UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
______________________________________________________________________________
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
______________________________________________________________________________
Commission File Number: 0-26059
COMET TECHNOLOGIES, INC.
________________________________________________________________
(Exact Name of small business issuer as specified in its charter)
Nevada 87-0430322
________________________ ________________________
(State of Incorporation) (IRS Employer ID Number)
8 East Broadway #428, Salt Lake City, Utah 84111
___________________________________________________
(Address of principal executive offices)
(801) 532-7851
__________________________
(Issuer's telephone number)
Not applicable.
___________________________________________________________________
(Former name, address and fiscal year, if changed since last report)
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 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. YES [X] NO [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). YES [X ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity: As of the date of this report, there were 516,780 shares of
common stock outstanding.
Transitional Small Business Format: Yes [ ] No [X]
COMET TECHNOLOGIES, INC.
Form 10-QSB for the quarter ended March 31, 2006
Table of Contents
Part I - Financial Information Page
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis or
Plan of Operation 11
Item 3. Controls and Procedures 12
Part II - Other Information
Item 1. Legal Proceedings 12
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
March 31, 2006 and December 31, 2005
3
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Balance Sheets
ASSETS
March 31, December 31,
2006 2005
------------- -------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 107,385 $ 95,981
------------- -------------
Total Current Assets 107,385 95,981
------------- -------------
TOTAL ASSETS $ 107,385 $ 95,981
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 1,839 $ 586
Payable - related parties 63,000 18,000
------------- -------------
Total Current Liabilities 64,839 18,586
------------- -------------
TOTAL LIABILITIES 64,839 18,586
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; $0.001 par value;
5,000,000 shares authorized;
-0- shares issued and outstanding - -
Common stock; $0.001 par value; 20,000,000
shares authorized; 516,780 and 507,290
shares issued and outstanding, respectively 516 507
Additional paid-in capital 350,673 336,447
Deficit accumulated during the
development stage (308,643) (259,559)
------------- -------------
Total Stockholders' Equity (Deficit) 42,546 77,395
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 107,385 $ 95,981
============= =============
The accompanying notes are an integral part of these financial statements.
4
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
From
Inception on
For the Three Months Ended February 7,
March 31, 1986 through
--------------------------- March 31,
2006 2005 2006
------------- ------------- -------------
REVENUES $ - $ - $ -
------------- ------------- -------------
EXPENSES
General and administrative 49,831 11,708 458,909
------------- ------------- -------------
Total Expenses 49,831 11,708 458,909
------------- ------------- -------------
LOSS FROM OPERATIONS (49,831) (11,708) (458,909)
------------- ------------- -------------
OTHER INCOME (EXPENSE)
Dividend income - - 5,493
Interest income 747 42 149,265
Reimbursement of fees - - 2,158
Unrealized loss from
marketable securities - - (6,650)
------------- ------------- -------------
Total Other Expenses 747 42 150,266
------------- ------------- -------------
NET LOSS $ (49,084) $ (11,666) $ (308,643)
============= ============= =============
BASIC LOSS PER SHARE $ (0.10) $ (0.03)
============= =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 513,829 449,750
============= =============
The accompanying notes are an integral part of these financial statements.
5
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
From
Inception on
For the Three Months Ended February 7,
March 31, 1986 through
--------------------------- March 31,
2006 2005 2006
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (49,084) $ (11,666) $ (308,643)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization - - 301
Changes in operating assets and liabilities:
Increase in taxes payable - - 300
Increase in accounts payable 1,253 4,795 89,333
Increase in payable - related parties 45,000 - 45,000
------------- ------------- -------------
Net Cash Used by Operating Activities (2,831) (6,871) (173,709)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES - - -
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Organizational costs - - (300)
Sale of common stock for cash 14,235 - 39,235
Net stock offering proceeds - - 242,159
------------- ------------- -------------
Net Cash Provided by Financing
Activities 14,235 - 281,094
------------- ------------- -------------
NET INCREASE IN CASH 11,404 (6,871) 107,385
CASH AT BEGINNING OF PERIOD 95,981 90,864 -
------------- ------------- -------------
CASH AT END OF PERIOD $ 107,385 $ 83,993 $ 107,385
============= ============= =============
CASH PAID FOR:
Interest $ - $ - $ -
Income Taxes $ - $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for settlement
or related party indebtedness $ - $ - $ 69,795
The accompanying notes are an integral part of these financial statements.
6
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for all periods presented have
been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. It
is suggested that these condensed financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
December 31, 2005 audited financial statements. The results of operations for
the period ended March 31, 2006, are not necessarily indicative of the
operating results for the full year.
