balance at December 31, 2000 779,874 781 7,614,412 360,000 (5,760,718) (33,378) (3,000) 2,178,097 Issuance of common stock for cash 364,193 364 2,142,460 2,142,824 Issuance of common stock for services 329,461 329 2,493,591 2,493,920 Issuance of common stock to repay note payable and accrued interest 35,000 35 769,111 769,146 Issuance of common stock to repay stockholder advances 17,107 17 171,063 171,080 Issuance of common stock for patent 100,000 100 219,900 220,000 Issuance of common stock for purchase of MMC 5,000 5 202,995 203,000 Cancellation of treasury stock (16,934) 16,934 - Net loss (5,766,572) (5,766,572) _________ ______ __________ __________ ___________ ________ _____________ __________ Balance at December 31, 2001 1,630,635 1,631 13,596,598 360,000 (11,527,290) (16,444) (3,000) 2,411,495 The accompany notes are an integral part of the consolidated financial statements.
F-5
21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2002 AND 2001 Stock Common Stock Paid-In Earned Accumulated Treasury Stock Shares Amount Capital Not Issued Deficit Stock Subscriptions Total _________ ______ __________ __________ ___________ ________ _____________ __________ Balance at December 2001 (continued) 1,630,635 $ 1,631 $13,596,598 $360,000 $(11,527,290) $(16,444) $(3,000) $2,411,495 Issuance of common stock for cash 166,136 166 28,753 28,919 Issuance of common stock for services 12,500 12 37,488 37,500 Issuance of common stock previously earned 190,000 190 359,810 (360,000) - Receipt of above 19 million shares as consideration for sale of assets (350,000) ( 350,000) Reissuance of the above shares in exchange for services 350,000 350,000 Cancellation of treasury stock (16,444) 16,444 - Expired stock purchase subscriptions (3,000) 3,000 - Net loss (1,930,845) (1,930,845) _________ ______ __________ __________ ___________ ________ _____________ __________ Balance at December 31, 2002 1,999,271 $1,999 $14,003,205 $ - $(13,458,135) $ - $ - $547,069 ========= ====== =========== ======== ============ ======== ============= ========== The accompany notes are an integral part of the consolidated financial statements.
F-6 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002 AND 2001 2002 2001 ___________ ___________ Cash flows from operating activities: Net loss $(1,930,845) $(5,766,572) ___________ ___________ Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 195,904 294,929 Amortization 83,657 79,459 Common stock issued for services 387,500 2,493,920 Loss on asset abandonment 49,160 240,192 Gain on sale of assets 382,539 - Provision for bad debts (58,688) 5,600 Changes in operating assets and liabilities: Accounts receivable, trade (2,652) 400,216 Inventories 260,067 (284,551) Prepaid expenses 15,025 95,796 Other assets 1,293 38,960 Accounts payable, trade 108,120 589,039 Accrued expenses (118,032) 144,702 Deferred revenue - (225,000) ___________ ___________ 1,303,893 3,873,262 ___________ ___________ Cash used in operating activities (626,952) (1,893,310) ___________ ___________ Cash flows from investing activities: Proceeds from asset disposals 11,101 - Cash acquired in MMC acquisition - 6,065 Purchase of property and equipment (16,842) (1,320,014) Advances to stockholder (6,477) (55,763) Repayment of stockholder advances - 10,871 ___________ ___________ Cash used in investing activities (12,218) (1,358,895) ___________ ___________ Cash flows from financing activities: Advances from stockholders 582,180 100,100 Repayment of stockholder advances (5,100) - Proceeds from notes payable 263,371 1,005,000 Repayment of notes payable (237,421) (76,842) Issuance of common stock 28,919 2,142,824 ___________ ___________ Cash provided by financing activities 631,949 3,171,082 ___________ ___________ Net increase (decrease) in cash (7,221) (81,123) Cash at beginning of period 7,221 88,344 ___________ ___________ Cash at end of period $ - $ 7,221 =========== =========== The accompanying notes are an integral part of the consolidated financial statements. F-7 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS AND OPERATIONS 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) (IWI-NM), 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.(IWI-NV) 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 (Note 2). 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. The Company's primary line of business is the manufacture and sale of firearm related products (Note 10). Customers are predominantly located throughout the United States. F-8 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the general accounts of the company and its wholly owned subsidiaries, Innovative Weaponry, Inc., Trident Technologies Corporation, Griffon USA, Inc., Trade Partners International, Inc., Unertyl Optical Company, US Optics Corp., Hallmark, Inc., 2826 Elm St., Inc. and Net Construction, Inc. and its 97% owned subsidiary Miniature Machine Corporation, Inc., each of which have fiscal years ending December 31st. All material intercompany transactions, accounts and balances have been eliminated in the