-----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, DeoZwkDIQ1iGGO0VWdk9Dw1a8uIbXz4VkadVEJgV3UL49LFVmEdvcrG92r0qD0X9 g5ViZ077bvrnrlc/VfIEvw== 0001092306-04-000920.txt : 20041203 0001092306-04-000920.hdr.sgml : 20041203 20041202173939 ACCESSION NUMBER: 0001092306-04-000920 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20041203 DATE AS OF CHANGE: 20041202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 21ST CENTURY TECHNOLOGIES INC CENTRAL INDEX KEY: 0001090870 STANDARD INDUSTRIAL CLASSIFICATION: ORDNANCE & ACCESSORIES, (NO VEHICLES/GUIDED MISSILES) [3480] IRS NUMBER: 481110566 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 814-00637 FILM NUMBER: 041181532 BUSINESS ADDRESS: STREET 1: 2700 W. SAHARA BOULEVARD STREET 2: SUITE 440 CITY: LAS VEGAS STATE: NV ZIP: 89102 BUSINESS PHONE: 702-248-1588 MAIL ADDRESS: STREET 1: 2700 W. SAHARA BOULEVARD STREET 2: SUITE 440 CITY: LAS VEGAS STATE: NV ZIP: 89102 10-K/A 1 form10ka12003.txt FORM 10-K - AMENDMENT #1 (12/31/03) UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A Amendment #1 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 ___________________________________________ [ ] 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) 2700 W. Sahara Blvd., Suite 440, Las Vegas, NV 89102 ________________________________________________________________ (Address of principal executive offices) (Zip Code) Issuer's telephone number (702) 248-1588 ______________ 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-K or any amendment to this Form 10-K. [X] State issuer's revenues for its most recent fiscal year. $2,243,635 - ----------------------------------- 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. 493,100,811 ISSUED COMMON SHARES AS OF March 29, 2004. DOCUMENTS INCORPORATED BY REFERENCE NOT APPLICABLE. Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X] PART I ITEM 1. BUSINESS GENERAL As a business development company, we provide long-term debt and equity investment capital to support the expansion of companies in a variety of industries. We generally invest in illiquid securities through privately negotiated transactions. We generally invest in private small to middle market companies though, from time to time, we may invest in public companies that lack access to public capital or whose securities may not be marginable. Today, our investment and lending activity is generally focused in private finance. Our investment portfolio consists primarily of secured loans with or without equity features, equity investments in companies, which may or may not constitute a controlling equity interest, preferred shares in collateralized debt obligations, and commercial mortgage loans. At December 31, 2003, our investment portfolio totaled $10,439,075 at fair value. Our investment objective is to achieve current income and capital gains. CORPORATE HISTORY 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. Effective October 1, 2003, the Company converted to a Business Development Company under the Investment Company Act of 1940. PORTFOLIO INVESTMENTS The Company had investments in nine controlled (portfolio) corporations 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 (3) Trilux. (4) Truglo. Each of these companies is private and no public sales figures are available. 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 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 2003. 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 2003. 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. MMC has subsequently been merged into IWI. 8. U.S. OPTICS TECHNOLOGIES, INC. This Company had no business activity during 2003. 9. PARAMOUNT MULTISERVICES, INC. Paramount was acquired at year-end 2003 from an investment group in which a former member of the Board of Directors and current General Manager of operations had an ownership interest. The Company acquired 100% ownership of this company in an exchange of common stock and changed the name to Paramount MultiServices, Inc. Paramount was valued by an independent business valuation consultant. The Company exchanged a non-interest bearing note which will be paid over 3 years with common stock. Paramount has facilities located in Alliance, Nebraska; Corpus Christi, Texas; and Duncanville, Texas and currently employs approximately 125 people in positions with administrative, management, and telemarketing responsibilities. Approximately 65% of Paramount's business relates to outbound telemarketing calls, and the remaining 35% of sales relate to inbound calls. Outbound telemarketing calls relate to attempts by financial services companies to sell add-on services to existing customers. Inbound calls primarily relate to service requests for insurance companies. 10. PRIZEWISE, INC. PrizeWise is an online trading platform in which anyone can post and sell anything of value, like eBay. Unlike eBay, items on PrizeWise are raffled off rather than auctioned off. The seller sets the raffle price and PrizeWise takes 17% commission on the total sale. Buyers chance winning items for nearly nothing, and sellers get higher sale prices. Instead of simple selling raffle tickets for a dollar a piece, PrizeWise sells coupons to which the raffle tickets are incidental, and which PrizeWise actually gets paid to distribute. It is anticipated that the trading platform will be live during the second quarter of 2004. RESEARCH AND DEVELOPMENT. The Company currently has no research and development group. Periodically, our portfolio companies make refinements to their products on a line production basis. AVAILABLE INFORMATION Our Internet address is www.21stcenturytechnologies.com. We are in process of making available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on our website is not incorporated by reference into this annual report on Form 10-K and you should not consider information contained on our website to be part of this annual report on Form 10-K. Additionally, there will be a copy of our Corporate Code of Ethics posted on the web site. PRIVATE FINANCE We participate in the private equity business by providing privately negotiated long-term debt and equity investment capital. Our private finance investment activity is generally focused on providing capital in the form of debt with or without equity features, such as warrants or options, often referred to as mezzanine financing. In certain situations, we may also take a controlling equity position in a company. Our private financing is generally used to fund growth, buyouts, acquisitions, recapitalizations, note purchases, and bridge financings. We generally invest in private companies though, from time to time, we may invest in public companies that lack access to public capital or whose securities may not be marginable. At December 31, 2003, 16.2% of the private finance portfolio consisted of loans and debt securities, 61.6% consisted of equity securities and 22.2% consisted of investments in and advances to controlled companies.. Our private finance portfolio includes investments in a wide variety of industries, including homeland security products, business services, financial services, light industrial products, retail, internet activities, and firearms and homeland security related products. We fund new investments using cash, through the issuance of our common equity, the reinvestment of previously accrued interest and dividends in debt or equity securities, or the current reinvestment of interest and dividend income through the receipt of a debt or equity security (payment-in-kind income). From time to time, we may also opt to reinvest accrued interest receivable in a new debt or equity security, in lieu of receiving such interest in cash and providing a subsequent investment. When we acquire a controlling interest in a company, we may have the opportunity to acquire the company's equity with our common stock. The issuance of our stock as consideration may provide us with the benefit of raising equity without having to access the public markets in an underwritten offering, including the added benefit of the elimination of any underwriter commissions. As a business development company, we are required to make significant managerial assistance available to the companies in our investment portfolio. In addition to the interest and dividends received from our private finance investments, we will often generate additional fee income for the structuring, diligence, transaction and management services and guarantees we provide to our portfolio companies. There is no one methodology to determine enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values, from which we derive a single estimate of enterprise value. To determine the enterprise value of a portfolio company, we analyze its historical and projected financial results. We generally require portfolio companies to provide annual audited and monthly unaudited financial statements, as well as annual projections for the upcoming fiscal year. Typically in the private equity business, companies are bought and sold based upon multiples of EBITDA, cash flow, net income, revenues or, in limited instances, book value. The private equity industry uses financial measures such as EBITDA or EBITDAM (Earnings Before Interest, Taxes, Depreciation, Amortization and, in some instances, Management fees) in order to assess a portfolio company's financial performance and to value a portfolio company. EBITDA and EBITDAM are not intended to represent cash flow from operations as defined by accounting principles generally accepted in the United States of America and such information should not be considered as an alternative to net income, cash flow from operations, or any other measure of performance prescribed by accounting principles generally accepted in the United States of America. When using EBITDA to determine enterprise value, we may adjust EBITDA for non-recurring items. Such adjustments are intended to normalize EBITDA to reflect the portfolio company's earnings power. Adjustments to EBITDA may include compensation to previous owners, acquisition, recapitalization, or restructuring related items or one-time non-recurring income or expense items. In determining a multiple to use for valuation purposes, we look to private merger and acquisition statistics, discounted public trading multiples or industry practices. In estimating a reasonable multiple, we consider not only the fact that our portfolio company may be a private company relative to a peer group of public comparables, but we also consider the size and scope of our portfolio company and its specific strengths and weaknesses. In some cases, the best valuation methodology may be a discounted cash flow analysis based on future projections. If a portfolio company is distressed, a liquidation analysis may provide the best indication of enterprise value. If there is adequate enterprise value to support the repayment of our debt, the fair value of our loan or debt security normally corresponds to cost unless the borrower's condition or other factors lead to a determination of fair value at a different amount. The fair value of equity interests in portfolio companies are determined based on various factors, including the enterprise value remaining for equity holders after the repayment of the portfolio company's debt and other pertinent factors such as recent offers to purchase a portfolio company's equity interest or other potential liquidity events. The determined equity values are generally discounted when we have a minority position, restrictions on resale, specific concerns about the receptivity of the capital markets to a specific company at a certain time, or other factors. VALUATION PROCESS. Upon conversion to a business development company, we employed independent business valuation experts to value our portfolio companies, (formerly wholly owned subsidiaries), inactive shell corporations, significant acquisitions, (Paramount MultiServices, Inc.) and certain portfolio investments(HCIA Preferred Stock). The portfolio companies were valued effective September 30, 2003 and December 31, 2003. Acquisitions and portfolio investments were valued as of December 31, 2003. The result of these evaluations is shown as unrealized appreciation (depreciation) on investments in the balance sheet and as cumulative effect of conversion to business development corporation on the statement of operations. The following is a description of the steps we will take in future quarters to determine the value of our portfolio: o Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment. o Preliminary valuation conclusions are then discussed and documented in a valuation write-up and/ or worksheet and then discussed with our portfolio management team under the supervision of the Chief Financial Officer. o The investment committee, consisting of our Independent Directors, meets to discuss valuations as preliminarily determined and documented by our investment professionals, questions the valuation data and conclusions, and arrives at an investment committee view of valuation. o The investment committee provides comments on the preliminary valuation and the deal team and portfolio management team respond and supplement the documentation based upon those comments. o The valuation documentation is updated and distributed to our board of directors and the audit committee of the board of directors. o The audit committee meets in advance of the board of directors to discuss the valuations and supporting documentation. o The board of directors meets to discuss valuations and review the input of the audit committee and management. o To the extent changes or additional information is deemed necessary, a follow-up board meeting, executive committee meeting or audit committee meeting may take place. o The board of directors determines the fair value of the portfolio in good faith. CERTAIN GOVERNMENT REGULATIONS We operate in a highly regulated environment. The following discussion generally summarizes certain government regulations. BUSINESS DEVELOPMENT COMPANY. A business development company is defined and regulated by the 1940 Act. A business development company must be organized in the United States for the purpose of investing in or lending to primarily private companies and making managerial assistance available to them. A business development company may use capital provided by public shareholders and from other sources to invest in long-term, private investments in businesses. A business development company provides shareholders the ability to retain the liquidity of a publicly traded stock, while sharing in the possible benefits, if any, of investing in primarily privately owned companies. As a business development company, we may not acquire any asset other than "qualifying assets" unless, at the time we make the acquisition, the value of our qualifying assets represent at least 70% of the value of our total assets. The principal categories of qualifying assets relevant to our business are: o Securities purchased in transactions not involving any public offering, the issuer of which is an eligible portfolio company; o Securities received in exchange for or distributed with respect to securities described in the bullet above or pursuant to the exercise of options, warrants or rights relating to such securities; and o Cash, cash items, government securities or high quality debt securities (within the meaning of the 1940 Act), maturing in one year or less from the time of investment. An eligible portfolio company is generally a domestic company that is not an investment company (other than a small business investment company wholly owned by a business development company), and that: o does not have a class of securities registered on an exchange or a class of securities with respect to which a broker may extend margin credit; o is actively controlled by the business development company and has an affiliate of a business development company on its board of directors; or o meets such other criteria as may be established by the SEC. Control under the 1940 Act is presumed to exist where a business development company beneficially owns more than 25% of the outstanding voting securities of the portfolio company. To include certain securities described above as qualifying assets for the purpose of the 70% test, a business development company must make available to the issuer of those securities significant managerial assistance such as providing significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company or making loans to a portfolio company. We offer to provide managerial assistance to each of our portfolio companies. As a business development company, we are entitled to issue senior securities in the form of stock or senior securities representing indebtedness, including debt securities and preferred stock, as long as each class of senior security has an asset coverage of at least 200% immediately after each such issuance. We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our board of directors who are not interested persons and, in some cases, prior approval by the SEC. We are periodically examined by the SEC for compliance with the 1940 Act. As of the date of this filing we have not been examined by the SEC and have not been notified of a pending examination. As with other companies regulated by the 1940 Act, a business development company must adhere to certain substantive regulatory requirements. A majority of our directors must be persons who are not interested persons, as that term is defined in the 1940 Act. Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a business development company, we are prohibited from protecting any director or officer against any liability to the Company or our shareholders arising from willful malfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office. We maintain a code of ethics that establishes procedures for personal investment and restricts certain transactions by our personnel. Our code of ethics generally does not permit investment by our employees in securities that may be purchased or held by us. The code of ethics is filed as an exhibit to this 10K which will be on file at the SEC. You may read and copy the code of ethics at the SEC's Public Reference Room in Washington, D.C. You may obtain information on operations of the Public Reference Room by calling the SEC at (202) 942-8090. In addition, the code of ethics is available on the EDGAR Database on the SEC Internet site at http://www.sec.gov. You may obtain copies of the code of ethics, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, 450 5th Street, NW, Washington, D.C. 20549. Additionally, the code of ethics will be posted on our corporate website, www.21stcenturytechnologies.com. As a business development company under the 1940 Act, we are entitled to provide loans to our employees in connection with the exercise of options. However, as a result of provisions of the Sarbanes-Oxley Act of 2002, we are prohibited from making new loans to, or materially modifying existing loans with, our executive officers in the future. We may not change the nature of our business so as to cease to be, or withdraw our election as, a business development company unless authorized by vote of a "majority of the outstanding voting securities," as defined in the 1940 Act, of our shares. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (i) 67% or more of such company's shares present at a meeting if more than 50% of the outstanding shares of such company are present and represented by proxy or (ii) more than 50% of the outstanding shares of such company. Since we made our business development company election, we have not made any substantial change in the nature of our business. REGULATED INVESTMENT COMPANY STATUS. We have not elected to be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986. COMPLIANCE WITH THE SARBANES-OXLEY ACT OF 2002 AND NYSE CORPORATE GOVERNANCE REGULATIONS. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act imposes a wide variety of new regulatory requirements on publicly-held companies and their insiders. Many of these requirements will affect us. For example: o Our chief executive officer and chief financial officer must now certify the accuracy of the financial statements contained in our periodic reports; o Our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures; o Our periodic reports must disclose whether there were significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses; and o We may not make any loan to any director or executive officer and we may not materially modify any existing loans. The Sarbanes-Oxley Act has required us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the new regulations promulgated thereunder. We will continue to monitor our compliance with all future regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith. RISK FACTORS INVESTING IN 21ST CENTURY TECHNOLOGIES, INC. INVOLVES A NUMBER OF SIGNIFICANT RISKS RELATING TO OUR BUSINESS AND INVESTMENT OBJECTIVE. AS A RESULT, THERE CAN BE NO ASSURANCE THAT WE WILL ACHIEVE OUR INVESTMENT OBJECTIVE. IN ADDITION TO THE RISK FACTORS DESCRIBED BELOW, OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE: o GLOBAL ECONOMIC DOWNTURNS, COUPLED WITH WAR OR THE THREAT OF WAR; o RISK ASSOCIATED WITH POSSIBLE DISRUPTION IN OUR OPERATIONS DUE TO TERRORISM; o FUTURE REGULATORY ACTIONS AND CONDITIONS IN OUR OPERATING AREAS; AND o OTHER RISKS AND UNCERTAINTIES AS MAY BE DETAILED FROM TIME TO TIME IN OUR PUBLIC ANNOUNCEMENTS AND SEC FILINGS. INVESTING IN PRIVATE COMPANIES INVOLVES A HIGH DEGREE OF RISK. Our portfolio consists of primarily long-term loans to and investments in private companies. Investments in private businesses involve a high degree of business and financial risk, which can result in substantial losses and accordingly should be considered speculative. There is generally no publicly available information about the companies in which we invest, and we rely significantly on the diligence of our employees and agents to obtain information in connection with our investment decisions. In addition, some smaller businesses have narrower product lines and market shares than their competition, and may be more vulnerable to customer preferences, market conditions or economic downturns, which may adversely affect the return on, or the recovery of, our investment in such businesses. OUR PORTFOLIO OF INVESTMENTS IS ILLIQUID. We generally acquire our investments directly from the issuer in privately negotiated transactions. The majority of the investments in our portfolio may be subject to restrictions on resale or otherwise have no established trading market. We typically exit our investments when the portfolio company has a liquidity event such as a sale, recapitalization, or initial public offering of the company. The illiquidity of our investments may adversely affect our ability to dispose of debt and equity securities at times when it may be otherwise advantageous for us to liquidate such investments. In addition, if we were forced to immediately liquidate some or all of the investments in the portfolio, the proceeds of such liquidation would be significantly less than the current value of such investments. Substantially all of our portfolio investments are recorded at fair value as determined in good faith by our board of directors and, as a result, there is uncertainty regarding the value of our portfolio investments. At December 31, 2003, approximately 97% of our total assets represented portfolio investments recorded at fair value. Pursuant to the requirements of the 1940 Act, we value substantially all of our investments at fair value as determined in good faith by our board of directors on a quarterly basis. Since there is typically no readily ascertainable market value for the investments in our portfolio, our board of directors determines in good faith the fair value of these investments pursuant to a valuation policy and a consistently applied valuation process. Initial valuations as of September 30, 2003 and December 31, 2003, respectively, were provided by independent valuation specialists. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. Unlike banks, we are not permitted to provide a general reserve for anticipated loan losses; we are instead required by the 1940 Act to specifically value each individual investment on a quarterly basis, and record unrealized depreciation for an investment that we believe has become impaired, including where collection of a loan or realization of an equity security is doubtful, or when the enterprise value of the company does not currently support the cost of our debt or equity investment. Conversely, we will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our equity security has also appreciated in value. Without a readily ascertainable market value and because of the inherent uncertainty of valuation, the fair value of our investments determined in good faith by the board of directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material. We adjust quarterly the valuation of our portfolio to reflect the board of directors' determination of the fair value of each investment in our portfolio. Any changes in estimated fair value are recorded in our statement of operations as "Net unrealized gains (losses)." ECONOMIC RECESSIONS OR DOWNTURNS COULD IMPAIR OUR PORTFOLIO COMPANIES AND HARM OUR OPERATING RESULTS. Many of the companies in which we have made or will make investments may be susceptible to economic slowdowns or recessions. An economic slowdown may affect the ability of a company to engage in a liquidity event. Our non-performing assets are likely to increase and the value of our portfolio is likely to decrease during these periods. These conditions could lead to financial losses in our portfolio and a decrease in our revenues, net income, and assets. Our business of making private equity investments and positioning them for liquidity events also may be affected by current and future market conditions. The absence of an active senior lending environment may slow the amount of private equity investment activity generally. As a result, the pace of our investment activity may slow. In addition, significant changes in the capital markets could have an effect on the valuations of private companies and on the potential for liquidity events involving such companies. This could affect the amount and timing of gains realized on our investments. OUR BORROWERS MAY DEFAULT ON THEIR PAYMENTS, WHICH MAY HAVE AN EFFECT ON OUR FINANCIAL PERFORMANCE. We make long-term unsecured, subordinated loans and invest in equity securities, which may involve a higher degree of repayment risk. We primarily invest in companies that may have limited financial resources and that may be unable to obtain financing from traditional sources. Numerous factors may affect a borrower's ability to repay its loan, including the failure to meet its business plan, a downturn in its industry, or negative economic conditions. Deterioration in a borrower's financial condition and prospects may be accompanied by deterioration in any related collateral. OUR PRIVATE FINANCE INVESTMENTS MAY NOT PRODUCE CURRENT RETURNS OR CAPITAL GAINS. Private finance investments are typically structured as debt securities with a relatively high fixed rate of interest and with equity features such as conversion rights, warrants, or options. As a result, private finance investments are generally structured to generate interest income from the time they are made and may also produce a realized gain from an accompanying equity feature. We cannot be sure that our portfolio will generate a current return or capital gains. WE MAY BORROW MONEY WHICH MAGNIFIES THE POTENTIAL FOR GAIN OR LOSS ON AMOUNTS INVESTED AND MAY INCREASE THE RISK OF INVESTING IN US. Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in our securities. We can borrow from and issue senior debt securities to banks, insurance companies, and other lenders. Lenders of these senior securities would have fixed dollar claims on our consolidated assets that are superior to the claims of our common shareholders. If the value of our consolidated assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our consolidated assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our consolidated income in excess of consolidated interest payable on the borrowed funds would cause our net income to increase more than it would without the leverage, while any decrease in our consolidated income would cause net income to decline more sharply than it would have had we not borrowed. At December 31, 2003, we had $1,959,267 of outstanding indebtedness, bearing a weighted average annual interest cost of 5%. CHANGES IN INTEREST RATES MAY AFFECT OUR COST OF CAPITAL AND NET INVESTMENT INCOME. Because we can borrow money to make investments, our net investment income before net realized and unrealized gains or losses, or net investment income, can be dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase, which would reduce our net investment income. We can use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. WE OPERATE IN A COMPETITIVE MARKET FOR INVESTMENT OPPORTUNITIES. We compete for investments with a large number of private equity funds and mezzanine funds, investment banks and other equity and non-equity based investment funds, and other sources of financing, including traditional financial services companies such as commercial banks. Some of our competitors have greater resources than we do. Increased competition would make it more difficult for us to purchase or originate investments at attractive prices. As a result of this competition, sometimes we may be precluded from making otherwise attractive investments. WE DEPEND ON KEY PERSONNEL. We depend on the continued services of our executive officers and other key management personnel. If we were to lose any of these officers or other management personnel, such a loss could result in inefficiencies in our operations and lost business opportunities. CHANGES IN THE LAW OR REGULATIONS THAT GOVERN US COULD HAVE A MATERIAL IMPACT ON US OR OUR OPERATIONS. We are regulated by the SEC. In addition, changes in the laws or regulations that govern business development companies, regulated investment companies, real estate investment trusts, and small business investment companies may significantly affect our business. Any change in the law or regulations that govern our business could have a material impact on us or our operations. Laws and regulations may be changed from time to time, and the interpretations of the relevant laws and regulations also are subject to change. RESULTS MAY FLUCTUATE AND MAY NOT BE INDICATIVE OF FUTURE PERFORMANCE. Our operating results will fluctuate and, therefore, you should not rely on current or historical period results to be indicative of our performance in future reporting periods. Factors that could cause operating results to fluctuate include, among others, variations in the investment origination volume and fee income earned, variation in timing of prepayments, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets, and general economic conditions. OUR COMMON STOCK PRICE MAY BE VOLATILE. The trading price of our common stock may fluctuate substantially. The price of the common stock may be higher or lower than the price you pay for your shares, depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include the following: o price and volume fluctuations in the overall stock market from time to time; o significant volatility in the market price and trading volume of securities of business development companies or other financial services companies; o changes in regulatory policies or tax guidelines with respect to business development companies or regulated investment companies; o actual or anticipated changes in our earnings or fluctuations in our operating results or changes in the expectations of securities analysts; o general economic conditions and trends; o loss of a major funding source; or o departures of key personnel. ITEM 2. PROPERTIES Our principal offices are located at 2700 W. Sahara, Suite 440 and 420, Las Vegas, NV. The office is equipped with an integrated network of computers for word processing, financial analysis, accounting and loan servicing. We believe our office space is suitable for our needs for the foreseeable future. As of the close of the reporting period, the Company and its wholly owned non consolidated portfolio companies had approximately 155 employees. Innovative Weaponry is in process of moving to new offices at 2900 S. Highland Dr., Suite 18B, Las Vegas, NV and Trident has production and sales offices located at 4011 C HWY 377 South, Fort Worth, TX 76116. ITEM 3. LEGAL PROCEEDINGS We may be a party to certain other lawsuits including legal proceedings incidental to the normal course of our business. While the outcome of these legal proceedings cannot at this time be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations. 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. On February 20, 2004, in Case No. 02-1927 RGK, in the United States District Court for the Central District of California, in a case styled Bike Doctor, a California Partnership -vs- 21st Century Technologies, Inc., Kenneth E. Wilson and Scott Sheppard, a judgment was entered against the Company for $145,000, together with interest and costs. The judgment arises out of a Motion for Summary Judgment filed by the Plaintiff. The Company has given notice of appeal to the 9th Circuit Court of Appeals. Counsel for the Company is reviewing the record to determine the efficacy of grounds for appeal. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS By affirmative vote of the majority of the outstanding voting rights, on February 20, 2003, the Company effected a 100 to 1 reverse split of its common stock and raised its authorized common shares to 300,000,000 shares with a par value of $.001 per share. On November 11, 2003, by affirmative vote of the majority of the outstanding voting rights, the Company amended its Articles of Incorporation to increase the number of authorized common shares to 750,000,000 with a par value of $.001 per share. PART II ITEM 5. MARKET FOR REGISTRANT'S 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 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, 2003. 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 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 2003 First Quarter .95 .01 95.00 1.00 Second Quarter .45 .03 45.00 3.00 Third Quarter .09 .01 9.00 1.00 Fourth Quarter .12 .04 12.00 4.00 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, 2003 the authorized capital of the company is 750,000,000 shares of common voting stock par value $.001 per share and 50,000,000 shares of preferred stock. As of December 31, 2003 the Company has outstanding 437,173,162 shares of common stock and 17,200,000 shares of $.001 preferred 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 120,831,994 shares of $.001 par value common voting stock and 79,095,106 preferred warrants outstanding at December 31, 2002. After the recapitalization effective February 20, 2003, there were 300,000,000 shares of $.001 par value common stock authorized with 92,303,426 issued and outstanding. On October 7, 2003, by vote of the majority voting interests, the Company increased its authorized common shares to 750,000,000 shares of $.001 par value common shares. ITEM 6. SELECTED FINANCIAL DATA The selected financial data should be read in conjunction with our "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and notes thereto. As discussed in Note A to the Financial Statements, we converted to a Business Development Company effective October 1, 2003. The results of operations for 2003 are divided into two periods, the "Post-Conversion as a Business Development Company" period and "Pre-Conversion prior to becoming a Business Development Company" period. Different accounting principles are used in the preparation of financial statements of a business development company under the Investment Company Act of 1940 and, as a result, the financial results for periods prior to October 1, 2003 are not comparable to the period commencing on October 1, 2003 and are not expected to be representative of our financial results in the future. As a result of the change, the financial results for periods prior to January 1, 2003 are not comparable to the period commencing on January 1, 2003 and are not expected to be representative of our financial results in the future.
