UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2001
Commission file number: 0-11419
ARMITEC, INC.
(Exact Name of Registrant as specified in its Charter)
DELAWARE 22-2435595
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
4479 Atlanta Road, Smryna, GA 30080
(Address of principal executive offices of Incorporation or
organization and zip code)
Issuer's telephone number: (770) 432-8140
(Registrants telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.00167 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 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 last 90 days.
YES [X] NO [ ]
At December 31, 2001, 30,513,629 shares of the Registrant's Common Stock
were issued and outstanding and the estimated aggregate market value of the
Registrant's outstanding common stock held by non-affiliates of the Registrant
was approximately $1,430,740.
Check if 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 the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
In this report, references to the "Registrant", the "Company", "we", "us", and
"our" refer to Armitec, Inc., a Delaware corporation. This report includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. For example,
statements included in this report regarding our financial position, business
strategy and other plans and objectives for future operations, and assumptions
and predictions about future product demand, supply, manufacturing, costs,
marketing and pricing factors are all forward-looking statements. When we use
words like "intend," "anticipate," "believe," "estimate," "plan" or "expect," we
are making forward-looking statements. We believe that the assumptions and
expectations reflected in such forward-looking statements are reasonable, based
on information available to us as of present, but we cannot assure you that
these assumptions and expectations will prove to have been correct or that we
will take any action that we may presently be planning. We have disclosed
certain important factors that could cause our actual results to differ
materially from our current expectations elsewhere in this report. You should
understand that forward-looking statements made in this report are necessarily
qualified by these factors. We are not undertaking to publicly update or revise
any forward-looking statement if we obtain new information or upon the
occurrence of future events or otherwise.
PART I
I. Description of Business.
A. Business Development.
Armitec, Inc. ("Armitec," or "Registrant"), a Delaware corporation,
was incorporated on January 20, 1983 to provide comprehensive
administrative, marketing and consulting services to physicians, dentists
and professional corporations operating full service dental centers and
emergency/industrial medical centers. Armitec found this activity to be
unprofitable and it exited the business service activity in October 1987
and became inactive, except for the management of a limited portfolio of
securities.
As a result of the disposition of the net assets of the Registrant in
August 2000, the Registrant became a development stage company as of
September 1, 2000. On December 29, 2000, the Registrant issued 13,940,785
shares of its $0.00167 par value common stock in exchange for all of the
common stock of Armitec.com, Inc. ("Armitec.com"), which resulted in a
change of control of the Registrant, and Armitec.com became a wholly owned
subsidiary of Armitec. On May 2, 2002, Jack Young Associates, Inc., a
wholly-owned subsidiary of the Registrant purchased the assets of Pocono
Knits, Inc., a manufacturer of sweaters for the military.
B. Business of Issuer.
During fiscal year 1999 and the majority of fiscal year 2000, the
Registrant was inactive, except for the management of a limited portfolio
of securities.
Armitec, Inc is a provider of uniforms for the police, fire, postal,
security and EMS. The company will be manufacturing sweaters at its
wholly-owned subsidiary. The company will contract for the manufacture of
shirts and trousers with independent contractors. The company will
distribute its products through facilities it presently leases both in
Atlanta, GA and Hazelton, PA.
The company sell its products primarily through the use of independent
sales representatives located throughout the U.S. The company also intend
to sell its products through a catalog it is developing as well as through
a web site presently under development.
The primary competitors are much larger than the company and have a
significantly more financial resources than the company. The company
purchases its raw materials for manufacture from fabric mills located in
the U.S.
The principal customers are uniform retail stores, the military and
various police and fire agencies located throughout the U.S.
Employees.
During the three previous years, the Registrant had no full-time
employees other than executive officers. At December 31, 2000, the
executive officers of the Registrant were Bruce R. Davis, President and
Chief Executive Officer and Sandra Davis, Secretary.
II. Properties.
As of February 15, 2002, the Registrant is headquartered in leased premises
at 4479 Atlanta Road, Smryna, GA 30080. The leased premises are under a
five-year lease agreement for 12,000 square feet of office, showroom, and
warehouse facilities. The Registrant has a five year renewal option. The
following is a schedule of base annual lease rentals payable monthly for each of
the next five years commencing February 15, 2002:
2002 $81,638
2003 $96,099
2004 $98,982
2005 $101,952
2006 $105,012
Total $483,683
In addition, the Registrant entered into a twenty-two (22) month lease for
a 58,000 square foot portion of an industrial building located at East Diamond
Avenue and Cedar Streets, Hazleton, Pennsylvania. The total rent for the term of
the lease is $107,300, payable monthly in the amount of $8,941. The Registrant
also agreed to pay $40,000 in back rent at the date of lease commencement, and
in addition to the monthly rental payment of approximately $8,941, the
Registrant will pay $5,740 per month towards back rent for a total of $14,682
per month until the total of $177,782 in back rent is paid in full. The
registrant has a three-year renewal option, with an annual increase of 3% for
the rental payments each year of the three year term.
III. Legal Proceedings.
From time to time, we may be involved as a plaintiff or defendant in
various legal actions arising in the normal course of business. We are not
currently engaged in any litigation, and our officers and directors presently
know of no threatened or pending litigation in which it is contemplated that we
will be made a party.
IV. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to our security holders for a vote during
the fiscal year ending December 31, 2001.
PART II
V. Market For Registrant's Common Equity And Related Stockholder Matters.
A. Market information.
Until July 31, 2001, the Registrant's common stock was traded on the
"pink sheets." Beginning on August 1, 2001, the Registrant's common stock
was listed on the OTC Bulletin Board under the symbol "AMTI."
The following chart outlines the range of high and low bid information
for the Registrant's common stock for the last two fiscal years. The
following quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
2000 High Low
----------------- ----------------- -----------------
First quarter No trading No trading
----------------- ----------------- -----------------
Second Quarter No trading No trading
----------------- ----------------- -----------------
Third Quarter No trading No trading
----------------- ----------------- -----------------
Fourth Quarter No trading No trading
----------------- ----------------- -----------------
2001
----------------- ----------------- -----------------
First Quarter No trading No trading
----------------- ----------------- -----------------
Second Quarter No trading No trading
----------------- ----------------- -----------------
Third Quarter $ 1.62 $ 0.01
----------------- ----------------- -----------------
Fourth quarter $ 0.30 $ 0.06
----------------- ----------------- -----------------
2002
----------------- ----------------- -----------------
First Quarter $ 0.14 $ 0.01
----------------- ----------------- -----------------
B. Holders.
As of December 31, 2001, the approximate number of holders of record
of the Registrant's common stock was 575. This number may not include
individuals whose shares are held in "street names."
C. Dividends.
Cash dividends have not been paid by the Registrant since it was
formed and the Registrant does not plan to issue any dividends. The Company
entered into a Convertible Note Purchase Agreement dated as of April 23,
2002, in which the Registrant covenanted that it would not declare or pay
any dividends so long as the Convertible Note remained outstanding. The
Convertible Note matures on April 23, 2004.
D. Recent Sales of Unregistered Securities.
In January, 2000, the Registrant issued an aggregate of 18,000 shares
of its common stock to Harold Gaffin in settlement of a prior account
payable at $0.01 per share. These shares were sold pursuant to Section 4(2)
of the Securities Act and have been marked "restricted."
In February, 2000, the Registrant issued an aggregate of 2,000 shares
of its common stock to Debra Blatz for services provided to the Registrant.