consolidation. BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY The consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern. However, the Company has suffered continued operating losses, it has a net working capital deficit of $1,216,239 and it has substantially no cash. These conditions, among others, give rise to substantial doubt about the Company's ability to continue as a going concern. Management is continuing to seek additional equity capital to fund its various activities, has eliminated or reduced unnecessary costs and disposed of unprofitable operations (Note 3). However, there is no assurance that steps taken by management will meet the Company's needs or that it will continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. BUSINESS COMBINATIONS On March 14, 2001, the Company acquired 97% of the outstanding common stock of Miniature Machine Corporation (MMC), a corporation engaged in the manufacture and sale of adjustable gun sights, in exchange for 500,000 common stock shares valued at $.406 a share and a $100,000 note payable (Note 5). The transaction was accounted for as a purchase. The purchase price was allocated to the fair value of the net assets acquired, including patents valued at $150,000, with a $50,888 excess of the Company's cost over the fair value of net assets acquired allocated to goodwill. On January 2, 2001, the Company purchased substantially all of the net assets of a nightclub operation in exchange for a $100,000 note payable (Note 5). These net assets were sold on June 20, 2002 (Note 3). STATEMENTS OF CASH FLOWS For purposes of the consolidated statement of cash flows, cash includes demand deposits, time deposits, short-term cash equivalent investments with maturities of less than three months and cash management money market funds available on a daily basis. None of the Company's cash is restricted. REVERSE STOCK SPLIT On February 20, 2003, the Company effected a 100 to 1 reverse split of its common stock (Note 13). The par value of the common stock was not affected by the reverse split and remains at $.001 per share. Consequently, the aggregate par value of the issued common stock was reduced by reclassifying the par value amount of the reversed common shares from `Common Stock' to `Paid in Capital in Excess of Par' and all per share amounts and outstanding shares have been retroactively restated in the accompanying consolidated financial statements for all periods presented to reflect the reverse stock split. F-9 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PROPERTY AND EQUIPMENT Property and equipment is stated at cost less accumulated depreciation. Depreciation of property and equipment is being provided by the straight-line method over estimated useful lives of three to seven years. During the years ended December 31, 2002 and 2001, depreciation expense totaled $195,904 and $294,929, respectively of which $8,708 and $5,408, respectively, is included as part of discontinued operations. At December 31, 2002 and 2001, property and equipment was comprised of the following. 2002 2001 __________ __________ Land, building and improvements $1,084,768 $1,098,344 Machinery and equipment 577,419 884,565 Transportation equipment 48,376 93,093 Furniture and fixtures 208,159 419,635 __________ __________ 1,918,722 2,495,637 Less accumulated depreciation (716,457) (727,192) __________ __________ $1,202,265 $1,768,445 ========== ========== GOODWILL AND INTANGIBLE ASSETS Goodwill relating to the Company's purchase of MMC is being amortized using the straight-line method over five years. For the year ended December 31, 2001, amortization expense totaled $7,632. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, effective for fiscal years beginning after June 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. The Company applied the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the non-amortization provisions of the Statement resulted in an increase in net income of $10,176 in 2002 as a result of non-amortization of existing goodwill. During 2002, the Company performed the first of the required impairment tests for its goodwill and indefinite lived intangible assets and determined that goodwill was not impaired. The Company's intangible assets consist of trademarks, patents and license agreements (Note 6). These intangible assets are being amortized using the straight-line method over five to forty years. For the years ended December 31, 2002 and 2001, amortization expense related to these intangible assets totaled $83,656 and $69,661, respectively. For each of the next five years, management estimates amortization of these intangibles to approximate $80,000. F-10 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INVENTORIES Inventory consists of raw materials used in the manufacture of firearm products and finished goods imported for resale. Inventory is stated at the lower of cost, determined using the first-in, first-out method, or net realizable value (market). At December 31, 2002 and 2001, inventories are comprised of the following components. 