Registration of Securities of a Small-Business Issuer — Form 10-SB
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10SB12B Registration of Securities of a Small-Business 41 156K
Issuer
2: EX-3.(I) Articles of Incorporation/Organization or By-Laws 4 12K
3: EX-3.(II) Articles of Incorporation/Organization or By-Laws 9 27K
4: EX-10 10.1 - License and Technical Assistance Agreement 12 38K
5: EX-10 10.2 - Asset Purchase Agreement 4 8K
10SB12B — Registration of Securities of a Small-Business Issuer
Document Table of Contents
FORM 10-SB
General Form For Registration of Securities of
Small Business Issuer
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
SPECTRUM MEDITECH, INC.
--------------------------------
(Name of registrant as specified in its charter)
Delaware None
------------------------ ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
707 E. 6th Ave.
Denver, Colorado 80203
------------------------- ---------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (303) 506-1633
SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- --------------------------------
None None
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock
(Title of class)
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company was incorporated in Delaware in June 1998 under the name 263rd
Shelf Corporation. In November 1999 the Company changed its trade name to
"Spectrum Meditech Inc." Between the date of its incorporation and November 1999
the Company was essentially inactive.
During 2000 and 2001 the Company was developing and attempting to sell a
product known as the Needle-Ease(TM), a device designed to safely dispose of
used needles and hypodermic syringes. The Needle-Ease(TM) is a battery operated
incineration system that destroys a range of needles by passing an electric
current through the needle thereby reducing the steel to ashes in a matter of
seconds. The electric charge is generated from a rechargeable sealed lead-acid
battery. The contact points of the device can be touched directly or with a
metal object by the operator or anyone else without the transfer of current
(i.e. shock).
The danger of needlestick injuries lies in the transfer of bloodborne
diseases as a result of people accidentally being stuck with a used syringe.
There are 57 different blood borne pathogens transmitted through a syringe and
getting stuck with a used syringe is an occupational hazard for thousands of
health care workers whose concerns, worries and fears of contracting diseases,
such as Hepatitis and/or HIV are very legitimate. Although special plastic
containers, known as sharps containers, are stationed throughout hospitals,
medical and dental offices to handle collection before incineration, such
containers are not entirely resistant to prevent injury from a needle carelessly
inserted into the disposal unit. Cost is another factor with sharps containers
which are expensive to dispose of. In addition to health care workers being
subjected to health risks, garbage collectors are also exposed to the
possibility of needlestick injuries incurred from picking up garbage bags and
recycling boxes containing used syringes. Various agencies and regulatory bodies
have incorporated guidelines relating to the handling and disposal of syringes
but, notwithstanding these regulations, syringes are frequently found in places
where they should not be, and, regrettably, often in large quantities.
There are two Needle-Ease(TM) models, one for physicians, small clinics
and health care facilities (Model 3500P) and the other (Model 2501) primarily
for home use by diabetics.
The 3500P is designed to dispose of needles that attach to a standard
syringe. In order to detach these needles from the syringe the needle must be
re-capped. The act of recapping a needle is dangerous and prohibited by
government regulations. A needlestick injury may result in the transfer of
bloodborne diseases and infections from a patient to a third party. The 3500P
totally eliminates the steel shaft of the needle from a syringe without
recapping the exposed needle point. The 3500P requires a recharge after the
disposal of approximately 100 to 250 needles.
The 2501 home model is somewhat smaller but has the same characteristics
as the 3500P. The 2501 requires a recharge after the disposal of approximately
100 to 150 needles.
A model accommodating larger gauge needles and which will be powered by
interior electric current (120 volts A.C.) has been designed for use in
hospitals, clinics, and other health care institutions and will be available for
distribution later in 2002.
The 3500P and 2501 have been approved by the FDA's Pre-Market Approval
(PMA) process for Class II medical devices and meet the following safety
standards for Laboratory, Measurement and Test Equipment:
1. Canadian Standards Association (CSA) C22.2 No. 1010.1-92 with Attachments 1
and 2
2. Underwriter's Laboratories UL 3101.1 and UL 3111.1
3. European Norm (EN) 61010-1 and
4. International Electrotechnical Commission (IEC) 1010-1 with A1 and A2
The retail price of the 3500P model varies between $441.45 and $545.00.
The 2501 model has a retail price of between $150 and $200. The actual retail
price of both models will depend upon the number of units purchased.
License Agreement
In November 2001 the Company granted Sharps Elimination Technologies, Inc.
("SETI") an exclusive license to the Needle-Ease(TM) technology. The technology
includes that disclosed in the Company's United States Patents #5,551,355 and
#6,326,575, as well as blueprints, drawings, specifications, engineering data,
engineering calculations, processes, apparatuses, tools, dies and molds relating
to the Needle-Ease(TM) product. Included as part of the License are the rights
to use the Needle-Ease(TM) trademarks and tradenames.