The services were valued at $20.00 or $0.01 per share. These shares were
sold pursuant to Section 4(2) of the Securities Act and have been marked
"restricted."
On June 1, 2000, the Registrant issued an aggregate of 1,000,000
shares of its common stock to Donald Carman and William Bryant as salary
for their previous services provided to the Registrant for 15 and 12 years,
respectively. The services were valued at $10,000.00 or $0.01 per share.
These shares were sold pursuant to Section 4(2) of the Securities Act and
have been marked "restricted."
In September, 2000, the Registrant issued an aggregate of 25,100
shares of its common stock to Donald Carman as salary for previous services
provided to the Registrant. The services were valued at $251.00 or $0.01
per share. These shares were sold pursuant to Section 4(2) of the
Securities Act and have been marked "restricted."
In December, 2000, the Registrant agreed to issue 1,815,990 shares of
its common stock to Kevin Masters and Ari Berman for services provided and
to be provided to the Registrant. The services were valued at $18,159.90 or
$0.01 per share. These shares were sold pursuant to Section 4(2) of the
Securities Act and have been marked "restricted."
On December 29, 2000, the Registrant issued an aggregate of 13,940,785
shares of its common stock to Galt Capital Corporation in exchange for all
of the outstanding common shares of Armitec.com, Inc. These Shares were
sold pursuant to Section 4(2) of the Securities Act and have been marked
"restricted."
In November, 2001, the Registrant issued an aggregate of 1,600,000
shares to Jim Solmson, Mitchell Davis, Glenn Michael Financial, Richard
Otte, Joe Johnson, Jerry Roniger, Drew Corley and Kevin Masters for various
services. The services were valued at $16,000 or $0.01 per share. These
shares were sold pursuant to Section 4(2) of the Securities Act and have
been market "restricted."
In November, 2001, the Registrant issued 5,750,000 shares of its
common stock to Galt Capital Corporation as consideration for arranging
financing for the Registrant's working capital through related parties. The
shares were valued at $9,200 or $0.0016 per share. These shares were sold
pursuant to Section 4(2) of the Securities Act and have been marked
"restricted."
In April, 2002, the Registrant entered into a securities purchase
agreement with the Stonestreet Limited Partnership for the issuance of a
$350,000 7% convertible note and 3,500,000 common stock purchase warrants
in reliance on Section 4(2) of the Act and Rule 506. Each warrant entitles
the holder to purchase one share of common stock at an exercise price of
$.042. The commission for the transaction was 10% ($35,000) and a common
stock purchase warrant for 3,500,000 shares of our stock at an exercise
price per share of $.042. Net proceeds amounted to $315,000.
VI. Management's Discussion And Analysis Of Financial Condition And Results Of
Operations
The following is a discussion of the Registrant's financial condition
and results of operations. This discussion should be read in conjunction
with the Consolidated Financial Statements of the Registrant appearing
under Item VII of this Report. Statements contained in this "Management's
Discussion and Analysis of Financial Conditions and Results of Operations,"
which are not historical facts may be forward-looking statements. Such
information involves risks and uncertainties, including those created by
general market conditions, competition and the possibility that events may
occur which could limit the ability of the Registrant to maintain or
improve its operating results or execute its primary growth strategy.
Although management believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate, and there can therefore be no assurance that the
forward-looking statements included herein will prove to be accurate. The
inclusion of such information should not be regarded as a representation by
management or any other person that the objectives and plans of the
Registrant will be achieved. Moreover, such forward-looking statements are
subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Readers are cautioned not to
place undue reliance on these forward-looking statements that speak only as
of the date hereof.
A. General Overview.
Armitec, Inc. became a development stage company as of September 1,
2000 as a result of or the disposition of the net assets of Armitec, Inc.
in August 2000. The operations of Armitec, Inc. are reflected as
development stage activities since July 24, 2000, the date of its
formation. Armitec, Inc., is focused on entering the uniform industry
either through a purchase of any existing entity or the start of its own
operations.
The par value of the shares in the Financial Statements of the
Registrant appearing under Item VII of this Report was inadvertently
reported as $0.0016, which was the par value reported in the Registrant's
Certificate of Amendment of Certificate of Incorporation filed as Exhibit
5.1 to the Registrant's Form 8-K filed on September 22, 2000. The
Registrant subsequently filed a Certificate of Correction with the State of
Delaware to reflect the par value as $0.00167. Management does not believe
that this materially affects the information in the Registrant's Financial
Statements.
B. Results of Operations.
Since September 1, 2000 (date of inception), the Company has had
significant operating losses aggregating $636,690, and working capital
deficit . As of December 31, 2001, current liabilities exceed current
assets by $531,997. The Company's continued existence has been dependant on
cash proceeds received from the sale of its common stock and loans from a
major shareholder. The Company hopes to reverse this trend by generating
cash inflows through its acquisition of Pocono Knits, Inc. (described
below). To accomplish this objective, the Company will require working
capital to satisfy present obligations, current operating expenses and to
produce inventory.
On December 12, 2000, the Registrant entered into a Plan and Agreement
to Exchange Stock by and among Registrant, JRO Group, Inc. ("JRO") and the
Shareholders of JRO. On March 20, 2001, the parties completed the share
exchange. In March 2001, a report of the accounts receivable status by a
Special Master for the acquired company was presented to the Superior Court
of Fulton County, pursuant to a request by the acquired company's bank.
Based on this report and the subsequent events resulting therefrom, the
acquired company is unable to finance its current assets as it had done
formerly. On April 23, 2001, the parties mutually agreed to rescind the
share exchange because of the foregoing, and the inability of JRO to obtain
the audits necessary for the Registrant to complete its filings under the
Securities Exchange Act of 1934. On that same date, Armitec and JRO entered
into a letter of intent whereby Armitec will act as a receiver and
liquidator over a one-year period. In June 2001, the fiancial condition of
JRO further deteriorated and the Registrant decided to abandon its interest
therein.
In December, 2001, the Company moved to a new location providing it
with a uniform retail showroom, a warehouse and office space.
C. Financial Condition, Liquidity and Capital Resources.
In the latter part of 2001 the Company continued its attempts to raise
needed capital and as of December 31, 2001, only a small amount of capital
had been raised. In April, 2002, the Company raised $315,000 in net
proceeds from the sale of a convertible note (see below).
Additional capital will be needed to continue the Company's
operations. The Company expects to obtain additional capital through the
private sale of the Company's securities or from borrowings from private
lenders and/or financial institutions. There can be no assurance that the
Company will be successful in obtaining any additional capital which may be
needed.
D. Plan of Operations
The Company is currently seeking another acquisition or in the
alternative, raising additional funds necessary to commence retail and
manufacturing operations.
E. Subsequent Events.
During April 2002, the Company entered into a convertible debt
financing agreement with Stonestreet Limited Partnership for an aggregate
of $350,000. The stated interest rate is 7% per annum and the unpaid
principal and interest balance is due in full by April 23, 2004. Net
proceeds to the Company amounted to approximately $315,000, which is net of
debt issue costs. The Company issued 3,500,000 warrants to acquire
3,500,000 shares of the Company's common stock at an exercise price of
$.042.
On May 2, 2002, Jack Young Associates, Inc., a wholly owned subsidiary
of the Registrant, purchased the assets of Pocono Knits, Inc, a New Jersey
corporation. Pocono Knits is a manufacturer of sweaters for the military,
police, postal, fire and security companies. The Company has been in
business for over 40 years and services the same customer base as Armitec
intends to service. The sale was consummated pursuant to the terms and
conditions of an Asset Purchase Agreement, dated as of March 15, 2002, as
amended by a First Amendment to Asset Purchase Agreement dated May 2, 2002
(the "Asset Purchase Agreement").