Years Ended December 31 2003 2002 2001 ---------------------------------------- Total Investment Income $1,158,168 -0- -0- Net Change in unrealized appreciation $ 868,000 -0- -0- Cumulative Effect of conversion to BDC $ 232,996 -0- -0- Income (loss) from Operations $105,535 $(2,038,822) $(5,189,510) Per Share of Common Stock 0.00 (0.01) (0.03) At December 31: Total Assets $13,489,476 $2,534,637 $3,981,905 Total Liabilities $ 2,005,224 $1,984,410 $1,567,252 Stockholders' Equity $11,484,252 $ 547,069 $2,411,495
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in this section should be read in conjunction with the Selected Financial Data and our Financial Statements and notes thereto appearing elsewhere in this 10K. The 10K, including the Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs, and our assumptions. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", and "estimates" and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including without limitation (1) any future economic downturn could impair our customers' ability to repay our loans and increase our non-performing assets, (2) a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities, (3) interest rate volatility could adversely affect our results, (4) the risks associated with the possible disruption in the Company's operations due to terrorism and (5) the risks, uncertainties and other factors we identify from time to time in our filings with the Securities and Exchange Commission, including our Form 10-Ks, Form 10-Qs and Form 8-Ks. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be incorrect. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Annual Report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Annual Report. OVERVIEW 21st Century Technologies, Inc is a financial services company providing financing and advisory services to small and medium-sized companies throughout the United States. Effective October 1, 2003, we converted to a Business Development Company under the Investment Company Act of 1940. Upon completion of this conversion, we became an internally managed, diversified, closed-end investment company. Prior to the conversion we were a diversified holding company. The results of operations for the year ended December 31, 2003 and the three-month period from October 1, 2003 through December 31, 2003 reflect our results as a business development company under the Investment Company Act of 1940. The three-month period from October 1, 2003 through December 31, 2003 includes a one-time conversion adjustment. The nine-month period from January 1, 2003 through September 30, 2003 reflects our results prior to operating as a business development company under the Investment Company Act of 1940. The principal difference between these two reporting periods relate to accounting for investments at fair value rather than cost; the fact that we no longer consolidate our wholly owned subsidiaries (Portfolio Companies). See Note A to our Financial Statements. In addition, certain prior year items have been reclassified to conform to the current year presentation as a business development company. PORTFOLIO COMPOSITION Our primary business is lending to and investing in businesses, with subordinated debt and equity-based investments, including warrants and equity appreciation rights. The total portfolio value of investments in publicly traded and non-publicly traded securities was $10.4 million at fair value at December 31, 2003. OPERATING INCOME Operating income includes interest income on commercial loans, advisory and management fees, and other income. Interest income is comprised of commercial loan interest at contractual rates and upfront fees that are amortized into income over the life of the loan. Income from operations before cumulative effect of accounting change for the 3 months ended December 31, 2003 was $1,776,585. Net income after cumulative effect of accounting change was $2,009,581. Operating income before cumulative effect of accounting change was $105,535 and after cumulative effect of accounting change was $337,531. Net Loss for the period ended September 30, 2003 was $1,671,050. Net losses for the years ended December 31, 2002 and 2001 respectively was $1,930,845 and $5,766,572, respectively. OPERATING EXPENSES Operating expenses include interest expense on borrowings, employee compensation and general and administrative expenses. Operating expenses for the 3-months ended December 31, 2003 were $249,583 and $1,530,079 for the nine-months ended September 30, 2003 for a total annual cost of $1,779,662. This compares with operating expenses of $2,457,330 and $5,561,418 for the years ended December 31, 2002 and 2001 respectively. Cost containment, efficiencies of operations and discontinuing unprofitable operations are the primary factors making these decreases possible. RECONCILIATION OF NET OPERATING INCOME TO NET INCREASE (DECREASE) IN STOCKHOLDER'S EQUITY FROM EARNINGS (LOSS) Because we are a business development company, our investments are carried at fair value. (See discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview"). Realized gain for the year ended December 31, 2003 was $337,531. The net change in unrealized appreciation for the 3-months ended December 31, 2003 was $868,000 and the net change in unrealized depreciation on investments for the nine-months ended September 30, 2003 was $3,345,891. The appreciation occurred in investments made after conversion to a business development company and the depreciation is reflected by the accounting change to fair value of the formerly consolidated subsidiaries which are now recorded at fair value. CUMULATIVE EFFECT OF ACCOUNTING CHANGES (CONVERSION TO BUSINESS DEVELOPMENT COMPANY) The results of operations for 2003 are divided into two periods. The nine-month period, representing the period January 1, 2003 through September 30, 2003, reflects the Company's results prior to operating as a business development company under the Investment Company Act of 1940, as amended. The three-month period ended December 31, 2003, reflects the Company's results as a business development company under the Investment Company Act of 1940, as amended. Accounting principles used in the preparation of the financial statements beginning October 1, 2003 are different than those of prior periods and, therefore, the financial position and results of operations of these periods are not directly comparable. The primary differences in accounting principles relate to the carrying value of investments--see corresponding sections below for further discussion. The cumulative effect adjustment for the three-month period ended December 31, 2003 reflects the effects of conversion to a business development company as follows: CUMULATIVE EFFECT OF BUSINESS DEVELOPMENT COMPANY CONVERSION ------------------------------ Effect of recording equity investments at fair value $ (4,213,891) Adjustments for previously adjusted net assets 4,570,444 Adjustment for previously consolidated net loss (123,557) ----------------- $ 232,996 ================= FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES CASH AND CASH EQUIVALENTS At December 31, 2003 and December 31, 2002, we had $1.8 million and $-0-, respectively, in cash and cash equivalents. We had investments in equity securities with fair value of $6,430,000 and $-0- at December 31, 2003 and December 31, 2002, respectively. Our objective is to maintain a low cash balance, while keeping sufficient cash on hand to cover current funding requirements and operations. LIQUIDITY AND CAPITAL RESOURCES We expect our cash on hand and cash generated from operations, to be adequate to meet our cash needs at our current level of operations, including the next twelve months. We generally fund new originations using cash on hand, advances under our credit facilities and equity financings. BORROWINGS The Company's borrowings consist of a non-interest bearing purchase note payable incurred in the acquisition of Paramount MultiServices, Inc. and several installment and promissory notes, which bear interest at 6.0% to 10%, are unsecured and contain no restrictions. The purchase note payable is payable in annual installments of either the Company's restricted common stock or cash through December 2006. Because the terms of the note did not provide for interest, the Company has discounted the carrying value of this note to its fair value using a discounted interest rate of 5%. 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 priviledge. CRITICAL ACCOUNTING POLICIES The financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. INCOME RECOGNITION Interest on commercial loans is computed by methods that generally result in level rates of return on principal amounts outstanding. When a loan becomes 90 days or more past due, or if we otherwise do not expect the customer to be able to service its debt and other obligations, we will, as a general matter, place the loan on non-accrual status and cease recognizing interest income on that loan until all principal has been paid. However, we may make exceptions to this policy if the investment is well secured and in the process of collection. In accordance with GAAP, we include in income certain amounts that we have not yet received in cash, such as contractual payment-in-kind (PIK) interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term. However, in certain cases, a customer makes principal payments on its loan prior to making payments to reduce the PIK loan balances and, therefore, the PIK portion of a customer's loan can increase while the total outstanding amount of the loan to that customer may stay the same or decrease. There is no PIK loan balance at December 31, 2003. Loan origination fees are deferred and amortized as adjustments to the related loan's yield over the contractual life of the loan. In certain loan arrangements, warrants or other equity interests are received from the borrower as additional origination fees. The borrowers granting these interests are typically non-publicly traded companies. We record the financial instruments received at estimated fair value as determined by our board of directors or an independent valuation expert. Fair values are determined using various valuation models which attempt to estimate the underlying value of the associated entity. These models are then applied to our ownership share considering any discounts for transfer restrictions or other terms which impact the value. Changes in these values are recorded through our statement of operations. Any resulting discount on the loan from recordation of warrant and other equity instruments are accreted into income over the term of the loan. VALUATION OF INVESTMENTS At December 31, 2003, approximately 97% of our total assets represented investments recorded at fair value. Value, as defined in Section 2(a)(41) of 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the board of directors. Since there is typically no readily ascertainable market value for the investments in our portfolio, we value substantially all of our investments at fair value as determined in good faith by the board of directors pursuant to a valuation policy and a consistent valuation process. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily ascertainable market value, the fair value of our investments determined in good faith by the board of directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment. Unlike banks, we are not permitted to provide a general reserve for anticipated loan losses. Instead, we must determine the fair value of each individual investment on a quarterly basis. We will record unrealized depreciation on investments when we believe that an investment has become impaired, including where collection of a loan or realization of an equity security is doubtful. Conversely, we will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our investment has also appreciated in value, where appropriate. As a business development company, we invest primarily in illiquid securities including debt and equity securities of private companies. The structure of each debt and equity security is specifically negotiated to enable us to protect our investment and maximize our returns. We generally include many terms governing interest rate, repayment terms, prepayment penalties, financial covenants, operating covenants, ownership parameters, dilution parameters, liquidation preferences, voting rights, and put or call rights. Our investments are generally subject to some restrictions on resale and generally have no established trading market. Because of the type of investments that we make and the nature of our business, our valuation process requires an analysis of various factors. Our fair value methodology includes the examination of, among other things, the underlying investment performance, financial condition and market changing events that impact valuation. VALUATION OF LOANS AND DEBT SECURITIES As a general rule, we do not value our loans or debt securities above cost, but loans and debt securities will be subject to fair value write-downs when the asset is considered impaired. In many cases, our loan agreements allow for increases in the spread to the base index rate if the financial or operational performance of the customer deteriorates or shows negative variances from the customer's business plan and, in some cases, allow for decreases in the spread if financial or operational performance improves or exceeds the customer's plan. VALUATION OF EQUITY SECURITIES With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment, as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event will be used to corroborate our private equity valuation. Securities that are traded in the over-the-counter market or on a stock exchange generally will be valued at the prevailing bid price on the valuation date. However, restricted and unrestricted publicly traded securities may be valued at discounts from the public market value due to restrictions on sale, the size of our investment or market liquidity concerns. RECENT DEVELOPMENTS The Company has entered into a letter of intent to acquire DLC, Inc., a Las Vegas based general contracting firm. DLC has a multi-year history of successful projects, including several federal and local government projects. DLC currently has gross income of approximately $3 million dollars per year. We anticipate closing this transaction in the second quarter of 2004. 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Our business activities contain elements of risk. We consider the principal types of risk to be portfolio valuations and fluctuations in interest rates. We consider the management of risk essential to conducting our businesses. Accordingly, our risk management systems and procedures are designed to identify and analyze our risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. As a business development company, we invest in illiquid securities including debt and equity securities of primarily private companies. Our investments are generally subject to restrictions on resale and generally have no established trading market. We value substantially all of our investments at fair value as determined in good faith by the board of directors in accordance with our valuation policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. We determine fair value to be the amount for which an investment could be exchanged in an orderly disposition over a reasonable period of time between willing parties other than in a forced or liquidation sale. Our valuation policy considers the fact that no ready market exists for substantially all of the securities in which we invest. Our valuation policy is intended to provide a consistent basis for determining the fair value of the portfolio. We will record unrealized depreciation on investments when we believe that an investment has become impaired, including where collection of a loan or realization of an equity security is doubtful, or when the enterprise value of the company does not currently support the cost of our debt or equity investments. Conversely, we will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our equity security has also appreciated in value. The value of investments in public securities are determined using quoted market prices discounted for restrictions on resale. Without a readily ascertainable market value and because of the inherent uncertainty of valuation, the fair value of our investments determined in good faith by the board of directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material. In addition, the illiquidity of our investments may adversely affect our ability to dispose of debt and equity securities at times when it may be otherwise advantageous for us to liquidate such investments. In addition, if we were forced to immediately liquidate some or all of the investments in the portfolio, the proceeds of such liquidation would be significantly less than the current value of such investments. Because we can borrow money to make investments, our net investment income before net realized and unrealized gains or losses, or net investment income, can be dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase, which would reduce our net investment income. We use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. Our long-term fixed-rate investments are financed primarily with long-term debt and equity. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 C O N T E N T S INDEPENDENT AUDITORS' REPORT..........................................F-1 BALANCE SHEETS........................................................F-2 - F-3 STATEMENTS OF OPERATIONS..............................................F-4 STATEMENTS OF STOCKHOLDERS' EQUITY....................................F-5 STATEMENTS OF CASH FLOWS..............................................F-6 SCHEDULE OF INVESTMENTS...............................................F-7 NOTES TO FINANCIAL STATEMENTS.........................................F-8 - F-30 TURNER, STONE & COMPANY Certified Public Accountants A Registered Limited Liability Partnership 12700 Park Central Dr., Suite 1400 Dallas, Texas 75251 Telephone (972) 239-1660 Facsimile (972) 239-1665 www.turnerstone.com Member Member Texas Society American Institute of Certified Public Accountants Certified Public Accountants and Its Private Companies Practice Section SEC Practice Section INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders 21st Century Technologies, Inc. Las Vegas, Nevada We have audited the accompanying balance sheets of 21st Century Technologies, Inc. as of December 31, 2003 and 2002, including the schedule of investments, as of December 31, 2003 and the related statements of operations, stockholders' equity, and cash flows for the three months ended December 31, 2003 and the nine months ended September 30, 2003 and for each of the years ended December 31, 2002 and 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our 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 financial statements referred to above present fairly, in all material respects, the financial position of 21st Century Technologies, Inc., as of December 31, 2003, and the results of their operations and their cash flows for the three months ended December 31, 2003 and the nine months ended September 30, 2003 and for each of the years ended December 31, 2002 and 2001 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the financial statements, accounting principles used in the preparation of the financial statements beginning October 1, 2003 (upon conversion to a business development company under the Investment Company Act of 1940) are different than those of prior periods and therefore are not directly comparable. /s/ TURNER, STONE & COMPANY LLP ________________________________ Turner, Stone & Company LLP Certified Public Accountants March 18, 2004 F-1