2002 2001 ________ ________ Raw materials $ 50,113 $123,040 Work in progress 247,155 468,667 Finished goods 204,438 271,297 ________ ________ $501,706 $863,004 ======== ======== IMPAIRMENT OR DISPOSAL OF LONG LIVED ASSETS The Company has adopted Statement of financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG LIVED ASSETS. This Statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used, and long-lived assets and certain identifiable intangibles to be disposed of. The Company periodically evaluates, using independent appraisals and projected undiscounted cash flows, the carrying value of its long-lived assets and certain identifiable intangible to be held and used whenever changes in events or circumstances indicate that the carrying amount of assets may not be recoverable. In addition, long-lived assets and identifiable intangibles to be disposed of are reported at the lower of carrying value or fair value less cost to sell. During the year ended December 31, 2002, the Company identified an impairment of inventory related to its TPI subsidiary (Note 3) and recognized a loss on the disposal of other long-lived assets related to its night sight operating segment (Note 11). MANAGEMENT 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. REVENUE RECOGNITION The Company extends unsecured credit to its customers from the retail and wholesale sale of its products. Revenue is recognized when products are shipped. All products are shipped F.O.B. the Company's facilities. Deferred revenues result from customer payments made in advance of the manufacture of night sights and sea patches. These payments represent nonrefundable deposits that are forfeitable if customers do not comply with the terms of the orders. Revenues are recognized when the products are completed and shipped. During the year ended December 31, 2001, the order terms related to these deposits were not complied with and the amounts were recognized as revenue. F-11 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ADVERTISING COSTS Advertising costs consist primarily of magazine advertising, sales catalogues and promotional brochures. Magazine advertising is charged to expense over the period the advertising takes place and other advertising costs are charged to expense over the periods expected to be benefited, which is generally not more than twelve months. For the years ended December 31, 2002 and 2001, advertising expense totaled $87,604 and $151,956, respectively. At December 31, 2002 and 2001, prepaid advertising costs totaled $0 and $25,093, respectively. LOSS PER SHARE Basic loss per share amounts are computed by dividing the net loss by the weighted average number of common stock shares outstanding. Diluted loss per share amounts reflect the maximum dilution that would have resulted from the issuance of common stock earned but not issued (Note 7). Other than the convertible promissory note (Note 5), the Company does not have any convertible securities, any outstanding options or warrants that could potentially dilute the earnings of its common stockholders. Diluted loss per share amounts are computed by dividing the net loss by the weighted average number of common stock shares outstanding plus the assumed issuance of the common stock earned but not issued. For the years ended December 31, 2002 and 2001, basic loss per share amounts are based on 1,872,055 and 1,139,851 weighted-average number of common stock shares outstanding, respectively. No effect has been given to the assumed issuance of the common stock earned but not issued as the effect would be antidilutive. STOCK BASED INCENTIVE PROGRAM SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, encourages entities to recognize compensation cost for stock-based employee compensation plans using the fair value method of accounting, as defined therein, but allows for the continued use of the intrinsic value method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. The Company has not granted any options or warrants however, it plans to use the accounting prescribed by APB Opinion No. 25. As such, the Company will be required to disclose pro forma net income and loss per share amounts as if the fair value method of accounting has been applied. 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 statements and (b) display the accumulated balance of other comprehensive income separately in the equity section of a balance sheet. The Company's comprehensive income does not differ from its reported net income. 2. BANKRUPTCY REORGANIZATION In March 1995, Innovative Weaponry, Inc. (IWI) emerged from a bankruptcy filing under Chapter 11 of the U.S. Bankruptcy Code. Pursuant to the plan of reorganization, IWI became a wholly owned subsidiary of the Company and all prior IWI stockholders retained less than a 50% interest in the consolidated reorganized entities. F-12 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As a result of IWI's acquisition by the Company, IWI adopted `fresh start' accounting pursuant to Statement of Position 90-7, FINANCIAL REPORTING BY ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE. Accordingly, IWI's assets and liabilities were adjusted to their fair values and retained earnings were eliminated. The resulting `reorganization value' in excess of amounts allocated to identifiable assets and liabilities is being amortized over 10 years using the straight-line method. For each of the years ended December 31, 2002 and 2001, amortization expense totaled $49,617. 