Pursuant to the terms of the Asset Purchase Agreement, Jack Young
Associates, Inc. assumed all of the obligations of Pocono Knits, Inc. in
the aggregate amount of approximately $1,900,000. In connection with the
Asset Purchase Agreement, the Registrant entered into a Stock Pledge
Agreement whereby the Registrant pledged all of the issued and outstanding
shares of Jack Young Associates, Inc. to Jack Young as security for the
performance of certain obligations of the Registrant, including the payment
of all amounts now due or coming due at any time thereafter in connection
with such obligations.
The purchase price paid in connection with the sale was determined
through arms-length negotiations among the parties to the Asset Purchase
Agreement. The foregoing description is qualified in its entirety by
reference to the Asset Purchase Agreement, as amended, and the Stock Pledge
Agreement, copies of which are attached as exhibits hereto and incorporated
by reference herein.
The Company will file the required pro forma financial information as
soon as is practicable, but not later than 60 days after the date that this
report is required to be filed.
In addition, the Registrant entered into a Consulting Agreement with
the former president of Pocono Knits, which pays the consultant $127,200
per year and 2,000,000 shares of the Registrant's common stock. The
2,000,000 shares of common stock subject to a Put Agreement whereby upon
the five year anniversary of the Put Agreement, the consultant may put the
shares back to the Registrant for the sum of $550,000. At any time after
the two year anniversary of the Put Agreement, the Registrant may call the
2,000,000 shares for the sum of $550,000. If the consultant rejects a call
from the Registrant, the consultant's put option will terminate. The
Registrant also entered into an Employment Agreement with the former Vice
President of Pocono Knits with compensation in the amount of $96,180 per
year.
F. Certain Risk Factors.
An investment in our common stock is speculative in nature and
involves a high degree of risk. You should carefully consider the following
risks and the other information contained in this report before investing
in our common stock. The price of our common stock could decline due to any
of these risks, and you could lose all or part of your investment. You also
should refer to the other information included in this report, including
the financial statements and related notes.
If any of the events described below were to occur, our business,
prospects, financial condition or results of operations or cash flow could
be materially adversely affected. When we say that something could or will
have a material adverse effect on it, we mean that it could or will have
one or more of these effects.
WE ARE A NEW BUSINESS WITH NO OPERATING HISTORY
The share exchange with Armitec.com resulted in a change of control of the
Registrant and a change in our management. Our profitability will depend
primarily upon our operations and there is no assurance that we will ever
operate profitably. Because of the substantial start-up costs that must be
incurred by a new company, we expect to incur significant operating losses
during our initial years of operations. No assurance can be given that our
future operations will be successful. Any investment in our common stock should
be considered a high risk investment because you will be placing funds at risk
in an unseasoned start-up company with unforeseen costs, expenses, competition
and other problems to which start-up ventures are often subject. As we are a
development stage company, our prospects must be considered in light of the
risks, expenses and difficulties encountered in establishing a new business in
any industry. WE MAY BE UNABLE TO RAISE ADDITIONAL FUNDING TO OPERATE OUR
BUSINESS AND PURSUE OUR STRATEGIES AND AS A RESULT OUR RECENT ACQUISITION AND
BUSINESS MAY FAIL
We will need additional funds to continue our operations. On May 2, 2002,
our wholly-owned subsidiary, Jack Young Associates, Inc. purchased the assets of
Pocono Knits, Inc, a New Jersey corporation. The acquisition of the assets of
Pocono Knits significantly increased the amount of and the immediacy of our
needs for additional working capital. In addition, in connection with the asset
purchase, we entered into a stock pledge agreement whereby all of the shares of
Jack Young Associates, Inc. were pledged to the former shareholder of Pocono
Knits to guarantee the payment of certain obligation contained therein. We
expect to raise additional capital through a combination of new debt issuances
and equity sales, from private as well as public sources and/or by obtaining
financing through a bank or other entity. Implementation of our strategy and our
business plan is contingent upon the availability of such funding sources. No
assurance can be given that we will be able to raise debt or equity capital, on
acceptable terms, or at all, in order to fund our operations as set forth above.
Any future offering of securities may not be successful. We may not be able to
continue to operate and/or we may forfeit all of the stock of Jack Young
Associates, Inc. if we are unable to obtain additional capital when needed.
WE CURRENTLY HAVE NEGATIVE WORKING CAPITAL, LIMITED SOURCES OF LIQUIDITY, A
DEFICIT NET WORTH AND SUBSTANTIAL LOSSES TO DATE.
We require substantial capital to pursue our operating strategy and
currently have limited cash for operations. Until we can obtain revenues
sufficient to fund working capital needs, we will be dependent upon external
sources of financing which may not be available. To date, we have limited
internal sources of liquidity and expect limited
internal cash flow in the immediate future. We do not have any commitments to
raise additional capital and there is no assurance that any additional funds
needed will be available on favorable terms, if at all. We require substantial
working capital to continue the funding of our business. The Company has a
deficit net worth and substantial losses. Should the Company be unable to obtain
the necessary working capital to continue and the Company be forced to liquidate
its assets, investors will likely lose their entire investment.
OUR CURRENT AND POTENTIAL COMPETITORS, SOME OF WHOM HAVE GREATER RESOURCES AND
EXPERIENCE THAN WE DO, MAY DEVELOP PRODUCTS THAT MAY CAUSE DEMAND FOR, AND THE
PRICES OF, OUR PRODUCTS TO DECLINE.
We believe that our ability to compete depends on many factors both within
and beyond our control. Some of our competitors have longer operating histories,
larger client bases, longer relationships with clients, greater brand or name
recognition and significantly greater financial, technical, marketing and public
relations resources than we have. Existing or future competitors may develop or
offer products that are comparable or superior to ours at a lower price, which
could materially harm our business, results of operations and financial
condition.
THE SHARES THAT MAY BE ISSUED UPON CONVERSION OF OUR CONVERTIBLE NOTE AND
WARRANT MAY RESULT IN A CHANGE IN OUR CONTROL
On April 23, 2002, we entered into a Convertible Note in the principal
amount of $350,000 that is convertible into our common stock at the lesser of
$0.07 or 70% of our average per share market value (as defined therein), and
entered into a Warrant to acquire 3,500,000 shares of the Company's common stock
at an exercise price of $.042. Because of the floorless conversion feature in
the Convertible Note, we cannot predict at this time the number of shares that
will be issued in connection with any conversions of the Convertible Note. Our
current management beneficially owns 17,640,785 shares of our common stock. As
such, if the Convertible Note and Warrant are converted and exercised the
holders of such shares may own more shares than current management.
WE MAY, IN THE FUTURE, ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK WHICH WOULD
REDUCE INVESTORS PERCENTAGE OF OWNERSHIP AND MAY DILUTE OUR SHARE VALUE.