NOTE 2 - RELATED PARTY TRANSACTIONS
As of March 31, 2006, the Company owed $63,000 to related parties for unpaid
services rendered to the Company.
NOTE 3 - SIGNIFICANT EVENTS
Granting and Conversion of Stock Options
----------------------------------------
On March 11, 1999, the Company granted to each of its three (3) directors,
options to purchase 25,000 shares of common stock each at an exercise price of
$1.50, which was the average of the bid and asked prices for the common stock
on that date. The options were fully vested and scheduled to expire in March
2009. The options were granted to compensate these persons for their services
to the Company over the past several years, for which they had received no
other compensation. The options of one of the directors, now deceased, passed
on to his estate.
On September 26, 2005, the Company's current officers and directors agreed to
eliminate certain indebtedness owed to them through the exercise of certain of
the stock options referenced above. Accordingly, one of the officers and
directors exercised his stock options in full, for the conversion of a total
of $37,500 in indebtedness to him, into a total of 25,000 shares of restricted
common stock at a price of $1.50 per share. The other officer and director
agreed to convert the entire obligation to him ($23,265), into a total of
15,510 shares of common stock under his stock options at a price of $1.50 per
share. Because he did not exercise all of his stock options, he was reissued
stock options to purchase a total of 9,490 shares at $1.50 per share. On
January 28, 2006, this officer and director of the Company exercised his
remaining stock options to purchase a total of 9,490 shares at $1.50 per
share.
7
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
NOTE 3 - SIGNIFICANT EVENTS (Continued)
Granting and Conversion of Stock Options (Continued)
---------------------------------------------------
A summary of the Company's stock option activity and related information
follows:
For the For the
Three Months Ended Year Ended
March 31, 2006 December 31, 2005
----------------------- -----------------------
Weighed Weighted
Number Average Number Average
of Exercise of Exercise
Options Price Options Price
----------- ----------- ----------- -----------
Outstanding,
beginning of period 34,490 $ 1.50 75,000 $ 1.50
Granted - - - -
Exercised (9,490) 1.50 (40,510) 1.50
Expired - - - -
----------- ----------- ----------- -----------
Outstanding, end of period
Exercisable, end of period 25,000 $ 1.50 34,490 $ 1.50
=========== =========== =========== ===========
Other Equity Activity
----------------------
One of the officers and directors above who was owed an additional $9,030
converted such debt on September 26, 2005 to 4,515 shares of restricted common
stock at a price of $2.00 per share.
Additionally, to provide the Company with additional capital, the Company sold
on the same date, to an unrelated party, a total of 12,500 shares of
restricted common stock at a price of $2.00 per share for total cash proceeds
of $25,000.
There is an outstanding warrant to purchase 6,250 shares of the Company's
common stock held by an unrelated third party at an exercise price of $1.50,
which expires in March 2009.
Reverse Stock Split
-------------------
Effective March 9, 2006, the Company affected a 1-for-8 reverse split of its
issued and outstanding shares of common stock, following approval of such
stock split by holders of a majority of the outstanding common stock. All
figures in these financial statements give retroactive effect to the reverse
split.
8
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
NOTE 3 - SIGNIFICANT EVENTS (Continued)
Adoption of Recent Accounting Pronouncement
-------------------------------------------
On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment," ("SFAS 123(R)") which
requires the measurement and recognition of compensation expense for all
share-based payments to employees and directors including employee stock
options and stock purchases related to the Company's employee stock option
and award plans based on estimated fair values. SFAS 123(R) supersedes the
Company's previous accounting under Accounting Principles Board Option No. 25,
"Accounting for Stock Issued to Employees" ("APB25") for periods beginning in
fiscal 2006. In March 2005, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). The
Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
The Company adopted SFAS 123(R) using the modified prospective transition
method, which requires the application of the accounting standard as of
January 1, 2006, the first day of the Company's fiscal year 2006. The
Company's financial statements as of and for the three month period ended
March 31, 2006 reflect the impact of SFAS 123(R). In accordance with the
modified prospective transition method, the Company's financial statements for
the prior year have not been restated to reflect, and do not include, the
impact of SFAS 123(R). Stock-based compensation expense recognized under SFAS
123(R) for the three month period ended March 31, 2006 and 2005 was $-0-, and
there were no employee stock options granted during the respective periods.
There was no stock-based compensation expense related to employee stock
options and employee stock purchases recognized during the three month period
ended March 31, 2005.