3. DISCONTINUED OPERATIONS 2826 ELM, INC. (ELM) On June 20, 2002, the Company discontinued operations of its night club, which was acquired in January 2001 (Note 1), and sold the remaining net assets to a corporation controlled by a stockholder and former officer and director of the Company (Note 7). In consideration for these net assets, the Company received 19,000,000 if its common stock shares owned by the stockholder with a fair value of $350,000 and recognized a gain on the disposition of $211,453, which is included in the accompanying consolidated financial statements as part of discontinued operations. TRADE PARTNERS INTERNATIONAL, INC. (TPI) On April 3, 2002, the Company discontinued operations in its wholly owned subsidiary (Note 1) and incurred a $144,744 loss on the impairment of inventory, which is included in the accompanying consolidated financial statements as a part of discontinued operations pursuant to SFAS No. 144, DISCONTINUED OPERATIONS. TPI operations were part of the Company's tire sealant operating segment (Note 11). NET CONSTRUCTION, INC. (NCI) (FORMERLY QCB ARMOR) On June 19, 2001, QCB Armor changed its name to Net Construction, Inc. to facilitate the acquisition of a telecommunications and networking company. However, on April 3, 2002, due to higher than anticipated overhead expenses the Company decided to discontinue operations of NCI. NCI's remaining net liabilities of $18,532 will be assumed by the Company's other operations. NCI's operating results are included in the accompanying consolidated financial statements as part of discontinued operations. 4. 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 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 (Note 11) may require additional modifications to fit specific customer needs. 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. In the future, these products may be marketed outside the United States, which will subject the Company to foreign currency fluctuation risks. F-13 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. NOTES PAYABLE The Company's notes payable consist of several installment and promissory notes, which bear interest at 6.0% to 10%, are generally due upon demand and past due, are unsecured and contain no restrictions. On September 27, 2002, the Company issued a $200,000 convertible promissory note convertible into 1,200,000 shares of Series A Convertible Preferred Stock, when authorized and issued, with rights and preferences as the Company may determine, to Fredericks Partners, a California partnership. The note provided for interest at 10% and was due March 27, 2003. In addition, the note gave its holders 600,000,000 votes as `debt votes' awarded by the Board of Directors by resolution of September 27, 2002. The note provided that it may be converted at any time prior to payment. On February 20, 2003, Fredericks Partners exercised its conversion privilege (Note 13). 6. COMMITMENTS AND CONTINGENCIES LEASES The Company conducts operations from its own facilities located in Ft. Worth, Texas, which it occupied in early 2001. Prior to this time its facilities were leased under a month- to-month sublease arrangement. The Company's Unertyl division facilities located in Pennsylvania, were leased on a month-to-month. The Company's 2826 Elm St., Inc. nightclub facility was leased under a non-cancelable operating lease expiring through November 2005. The Company's California corporate office is leased on a month-to-month basis at a monthly rate of $5,600. For the years ended December 31, 2002 and 2001, rent expense totaled $66,800 and $92,378, respectively. At December 31, 2002, the Company was not obligated under any future minimum lease payments. LEGAL MATTERS The Company is subject to legal proceedings that arise in the ordinary course of business. Management does not believe that the outcome of any of these matters will have a material adverse effect on the Company's consolidated financial position, operating results or cash flows. LICENSE AGREEMENT Trident Technologies Corporation (TTC), a wholly owned subsidiary of the Company, is obligated under a license agreement (Agreement) with 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. TTC 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, TTC is to pay an annual maintenance fee of $74,000. 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. F-14 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During the year ended December 31, 2002, the Company determined the license was no longer cost beneficial and stopped paying its royalty and annual maintenance fees causing the license to expire. As a result, the Company charged to continuing operations the unamortized carrying value of the license totaling $49,160. 