Our certificate of incorporation authorizes the issuance of 50,000,000
shares of common stock, par value $.00167 per share. However, on April 23, 2002,
our shareholders, by written consent, authorized an amendment to our certificate
of incorporation that will increase our authorized shares to 300,000,000, which
will become effective upon the effectiveness of an Information Statement on
Schedule 14C that we intend to file. On April 23, 2002, we entered into a
Convertible Note in the principal amount of $350,000 that is convertible into
our common stock at the lesser of $0.07 or 70% of our average per share market
value (as defined therein), and entered into a Warrant to acquire 3,500,000
shares of the Company's common stock at an exercise price of $.042. In
connection with the Convertible Note and the Warrant, we entered into a
Registration Rights Agreement in which we agreed to register the shares
underlying the Convertible Note and the Warrant. Because of the floorless
conversion feature in the Convertible Note, we cannot predict at this time the
number of shares that will be issued in connection with any conversions of the
Convertible Note. We also have warrants outstanding to purchase an additional
1,950,000 shares at an exercise price of $0.15.
The conversion or all or part of the above-mentioned Convertible Note or
the exercise of any of the above-mentioned warrants, and any other future
issuance of all or part of our remaining authorized common stock may result in
substantial dilution in the percentage of our common stock held by our then
existing stockholders. We may value any common stock issued in the future on an
arbitrary basis. The issuance of common stock for future services or
acquisitions or other corporate actions may have the effect of diluting the
value of the shares held by our investors, and might have an adverse effect on
any trading market for our common stock.
THE SHARES THAT WILL BE AVAILABLE FOR RESALE UPON CONVERSION OF OUR CONVERTIBLE
NOTE AND WARRANTS AND THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK IN THE
FUTURE MAY REDUCE THE MARKET PRICE OF OUR COMMON STOCK.
On April 23, 2002, we entered into a Convertible Note in the principal
amount of $350,000 that is convertible into our common stock at the lesser of
$0.07 or 70% of our average per share market value (as defined therein), and
entered into a Warrant to acquire 3,500,000 shares of the Company's common stock
at an exercise price of $.042. In connection with the Convertible Note and the
Warrant, we entered into a Registration Rights Agreement in which we agreed to
register the shares underlying the Convertible Note and the Warrant. Because of
the floorless conversion feature in the Convertible Note, we cannot predict at
this time the number of shares that will be issued in connection with any
conversions of the Convertible Note. We also have warrants outstanding to
purchase an additional 1,950,000 shares at an exercise price of $0.15.
The market price of our common stock could drop if substantial amounts of
shares are sold in the public market or if the market perceives that those sales
could occur. A drop in the market price could adversely affect holders of our
common stock and could also harm our ability to raise additional capital by
selling equity securities. In addition, after a one-year holding period, shares
held by our non-affiliates will become eligible for trading, pursuant to Rule
144 of the General Rules and Regulations of the Securities and Exchange
Commission, without any additional payment to us or any increase in our
capitalization.
OUR COMMON STOCK IS TRADED ON THE OVER THE COUNTER BULLETIN BOARD AND, AS A
RESULT, THERE MAY BE LIMITED TRADING VOLUME IN THE STOCK, AS WELL AS A GREATER
SPREAD BETWEEN "BID" AND "ASKED" PRICES.
Our common stock is traded on the Electronic Bulletin Board, on the over
the counter market (the "OTC Bulletin Board"). While a public market currently
exists for our common stock, trading of relatively small blocks of stock can
have a significant impact on the price at which the stock is traded. In
addition, the over the counter market has experienced, and is likely to
experience in the future, significant price and volume fluctuations which could
adversely affect the market price of the common stock without regard to our
operating performance.
Issuers whose securities are traded on the OTC Bulletin Board may
experience a greater spread between the "bid" and "asked" prices of their
securities compared with securities traded on a national securities exchange or
Nasdaq, and a limited liquidity in their securities. In addition, many investors
have policies against the purchase or holding of securities traded in the
over-the-counter markets. Trading in an over-the-counter market such as OTC
Bulletin Board has, and will continue to, affect both the trading volume and the
market value of our common stock for the foreseeable future.
WE DO NOT ANTICIPATE PAYING DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE
FUTURE
We intend to retain all future earnings for use in the development of its
business. We have never paid and do not currently anticipate paying any cash
dividends on our Common Stock in the foreseeable future.
VII. Financial Statements.
The following documents are filed as part of this report:
(1) Independent Auditor's Report.......................................F-1
(2) Financial statements:
Consolidated Balance Sheet .........................................F-2
Consolidated Statement of Operations ...............................F-3
Consolidated Statement of Changes in Stockholders' Equity ..........F-4
Consolidated Statement of Cash Flows ...............................F-5
Notes to Financial Statements.......................................F-6
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or other notes herein.
VIII. Disagreements On Accounting And Financial Matters.
On April 12, 2001, the registrant engaged Braverman & Company, P.C. as its
principal accountant to replace its former principal accountant, Moore Stephens
Tiller LLC. The decision to dismiss Moore Stephens Tiller LLC was approved by
the Board of Directors of registrant. Neither of the reports of the former
principal accountants on the financial statements for the fiscal year ending
August 31, 1999, or for the four-months ending December 31, 1999, for Armitec,
Inc. (formerly Family Health Systems, Inc.) contained an adverse opinion or
disclaimer of opinion, nor was either qualified or modified as to uncertainty,
audit scope, or accounting principles. During the two most recent fiscal years,
the audited period ending August 31, 1999, the subsequent audited interim period
through December 31, 1999, and the subsequent interim period preceding the
dismissal, there were no disagreement(s) with the former accountant on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the former account, would have caused it to make reference to
the subject matter or the disagreement(s) in connection with its reports. During
the audited period ending August 31, 1999, and the subject audited interim
period, the registrant has not consulted Moore Stephens Tiller LLC, regarding
any matter requiring disclosure under Regulation 8-K, Item 304(a)(2). Moore
Stephens Tiller LLC furnish the Registrant with a letter addressed to the U.S.
Securities and Exchange Commission dated May 16, 2001, which was filed as
Exhibit No. 1 to the Registrant's report on Form 8-K/A filed on May 18, 2001.
PART III
IX. Directors And Executive Officers Of The Registrant.
A. Directors, Executive Officers, Promoters and Control Persons
The following table sets forth all the directors, executive officers and
significant employees of the Registrant as of December 31, 2001.
Name Age Position
Bruce R. Davis 66 President, CEO, and Chairman of the Board
Sandra Davis 63 Secretary and Director
Bruce R. Davis, Chairman, President and Chief Executive Officer. Mr. Davis
became Chairman, President and Chief Executive Officer of the Registrant on
December 29, 2000 pursuant to the terms of the Share Exchange between the
Company and Armitec.com. Mr. Davis is a CPA by profession and was president of
S.W.S. Garment, Inc., a manufacturer of uniforms, from 1997 until sold in 1999.
From 1991 until 1995, Mr. Davis served as President and Chief Executive Officer
of Disposal Specialists, Ltd., a company engaged in the waste management
industry. From 1995 until the present time, Mr. Davis has served as the
President and Chief Executive Officer of Galt Capital Corporation in Atlanta,
Georgia, a real estate development and consulting company. Mr. Davis has also
served as President, Treasurer and as a director of Armitec.com from July 2000
to the present time. Mr. Davis obtained his Bachelor of Science degree from New
York University in 1956. Mr. Davis is the husband of Sandra Davis, the Secretary
and a director of the Registrant.
Sandra Davis, Secretary and Director. Ms. Davis became Secretary of the
Registrant on December 29, 2000 pursuant to the terms of the Share Exchange
between the Company and Armitec.com. From 1995 until the present time, Ms. Davis
has served as the Secretary of Golf Capital Corporation in Atlanta, Georgia, a
real estate development and consulting company. Ms. Davis has also served as
Secretary and as a director of Armitec.com from July 2000 to the present time.