21ST CENTURY TECHNOLOGIES, INC. BALANCE SHEET DECEMBER 31, 2003 ASSETS Investments: Investments in equity securities, at fair value (cost of $5,625,000) $ 6,430,000 Investments in and advances to controlled companies, at fair value (cost of $6,467,320) 2,316,430 Commercial loans, at fair value (cost of $1,692,645) 1,692,645 --------------- Total investments 10,439,075 Cash and cash equivalents 1,796,294 Receivables: Investment advisory and management fees 1,150,000 Interest and dividends 8,168 Other assets 95,939 --------------- $ 13,489,476 =============== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities $ 45,957 Advances from stockholders 443,611 Notes payable, controlled companies 1,228,430 Notes payable, others 287,226 --------------- Total liabilities 2,005,224 --------------- Commitments and contingencies - Stockholders' equity: Preferred stock, Series A, $.001 par value, 1,200,000 shares authorized, no shares issued and outstanding - Preferred stock, Series B, $.001 par value, 1,200,000 shares authorized, issued and outstanding 1,200 Preferred stock, Series C, $.001 par value, 15,000,000 shares authorized, issued and outstanding 15,000 Preferred stock, Series D, $1 stated value, 1,000,000 shares authorized, 10,000 shares issued and outstanding 10,000 Common stock, $.001 par value, 750,000,000 shares authorized, 437,173,162 shares issued and outstanding 437,173 Additional paid in capital 24,583,483 Common stock subscriptions receivable (443,000) Accumulated deficit (9,773,713) Unrealized appreciation (depreciation) on investments (3,345,891) --------------- Total stockholders' equity 11,484,252 --------------- $ 13,489,476 ===============
The accompanying notes are an integral part of the financial statements. F-2
21ST CENTURY TECHNOLOGIES, INC. BALANCE SHEET DECEMBER 31, 2002 ASSETS Current assets: Cash and cash equivalents $ - Accounts receivable, trade net of allowance for doubtful accounts of $290,591 143,424 Inventories 501,706 Prepaid expense 36,443 Advances to stockholders, net of allowance for uncollectible amounts $55,728 112,591 ---------------- Total current assets 794,164 Property and equipment, net of accumulated depreciation of $716,457 1,202,265 Other assets: Intangible assets, net of accumulated amortization of $40,218 368,188 Goodwill 43,256 Reorganization value, net of accumulated amortization of $384,539 126,764 ---------------- $ 2,534,637 ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 956,145 Advances from stockholders 577,180 Notes payable 251,085 Convertible promissory note payable 200,000 ---------------- Total current liabilities 1,984,410 ---------------- Commitments and contingencies - Minority interest 3,158 Stockholders' equity: Preferred stock, Series A, $.001 par value, 1,200,000 shares authorized, no shares issued and outstanding - Preferred stock, Series B, $.001 par value, 1,200,000 shares authorized, issued and outstanding - Preferred stock, Series C, $.001 par value, 15,000,000 shares authorized, issued and outstanding - Preferred stock, Series D, $1 stated value, 1,000,000 shares authorized, 10,000 shares issued and outstanding - Common stock, $.001 par value, 750,000,000 shares authorized, 1,999,271shares issued and outstanding 1,999 Additional paid in capital 14,003,205 Common stock subscriptions receivable Accumulated deficit (13,458,135) Unrealized appreciation (depreciation) on investments ---------------- Total stockholders' equity 547,069 ---------------- $ 2,534,637 ================
The accompanying notes are an integral part of the financial statements. F-3
21ST CENTURY TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS Prior to Becoming a Business Development Company ------------------------------------------------- Three Months Nine Months Ended Ended Year Ended Year Ended Dec. 31, 2003 Sept. 30, 2003 Dec. 31, 2002 Dec. 31, 2001 ------------- -------------- ------------- ------------- Operating income: Manufacturing and other revenues $ - $ 467,050 $ 1,262,393 $ 1,714,941 Investment income 8,168 - 12,507 6,218 Investment advisory and management fees 1,150,000 - - - ----------------------------------------------------------------- Total operating income 1,158,168 467,050 1,274,900 1,721,159 Direct cost of sales - 364,084 677,265 1,106,617 ----------------------------------------------------------------- Gross profit 1,158,168 102,966 597,635 614,542 ----------------------------------------------------------------- Operating expenses: Interest expense 7,673 54,722 69,553 52,429 Advertising and selling 29,496 70,314 87,604 151,956 Compensation costs 97,500 303,932 506,038 1,178,547 General and administrative 114,914 1,057,865 1,794,135 4,178,486 Impairment related charges - 43,246 - - ----------------------------------------------------------------- Total operating expenses 249,583 1,530,079 2,457,330 5,561,418 ----------------------------------------------------------------- Net operating income (loss)/investment income (loss) before investment gains and losses 908,585 (1,427,113) (1,859,695) (4,946,876) Loss on sale of assets - (243,937) (179,127) (242,634) Net change in unrealized appreciation (depreciation) on investments 868,000 - - - ----------------------------------------------------------------- Income (loss) from continuing operations before income taxes 1,776,585 (1,671,050) (2,038,822) (5,189,510) Income tax provision (benefit) - - - - ----------------------------------------------------------------- Income (loss) from continuing operations 1,776,585 (1,671,050) (2,038,822) (5,189,510) Income (loss) from discontinued operations of ELM, TPI and NCI, net of income taxes - - 107,977 (577,062) ----------------------------------------------------------------- Income (loss) before cummulative effect of accounting change 1,776,585 (1,671,050) (1,930,845) (5,766,572) Cummulative effect of conversion to business development company, net of income tax effect 232,996 - - - ----------------------------------------------------------------- Net increase (decrease) in stockholders' equity resulting from net income (loss) $ 2,009,581 $ (1,671,050) $ (1,930,845) $ (5,766,572) ================================================================= Earnings per share, both basic and dilutive: Income (loss) per common from continuing operations $ 0.01 $ (0.01) $ (1.09) $ (4.55) Income (loss) per common share from discontinued operations $ - $ - $ 0.06 $ (0.51) Cummulative effect of conversion to business development company $ - $ - $ - $ - Net income (loss) per common share $ 0.01 $ (0.01) $ (1.03) $ (5.06)
The accompanying notes are an integral part of the financial statements. F-4
21ST CENTURY TECHNOLOGIES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 Preferred Series A Preferred Series B Preferred Series C ------------------ ------------------ ------------------ DESCRIPTION # of shs. Amount # of shs. Amount # of shs. Amount - -------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 Issuance of common stock for cash Issuance of common stock for services Repayment of note payable and interest Repayment of stockholder advances Issuance of commn stock for assets Cancelation of treasury stock Net loss ------------------------------------------------------------------------ Balance at December 31, 2001 0 0 0 0 0 0 Issuance of common stock for cash Issuance of common stock for services Issuance of common stock previously earned Receipt of 19 million shares as consideration for sale of assets Reissuance of above shares for services Cancelation of treasury stock and stock purchase subscriptions Net loss ------------------------------------------------------------------------ Balance at December 31, 2002 0 0 0 0 0 0 Adjustment for shares not going through reverse stock split, issuance of preferred warrants 1,200,000 1,200 Conversion of preferred warrants into common stock shares Conversion of Series A preferred shares into Series B preferred shares and common shares and debt repayment (1,200,000) (1,200) 1,200,000 1,200 Common stock issued as debt repayment Common stock issued for cash Common and preferred stock issued for services 15,000,000 15,000 Common stock returned for repayment of advances receivable Common stock issued for inventory Net Loss ------------------------------------------------------------------------ Balance at September 30, 2003 0 0 1,200,000 1,200 15,000,000 15,000 Reclassification of unrealized depreciation upon conversion to a business development company Issuance of common stock for cash Preferred shares issued to acquire HCIA preferred stock shares Net income ------------------------------------------------------------------------ Balance at December 31, 2003 $ 0 0 1,200,000 $ 1,200 15,000,000 $15,000 ======================================================================== Treasury Preferred Series D Common Stock Additional Stock & Stock ------------------ ------------ DESCRIPTION # of shs. Amount # of shs. Amount Paid in Capital Subscriptions - --------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 779,874 781 7,614,412 323,622 Issuance of common stock for cash 364,193 364 2,142,460 Issuance of common stock for services 329,461 329 2,493,591 Repayment of note payable and interest 35,000 35 769,111 Repayment of stockholder advances 17,107 17 171,063 Issuance of commn stock for assets 105,000 105 422,895 Cancelation of treasury stock (16,934) 16,934 Net loss ------------------------------------------------------------------------------- Balance at December 31, 2001 0 0 1,630,635 1,631 13,596,598 340,556 Issuance of common stock for cash 166,136 166 28,753 Issuance of common stock for services 12,500 12 37,488 Issuance of common stock previously earned 190,000 190 359,810 (360,000) Receipt of 19 million shares as consideration for sale of assets (350,000) Reissuance of above shares for services 350,000 Cancelation of treasury stock and stock purchase subscriptions (19,444) 19,444 Net loss ------------------------------------------------------------------------------- Balance at December 31, 2002 0 0 1,999,271 1,999 14,003,205 0 Adjustment for shares not going through reverse stock split, issuance of preferred warrants (790,951) (791) 791 Conversion of preferred warrants into common stock shares 79,095,106 79,095 (79,095) Conversion of Series A preferred shares into Series B preferred shares and common shares and debt repayment 12,000,000 12,000 196,000 Common stock issued as debt repayment 11,000,000 11,000 179,000 Common stock issued for cash 44,849,760 44,850 1,355,127 Common and preferred stock issued for services 83,496,072 83,496 243,492 Common stock returned for repayment of advances receivable (2,429,157) (2,429) (110,161) Common stock issued for inventory 1,000,000 1,000 59,000 Net loss ------------------------------------------------------------------------------- Balance at September 30, 2003 - - 230,220,101 230,220 15,847,359 - Reclassification of unrealized depreciation upon conversion to a business development company Issuance of common stock for cash 206,953,061 206,953 3,446,124 (443,000) Preferred shares issued to acquire HCIA preferred stock shares 10,000,000 10,000 5,290,000 Net income -------------------------------------------------------------------------------- Balance at December 31, 2003 10,000,000 $10,000 437,173,162 $437,173 $24,583,483 $(443,000) ================================================================================ Unrealized Accumulated Apprec on DESCRIPTION Deficit Investments Total - ---------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 (5,760,718) 0 2,178,097 Issuance of common stock for cash 2,142,824 Issuance of common stock for services 2,493,920 Repayment of note payable and interest 769,146 Repayment of stockholder advances 171,080 Issuance of commn stock for assets 423,000 Cancelation of treasury stock 0 Net loss (5,766,572) (5,766,572) -------------------------------------------------------- Balance at December 31, 2001 (11,527,290) 0 2,411,495 Issuance of common stock for cash 28,919 Issuance of common stock for services 37,500 Issuance of common stock previously earned 0 Receipt of 19 million shares as consideration for sale of assets (350,000) Reissuance of above shares for services Cancelation of treasury stock and stock purchase subscriptions 0 Net loss (1,930,845) (1,930,845) -------------------------------------------------------- Balance at December 31, 2002 (13,458,135) 0 547,069 Adjustment for shares not going through reverse stock split, issuance of preferred warrants 1,200 Conversion of preferred warrants into common stock shares 0 Conversion of Series A preferred shares into Series B preferred shares and common shares and debt repayment 208,000 Common stock issued as debt repayment 190,000 Common stock issued for cash 1,399,977 Common and preferred stock issued for services 341,988 Common stock returned for repayment of advances receivable (112,590) Common stock issued for inventory 60,000 Net loss (1,671,050) (1,671,050) -------------------------------------------------------- Balance at September 30, 2003 (15,129,185) - 964,594 Reclassification of unrealized depreciation upon conversion to a business development company 4,213,891 (4,213,891) 0 Issuance of common stock for cash 3,210,077 Preferred shares issued to acquire HCIA preferred stock shares 5,300,000 Net income 1,141,581 868,000 2,009,581 -------------------------------------------------------- Balance at December 31, 2003 $(9,773,713) $(3,345,891) $11,484,252 ========================================================
The accompanying notes are an integral part of the financial statements. F-5
21ST CENTURY TECHNOLOGIES, INC. STATEMENTs OF CASH FLOWS Prior to Becoming a Business Development Company ------------------- Three Months Nine Months Ended Ended Dec. 31, 2003 Sept. 30, 2003 ------------- -------------- Operating activities: Net Income (loss) $ 1,543,588 $ (1,671,050) Adjustments to reconcile net income (loss) to net cash provided by (used in) operations Depreciation and amortization 9,833 74,806 Provision for bad debts Common stock issued for services 401,988 Loss on disposal of assets 243,937 Unrealized appreciation on investments (868,000) Cumulative effect of accounting change 232,997 Changes in asset and liability accounts: (Increase) decrease in accounts receivable 75,367 (Increase) decrease in interest and fees receivable (1,158,168) (Increase) decrease in inventory (Increase) decrease in prepaid expenses 40,031 (58,088) Increase (decrease) in accounts payable (84,278) (415,850) Increase (decrease) in accrued expenses Increase (decrease) in deferred revenue ------------------------------------------- Net cash provided by (used in) operating activities (283,997) (1,348,890) ------------------------------------------- Investing activities: Proceeds from disposal of assets 765,000 Purchase of property and equipment Cash acquired in MMC acquisition Advances to stockholder Repayment of stockholder advances Investments in equity securities (208,837) Investments in commercial loans (1,692,645) ------------------------------------------- Net cash provided by (used in) investing activities (1,901,482) 765,000 ------------------------------------------- Financing activities: Issuance of common stock 3,210,077 1,409,177 Proceeds from notes payable 231,841 Repayments of notes payable (200,672) (99,191) Advances from stockholders 98,521 404,490 Repayments of stockholder advances (488,580) ------------------------------------------- Net cash provided by (used in) financing activities 3,107,926 1,457,737 ------------------------------------------- Net increase (decrease) in cash 922,447 873,847 Cash at beginning of period 873,847 ------------------------------------------- Cash at end of period $ 1,796,294 $ 873,847 =========================================== Prior to Becoming a Business Development Company ------------------------------------------- Year Ended Year Ended Dec. 31, 2002 Dec. 31, 2001 ------------- ------------- Operating activities: Net Income (loss) $ (1,930,845) $ (5,766,572) Adjustments to reconcile net income (loss) to net cash provided by (used in) operations Depreciation and amortization 279,561 374,388 Provision for bad debts (58,688) 5,600 Common stock issued for services 387,500 2,493,920 Loss on disposal of assets 431,699 240,192 Unrealized appreciation on investments Cumulative effect of accounting change Changes in asset and liability accounts: (Increase) decrease in accounts receivable (2,652) 400,216 (Increase) decrease in interest and fees receivable (Increase) decrease in inventory 260,067 (284,551) (Increase) decrease in prepaid expenses 16,318 134,756 Increase (decrease) in accounts payable 108,120 589,039 Increase (decrease) in accrued expenses (118,032) 144,702 Increase (decrease) in deferred revenue (225,000) --------------------------------------------- Net cash provided by (used in) operating activities (626,952) (1,893,310) --------------------------------------------- Investing activities: Proceeds from disposal of assets 11,101 Purchase of property and equipment (16,842) (1,320,068) Cash acquired in MMC acquisition 6,065 Advances to stockholder (6,477) (55,763) Repayment of stockholder advances 10,871 Investments in equity securities Investments in commercial loans --------------------------------------------- Net cash provided by (used in) investing activities (12,218) (1,358,895) --------------------------------------------- Financing activities: Issuance of common stock 28,919 2,142,824 Proceeds from notes payable 263,371 1,005,000 Repayments of notes payable (237,421) (76,842) Advances from stockholders 582,180 100,100 Repayments of stockholder advances (5,100) --------------------------------------------- Net cash provided by (used in) 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 financial statements. F-6