SFAS 123(R) requires companies to estimate the fair value of share-based
payment awards on the date of grant using an option-pricing model. The value
of the portion of the award that is ultimately expected to vest is recognized
as expense over the requisite service periods in the Company's Statement of
Operations. Prior to the adoption of SFAS 123(R), the Company accounted for
stock-based awards to employees and directors using the intrinsic value method
in accordance with APB 25 as allowed under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
Under the intrinsic value method, no stock-based compensation expense had been
recognized in the Company's Statement of Operations, because the exercise
price of the Company's stock options granted to employees and directors
equaled the fair market value of the underlying stock at the date of grant.
Stock-based compensation expense recognized during the period is based on the
value of the portion of share-based payment awards that is ultimately expected
to vest during the period. At December 31, 2005, the Company had no unvested
share-based payment awards for which compensation expense should be recognized
during the three month period ended March 31, 2006.
9
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
NOTE 3 - SIGNIFICANT EVENTS (Continued)
Adoption of Recent Accounting Pronouncement (Continued)
-------------------------------------------------------
The table below illustrates the effects on net loss and net loss per share if
expense were to have been measured using the fair value recognition provisions
of SFAS 123 to stock based compensation during the three month period ended
March 31, 2005.
For the three months
ended March 31, 2005
--------------------
Net loss - as reported $ (11,666)
Less: stock-based compensation
expense determined under
fair value based method -
-------------------
Pro forma net loss $ (11,666)
===================
Basic and diluted loss per share $ (0.03)
===================
Pro forma basic and diluted
loss per share $ (0.03)
===================
NOTE 4 - SUBSEQUENT EVENT
On May 11, 2006, the Company entered into an Exchange Agreement with American
California Pharmaceutical Group, Inc. (ACPG), a California corporation,
whereby the Company acquired all of the issued and outstanding shares of ACPG
in a reverse-merger transaction. Pursuant to the Exchange Agreement, the
Company will issue at closing to the ACPG shareholders a total of 10,193,377
shares of its previously unissued common stock as consideration for the ACPG
shares. The Exchange Agreement stipulates that ACPG will operate as a
wholly-owned subsidiary of the Company. Upon closing of the transaction the
shareholders of ACPG will own approximately 93% of the issued and outstanding
shares of the Company, and the designees of ACPG would be appointed as the new
officers and directors of the Company. ACPG is a U.S. holding company that
owns 100% of the capital stock of Harbin Tian Di Ren Medical Science and
Technology Company (TDR), a company based in Harbin, Heilongjiang Province in
the People's Republic of China. TDR is engaged, directly and through its
subsidiaries, in the development, manufacture, marketing and sales of various
over-the-counter nutritional and medicinal products.
10
Item 2 - Management's Discussion and Analysis or Plan of Operation
(1) Caution Regarding Forward-Looking Information
When used in this report, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and similar
expressions are intended to identify 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 regarding events, conditions, and financial
trends that may affect the Company's future plans of operations, business
strategy, operating results, and financial position. Persons reviewing this
report are cautioned that any forward-looking statements are not guarantees of
future performance and are subject to risks and uncertainties and that actual
results may differ materially from those included within the forward-looking
statements as a result of various factors.
(2) Plan of Operation
Three Month Periods Ended March 31, 2006 and 2005
The officers have continued to evaluate potential mergers in an ongoing
effort to increase the value of the shareholders' investment in the Company.
During this period, however, the Company has not been engaged in business
operations, and has had no revenue from continuing operations for the
nine-month periods ended March 31, 2006 and 2005.
General and administrative expenses for the three-month periods ended
March 31, 2006 and 2005, consisted of general corporate administration,
officer compensation, legal and professional expenses, and accounting and
auditing costs. These expenses were $49,831 and $11,708 for the three-month
periods ended March 31, 2006 and 2005, respectively. This increase of $38,123
is due primarily to an increase in accrued officer compensation, attributable
to efforts undertaken during the quarter to effect a reverse split of the
Company's common stock, and the review of, and negotiations pertaining to, an
acquisition transaction described in Note 4 to the Financial Statements.
During the three month period ended March 31, 2006, the Company recognized
officer compensation expense of $45,000, compared to $6,000 in the comparable
period of 2005.
Interest income in the three-month periods ended March 31, 2006 and 2005,
was $747 and $42, respectively. As a result of the foregoing factors, the
Company realized a net loss of $49,084 for the three months ended March 31,
2006, as compared to a net loss of $11,666 for the same period in 2005.
Liquidity and Capital Resources
At March 31, 2006, the Company had working capital of approximately
$42,500, compared to approximately $77,400 at December 31, 2005. Working
capital as of both dates consisted of cash and cash equivalents, net of
accounts payable and related party payables.