Ms. Davis attended New York University. Ms. Davis is the wife of Bruce Davis,
President, Chief Executive Officer and a director of the Registrant
Directors hold office until the next annual meeting of shareholders. The
Board of Directors does not have a Compensation, Audit or Nominating Committee,
and the usual functions of such committees are performed by the entire Board of
Directors.
Officers are elected by the Board of Directors following the annual meeting
of stockholders.
B. Compliance with Section 16(a) of the Exchange Act
The members of Armitec's Board of Directors, the executive officers of
Armitec and persons who hold more than 10% of Armitec's outstanding Common Stock
are subject to the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, as amended, which require them to file reports with
respect to their ownership of Armitec's Common Stock and their transactions in
such Common Stock. Based upon (1) the copies of Section 16(a) reports that
Armitec received from such persons for transactions in the Common Stock and
their Common Stock holdings for the fiscal year ended December 31, 2001, and (2)
the written representations received from one or more of such persons that no
annual Form 5 reports were required to be filed by them for such period, Armitec
believes that all reporting requirements under Section 16(a) for such period
were met in a timely manner by its executive officers, Board members and greater
than ten-percent stockholders, except as described herein.
Galt Capital Corporation inadvertently failed to timely file a Form 4 with
the Commission to report the private transfer of shares to two individuals in
January 2001. Galt Capital Corporation inadvertently failed to timely file a
Form 5 with the Commission to report the acquisition of shares of common stock
of the Registrant in November 2001. The Company has taken steps to ensure that
its officers, directors and ten percent shareholders are aware of the
requirements for the filing of these reports.
X. Executive Compensation.
Cash compensation. Our Chief Executive Officer has received no compensation
for the last three fiscal years, and no other executive officer received in
excess of $100,000 during any of the last three fiscal years.
Compensation of Directors:
During the Registrant's fiscal year ended December 31, 1987, the Registrant
passed a resolution that all officers and directors who attended meetings of the
Board of Directors or Shareholders and who were not on other salary with
Armitec, would receive restricted shares of stock of Armitec, equal to $500 per
day. The number of shares to be determined by the bid price of the stock on the
meeting date. Directors were not paid any stock under the foregoing resolution
during the previous fiscal year.
XI. Security Ownership Of Certain Beneficial Owner And Management.
The following table sets forth information regarding ownership of the
Registrant's common stock by all persons who are known by the Registrant to own
more than 5% of the total outstanding shares and by all officers and directors
of the Company as of April 23, 2002. Except as otherwise indicated in the table,
the address of the stockholders listed below is that of the Company's principal
executive office. Directors not included in the table below do not hold Company
securities.
Shares Beneficially Owned
As of April 23, 2002
Name and Address Number Percent
Bruce R. Davis 17,640,785(1) 59.2%
Sandra Davis 17,640,785(2) 59.2%
Galt Capital Corporation 17,640,785 59.2%
1295 West Garmon Road
Atlanta, Georgia 30327
(1) Based on 17,640,785 shares of common stock owned by Galt Capital
Corporation. One hundred percent of the Capital Stock of Galt Capital
Corporation is owned by Sandra P. Davis, the wife of Bruce R. Davis.
(2) Based on 17,640,785 shares of common stock owned by Galt Capital
Corporation. One hundred percent of the Capital Stock of Galt Capital
Corporation is owned by Sandra P. Davis
Changes in Control.
On April 23, 2002, we entered into a Convertible Note in the principal
amount of $350,000 that is convertible into our common stock at the lesser of
$0.07 or 70% of our average per share market value (as defined therein), and
entered into a Warrant to acquire 3,500,000 shares of the Company's common stock
at an exercise price of $.042. Because of the floorless conversion feature in
the Convertible Note, we cannot predict at this time the number of shares that
will be issued in connection with any conversions of the Convertible Note. Our
current management beneficially owns 17,640,785 shares of our common stock. As
such, if the Convertible Note and Warrant are converted and exercised the
holders of such shares may own more shares than current management.
XII. Certain Relationships And Related Transactions.
During 2001, Galt Capital Corporation ("Galt") advanced an additional
$68,015 to the Registrant. In addition, a management fee for the services of the
president of the Registrant payable to Galt of $170,000 for the year was
recorded for a total balance outstanding to Galt at December 31, 2001 of
$346,702. The Registrant's president and his wife's affiliated companies
advanced an additional $41,192 to the Registrant during the year and no
principal reduction occurred during 2001. None of these non-interest bearing
advances are collateralized. Two shareholders had advanced $25,000 during the
year, which remains outstanding at the end of the year.
In addition, Galt was issued 5,750,000 shares common stock valued at par, for a
total of $9,200 in partial consideration for arranging financing for the
Registrant's working capital through related parties.
The following is a summary of related party obligations at December 31, 2001:
Colonial Corporation $ 75,000
Galt Capital Corporation 346,702
President and wife's affiliated companies 41,192
Shareholder advances 25,000
--------
Total related party obligations $487,894
========
XIII. Other.
A. Exhibits
2.1 Plan and Agreement to Exchange Stock by and among Armitec.com,
Inc., the Armitec.com shareholders, and Armitec, Inc. (2)
2.2 Asset Purchase Agreement among Jack Young, Inc., Pocono Knits,
Inc. and the Shareholders of Pocono Knits, Inc. (1)
2.3 First Amendment to Asset Purchase Agreement (1)
3.1 Articles of Incorporation (3)
3.2 Amended and Restated Bylaws (1)
3.3 Amendment to Articles of Incorporation (4)
4.1 Specimen Certificate of Common Stock (1)
10.1 Consulting Agreement with Robert P. Atwell (5)
10.2 Warrant issued to Bruce Barren (5)
10.3 Consulting Agreement with Michael Price (6)
10.4 Consulting Agreement with Donald C. Carman (6)
10.5 Warrant issued to Michael Price (6)
10.6 Consulting Agreement with Michael Price (7)
10.7 Consulting Agreement with Alberto De Jesus Rendon (7)
10.8 Lease Agreement with Feldberg Properties I, LLC (1)
10.9 Lease Agreement with Sargent Realty (1)
10.10 Convertible Note Purchase Agreement among Armitec, Inc. and
Stonestreet Limited Partnership (1)
10.11 Secured Convertible Promissory Note with Stonestreet Limited
Partnership (1)
10.12 Warrant Agreement with Stonestreet Limited Partnership (1)
10.13 Registration Rights Agreement with Stonestreet Limited
Partnership (1)
10.14 Security Agreement among Armitec, Inc., Stonestreet Limited
Partnership, and Galt Capital Corporation (1)
10.15 Stock Pledge Agreement by and between Armitec, Inc. and Jack
Young (1)
10.16 Escrow Agreement by and among Armitec, Inc., Jack Young and
Escrow Agent (1)
10.17 Employment Agreement with Tony Anzovino (1)
10.18 Consulting Agreement with Jack Young (1)
10.19 Put Agreement by and between Jack Young Associates, Inc. and Jack
Young (1)
21.1 Subsidiaries of Resident
23.1 Consent of Braverman & Company, P.C. (1)
(1) Filed herewith.
(2) Incorporated by reference to the Form 8-K filed by the Registrant
on January 16, 2001.
(3) Incorporated by reference to the Registrant's registration
statement on Form S- 18 filed with the Securities and Exchange
Commission in August 1983.
(4) Incorporated by reference to the Form 8-K report filed by
Registrant on September 22, 2000.