In consideration for the license, SETI agreed to:
o Pay the Company $300,000 no later than September 30, 2003.
o Pay the Company a royalty of $3.25 for each Needle-Ease(TM) unit sold by
SETI or any sublicensee of SETI, provided, however, that SETI, beginning
with the year ending April 30, 2004, agreed to pay the Company royalties of
not less than $100,000 per year.
o Issue to the Company 800,000 shares of SETI's common stock.
SETI may at any time and upon five days notice to the Company acquire all
rights to the Needle-Ease(TM) technology by paying the Company $5,000,000. Upon
payment of the $5,000,000 all future royalties otherwise due the Company will
terminate.
In connection with the technology license, SETI also acquired from the
Company all inventory, work-in-progress, spare parts, raw materials, tools, dies
and molds relating to the Needle-Ease(TM) product. In consideration for the
transfer of these assets, SETI agreed to assume approximately $486,000 of the
Company's payables and accrued liabilities as well as the Company's employment
agreement with Kelly Fielder, the Company's President and principal shareholder.
SETI is controlled by Kelly Fielder.
On December 3, 2002 Travelshorts.com, Inc., a Washington corporation,
acquired all of the outstanding shares of SETI in exchange for 16,691,205 shares
of the common stock of Travelshorts. In connection with this acquisition, the
Company received 3,062,606 shares of the common stock of Travelshorts in
exchange for its 800,000 shares of SETI.
Competition
In addition to the traditional needle disposal methods (i.e. "Sharps"
containers and similar devices), competition exists from other manufacturers of
needle incinerators.
>> Sharpx Sharpx is technology owned by Biomedical Disposal Inc. The
product has FDA approval. It is a stylish, portable unit, which is
currently marketed (website address www.biomedical.com). It sells for
$1495. To date, Biomedical Disposal Inc. has expended significant funds
in the lobbying of various state OSHA to ensure that pending
needle-stick prevention legislation remains technology neutral. The
device is inferior since the waste is considered to be a biohazard and
there is still enough of a needle remaining that it is classified as a
sharp.
>> Needlyzer Needlyser has FDA approval. It is larger and heavier than the
Needle-Ease(TM) (13.5"x 5"x 4.75" and nearly 6 pounds). As such, it is
not as portable. Its user learning curve is substantially longer and it
has complex electronics. It uses a nickel cadmium battery but it does
not entirely eliminate the needle and as a result it must have a FDA
biohazard warning prominently displayed on its exterior and as a result
the residue must be treated as hazardous. It retails at approximately
US$900.
>> NIC 1800 The NIC 1800, also FDA approved, is also a much larger machine
in both size and weight. The unit is electronically complex and similar
in most respects to the Needlyser and retails at approximately US$900.
>> HNI002 The H.N.I. is a portable unit, which weighs 7 1/2 lb. It
operates with a rechargeable battery and can incinerate 300 21 gauge
needles between charges. It is produced in South Africa and marketed
in, among other places, Canada. The product is not FDA approved, and
hence is not approved for use in the United States.
>> Etna 497 Needle Burner The Etna is a portable unit that weighs 1.5 lb.
It operates on a rechargeable battery and can incinerate 100 needles
between charges. It incinerates at a temperature of 1400o C. The
product is produced in Italy and is being offered with a range of
dental products. It also lacks FDA approval and as such, is not
approved for use in the United States.
With its incineration temperature of 5432(0)C, and its size, portability,
and rechargeability the Company believes the Needle-Ease(TM) product will be the
most effective needle destruction system in the market.
Marketing
SETI plans to sell the Needle-Ease in the United States, Canada, and a
number of foreign countries though a network of distributors, dealers and
independent sales representatives. SETI plans to advertise the Needle-Ease
device in selected publications and attends trade shows to promote sales.
As of November 30, 2003 SETI has not sold any Needle-Ease devices.
Production
The production of the Needle-Ease(TM) device consists of a sub-assembly
process during which a number of components are pre-assembled and followed by a
final assembly process to produce the finished product. The majority of required
components are "off-the shelf" and only a very small number of components need
to be custom ordered. Hence lead-times for production are relatively low. As of
August 31, 2003 SETI did not have any agreement with any person for the
manufacture of Needle-Ease(TM) units.
Patents and Trademarks
Certain aspects of the Needle-Ease(TM) technology are protected by U.S.
patents #5,551,355 and #6,326,575. The first patent pertaining to the
Needle-Ease(TM) technology (#5,551,355) will expire in the year 2015. The name
"Needle-Ease" is a registered trademark with the U.S. Patent and Trademark
Office and has also been licensed to SETI by means of the Licensing Agreement
which pertains to the patent.