The Company has entered into a Stock Exchange Agreement with American
California Pharmaceutical Group, Inc. ("ACPG"), providing for the acquisition
of ACPG in a reverse merger, which will result, when completed, in a change in
management and the ACPG shareholders holding approximately 93% of the
outstanding stock. The officers of the Company have devoted substantial time
during the past few months, reviewing this opportunity and
11
undertaking negotiations. It is expected, barring any unforeseen problems,
that this transaction will close in May, 2006. (See Note 4 to Financial
Statements).
Management believes that the Company has sufficient cash to meet the
anticipated needs of the Company's operations through either the completion of
the transaction described in Note 4 to the Financial Statements, or, if not
completed, at least the next 6 months. However, there can be no assurances to
that effect, as the Company has no significant revenues and the Company's need
for capital may change dramatically if it acquires an interest in a business
opportunity during that period. The Company is dependent upon management
and/or significant shareholders to provide sufficient working capital to
preserve the integrity of the corporate entity during this phase. It is the
intent of management and significant shareholders to provide sufficient
working capital necessary to support and preserve the integrity of the
corporate entity. The Company's current operating plan is to (i) handle the
administrative and reporting requirements of a public company, (ii) seek to
close the transaction described above with ACPG, as soon as practicable; and
(iii) if such efforts in (ii) are unsuccessful, to search for potential
businesses, products, technologies and companies for acquisition. Management
expects the transaction with ACPG to close; however, there can be no assurance
that the Company will not encounter difficulties in consummating the
transaction.
Although the Company's assets consist of cash and cash equivalents, the
Company has no intent to become, or hold itself out to be, engaged primarily
in the business of investing, reinvesting, or trading in securities.
Accordingly, the Company does not anticipate being required to register
pursuant to the Investment Company Act of 1940, and expects to be limited in
its ability to invest in securities, other than cash equivalents and
government securities, in the aggregate amount of over 40% of its assets.
There can be no assurance that any investment made by the Company will not
result in losses.
Item 3 - Controls and Procedures
As of the end of the period covered by this report, an evaluation was
performed under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief Financial Officer
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based on that evaluation, the Company's management,
including the Chief Executive Officer and Chief Financial Officer, concluded
that the Company's disclosure controls and procedures were effective. There
have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of the evaluation.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended March 31, 2006, Richard B. Stuart, an officer
and director of the Company, exercised his remaining option to purchase a
total of 9,490 shares of the Company's common stock at a price of $1.50 per
share, or a total purchase price of $14,235. This was a private transaction
and was entered into in reliance upon an exemption from the registration
provisions of the Securities Act of 1933 (the "Act"), as amended, under
Section 4(2)
12
of the Act, as a transaction not involving a public offering. The transaction
occurred without the use of an underwriter, and the certificates representing
the shares of common stock bear a restrictive legend permitting transfer only
upon registration or pursuant to an exemption from registration under the Act.
Effective March 9, 2006, the Company implemented a 1-for-8 reverse split
of its issued and outstanding shares of common stock, following approval of
such stock split by holders of a majority of the outstanding common stock.
All figures in these financial statements give retroactive effect to the
reverse split.
Item 3 - Defaults on Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
As of January 29, 2006, eighteen (18) shareholders holding approximately
53% of the outstanding shares of the Company in accordance with Nevada
corporate law, approved by a consent under Nevada corporation law, a 1-for-8
reverse split of the issued and outstanding common stock of the Company. On
or about February 15, 2006, the Company's shareholders were mailed an
Information Statement reporting the reverse split, which was effective as of
March 9, 2006. As a result of the reverse split, the 4,058,200 shares of
common stock outstanding prior to the reverse split, were split into a total
of 507,290 shares of common stock. (An additional 9,490 shares have been
subsequently issued to an officer upon exercise of an option see Item 2
above).
Except as indicated above, during the quarter ended March 31, 2006, the
Company held no regularly scheduled, called or special meetings of
shareholders during the reporting period, nor were any matters submitted to a
vote of this Company's security holders.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit Description
31.1 Principal Executive Officer Certification*
31.2 Principal Financial Officer Certification*
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002**
* Included herein pursuant to Item 601(b) 31 of Regulation SB.
** Included herein pursuant to Item 601(b) 32 of Regulation SB.
(b) Reports on Form 8-K. None.
13
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.
COMET TECHNOLOGIES, INC.
Date: May 11, 2006 By: /s/ Richard B. Stuart
----------------------------------------
Richard B. Stuart, President, CEO and
Principal Executive Officer
Date: May 11, 2006 By: /s/ Jack M. Gertino
---------------------------------------
Jack M. Gertino, Secretary/Treasurer,
CFO and Principal Financial Officer
14