7. RELATED PARTY TRANSACTIONS STOCKHOLDERS During the years ended December 31, 2002 and 2001, the Company made advances totaling $6,477 and $55,763, respectively, to stockholders and former officers and directors of the Company. The advances were due on demand as funds were available, non-interest bearing and unsecured. During the years ended December 31, 2002 and 2001, $0 and $10,817, respectively, of these advances were repaid and $42,720 and $0, respectively, were charged to expense as uncollectible. Also, at December 31, 2002, an addition al $55,728 of these advances were reserved because of doubt as to their collectibility. During the year ended December 31, 2000, the Company received $171,080 from existing stockholders for the purchase of additional common stock to be issued by the Company. Because of the volatility of the trading price of the Company's common stock these funds were held by the Company while negotiations for the price per share were being conducted with these stockholders. In February and March 2001, negotiations were completed and 1,710,800 shares were issued in repayment of these advances. During the years ended December 31, 2002 and 2001, the Company received advances totaling $582,180 and $100,100, respectively, from stockholders. These advances are due upon demand as funds are available, non-interest bearing and unsecured. Also, during the year ended December 31, 2002, the Company repaid $5,100 of these advances and $100,000 of these advances were assumed as part of the ELM net assets disposition (Note 3). STOCK BASED COMPENSATION ARRANGEMENT In September of 1994, the board of directors entered into a consulting contract with the Company's former CEO. This agreement required the Company to issue 1,000,000 shares of common stock to the CEO and to compensate him at the rate of $10,000 per month. Should the Company be unable to pay the CEO in cash, the Company would issue him its common stock in amount equal to $0.02 per share (which was the share price at the time the consulting contract was entered into). The Company paid the CEO through December of 1994. In January of 1995, the Company and the CEO re-negotiated the agreement to remunerate him solely in stock of the Company. This was necessary because of the Company's cash flow position and inability to pay the previously agreed upon compensation. The agreement required the CEO to perform services for the Company in exchange for 500,000 shares of Company common stock per month. As of the expiration date of the agreement, January 5, 1998, the CEO earned a total of 19,000,000 shares of the Company's common stock with a $360,000 fair value. This compensation was charged to expense over the period of the agreement. The agreement required that the stock not be issued until after the end of the initial term of the agreement, which was three years. In June 2002, the stock was issued and is subject to Rule 144 of the Securities and Exchange Commission and further subject to a five-year "lockup" requirement, precluding the CEO from selling said stock for five years from the date of issuance. Also, in June 2002, these shares were `turned in' to the Company as consideration for the purchase of the net assets of the Company's night club operation by the former CEO (Note 3). F-15 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. INCOME TAXES The Company accounts for corporate income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. Under SFAS No. 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, future tax benefits, such as those from net operating loss carry forwards, are recognized to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A reconciliation of income tax expense at the statutory federal rate of 34% to income tax expense at the Company's effective tax rate for the years ended December 31, 2002 and 2001 is as follows. 2002 2001 __________ ___________ Tax benefits computed at statutory rate $ (656,487) $(1,960,634) Increase in valuation allowance 650,976 1,957,841 Permanent differences 5,511 2,793 __________ ___________ $ - $ - ========== =========== As of December 31, 2002 the Company has approximately $13 million of net operating losses available to offset future taxable income. These carry forwards expire in years 2008 through 2022. Significant components of the Company's deferred tax assets (benefits) and liabilities are summarized below. 