Employees
As of November 30, 2003 the Company did not have any employees.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Following the receipt of the $300,000 licensing fee from SETI, the Company
plans to acquire the rights to new technology which the Company believes will be
useful in manufacturing products that could be sold at a profit. As of December
15, 2003, the Company did not have any understandings, arrangements or
agreements regarding the acquisition of rights to any new technology.
ITEM 3. DESCRIPTION OF PROPERTY
See Item 1. Description of Business.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists the share ownership of the Company's officer and
director and of each person known by the Company to be the beneficial owner of
more than 5% of the Company's outstanding common stock as of November 30, 2003.
Number of Shares Percent of
Name and Address Beneficially Owned Outstanding Shares
Kelly Fielder 2,996,903 45%
4750 Paton St.
Vancouver, B.C. Canada V6L
2J1
All Oficers and Directors as 2,996,903 45%
a Group (1 person)
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The officer and director of the Company is:
Name Age Position
Kelly Fielder 34 President, Chief Financial Officer
and a Director
Kelly Fielder has been and officer and director of the Company since
January 2000. Between March 22, 2002. and September 17, 2002 Mr. Fielder was an
officer and director of Armagh Group, Inc. Mr. Fielder has been an officer and
director of Sharps Elimination Technologies, Inc. since its inception in
September 2001. Mr. Fielder is also the President of IRG Services Ltd. ("IRG"),
an investor relations firm based in Vancouver, B.C. which he formed in 1996.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation received
by (i) the Chief Executive Officer of the Company and (ii) by each other
executive officer of the Company who received in excess of $100,000 during the
fiscal year ended December 31, 2002. The Company does not have a Compensation
Committee.
Other
Annual Restric- All
Name and Compen- ted Stock Options Other
Principal Fiscal Salary Bonus sation Awards Granted Compensa-
Position Year (1) (2) (3) (4) (5) (6)
--------------------------------------------------------------------------------
Kelly Fielder 2002 $ -- $ -- $ -- -- -- --
President and 2001 $ -- $ -- $ -- -- -- --
Chief Executive
Officer 2000 $ -- $ -- $ -- -- 3,600,000 --
(1) The dollar value of base salary (cash and non-cash) received. (2) The dollar
value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary or bonus,
including perquisites and other personal benefits, securities or property.
(4) During the periods covered by the table, the value of the shares of
restricted stock issued as compensation for services to the persons listed
in the table. The table below shows the number of shares of the Company's
common stock owned by the officer listed above, and the value of such shares
as of December 31, 2002. Since the Company's common stock was not publicly
traded at December 31, 2002, the value of the Company's common stock on that
date was deemed to be $0.01 per share, which was the price at which the
Company sold shares of its common stock.
Name Shares Value
Kelly Fielder 2,996,903 $29,969
(5) The shares of common stock to be received upon the exercise of all stock
options granted during the periods covered by the Table. In October 2001 Mr.
Fielder exercised a portion of these options and acquired 1,500,000 shares
of the Company's common stock at a price of $0.01 per share.
(6) All other compensation received that the Company could not properly report
in any other column of the Table.
Employment Contracts
The Company does not have any employment contracts with Mr. Fielder.
Long-Term Incentive Plans - Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
None.
Stock Options
During the year ended December 31, 2002, the Company did not grant any
stock options to its executive officers. As of December 31, 2002 and August 31,
2003, the Company did not have any outstanding options, warrants or other
securities providing any person the right to acquire shares of the Company's
common stock. Compensation of Directors
Compensation of Directors
The Company does not have any arrangement for paying directors for serving
as directors. The Company does not have any standard arrangement pursuant to
which directors of the Company will be compensated for any services provided as
a director, for committee participation, or for special assignments.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As explained in Part I, Item I of this Registration Statement, in November
2001 the Company granted SETI an exclusive license to the Needle-Ease(TM)
technology. Kelly Fielder, an officer, director and principal shareholder of the
Company is also an officer, director and principal shareholder of SETI.
ITEM 8. DESCRIPTION OF SECURITIES
The Company is authorized to issue 10,000,000 shares of common stock. As
of November 30, 2003 the Company had 6,684,473 shares of common stock issued and
outstanding. Holders of common stock are each entitled to cast one vote for each
share held of record on all matters presented to shareholders. Cumulative voting
is not allowed; hence, the holders of a majority of the outstanding common stock
can elect all directors.
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefore and,
in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The Board of Directors is not
obligated to declare a dividend and it is not anticipated that dividends will be
paid until the Company is in profit.