(5) Incorporated by reference to the Registration Statement on Form
S-8 filed by the Registrant on November 9, 2001.
(6) Incorporated by reference to the Registration Statement on Form
S-8 filed by the Registrant on February 14, 2002.
(7) Incorporated by reference to the Registration Statement on Form
S-8 filed by the Registrant on March 6, 2002.
B. Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the fourth quarter
of 2001.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: May 10, 2002 /s/ Bruce R. Davis
--------------------------------------
Chairman of the Board, President,
Chief Executive Officer,
Chief Financial and Accounting Officer,
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: May 10, 2002 /s/ Bruce R. Davis
--------------------------------------
Chairman of the Board, President,
Chief Executive Officer,
Chief Financial and Accounting Officer,
Treasurer, and Director
Date: May 10, 2002 /s/ Sandra Davis
--------------------------------------
Secretary and Director
ARMITEC, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2001
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT F-1
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET F-2
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY F-4
-------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS F-5
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS F-6
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Armitec, Inc.
Smyrna, Georgia
We have audited the accompanying consolidated balance sheet of Armitec, Inc. and
subsidiary as of December 31, 2001, and the related consolidated statements of
operations, cash flows, and changes in stockholders' equity for the year then
ended. We also audited the consolidated statements of operations, cash flows and
changes in stockholders' equity for the period from July 24, 2000 (inception of
development stage), to December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Armitec, Inc. and
subsidiary as of December 31, 2001, and the results of its operations and its
cash flows for the year then ended, and from July 24, 2000 (inception of
development stage) to December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is dependent upon its ability to develop
additional sources of capital, and/or achieve profitable operations. These
conditions raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Braverman & Company, P.C.
Prescott, Arizona
April 23 , 2002, except for Note 7, as to
which the date is May 5, 2002
F-1
ARMITEC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
------
CURRENT ASSETS
Cash $ 7,557
Finished goods Inventory 71,189
Prepaid rent 7,775
---------
Total current assets 86,521
---------
Furniture, fixtures and equipment, at cost 66,120
---------
OTHER ASSETS
Lease deposit 15,500
---------
Total other assets 15,500
---------
$ 168,141
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 138,918
Related party obligations 479,600
---------
Total Current Liabilities 618,518
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $.00167; 50,000,000
shares authorized; 30,513,629 shares outstanding 50,958
Paid-in capital 170,322
(Deficit) accumulated during the development stage (671,657)
---------
Total Stockholders' Equity (Deficit) (450,377)
---------
$ 168,141
=========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
ARMITEC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cummulative
from
July 24,
2000
(commencement
of
development
stage)
to
2001 2000 December 31, 2001
----------------- ----------------- -----------------
REVENUE $ -- $ -- $ --
----------------- ----------------- -----------------
OPERATING EXPENSES
General and adminstrative 410,599 220,798 631,398
Interest expense 3,344 1,948 5,292
----------------- ----------------- -----------------
TOTAL EXPENSES 413,944 222,746 636,690
----------------- ----------------- -----------------
NET(LOSS) FROM OPERATIONS $ (413,944) $ (222,746) $ (636,690)
----------------- ----------------- =================
BASIC AND DILUTED (LOSS) PER COMMON SHARE $ (0.02) $ (0.01)
================= =================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 26,804,765 16,716,683
================= =================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
ARMITEC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Deficit)
Accumulated
Common Stock During
-------------------------- Paid-in Development
Shares Amount Capital Stage Total
----------- ----------- ----------- ----------- -----------
Balances, at inception 15,947,542 $ 25,516 $ -- $ (34,967) $ (9,451)
Shares issued for compensation
to employees @ $.01 per share, June 10, 2000 1,027,100 1,643 8,628 10,271
Shares issued to settle debt at $.01 per share, June 10, 18,000 29 151 180
Shares issued for consulting
services @ $.01 per share 1,815,990 2,906 15,254 18,160
Net (loss) for the period (222,746) (222,746)
----------- ----------- ----------- ----------- -----------
Balances, December 31, 2000 18,808,632 30,094 24,033 (257,713) (203,586)
Issuance of common stock February 12, 2001,
net of offering costs of $21,251, at $.15 per share 849,997 1,360 105,381 106,741
Issuance of common stock for consulting services
on April 10, 2001, at par 720,000 1,152 1,152
Proceeds from sale of common stock, July 15, 2001
at $.15 per share 35,000 56 4,944 5,000
Common stock issued for consulting
services July 1, 2001, at par 7,350,000 11,760 11,760
Common stock issued for consulting
services November 8, 2001, at $.01 per share 2,500,000 4,000 21,000 25,000
Proceeds from sale of common stock
November 8, 2001, at $.15 per share 50,000 80 7,420 7,500
Proceeds from exercise of stock purchase warrants
on December 27, 2001, at $.05 per share 200,000 320 9,680 10,000
Change in par value to .00167 per share 2,136 (2,136) --
Net (loss) for the year (413,944) (413,944)
----------- ----------- ----------- ----------- -----------
Balances, December 31, 2001, 30,513,629 $ 50,958 $ 170,322 $ (671,657) $ (450,377)
=========== =========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-4
ARMITEC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cummulative
from
July 24,
2000
commencement
of
development
stage)
to
2001 2000 December 31, 2001
----------------- ----------------- -----------------
OPERATING ACTIVITIES
Net (loss) from operations $ (413,944) $ (222,746) $ (636,690)
Adjustments to reconcile net (loss) to net
cash used by operating activities:
Issuance of common stock for services 37,912 18,160 56,072
Changes in-
Inventories (71,189) (71,189)
Prepaid rent (7,775) (7,775)
Accounts payable 87,668 51,250 138,918
Related party obligations 305,913 173,687 479,600
----------------- ----------------- -----------------
Net Cash Flows (To) Operating Activities (61,415) 20,351 (41,064)
----------------- ----------------- -----------------
INVESTING ACTIVITIES
Deferred offering costs (21,251) (21,251)
Increase in furniture, fixtures and equipment (66,120) (66,120)
Increase in lease deposit (15,500) (15,500)
----------------- ----------------- -----------------
Net Cash Flows From (To) Investing Activities (81,620) (21,251) (102,871)
----------------- ----------------- -----------------
FINANCING ACTIVITIES
Proceeds from sale of common stock 150,492 1,000 151,492
----------------- ----------------- -----------------
NET CASH FROM FINANCING ACTIVITIES 150,492 1,000 151,492
----------------- ----------------- -----------------
NET INCREASE (DECREASE) IN CASH 7,457 100 7,557
----------------- ----------------- -----------------
CASH BEGINNING OF PERIOD 100 -- --
----------------- ----------------- -----------------
CASH END OF PERIOD $ 7,557 $ 100 $ 7,557
================= ================= =================
SUPPLEMENTAL INFORMATION
Interest paid $ 3,344 $ 1,948 $ 5,292
================= ================= =================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-5
ARMITEC, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Background
------------------
Armitec, Inc. (the Company or AI), a Delaware corporation formed January 1983 to
provide comprehensive administrative, marketing and consulting services to group
dental and medical practices, became inactive in October 1987, except for the
management of a limited portfolio of securities. On August 31, 2000, the Company
transferred all of its net assets as part of the consideration to be paid for
having a related corporation assume all of the obligations to be incurred for a
pending merger as more fully described below. It had a fiscal year-end of August
31 until it changed to December 31 in 1999.