21ST CENTURY TECHNOLOGIES, INC. SCHEDULE OF INVESTMENTS Title of Security Percentage of December 31, 2003 ----------------- Portfolio Company Industry Held by Company Class Held Fair Value Cost ----------------- -------- --------------- ---------- ----------- ---- Investments in equity securities: Jane Butel Corporation Food Services Common Stock 4.22% $ 200,000 $ 200,000 TransOne, Inc. Financial Services Common Stock 4.76% 930,000 125,000 Health Care Investors of America, Inc. Real Estate Series B Preferred 15.38% 5,300,000 5,300,000 ---------------------------------- 6,430,000 5,625,000 ---------------------------------- Investments in and advances to controlled companies: Paramount MultiServices, Inc. Financial Services Common Stock 100% 1,228,430 1,228,430 Prizewise, Inc. Technologies Common Stock 100% 30,000 30,000 Innovative Weaponry, Inc. Manufacturing Common Stock 100% 181,000 2,948,260 Trident Technologies, Inc. Manufacturing Common Stock 100% 719,000 1,828,075 Griffon USA, Inc. Inactive Common Stock 100% 9,000 378,326 Hallmark Human Resources, Inc. Inactive Common Stock 100% 45,000 51,229 Trade Partners International, Inc. Inactive Common Stock 100% 48,000 1,000 Net Construction, Inc. Inactive Common Stock 100% 8,000 1,000 U.S. Optics Technologies, Inc. Inactive Common Stock 100% 48,000 1,000 ---------------------------------- 2,316,430 6,467,320 ---------------------------------- Commercial loans: City Wide Funding, Inc. Financial Services Debt 326,259 326,259 Credit Card Financial Corporation Financial Services Debt 80,619 80,619 1920 Bel Air, LLC Real Estate Debt 1,250,000 1,250,000 Two unrelated individuals N/A Debt 35,767 35,767 ---------------------------------- 1,692,645 1,692,645 ---------------------------------- Total investments 10,439,075 13,784,965 ================================== (1) All of the above investments, except for 1920 Bel Air, LLC, are non-income producing
The accompanying notes are an integral part of the financial statements. F-7 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS AND OPERATIONS 21st Century Technologies, Inc. (`the Company' or `we') is a solutions-focused financial services company that provides financing and advisory services to companies throughout the United States in the communications, information services, and technology industry sectors. Effective October 1, 2003, the Company became a diversified internally managed, closed-end investment company that elected to be treated as a business development company under the Investment Company Act of 1940, as amended. Prior to becoming a business development company, the Company, through its subsidiaries, was engaged in the manufacture and sale of firearm related products (Note 13). The Company was incorporated under the laws of the State of Delaware on May 15, 1967. 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. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION Beginning October 1, 2003, the accompanying financial statements reflect the separate accounts of 21st Century, and the related results of operations. In accordance with Article 6 of Regulation S-X under the Securities Act of 1933 and Securities Exchange Act of 1934, the Company does not consolidate portfolio company investments in which the Company has a controlling interest. Prior to September 30, 2003, the accompanying consolidated financial statements included 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. F-8 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Although the nature of the Company's operations and its reported financial position, results of operations and its cash flows are dissimilar for the periods prior to and subsequent to its becoming a business development company, its financial position for the years ended December 31, 2003 and 2002 and its operating results, cash flows and changes in stockholders' equity for each of the years ended December 31, 2003 (split apart as indicated above), 2002 and 2001 are presented in the accompanying financial statements pursuant to Article 6 of Regulation S-X. In addition, the accompanying footnotes, although different in the nature as to the required disclosures and information reported therein, are also presented as they relate to each of the above referenced periods. CONVERSION TO BUSINESS DEVELOPMENT COMPANY The Company's results of operations for 2003 are divided into two periods. The nine-month period, representing the period January 1, 2003 through September 30, 2003, reflects the Company's results prior to operating as a business development company under the Investment Company Act of 1940, as amended. The three-month period ended December 31, 2003, reflects the Company's results as a business development company under the Investment Company Act of 1940, as amended. Accounting principles used in the preparation of the financial statements beginning October 1, 2003 are different than those of prior periods and, therefore, the financial position and results of operations of these periods are not directly comparable. The primary differences in accounting principles relate to the carrying value of investments--see corresponding sections below for further discussion. The cumulative effect adjustment for the three-month period ended December 31, 2003 reflects the effects of conversion to a business development company as follows: CUMULATIVE EFFECT OF BUSINESS DEVELOPMENT COMPANY CONVERSION Effect of recording equity investments at fair value $ ( 4,213,891) Adjustments for previously adjusted net assets 4,570,444 Adjustment for previously consolidated net loss ( 123,557) -------------- $ 232,996 ============== BUSINESS COMBINATIONS (PRIOR TO BECOMING A BUSINESS DEVELOPMENT COMPANY) 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 4). These net assets were sold on June 20, 2002 (Note 12). F-9 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS REVERSE STOCK SPLIT On February 20, 2003, the Company effected a 100 to 1 reverse split of its common stock (Note 2). 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. REVENUE RECOGNITION (AS A BUSINESS DEVELOPMENT COMPANY) Interest on commercial loans is computed by methods that generally result in level rates of return on principal amounts outstanding. When a loan becomes 90 days or more past due, or if we otherwise do not expect the customer to be able to service its debt and other obligations, we will, as a general matter, place the loan on non-accrual status and cease recognizing interest income on that loan until all principal has been paid. However, we may make exceptions to this policy if the investment is well secured and in the process of collection. Loan origination fees are deferred and amortized as adjustments to the related loan's yield over the contractual life of the loan. In certain loan arrangements, warrants or other equity interests may be received from the borrower as additional origination fees. The borrowers granting these interests are typically non-publicly traded companies. We record the financial instruments received at estimated fair value as determined by independent business valuation appraisers. Fair values are determined using various valuation models which attempt to estimate the underlying value of the associated entity. These models are then applied to our ownership share considering any discounts for transfer restrictions or other terms which impact the value. Changes in these values are recorded through our statement of operations. Any resulting discount on the loan from recordation of warrant and other equity instruments are accreted into income over the term of the loan. We elected to employ independent valuation companies to value the investment in previously wholly owned subsidiaries and significant acquisitions for the nine-month period ended September 30, 2003 and December 31, 2003, respectively. In certain investment transactions, we perform investment banking and other advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned which is generally when the investment transaction closes. REVENUE RECOGNITION (PRIOR TO BECOMING A BUSINESS DEVELOPMENT COMPANY) The Company extends unsecured credit to its customers from the retail and wholesale sale of its products to its customers located predominately throughout the United States. Revenue is recognized when products are shipped. All products are shipped F.O.B. the Company's facilities. Shipping and handling costs, which are separately billed to customers, are not material and are reflected in the accompanying consolidated financial statements along with revenues. F-10 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 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. ALLOWANCE FOR BAD DEBTS The Company extends unsecured credit to its customers for amounts invoiced. Invoices are generally due on a net 30-day basis and are considered past due after 31 days. The Company evaluates its accounts receivable on a customer by customer basis after an invoice is over 90 days past due and provides for bad debts after all reasonable collection efforts have been made and when management determines the amounts to be uncollectible. 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. 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. 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, 2003, with the conversion of the Company to a business development company and the resulting non-consolidation of its operating subsidiaries, inventories are no longer reported in the Company's general accounts. At December 31, 2002 inventories were comprised of the following components. Raw materials $ 50,113 Work in progress 247,155 Finished goods 204,438 ----------- $ 501,706 =========== F-11 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO 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 three months ended December 31, 2003, the nine months ended September 30, 2003 and each of the years ended December 31, 2002 and 2001, depreciation expense totaled $9,833, $56,303, $195,904 and $294,929, respectively of which for the years ended December 31, 2002 and 2001, $8,708 and $5,408, respectively, is included as part of discontinued operations. At December 31, 2003 and 2002, property and equipment was comprised of the following. Also, consistent with presentation as a business development company, at December 31, 2003, property and equipment are included with other assets. 2003 2002 ---- ---- Land, building and improvements $ - $ 1,084,768 Machinery and equipment 87,804 577,419 Transportation equipment - 48,376 Furniture and fixtures 77,986 208,159 ----------- ----------- 165,790 1,918,722 Less accumulated depreciation ( 124,351) ( 716,457) ----------- ----------- $ 41,439 $ 1,202,265 ============ ============ GOODWILL AND INTANGIBLE ASSETS (PRIOR TO BECOMING A BUSINESS DEVELOPMENT COMPANY) 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. However, during the nine months ended September 2003, the Company determined that this goodwill had been impaired and its carrying value of $43,246 was charged against operations. F-12 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 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 nine months ended September 30, 2003 and each of the years ended December 31, 2002 and 2001, amortization expense related to these intangible assets totaled $18,503, $83,656 and $69,661, respectively. At December 31, 2003, with the conversion of the Company to a business development company and the resulting non-consolidation of its operating subsidiaries, these intangible assets are no longer reported in the Company's general accounts. 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. 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 the nine months ended September 30, 2003 and each of the years ended December 31, 2002 and 2001, amortization expense totaled $37,213, $49,617 and $49,617, respectively. At December 31, 2003, with the conversion of the Company to a business development company and the resulting non-consolidation of its operating subsidiaries, these intangible assets are no longer reported in the Company's general accounts. 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 12) and recognized a loss on the disposal of other long-lived assets related to its night sight operating segment (Note 13). In addition, during the nine months ended September 30, 2003, the Company identified an impairment of goodwill relating to its MMC operations. F-13 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS VALUATION OF INVESTMENTS (AS A BUSINESS DEVELOPMENT COMPANY) As a business development company under the Investment Company Act of 1940, all of the Company's investments must be carried at market value or fair value as determined by our Board of Directors for investments which do not have readily determinable market values. Prior to this conversion, only marketable debt and equity securities and certain derivative securities were required to be carried at market value. Beginning October 1, 2003, portfolio assets for which market prices are available are valued at those prices. However, most of our assets were acquired in privately negotiated transactions and have no readily determinable market values. These securities are carried at fair value as determined by our Board of Directors under our valuation policy. Currently, our valuation policy provides for obtaining independent business valuations for those equity securities that are not traded on a national securities exchange. The audit committee of our Board of Directors reviews our loans and investments and makes recommendations to our Board of Directors. At December 31, 2003, approximately 92% of our total assets represented investments recorded at fair value. Value, as defined in Section 2(a)(41) of 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the board of directors. Since there is typically no readily ascertainable market value for the investments in our portfolio, we valued substantially all of our investments at fair value using independent business valuation experts. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment. Unlike banks, we are not permitted to provide a general reserve for anticipated loan losses. Instead, we must determine the fair value of each individual investment on a quarterly basis. We will record unrealized depreciation on investments when we believe that an investment has become impaired, including where collection of a loan or realization of an equity security is doubtful. Conversely, we will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our investment has also appreciated in value, where appropriate. As a business development company, we invest primarily in illiquid securities including debt and equity securities of private companies. The structure of each debt and equity security is specifically negotiated to enable us to protect our investment and maximize our returns. We generally include many terms governing interest rate, repayment terms, prepayment penalties, financial covenants, operating covenants, ownership parameters, dilution parameters, liquidation preferences, voting rights, and put or call rights. Our investments are generally subject to some restrictions on resale and generally have no established trading market. Because of the type of investments that we make and the nature of our business, our valuation process requires an analysis of various factors. Our fair value methodology includes the examination of, among other things, the underlying investment performance, financial condition and market changing events that impact valuation. F-14 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS As a general rule, we do not value our loans or debt securities above cost, but loans and debt securities will be subject to fair value write-downs when the asset is considered impaired. In many cases, our loan agreements allow for increases in the spread to the base index rate if the financial or operational performance of the customer deteriorates or shows negative variances from the customer's business plan and, in some cases, allow for decreases in the spread if financial or operational performance improves or exceeds the customer's plan. With respect to private equity securities, each investment is valued as indicated above by a independent business valuation company using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment, as well as a minority, non-control position, if applicable. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event will be used to corroborate our private equity valuation. Securities that are traded in the over-the-counter market or on a stock exchange generally will be valued at the prevailing bid price on the valuation date. 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 three months ended December 31, 2003, the nine months ended September 30, 2003 and each of the years ended December 31, 2002 and 2001, advertising expense totaled $29,496, $70,314, $87,604 and $151,956, respectively. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share amounts are computed by dividing the net earnings (loss) by the weighted average number of common stock shares outstanding. Diluted earnings (loss) per share amounts reflect the maximum dilution that would have resulted from the conversion of the Series C preferred stock (Note 2), the exercise of warrants (Note 2) and, at December 31, 2001, the issuance of common stock earned but not issued (Note 6). F-15 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS The table below is a reconciliation of the denominators of our basic and diluted earnings (loss) per share calculations for the three months ended December 31, 2003, the nine months ended September 30, 2003 and for each of the years ended December 31, 2002 and 2001. There is no impact to the numerators of our diluted earnings per share calculations from the potentially dilutive common shares.