2002 2001 __________ ___________ Deferred tax assets: Net operating loss carry forward $4,275,376 $ 3,668,042 Amortization differences 157,515 113,873 Less valuation allowance (4,432,891) (3,781,915) __________ ___________ - - Deferred tax liabilities: Depreciation differences - - __________ ___________ Net deferred tax assets $ - $ - ========== =========== 9. FINANCIAL INSTRUMENTS The Company's financial instruments, which potentially subject it to credit and other risks, consists of its cash, accounts receivable, notes payable and advances to/from officer and stockholders. CASH The Company maintains its cash in bank deposit and other accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risks involving its cash. F-16 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTS RECEIVABLE, TRADE The Company's accounts receivable are unsecured and represent sales on a net 30-day basis to customers generally located throughout the United States. With the exception for amounts reserved for doubtful collectibility, management believes it is not exposed to any significant credit risks affecting accounts receivable and that these accounts are fairly stated at estimated net realizable amounts. At December 31, 2002 and 2001, accounts receivable are reflected in the accompanying consolidated financial statements net of an allowance for doubtful accounts totaling $290,591 and $6,500, respectively. The allowance represents management's estimate of those receivables that might not be collectible based on the Company's historical collection experience. NOTES PAYABLE Management believes the carrying value of the notes payable represents the fair value of this financial instrument because their terms are similar to those in the lending market for comparable debt with comparable risks. ADVANCES TO/FROM STOCKHOLDERS Management believes the carrying value of these advances represent the fair value of these financial instruments because their terms are similar to those in the lending market for comparable loans with comparable risks. 10. OTHER STATEMENT OF CASH FLOWS DISCLOSURES For the years ended December 31, 2002 and 2001, supplemental disclosure of cash flow information is as follows: 2002 2001 ________ __________ Cash paid for interest $ 69,553 $ 22,331 Cash paid for income taxes - - Non-cash investing and financing activities: Issuance of common stock in purchase of MMC $ - $ 203,000 Issuance of common stock in exchange for services $387,500 $2,493,920 Issuance of common stock in exchange for patents $ - $ 220,000 Issuance of common stock to repay note payable and accrued interest $ - $ 769,146 Issuance of common stock to repay stockholder advances $ - $ 171,080 Issuance of common stock previously earned $360,000 $ - F-17 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. BUSINESS SEGMENTS The Company currently has six reportable operating segments for which its management reviews financial information and base decisions. These operating segments are (1) manufacturing night sights for handguns, (2) manufacturing a patented device used for climbing steel surfaces called "The Gripper," (3) manufacturing an Emergency Magnetic-Hydraulic Sea Patch and Pro-Mag Systems, (4) importing and resale of firearms, (5) importing and distribution of a tire sealant product and (6) a nightclub. Generally, these activities are conducted through separate subsidiary corporations. During the years ended December 31, 2002 and 2001, foreign sales were insignificant. The following table reflects certain information about the Company's reportable operating segments related to its continuing operations for the years ended December 31, 2002 and 2001. Information related to its discontinued operations is contained in Note 3.
(1) (2) (3) (4) IWI Trident Sea Firearms 2002 Night sights Gripper Patch Resale Total ____ ____________ _______ _______ ________ __________ Revenue, external customers 944,669 28,609 129,510 159,604 1,262,392 Operating income (loss) (2,242,684) (7,690) 94,712 29,142 (2,126,520) Interest expense 69,553 69,553 Depreciation/amortization 251,173 14,574 - 265,747 Consulting services, non cash 387,500 387,500 Expenditures for long-lived assets 8,967 - - - 8,967 Total long-lived assets, net of - depreciation 1,192,895 9,370 - 1,202,265 Total assets 2,467,799 - 66,838 - 2,534,637
(1) (2) (3) (4) IWI Trident Sea Firearms 2001 Night sights Gripper Patch Resale Total ____ ____________ _______ _______ ________ __________ Revenue, external customers 1,607,660 2,115 51,208 53,958 1,714,941 Operating loss (4,513,617) (20,317) (492,743) (116,623) (5,143,300) Interest expense 52,428 52,428 Depreciation/amortization 302,398 43,610 346,008 Consulting services, non cash 2,806,530 2,806,530 Expenditures for long-lived assets 1,512,998 - 3,732 1,516,730 Total long-lived assets, net of - depreciation 1,613,920 20,163 1,634,083 Total assets 3,455,464 - 209,585 107,910 3,772,959