AI became a development stage company as defined in FASB No.7 since its business
ceased on August 31, 2000 as a result of the distribution of its net assets at
that date as further described below.
Principles of Consolidation
---------------------------
The Company's consolidated financial statements include the financial statements
of the Company and its wholly owned subsidiary, Armitec.Com, Inc. (ACI), a
Georgia corporation acquired in a reverse merger on December 29, 2000. All
significant intercompany accounts and transactions have been eliminated.
Financial Statement Presentation and Operations
-----------------------------------------------
Year 2000
---------
The Company issued 13,940,785 shares of its $.00167 par value common stock in
exchange for all of the shares of common stock outstanding of ACI. ACI is a
development stage company, wholly owned by a corporation owned and controlled by
the president of ACI. An additional 13,525,928 shares of the Company's common
stock were set aside for private placement and services to be subsequently
incurred in connection with the business plan of the Company. Shares unsold at
the end of the private placement offering period are to be issued to the AI
shareholder at nominal value.
The historical transactions of ACI have been carried forward since it is
considered the acquirer for accounting purposes, its shareholders having
received more shares of AI's common stock than were outstanding prior to the
exchange. ACI has a fiscal year-end of December 31. As a result of the
disposition of the net assets of AI in August 2000, AI became a development
stage company as of September 1, 2000, whereas, the operations of ACI are
reflected as development stage activities since July 24, 2000, the date of its
formation. All operations prior to the development stage of AI have been
eliminated in the accompanying consolidated statements of operations and cash
flows. Unless otherwise indicated, all references to the Company include AI and
ACI.
Year 2001
---------
An unsuccessful attempt was made to assist an Atlanta, Georgia based retail
uniform distributor in salvaging its existing business for the potential future
benefit of the Company during the first half of the 2001. The latter half
involved several attempts to find additional sources of financing and to acquire
an existing business with which to further the Company's business plan and
objectives. No revenues were earned during 2001. In December 2001 the Company
moved to a permanent location in Smyrna, Georgia.
F-6
ARMITEC, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates and Assumptions
--------------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and the disclosure of
contingent amounts in the Company's financial statements and the accompanying
notes. Actual results could differ from those estimates. Certain prior year
amounts have been reclassified to conform to the current year presentations.
Cash Equivalents
----------------
The Company considers all highly liquid investments with the original maturities
of three months or less to be cash equivalents. To date the Company has had none
of these.
Fair Value of Financial Instruments
-----------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures about fair
value of financial instruments, defines the fair value of a financial instrument
as the amount at which the instrument could be exchanged in a current
transaction between willing parties. The carrying values of the Company's
financial instruments, which include cash, accounts receivable, accounts payable
and accruals, approximate fair values due to the short maturities of such
instruments.
Inventory
---------
The inventory as of December 31, 2001, is stated at the lower of cost (first-in,
first-out), or market, and consists mainly of ready to wear uniforms and related
components thereof, which are worn primarily by various police, security and
fire protection personnel throughout the United States. The Company offers to
embroider or sew insignias using its own equipment and personnel. The majority
of the inventory was acquired during 2001from a managed company whose similar
business failed during the year. As of December 31, 2001, none of the acquired
inventory was sold.
Income Taxes
------------
Income taxes are provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes". A deferred tax asset or liability is recorded for all
temporary difference between financial and tax reporting of which depreciation
is the most significant. Deferred tax expense (benefit) results from the net
change during the year of deferred tax assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to more likely than not be realized in future tax returns. Tax
law and rate changes are reflected in income in the period such changes are
enacted.
Prior to the merger, the AI sustained net operating losses for income tax
purposes of approximately $1,350,000, which expires under current tax law
through 2013. However, the Company did not meet the continuity of business
requirements of Section 382 (c) of the Internal Revenue Code, therefore such
pre-merger losses are not deductible.
F-7
ARMITEC, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Year 2000
---------
For financial reporting purposes, the Company has sustained a consolidated loss
for the development stage period commencing July 24, 2000 and ending December
31. 2000, of approximately $222,000 of which approximately $ 122,000 is
considered start-up costs, deferred for income tax purposes until the Company
commences operations. The balance of $100,000 is considered a permanent
non-deductible difference. The Company's future utilization of such deferred tax
benefit cannot be currently ascertained. Accordingly, a valuation allowance of
approximately $37,000 has been provided equal to the value of the deferred tax
asset of $122,000. Start-up costs are not deductible until the business of the
Company commences, at which time they may be amortized over a 60-month period,
unless permanently capitalized. Therefore, at December 31, 2000, there is no
significant net operating loss for income tax purposes.
Year 2001
---------
The Company maintained its development stage status through December 31, 2001
and incurred a net operating loss of $414,000, substantially all of which is
considered start-up costs for income tax purposes and will be amortized or
permanently capitalized when its business commences as stated above. The
deferred tax benefit of the 2001 net operating loss is $144,000. Since the
Company is not able to determine its ability to utilize the accumulated losses
to date of $535,000 for income tax purposes at the present time, a valuation
allowance has been provided totaling $181,000 of which $144,000 is for 2001. The
Company has 20 years from the commencement of the amortization of start-up costs
to fully utilize them.
Depreciation
------------
The following is an analysis of the cost of furniture, fixtures and equipment.
Depreciation expense will begin upon the commencement of operations estimated to
occur in April 2002. The Company expects to depreciate the cost of these assets
utilizing the straight-line method over estimated useful lives of 2 to 7 years.
Embroidery Equipment $48,800
Displays and fixtures 4,000
Computer systems 6,020
Office furniture and equipment 7,300
-------
Total $66,120
=======
Loss Per Share
--------------
Net loss per share is provided in accordance with Statement of Financial
Accounting Standards No. 128 (SFAS No.128) "Earnings Per Share". Basic loss per
share is computed by dividing net loss available to common stockholders by the
weighted average number of common shares outstanding during the period. The
shares issued to effect the merger have been considered outstanding since the
beginning of the period.
Basis of Presentation and Management's Actions to Overcome Operating and
--------------------------------------------------------------------------------
Liquidity Problems
------------------
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
F-8
ARMITEC, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company's ability to continue in existence is dependent on its ability to
develop additional sources of capital, and/or achieve profitable operations. The
accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties. Management's plan is to raise
additional debt or equity financing and to begin operations in May 2002, which
are anticipated to be sufficient to provide the necessary cash flow to meet the
Company's expectations.
NOTE 2 - RELATED PARTY TRANSACTIONS AND OBLIGATIONS
Year 2000
In connection with the merger in 2000, ACI agreed to pay on an unsecured basis
without interest, $75,000 to a company owned by the majority shareholders of AI,
Colonial Corporation, for legal, auditing, and other expenses in addition to
$25,000, which had been paid to them for such costs as of December 31, 2000. The
president of the Company guaranteed this unsecured obligation, which is
evidenced by a promissory note due March 29, 2001. The note became past due and
no principal has been paid to date. The creditor has taken no action, nor has
the guarantor made any repayment of this past due amount.
As of December 31, 2000, Galt Capital Corporation (Galt), paid or incurred a
total of $98,687 of costs and expenses on behalf of the Company through that
date, including a management fee for the services of the president of the
Company of $25,000.
Year 2001
During 2001, the parent company of ACI advanced or incurred an additional
$69,721 to or on behalf of the Company. In addition, a management fee for the
services of the president of the Company payable to Galt of $170,000 for the
year was recorded for a total balance outstanding to Galt at December 31, 2001
of $338,408. The Company's president and his wife's affiliated companies
advanced an additional $41,192 to the Company during the year and no principal
reduction to them occurred during 2001. None of these non-interest bearing
advances are collateralized. Two shareholders had advanced, without collateral
or interest, $25,000 during the year, which remains outstanding at the end of
the year.