Three Nine Year Year Months Months Ended Ended 12/31/03 9/30/03 12/31/02 12/31/01 -------- ------- -------- -------- Weighted average shares, basic 298,519,876 139,696,577 1,872,055 1,139,851 Assumed conversion of Series C preferred 15,000,000 - - - Assumed exercised A, B and C warrants - - - - -------------- ------------- ----------- ----------- Weighted average shares, dilutive 313,519,876 139,696,577 1,872,055 1,139,851 ============== ============= =========== ===========
There are no potentially dilutive common shares for the nine months ended September 30, 2003 and for each of the years ended December 31, 2002 and 2001, because we had a loss from continuing operations during these periods. 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. INCOME TAXES The Company has not elected to be a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. Accordingly, the Company will be subject to U.S. federal income taxes on sales of investments for which the fair values are in excess of our tax bases (Note 7). Prior to conversion to a business development company, deferred tax assets and liabilities were determined based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities (i.e., temporary differences) and were measured at the enacted rates that will be in effect when these differences reverse. Upon conversion to a business development company, all deferred tax assets and liabilities relating to our now unconsolidated subsidiaries were eliminated. F-16 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 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. As a business development company, the Company must report changes in the fair value of its investments outside of its operating income on its statement of operations and reflect the accumulated appreciation or depreciation in the fair value of its investments as a separate component of its stockholders' equity. This treatment is similar to the treatment required by SFAS No. 130. RECENT ACCOUNTING PRONOUNCEMENTS During the year ended December 31, 2003, there were several new accounting pronouncements issued by the Financial Accounting Standards Board (FSAB) the most recent of which was Statements on Financial Accounting Standards (SFAS) No. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY and FASB Interpretation No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company's financial position or operating results. 2. CAPITAL STRUCTURE DISCLOSURES The Company's capital structure is complex with several series of preferred stock and a general class of common stock. Through December 31, 2002 and prior to the February 20, 2003 recapitalization described below, the Company's capital structure consisted only of 200,000,000 authorized common stock shares with a $.001 par value per share. 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 (actually only 79,095,106 shares were subject to the reverse split). 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. F-17 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS SERIES A CONVERTIBLE PREFERRED STOCK On February 20, 2003, the Company designated 1,200,000 Series A Convertible Preferred Stock shares with a par value of $.001 per share. The Series A shares are convertible at the holder's option into 10 shares of common stock and 1 share of Series B Convertible Preferred Stock. The Series A shares rank in priority to the Company's common stock and any other preferred stock shares issued, both as to the payment of dividends and as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. Dividends, if declared by the Board of Directors, accrue at an annual rate of $.30 and are fully cumulative. Also on this date, these shares were issued and immediately converted into 12,000,000 common stock shares and 1,200,000 Series B Convertible Preferred Stock shares. No other Series A shares have been issued. SERIES B PREFERRED STOCK On February 20, 2003, the Company designated 1,200,000 Series B Convertible Preferred Stock shares with a par value of $.001 per share. The Series B shares rank in priority to the Company's common stock both as to the payment of dividends and as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. Dividends, if declared by the Board of Directors, accrue at an annual rate of $.30 and are fully cumulative. In addition, each Series B share provides for 500 votes. Fredericks Partners, a California partnership, as holder of the Series B shares owns controlling votes in the Company. Other than the 1,200,000 Series B shares issued upon the conversion of the Series A shares described above, no other Series B shares have been issued. SERIES C PREFERRED STOCK On August 14, 2003, the Company designated 15,000,000 Series C Preferred Stock shares with a par value to be determined by the Board of Directors (the preferred shares originally were designated with a $.001 par value per share). The shares contain no participation rights and therefore the holders are not entitled to participate in any dividends declared by the Board of Directors. The shares are convertible into common stock shares at the rate of 1 to 1 anytime during the year following the date of issuance and the shares automatically convert to common stock shares at that same rate one year from the date of issuance if not previously converted during that time. In the event of liquidation, dissolution or other similar winding up event, the shares rank in priority to the Company's common stock and the Series B and D preferred stock as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. SERIES D PREFERRED STOCK On December 10, 2003, the Company designated 1,000,000 Series D Preferred Stock shares with no par value and a stated value of $1per share. The shares contain no participation rights and therefore the holders are not entitled to participate in any dividends declared by the Board of Directors. The shares do not contain any voting rights. In the event of liquidation, dissolution or other similar winding up event, the holders of the shares have the right to convert their stock into common stock shares on a 1 to 1 basis. Otherwise, the shares rank last in priority behind the Series C and Series B preferred stock shares. Also on this date, the Company issued all authorized Series D shares to Pacific Development in exchange for shares of HCIA. F-18 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS COMMON STOCK On November 11, 2003, the Company amended its Articles of Incorporation to increase the number of authorized common shares to 750,000,000 with a par value of $.001 per share. Each common stock share contains one voting right and contains the rights to dividends if and when declared by the Board of Directors. COMMON STOCK WARRANTS On July 7, 2003, in connection with a $60,000 loan to the Company, the Company entered into a Common Stock and Warrant Purchase Agreement whereby the Company granted the lender class A, B and C warrants to purchase a total of 3,000,000 common stock shares at various prices. Specifically, the A Warrants entitle the lender/holder to acquire up to 1,000,000 free trading shares, in increments of 250,000 shares each, at a price of $.10 per share. The warrants are exercisable anytime during a period ending 24 months and 1 day from the date of the agreement. Similarly, the B and C Warrants each entitle the lender/holder to acquire up to 1,000,000 free trading shares, in increments of 250,000 shares each, at a price of $.20 and $.30 per share, respectively. The B and C warrants are each exercisable anytime during a period ending 30 months and 1 day and 36 months and 1 day, respectively, from the date of the agreement. PREFERRED WARRANTS On July 8, 2002, the Company distributed an offer, which expired on November 19, 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 79,095,106 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 120,832,039 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 79,095,106 restricted common stock shares were issued. 3. RISK CONCENTRATIONS AND UNCERTAINTIES Prior to September 30, 2003, the Company, through its subsidiaries, operated 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. F-19 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS The Company's magnetic and hydraulic-magnetic technologies (Note 13) required additional modifications to fit specific customer needs. Demand for these products from governmental and industrial sources was largely estimated and while the Company had studied various markets, no assurance could be given that these products could be successfully marketed. 4. NOTES PAYABLE The Company's debt consist of a purchase note payable incurred in the acquisition of Paramount MultiServices, Inc. (Note 6) and 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. The Purchase note payable is payable in annual installments of either the Company's common stock, pending a California fairness hearing, or cash through December 2006. Because the terms of the note did not provide for interest, the Company has discounted the carrying value of this note to its fair value using a discounted interest rate of 5%. As of this date, the initial $500,000 purchase price payment has not been paid pending the fairness hearing, which is necessary so that the common stock issued by the Company as payment will be immediately free trading shares. At December 31, 2003, future principal payments required under the terms of this purchase note payable are as follows. YEAR ENDED DECEMBER 31, AMOUNT 2004 $ 785,714 2005 226,757 2006 215,959 ----------- $ 1,228,430 =========== 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 2). F-20 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 5. COMMITMENTS AND CONTINGENCIES LEASES Through July 2003, the Company conducted its operations from its own facilities located in Ft. Worth, Texas, which it had occupied since early 2001. In addition, The Company's Unertyl division facilities located in Pennsylvania, were leased on a month-to-month basis and the Company's 2826 Elm St., Inc. nightclub facility was leased under a non-cancelable operating lease expiring through November 2005. Beginning in July 2003, the Company sold the building and relocated its corporate office to Las Vegas, Nevada, which it is leasing under a non-cancelable operating lease expiring in July 2008 at a monthly rate of $6,570. As part of the sale agreement, the Company agreed to leaseback the Ft. Worth facilities through March 2004 at a monthly rate of $6,500. For the three months ended December 31, 2003, the nine months ended September 30, 2003 and each of the years ended December 31, 2002 and 2001, rent expense for the Company's facilities totaled $39,210, $94,635, $66,800 and $92,378, respectively. At December 31, 2003, future minimum rental payments required under the terms of the Company's Las Vegas office lease agreement was as follows. YEAR ENDED DECEMBER 31, AMOUNT 2004 $ 78,840 2005 78,840 2006 78,840 2007 78,840 2008 45,990 ----------- $ 361,350 =========== 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. F-21 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 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. 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. 6. RELATED PARTY TRANSACTIONS STOCKHOLDERS During the three months ended December 31, 2003, the nine month ended September 30, 2003 and each of the years ended December 31, 2002 and 2001, the Company made advances totaling $0, $0, $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. In addition, during the same periods, $0, $0, $0 and $10,817, respectively, of these advances were repaid and $0, $0, $42,720 and $0, respectively, were charged to expense as uncollectible. Also, during the year ended December 31, 2002, $55,728 of these advances were reserved because of doubt as to their collectibility and during the nine months ended September 30, 2003, the remaining $112,591 of these advances were charged to expense as uncollectible. 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 three months ended December 31, 2003, the nine months ended September 30, 2003, and each of the years ended December 31, 2002 and 2001, the Company received advances totaling $98,521, $404,490, $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 same periods, the Company repaid $0, $636,580 ($148,000 through the issuance of common stock), $5,100 and $0, respectively, of these advances and during the year ended December 31, 2002, $100,000 of these advances were assumed as part of the ELM net assets disposition (Note 12). F-22 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 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 12). PARAMOUNT MULTISERVICES, INC. (PMI) On December 30, 2003, the Company acquired all of the outstanding common stock of PMI for a purchase price of $1,300,000 which was discounted to $1,228,430 (Note 4). The purchase price is payable in annual installments through December 30, 2006 at an imputed interest rate of 5.0% in either common stock of the Company or in cash. Because the majority stockholder and a director and officer of PMI is a member of executive management of the Company, the Company obtained an independent business valuation of PMI to support the price paid for its investment. MANAGEMENT FEES During the three months ended December 31, 2003, the Company entered into agreements to provide management services to three controlled companies, PMI, IWI and TTI, and accrued management fee revenues pursuant to these agreements totaling $150,000. On December 30, 2003, in connection with the Company's investment in PMI, the management agreement terminated. The remaining agreements, which each provide for quarterly management fees of $30,000, are open ended and can be terminated by either party upon 30 days written notice. F-23 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 7. 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. At December 31, 2003, the Company's cost of its investments for federal income tax purposes are equal to its cost for financial reporting purposes. 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 three months ended December 31, 2003, the nine months ended September 30, 2003 and for each of the years ended December 31, 2002 and 2001 is as follows.