F-18 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. STOCK OPTION PLAN On August 6, 2002, the Company established the 2002 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock Award Plan (the Plan) as a way of attracting and retaining highly qualified and experienced directors, employees and consultants and to give them a continued proprietary interest in the success of the Company and its subsidiaries. Additionally, the plan is intended to encourage ownership of the Company's common stock. Pursuant to the Plan, as amended on February 20, 2003, the aggregate number of shares that may be optioned, subject to conversion, or issued is 10,000,000 shares of common stock, warrants, options, preferred stock or any combination thereof. 13. SUBSEQUENT EVENTS RECAPITALIZATION AND CHANGE IN CONTROL On February 20, 2003, the Company filed with the Secretary of State Nevada a certificate of amendment amending the Company's Articles of Incorporation, and pursuant to authorization by the Board of Directors and a majority of eligible shareholder votes, such amendment provided for a 100 to 1 reverse split of the Company's common stock. The amendment also authorized the increase of the authorized number of common shares of all classes of capital stock to 350,000,000, of which 300,000,000 are to be shares of common stock with a par value of $.001, and further providing authorization for the issuance of preferred shares in such series and with such voting powers as may be determined by the Board. The shares may be issued by the Company from time to time as approved by the Board of Directors without approval of the shareholders except as otherwise provided for by the applicable Nevada law. On February 20, 2003, the Board adopted resolutions issuing 1,200,000 shares of Series A Convertible Preferred Stock with Certificate of Designations upon conversion of the convertible promissory note (Note 5). The holder of Series A Convertible Preferred Stock may convert each such share of Series A Convertible Preferred Stock to 10 shares of common stock and 1 share of Series B Convertible Preferred Stock. On February 20, 2003, the holder of Series A Convertible Preferred Stock converted it to 1,200,000 Series B Convertible Preferred Stock and 12,000,000 shares of common stock of the Company (10 shares of common per one share of Series B Convertible Preferred Stock). Each share of Series B Convertible Preferred provides for 500 votes. Fredericks Partners, a California partnership, as holder of Series B Preferred owns controlling votes in the Corporation. PREFERRED WARRANTS In July 2002, the Company distributed an offer, which expired on November 30, 2002, under which the stockholders could elect to exchange common stock shares for preferred warrants. Each preferred warrant entitled the holder to purchase one share of common stock for $.01 and was automatically exercised for the difference, expressed in whole shares of post-split common stock, between the fair market value of one share of common stock and $.01 as a result of the above recapitalization. The exchange ratio and exercise price of the preferred warrants were not to be adjusted as a result of the above recapitalization and, therefore, were not to be subject to the 100 to 1 reverse stock split. As of November 19, 2002, the holders of 67,115,953 common stock shares had accepted the offer to surrender their shares and receive the preferred warrants although the shares were not canceled and the preferred warrants not issued until January 2003. On February 20, 2003, the above recapitalization was completed and the remaining 132,811,192 common stock shares under went the reverse stock split. In March 2003, in a cost savings decision by the Company, the preferred warrants were canceled and 67,115,953 restricted common stock shares were issued. F-19 SIGNATURES In accordance with Section 13 or 15(d) 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: April 15, 2003 By: /s/ ARLAND D. DUNN _____________________________________ Arland D. Dunn President and Chief Operating Officer Page 21 of 23 I, ARLAND D. DUNN, certify that: 1. I have reviewed this annual report on Form 10-KSB of 21ST CENTURY TECHNOLOGIES, INC.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "EVALUATION DATE"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. DATED: April 15, 2003 21ST CENTURY TECHNOLOGIES, INC. (Registrant) /s/ ARLAND D. DUNN _______________________________ Arland D. Dunn Chief Executive Officer Page 22 of 23 I, LARRY B. BACH, certify that: 1. I have reviewed this annual report on Form 10-KSB of 21ST CENTURY TECHNOLOGIES, INC.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "EVALUATION DATE"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. DATED: April 15, 2003 21ST CENTURY TECHNOLOGIES, INC. (Registrant) /s/ LARRY B. BACH _______________________________ Larry B. Bach Secretary Page 23 of 23 EX-99 3 exhibit99-1.txt EXHIBIT 99.1 - CERTIFICATION OF CEO EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of 21st Century Technologies, Inc. (the "Company") on Form 10-KSB for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Arland D. Dunn, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ ARLAND D. DUNN _____________________________________ Arland D. Dunn Chief Executive Officer April 15, 2003 EX-99 4 exhibit99-2.txt EXHIBIT 99.2 - CERTIFICATION OF CFO EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of 21st Century Technologies, Inc. (the "Company") on Form 10-KSB for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Larry B. Bach, Secretary of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ LARRY B. BACH __________________________________________ Larry B. Bach Secretary April 15, 2003 -----END PRIVACY-ENHANCED MESSAGE-----