Galt was issued 5,750,000 shares of common stock valued at par, for a total of
$9,200 in partial consideration for arranging financing for the Company's
working capital through related parties and others.
The following is a summary of related party obligations at December 31, 2001:
Colonial Corporation $ 75,000
Galt Capital Corporation 338,408
President and wife's affiliated companies 41,192
Shareholder advances 25,000
--------
Total related party obligations $479,600
========
F-9
ARMITEC, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 3 - TERMINATION OF MANAGEMENT AGREEMENT
In December 2000, the Company agreed to acquire all of the outstanding common
stock of a Georgia company (target company) engaged in the business of retail
distribution and sales of uniforms, principally to governmental agencies in
Georgia. Upon the completion of conditions precedent, the acquisition would have
resulted in the Georgia company retaining the 7,500,000 shares originally issued
to them in a contemplated purchase transaction during 2000.
In early 2001, the Company filed a Form 8-K reporting the transaction as
completed, subject to the furnishing of audited financial statements of the
acquired company. In March 2001, a report of the accounts receivable status by a
Special Master for the acquired company was presented to the Superior Court of
Fulton County, pursuant to a request by the acquired company's bank. Based on
this report and the subsequent events resulting therefrom, the acquired company
was unable to finance its current assets as it had done formerly. Accordingly,
the Company rescinded the acquisition and entered into a management agreement.
The proposed management agreement provided that the Company would allow the
issued shares of its common stock to be retained if the liquidation was
beneficial to the Company.
In June 2001, the financial condition of the managed company further
deteriorated and the Company decided to abandon its interest therein and
relocate its offices. The Company incurred approximately $320,000 in pursing the
potential business opportunities originally presented by the target company,
exclusive of accrued management fees for the services of the president of the
Company. The Company was able to recover merchandise inventory, furniture,
fixtures and equipment from the target company, valued at approximately $137,000
as a partial offset against advances and expenses paid and/or incurred. The
7,500,000 share certificates were not returned to the Company as agreed upon, as
the holder has claimed all three certificates were lost. Accordingly, those
shares are considered issued but not outstanding as of December 31, 2001.
NOTE 4 - PRIVATE PLACEMENT MEMORANDUM
As a result of the private placement of the Company's common stock effective
December 14, 2000, the Company received gross proceeds of $127,992 as of
February 12, 2001.
NOTE 5 - REGISTRATION STATEMENT
During 2001, the Company filed a registration statement with the Securities and
Exchange Commission on Form S-8 in connection with the issuance of 2,000,00
warrants to purchase an equivalent number of shares, and issuance of 2,500,000
shares of the Company's common stock. All 4,500,000 shares were issued during
2001, however, 1,750,000 shares are considered not outstanding as they are
subject to warrant exercise. The warrant holder exercised 250,000 warrants
during 2001 of which 200,000 shares were exercised at an agreed upon reduced
price of $.05 per share and the balance at the originally stated exercise price
of $.15 per share, leaving 1,750,000 unexercised warrants as of December 31,
2001. Each warrant is convertible into one share of the Company's common stock
at a price of $.15 per share through the expiration date of October 26, 2004.
F-10
ARMITEC, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 6 - COMMITMENTS and CONTINGENCIES
Operating Lease Agreement
-------------------------
In December 2001, the Company entered into a 5 year lease agreement for office,
showroom, and warehouse facilities in Smyrna, Georgia commencing February 15,
2002. The Company is obligated to pay the tenant construction cost of $12,800.
The lease is guaranteed by the President of the Company. The lease agreement
provides for a 5 year renewal option with continuing base monthly rentals
increasing annually for a 5 year total aggregating $574,254 .
Base rentals are in addition to the facility's operating expenses, which include
among other things, repairs and maintenance, cleaning and janitorial, utility
costs and expenses, wages, salaries, and fringe benefits of security, operation,
maintenance and repair personnel, insurance carried by the landlord, and real
estate and personal property taxes. The following is a schedule of base annual
lease rentals payable monthly for each of the next 5 years commencing February
15, 2002:
2002 $ 81,638
2003 96,099
2004 98,982
2005 101,952
2006 105,012
--------
Total 483,683
========
Consulting Expenses
-------------------
In connection with the registration of shares on Form S-8, the Company agreed to
reimburse expenses during the term of two of the three consulting agreements
involved. One agreement terminates in early 2002, and the other on November 4,
2002.
Warrants
--------
In addition to the 1,750,000 warrants outstanding above, the Company also issued
in November 2001, to an individual, 500,000 stock purchase warrants, half of
which are exercisable at $.15 per share and the balance at $.25 per share. All
of the warrants were exercised in March 2002, at a reduced price of $.075 per
share, for a total of $37,500.
NOTE 7- SUBSEQUENT EVENTS
Financing for General Working Capital
-------------------------------------
In order to obtain general working capital, in April 2002, the Company entered
into a 7% convertible debt arrangement which provided net proceeds of
approximately $315,000. The Company issued warrants to the note holder enabling
it to acquire 3,500,000 shares of the Company's common stock at $.042 per share.
F-11
ARMITEC, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 7- SUBSEQUENT EVENTS (continued)
Purchase of the Net Assets of a Business and Commencement of Operations
-----------------------------------------------------------------------
In May 2002, the Company finalized an agreement to acquire substantially all of
the assets and assume the general business liabilities of an existing sweater
manufacturer located in Hazelton, Pennsylvania. The Company assumed obligations
of approximately $1,900,000 of the seller and assigned a value of $550,000 to
the net assets acquired. No goodwill was involved in the acquisition.
To facilitate the acquisition, a wholly owned subsidiary, Jack Young Associates,
Inc. (JYAI) was formed. JYAI has agreed to a 5-year consulting agreement with
Jack Young for annual compensation of $127,200 in addition to the issuance of
2,000,000 shares of the common stock of Armitec, Inc. and the assumption of a
personal obligation of the consultant of $130,000. The consultant may "put" the
stock to the Company for $550,000 on the 5th anniversary date of the agreement,
and for 30 days thereafter. The Company has the right to "call" these shares for
$550,000 any time after the second anniversary date of the agreement. The
Company will treat the securities issued as equity in accordance the with
Financial Accounting Standards Board, Emerging Issues Task Force abstract issue
number 84-5, based on the probability that the stock will be converted during
the 5 year conversion period. All of the shares of JYAI were pledged to an
escrow agent to secure certain obligations of Armitec, Inc. to the seller, and
will remain pledged until all of the obligations to the seller have been
satisfied at which time the pledged shares will be released and returned to the
Company. In the event of any uncured default by the Company, as provided in the
pledge agreement, the pledged shares shall be delivered to the seller.
JYAI entered into a new 5-year operating lease for the existing Hazelton plant
and office facilities. The terms of the lease included a one-time payment of
$40,000, monthly lease rentals of $14,000 for the first 24 months, and $9,000
per month thereafter, for a total of $700,000 for the 5-year period, averaging
$11,667 per month.
To enable the acquired business to continue in existence, the Company requires
additional debt or equity financing. Additional financing is being sought.
In accordance with FASB #7 the Company will no longer be reporting as
development stage company, as a result of having acquired an existing business
with ongoing operations.
F-12