Three Nine Months Months Ended Ended 12/31/03 9/30/03 2002 2001 -------- ------- ---- ---- Tax benefits computed at statutory rate $ 604,039 $( 568,157) $( 656,487) $( 1,960,634) Increase in valuation allowance ( 524,261) 552,035 650,976 1,957,841 Adjustment to valuation allowance resulting from conversion to a business development company 84,501 - - - Permanent differences 4,723 16,122 5,511 2,793 ----------- ------------ ----------- ----------- $ - $ - $ - $ - ============ ============= ============ ============
As of December 31, 2003, the Company has approximately $9.8 million of net operating losses available to offset future taxable income and approximately $3.3 million of unrealized depreciation in the carrying value of its investments available to offset future appreciation if it occurs. These carry forwards expire in years 2008 through 2023. F-24 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS At December 31, 2003 and 2002, significant components of the Company's deferred tax assets (benefits) and liabilities are summarized below. 2003 2002 ---- ---- Deferred tax assets: Net operating loss carry forward $ 4,460,665 $ 4,275,376 Amortization differences - 157,515 Less valuation allowance ( 4,460,665) ( 4,432,891) ----------- ----------- - - Deferred tax liabilities: Depreciation differences - - ----------- ----------- Net deferred tax assets $ - $ - ============ ============ 8. FINANCIAL INSTRUMENTS The Company's financial instruments, which potentially subject it to credit and other risks, consists of its cash, accounts receivable, investments in equity securities and loans (after becoming a business development company) (Note 1), 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. Although 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 at December 31, 2003, $1,596,294 of the Company's cash was maintained in financial institutions in excess of federal insurance coverage. ACCOUNTS RECEIVABLE, TRADE The Company's accounts receivable are unsecured and generally represent sales on a net 30-day basis to customers 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. F-25 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 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. 9. OTHER STATEMENT OF CASH FLOWS DISCLOSURES For the three months ended December 31, 2003, the nine months ended September 30, 2003 and each of the years ended December 31, 2002 and 2001, supplemental disclosure of cash flow information is as follows:
Three Nine Months Months Ended Ended 12/31/03 9/30/03 2002 2001 -------- -------- ---- ---- Cash paid for interest $ 7,673 $ 54,722 $ 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 $ - $ 401,988 $ 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 $ - $ 250,000 $ - $ 769,146 Issuance of common stock to repay stockholder advances $ - $ 148,000 $ - $ 171,080 Issuance of common stock previously earned $ - $ - $ 360,000 $ -
F-26 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 10. 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. As of December 31, 2003, no options have been granted under this plan. 11. INTERIM FINANCIAL DATA AND FOURTH QUARTER ADJUSTMENTS During the fourth quarter of the Company's year ended December 31, 2003, adjustments were made to the Company's financial statements that affected previously reported interim 2003 quarterly periods. The overall effect of the adjustments was to decrease net income by $377,741. 12. DISCONTINUED OPERATIONS (PRIOR TO SEPTEMBER 30, 2003) 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 6). 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 13). 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. F-27 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 13. BUSINESS SEGMENTS Prior to becoming a business development company, the Company had six reportable operating segments for which its management reviewed financial information and based 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 nine months ended September 30, 2003 and each of 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 nine months ended September 30, 2003 and each of the years ended December 31, 2002 and 2001. Information related to its discontinued operations is contained in Note 12.
(1) (2) (3) (4) IWI TRIDENT SEA FIREARMS NINE MONTHS ENDED 9/30/03 NIGHT SIGHTS GRIPPER PATCH RESALE TOTAL Revenue, external customers 337,540 129,510 467,050 Operating income (loss) (1,521,825) 94,712 (1,427,113) Interest expense 35,958 35,958 Depreciation/amortization 152,146 10,930 163,076 Consulting services, non cash 420,000 420,000 Expenditures for long-lived assets - Total long-lived assets, net of depreciation 610,094 9,370 619,464 Total assets 2,813,203 66,838 2,880,041 (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) (2,154,986) (7,690) 94,712 29,142 (2,038,822) Interest expense 69,553 69,553 Depreciation/amortization 256,279 14,574 270,853 Consulting services, non cash 387,500 387,500 Expenditures for long-lived assets 16,842 16,842 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
F-28 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS
(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 income (loss) (4,513,616) (20,317) (492,743) (116,623) (5,143,299) Interest expense 52,429 52,429 Depreciation/amortization 325,370 43,610 368,980 Consulting services, non cash 2,493,920 2,493,920 Expenditures for long-lived assets 1,512,998 3,732 1,516,730 Total long-lived assets, net of depreciation 1,748,282 20,163 1,768,445 Total assets 3,664,410 209,585 107,910 3,981,905
14. FINANCIAL HIGHLIGHTS Following is a schedule of financial highlights for the three months ended December 31, 2003, the first reporting period a business development company (Note 1).
Per share date (basic and dilutive): Net asset value at beginning of period $ - ----------------- Net operating income (loss) before investment gains (losses) - Increase in unrealized appreciation on investments (1) 0.01 Cumulative effect of conversion to a business development company - Income tax provision - ----------------- Net increase (decrease) in stockholders' equity from net income (loss)(1) 0.01 ----------------- Dividends declared - Distributions to stockholders - Effect of issuance of common shares for cash 0.02 ----------------- Net asset value at end of period $ 0.03 ================= Per share market value at end of period $ 0.03 Total return (2) 17.13% Shares outstanding at end of period 437,173,162 Ratio/supplemental data: Net assets at end of period $ 11,484,252 Ratio of operating expenses to average net assets 2.44% Ratio of net operating income (loss) to average net assets 8.78%
(1) Amount computed using average shares outstanding during the period (2) Total return equals net income (loss) dividend by average shares out- standing during the period F-29 21ST CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Year Ended December 31, 2003 First Second Third Fourth ----- ------ ----- ------ Net sales $ 172,278 $ 154,645 $ 140,127 $ 1,158,168 Gross profit 12,445 56,645 33,876 1,158,168 Income (loss) before cumulative effect of accounting change ( 322,930) ( 641,495) ( 706,625) 1,776,585 Cumulative effect of conversion to business development company - - - ( 232,996) Net income (loss)/net increase (decrease) in stockholders' equity resulting from net income (loss) ( 267,407) ( 641,495) ( 762,148) 2,009,581 Earnings (loss) per share basic and diluted $ 0.00 $ 0.00 $ 0.00 $ 0.01 Year Ended December 31, 2002 First Second Third Fourth ----- ------ ----- ------ Net sales $ 728,758 $ 479,910 $ 314,731 $( 261,006) Gross profit 438,851 202,971 198,644 ( 255,338) Income (loss) before cumulative effect of accounting change 42,558 219,433 ( 228,309) ( 1,930,845) Cumulative effect of conversion to business development company - - - - Net income (loss)/net increase (decrease) in stockholders' equity resulting from net income (loss) 42,558 219,433 ( 228,309) ( 1,930,845) Earnings (loss) per share basic and diluted $ 0.00 $ 0.00 $ 0.00 $( 1.03)
F-30 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE none PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 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. 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. Shane Traveller and James Terrell were elected to the Board of Directors on September 3, 2003. John Hopf was elected a member of the Board of Directors on December 9, 2003. Name Age Position Held Arland D. Dunn 63 Chief Executive Officer, President and Chairman of the Board Larry B. Bach 66 Secretary and Director Shane Traveller, CPA 37 Director and Chairman of the Audit and Investment Committee (Named Financial Expert) James Terrell -- Director and member of the Audit and Investment Committee John Hopf 38 Director and member of the Audit and Investment Committee Alvin L. Dahl, CPA 62 Chief Financial Officer Kevin Romney 43 General Manager Arland D. Dunn, President, CEO and Chairman of the Board Las Vegas, Nevada 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. 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 Mr. Dunn'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 Henderson, Nevada, 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 Las Vegas, Nevada 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. Shane Traveller, CPA, Director Mr. Traveller brings an extensive background in service to public companies both as an independent auditor, then later as an officer and director. At a Nasdaq NMS-listed medical device company, he oversaw all operations, product development and manufacturing in addition to financial reporting, investor relations, and information systems. Originally brought in as interim CFO to cut costs, improve reporting and investor relations, he was later named President and COO with responsibility for all aspects of the company. During his tenure, sales increased 33%, productivity increased 45%, staffing decreased 42% and the company achieved cash flow break even for the first time in ten years. With a company he co-founded, Mr. Traveller established supply channels in Eastern Europe, negotiated a letter of intent and subsequent joint venture agreement with a Russian supplier, and oversaw the market release of five new products. He raised seed capital and set up the production facility, and internal accounting controls. As a consultant and independent auditor, Mr. Traveller has been closely involved in the development and implementation of internal controls, management of staff, preparation and filing of countless financial statements and SEC filings. He has led clients through IPO's and secondary offerings, private placements, mergers and acquisitions, and conversions to a Business Development Company under the Investment Act of 1940. A "clean up" specialist, Mr. Traveller assists companies with meeting SEC compliance, listing requirements, and corporate governance. He is also involved in providing management consulting, assisting with business plan development and implementation, and providing capital formation guidance. EDUCATION AND OTHER INFORMATION o Brigham Young University - Bachelor of Science degree from Marriott School of Management, major in Accounting, minor in Finance o Certified Public Accountant - State of California certificate number 66731 (inactive) o American Institute of Certified Public Accountants James Terrell, Director Mr. Terrell brings extensive business experience in various industries. Mr. Terrell has owned and operated various wedding chapels since 1968 and currently helps operate The Little White Chapel on Las Vegas Boulevard. The Little White Chapel is widely known all over the world for performing weddings for celebrities such as Michael Jordan, Bruce Willis, Demi Moore, and even Britney Spears. In addition to owning and operating wedding chapels, Mr. Terrell brings experience in owning and operating various investment and retail businesses. John Hopf, Director Mr. Hopf brings extensive experience in the fields of investment banking, business plan development, strategic alliances, mergers and acquisitions, and public relations. As an advisor for the Compass Capital Group, Mr. Hopf acts as both advisor and investment banker to help clients facilitate strategic alliances, mergers and acquisitions, and access to capital markets. Mr. Hopf is a holder Series 7, 24,55 and 63 securities licenses. He was director of Business Development a AB Watley Group, Inc. New York, dealing with trade volumes of over 100,000,000 shares per month. Prior to his Watley experience, Mr. Hopf served as General Securities Principal and Trader for Andover Brokerage, New York, including management of 40 branch offices. Prior to his career in the brokerage industry, Mr. Hopf served in the U. S. Marine Corps and majored in Marketing while attending C. W. Post College at Long Island University. Alvin L. Dahl, CPA, Chief Financial Officer Mr. Dahl, a certified public accountant has extensive experience in the accounting industry. In 1994, he acquired Ray & Associates, LLP, an accounting firm specializing in tax, audit, and management advisory services. Under his supervision, the firm averaged an annual growth rate of 30+%, more than doubling the annual revenue, while retaining 90% of its original clients. In 2000, Mr. Dahl sold the accounting and auditing portion of the firm as well as the majority of the tax services and retained certain tax clients and the management advisory services. Prior to his ownership background in the accounting industry, Mr. Dahl served as Chief Financial Officer for Advanced Framing Systems, Inc., a steel housing manufacturer with annual sales of $40 million and 100 + employees; and held various asset management positions for financial firms in the real estate industry. Mr. Dahl also held executive level positions in various financial institutions including positions as President and Chairman of the Board in two Texas Savings & Loan Associations prior to industry deregulation. Mr. Dahl completed his BBA in Finance and Accounting at The University of Texas at Austin in 1966 and has completed 36 semester hours of graduate level course work. Kevin D. Romney, CPA, General Manager Mr. Romney served the Company as 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 11. EXECUTIVE COMPENSATION The following table sets forth information as of December 31, 2003, Annual Name and Principal Position Year(s) Salary Bonus - --------------------------- ------- ------ ----- Arland D. Dunn 2003 $150,000 $0 CEO and President Larry B. Bach, Director and Secretary 2003 * $0 Kevin Romney, General Manager 2003 $104,000 $0 Alvin L. Dahl 2003 * $0 Chief Financial Officer * Less than $100,000.00 COMPENSATION OF DIRECTORS. The Company's standard arrangement for compensation of directors for any services provided as Director, including services for committee participation or for special assignments ranges from $500.00 to $1,500.00 per meeting. ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS AND RELATED STOCKHOLDER MATTERS. The following table sets forth information furnished to us with respect to the beneficial ownership of our common stock by (i) each executive officer, director and nominee, and by all directors and executive officers as a group, and (ii) each beneficial owner of more than five percent of our outstanding common stock, in each case as of December 31, 2003. Unless otherwise indicated, each of the persons listed has sole voting and dispositive power with respect to the shares shown as beneficially owned, subject to applicable community property laws. Except as otherwise stated, the mailing address for each person identified below is 2700 W. Sahara, Suite 440, Las Vegas, Nevada.
Shares Beneficially Percent of Class Name Class Owned (1) - ----------------------------------- ------ ---------------- ------------------- Fredricks Partners 5707 Corsa, Suite 107 Westlake Village, CA 913652 Common 12,000,000 (2) 2.7% Fredericks Partners Series B Preferred 1,200,000 (3) 100.0% Arland D. Dunn, Chief Executive Officer & Director Common -0- Arland D. Dunn Series C Preferred 5,000,000 33.3% Larry B. Bach, Secretary & Director Common 50,000(2) * Larry B. Bach Series C Preferred 2,500,000 16.7% Alvin L. Dahl, Chief Financial Officer Common 2,495,000(2) * James B. Terrell, Director Common 2,350,000(2) * Shane H. Traveller, Director Common -0- All Directors and Officers as a group: Common Stock (5 persons) 4,895,000 Series B Preferred (1 person) 1,200,000 Series C Preferred (2 persons) 7,500,000 * Less than 1%. (1) Unless noted otherwise, the address for all persons listed is c/o the Company at 2700 W. Sahara Blvd, Suite 440, Las Vegas, NV 89102 (2) Percentage of beneficial ownership is based on 437,173,162 shares of common stock outstanding as of December 31, 2003, and 1,200,000 and 15,000,000 shares of Series B and Series C preferred stock outstanding, respectively, on December 31, 2003. (3) Arland D. Dunn is the managing partner of Fredericks Partners. In this capacity, he has full voting control over the stock.
ITEM 14. CONTROLS AND PROCEDURES. (a) Within the 90-day period prior to the filing date of this annual report, the Company's chief executive officer and chief financial officer conducted an evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934). Based upon this evaluation, the Company's chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them of any material information relating to the Company that is required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934. (b) There have not been any significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this Report: 1. The following financial statements are incorporated by reference from the Consolidated Financial Statements, Notes thereto and Reports of Independent Public Accountants Balance Sheet as of September 30, 2003 and December 31, 2003 and 2002. Statement of Operations for the nine months ended September 30, 2003 and 3 months ended December 31, 2003, and years ended December 31, 2002, and 2001. Statement of Cash Flows for the years ended December 31, 2003, 2002 Statement of Investments as of December 31, 2003. Stockholders' Equity for the Years ended December 31, 2003, 2002, and 2001 Notes to Financial Statements. Reports of Independent Public Accountants. a. The following exhibits are filed herewith or incorporated by reference as set forth below: EXHIBIT NUMBER DESCRIPTION - -------------------------------------------------------------------------------- 1 Articles of Incorporation of First National Holding Corporation dated January 28, 1994 2 Certificate of Amendment to Articles of Incorporation filed September 19, 1994 3 Certificate of Amendment to Articles of Incorporation filed September 29, 1995 4 Articles of Merger filed May 19, 1995 5 Bylaws 8 Trident Technologies Sub-License Agreement dated July 31, 1996 9 Limited Exclusive Patent License 10 Agreement between The Regents of the University of California and Trident Technologies Corporation 11 License of Dept. of Treasury, Bureau Of Alcohol, Tobacco and Firearms 12 Representation Agreement dated May 3, 1999 13 Registry of Radioactive Sealed Sources and Devices dated February 20, 1996 14 U.S. Nuclear Regulatory Commission Materials License dated October 18, 1996 15 NRC Registration Amendment dated August 22, 1997 16 Request to Rescind Confirmatory Order dated September 14, 1998 17 Distribution and Agency Agreement dated October 15, 1999 18 Radioactive Materials License dated October 09, 1999 19 U.S. Bankruptcy Court Order Confirming Plan of Reorganization dated February 1, 1995 23 Purchase Order dated April 3, 2000 24 Subsidiaries of the Registrant 25 MMC Acquisition Agreement 26 PRE 14C filed January 17, 2003 27 DEF 14C filed January 30, 2003 28 S-8 registration statement filed February 20, 2003 29 S-8 registration statement filed June 25, 2003 30 N-54A Election as a BDC filed August 27, 2003 31 1-E Notification of Stock sales filed August 28, 2003 32 2-E Registration Statement filed October 6, 2003 33 PRE 14C filed October 8, 2003 to increase Authorized Shares 34 DEF 14C filed October 20, 2003 increasing Authorized Shares 35 1-E Notification of Stock sales filed November 28, 2003 36 SEC EXHIBIT 14 - Code of Ethics SEC EXHIBIT 31.1 - Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) SEC EXHIBIT 31.2 - Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a) SEC EXHIBIT 32.1 - Certification of Chief Executive Officer Pursuant to Section 1350 of Title 18 of the U.S. Code SEC EXHIBIT 32.2 - Certification of Chief Financial Officer Pursuant to Section 1350 of Title 18 of the U.S. Code 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. b) Several Form 8-Ks were issued and submitted to the Securities and Exchange Commission during the reporting period. These Form 8-K dealt with earnings projections, Financial releases, resignation and election of directors, removal of director and election of A replacement, the moving of the corporate offices and correction of the terms of a reported Transaction. 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: March 30, 2004 By: /s/ ARLAND D. DUNN _____________________________________ Arland D. Dunn President and Chief Operating Officer March 30, 2004 By: /s/ ALVIN L. DAHL ______________________________________ Alvin L. Dahl Chief Financial Officer EX-14 2 ex-14.txt EXHIBIT 14 EXHIBIT 14 OFFICIAL CODE OF ETHICS FOR 21ST CENTURY TECHNOLOGIES, INC. PURSUANT TO 247CFR WHICH REQUIRES REGISTERED INVESTMENT COMPANIES AND THEIR INVESTMENT ADVISORS AND PRINCIPAL UNDERWRITERS TO ADOPT A CODE OF ETHICS AND REPORTING REQUIREMENTS TO PREVENT FRAUDULENT, DECEPTIVE AND MANIPULATIVE PRACTICES, THE FOLLOWING DOCUMENT SETS FORTH 21ST CENTURY TECHNOLOGIES, INC.'S OFFICIAL CODE OF ETHICS AS ADOPTED BY THE CORPORATION'S BOARD OF DIRECTORS ON AUGUST 27, 2003. SECTION 1 - DEFINITIONS (1) "Fund" shall mean 21st Century Technologies, Inc. (2) "Access person" means any director, officer, general partner, or advisory person of the Fund. (3) "Advisory person" means any employee of the Fund, who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sales of a security by the Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and any natural person in a control relationship to the Fund who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of a security. (4) "Purchase or sale of a security" includes, INTER ALIA, the writing of an option to purchase or sell a security. (5) "Control" shall have the same meaning as that set forth in Section 2(a)(9) of the Investment Company Act. (6) "Security" shall have the meaning set forth in 2(a)(36) of the Investment Company Act, except that it shall not include shares of registered open-end investment companies, securities issued by the Government of the United States, short term debt securities which are "government securities" within the meaning of Section 2(a)(16) of the Investment Company Act, bankers' acceptances, bank certificates of deposit, commercial paper, and such other money market instruments as designated by the board. (7) "Beneficial ownership" shall be interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations there under, except that the determination of direct or indirect beneficial ownership shall apply to all securities which an access person has or acquires. (8) "Investment company" means a company registered as such under the Investment Company Act of 1940, as amended. (9) "Manipulation" means to alter by artful, insidious, or unfair means to serve one's purpose. SECTION 2 - PROHIBITIONS No access person of 21st Century Technologies, Inc., or any of it's subsidiaries, shall purchase or sell, directly or indirectly, any security in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership and which he or she knows or should have known at the time of such purchase or sale: (a) is being considered for purchase or sale by the Fund; or (b) is being purchased or sold by the Fund; or (c) is being sold short by the Fund. SECTION 3 - EXEMPTED TRANSACTIONS The prohibitions of Section 2 of this Code shall not apply to: (a) Purchases or sales affected in any account over which the access person has no direct or indirect influence or control. (b) Purchases or sales of securities that are not eligible for purchase or sale by the Fund. (c) Purchases or sales that are non-volitional on the part of either the access person or the Fund. (d) Purchases, which are part of an automatic dividend reinvestment plan. (e) Purchases effected upon the exercise of rights issued by an issuer PRO-RATA to all holders of a class of securities, to the extent such rights were acquired from the issuer, and sales of such rights so acquired. (f) Purchases or sales that receive the prior approval of the Fund's Board because they are only remotely potentially harmful to the Fund, because they would be very unlikely to affect a highly institutional market, or because they clearly are not related economically to the securities to be purchased, sold or held by the Fund. SECTION 4 - REPORTING (a) Every access person shall voluntarily report to the Fund, on a timely basis, the information described in Section 4(c) of this Code with respect to transactions in any security in which such access person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership in the security; provided, however, that an access person shall not be required to make a report with respect to transactions effected for any amount over which such person does not have any direct or indirect influence. (b) A disinterested director of the Fund need only report a transaction in a security if such director, at the time of that transactions, knew or, in the ordinary course of fulfilling his or her official duties as a director of the Fund, should have known that, during the 15-day period immediately preceding the date of the transaction by the director, such security was purchased or sold by the Fund or was being considered by the Fund or its investment advisor for the purchase or sale by the Fund. (c) Every report shall be made not later than 10 days after the end of the calendar quarter in which the transaction to which the report relates was effected, and shall contain the following information: (i) The date of the transaction, the title and number of shares, and the principal amount of each security involved. (ii) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition). (iii) The price at which the transaction was effected. (iv) The name of the broker, dealer or bank with or through whom the transaction was effected. It is the intent of the Fund to abide by Rule 17j-1, the Rule dictates the reporting requirement, and as the Role is amended, from time to time, to review the Rule to insure that the Fund diligently abides by all aspects of the reporting requirements under said Rule. SECTION 5 - SANCTIONS Section (b)(1) of Rule 17j-1 requires Funds to "use reasonable diligence, and institute procedures reasonably necessary, to prevent violations" of its codes of ethics. Upon discovering a violation of this Code of Ethics , the board of directors of the Fund may impose such sanctions as it deems appropriate, including, INTER ALIA, a letter of censure or suspension or termination of the employment of the violator. Such a violation might include, but are not limited to, filing incomplete, untimely, or false reports and engaging in any manipulative practice or course of business that operates as a fraud upon such registered investment company. Rule 17j-1 does not supplant any obligation or prohibition to which an access person may be subject under the Investment Advisors Act of 1940 or any other federal securities laws. SECTION 7 - SIGNATURES -------------------------- ------------------ Director Date -------------------------- ------------------ Director Date -------------------------- ------------------ Director Date -------------------------- ------------------ Director Date -------------------------- ------------------ Director Date -------------------------- ------------------ Director Date -------------------------- ------------------ Director Date EX-31 3 ex31-1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATIONS I, Arland D. Dunn, certify that: 1. I have reviewed this Form 10-K of 21st Century Technologies, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15-(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 30, 2004 /s/ ARLAND D. DUNN ___________________________________ Arland D. Dunn Chief Executive Officer/President EX-31 4 ex31-2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATIONS I, Alvin L. Dahl, certify that: 1. I have reviewed this Form 10-K of 21st Century Technologies, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15-(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 30, 2004 /s/ ALVIN L. DAHL ___________________________________ Alvin L. Dahl Chief Financial Officer EX-32 5 ex32-1.txt EXHIBIT 32.1 EXHIBIT 32.1 SECTION 1350 CERTIFICATIONS 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-K for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Arland D. Dunn, Chief Executive Officer/President of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on 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 results of operations of the Company. Date: March 30, 2004 /s/ ARLAND D. DUNN ______________________________________ Arland D. Dunn Chief Executive Officer/President A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO 21st CENTURY TECHNOLOGIES, INC. AND WILL BE RETAINED BY 21st CENTURY TECHNOLOGIES, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. EX-32 6 ex32-2.txt EXHIBIT 32.2 EXHIBIT 32.2 SECTION 1350 CERTIFICATIONS 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 quarterly report of 21st Century Technologies, Inc. (the "Company") on Form 10-K for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Alvin L. Dahl, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on 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 results of operations of the Company. Date: March 30, 2004 /s/ ALVIN L. DAHL ______________________________________ Alvin L. Dahl Chief Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO 21st CENTURY TECHNOLOGIES, INC. AND WILL BE RETAINED BY 21st CENTURY TECHNOLOGIES, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. -----END PRIVACY-ENHANCED MESSAGE-----