Holders of common stock do not have preemptive rights to subscribe to
additional shares if issued by the Company. There are no conversion, redemption,
sinking fund or similar provisions regarding the common stock. All of the
outstanding shares of common stock are fully paid and non-assessable.
The Company is also authorized to issue 1,000,000 shares of preferred
stock. The Delaware General Corporation Law provides that the Company's Board of
Directors has the authority to divide the preferred to stock into series and,
within the limitations provided by Delaware law, to fix by resolution the voting
power, designations, preferences, and relative participation, special rights,
and qualifications, limitations or restrictions of the shares of any series so
established. As the Board of Directors has authority to establish the terms of,
and to issue, the preferred stock without shareholder approval, the preferred
stock could be issued to defend against any attempted takeover of the Company.
SPECTRUM MEDITECH, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002
AND DECEMBER 31, 2001
SPECTRUM MEDITECH, INC.
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants 3
Balance Sheets 4
Statements of Operations 5
Statements of Changes in Shareholders' Equity 6
Statements of Cash Flows 7
Notes to Financial Statements 8 - 13
Spicer, Jeffries LLP
Certified Public Accountants
5251 SOUTH QUEBEC STREET, SUITE 200
GREENWOOD VILLAGE, COLORADO 80111
TELEPHONE: (303) 753-1959
FAX: (303) 753-0338
www.spicerjeffries.com
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Spectrum Meditech, Inc.
We have audited the accompanying balance sheets of Spectrum Meditech, Inc. as of
December 31, 2002 and December 31, 2001, and the related statements of
operations, changes in shareholders' equity, and cash flows for the years then
ended. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Spectrum Meditech, Inc. as of
December 31. 2002 and December 31, 2001, and the results of its operations and
its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Spicer, Jeffries LLP
Denver, Colorado
November 7, 2003
SPECTRUM MEDITECH, INC.
(A Development Stage Company)
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
4
The accompanying notes are an integral part of these statements.
September December December
30, 31, 31,
2003 2002 2001
--------- -------- ---------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 509 $ 763 $ 485
Accounts receivable, net (Note 2) - - -
Due from related party (Note 2) 64,100 66,500 -
------- ------- -------
Total current assets 64,609 67,263 485
OTHER ASSETS - Patent (Note 2) 16 19 23
----- ------ --------
TOTAL ASSETS $ 64,625 $67,282 $ 508
======== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 82,883 $ 70,383 $ 47,750
Due to related party (Note 2) 78,473 78,473 -
------- ------- --------
TOTAL LIABILITIES 161,356 148,856 47,750
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 5) - - -
SHAREHOLDERS' DEFICIT (Note 3):
Cumulative convertible preferred stock,
$.01 par value, 1,000,000 shares
authorized, none issued - - -
Common stock, $.01 par value, 10,000,000
shares authorized, 6,684,473 shares
issued and outstanding 66,845 66,845 66,845
Additional paid-in capital 1,472,354 1,472,354 1,472,354
Deficit (1,635,930) (1,620,773) (1,586,441)
--------- --------- ---------
TOTAL SHAREHOLDERS' DEFICIT (96,731) (81,574) (47,242)
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
DEFICIT 64,625 67,282 508
======= ======= ========
SPECTRUM MEDITECH, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
[Enlarge/Download Table]
Nine For the Period
Months From Inception
Ended Year Ended Year Ended June 1, 1998
September December 31, December 31, through September 30,
30, 2003 2002 2001 2003
---------- ----------- ------------- ----------------------
Unaudited)
REVENUES $ - $ 9,081 $ 14,903 $ 74,391
--------- --------- ----------- ----------
OPERATING EXPENSES:
Royalties 12,500 16,666 16,666 65,998
Professional and consulting fees 2,500 26,160 177,543 727,843
Stock compensation expense - - 238,400 238,400
Travel - - 74,569 210,224
Product development costs and supplies - - 41,399 108,434
Other general and administrative 154 583 49,041 348,882
Depreciation and amortization 3 4 5,938 10,540
------ ----- ------- -------
Total operating expenses 15,157 43,413 603,556 1,710,321
------- ------- ------- ---------
NET INCOME (LOSS) BEFORE INCOME TAXES $(15,157) $(34,332) $(588,653) $(1,635,930)
======== ======== ========= ===========
BASIC AND DILUTED NET INCOME (LOSS)
PER COMMON SHARE (Note 1):
Basic and Diluted $ (0.00) $ (0.01) $ (0.11)
========= ======== =========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
Basic and Diluted 6,684,473 6,684,473 5,438,959
========= ========= =========
SPECTRUM MEDITECH, INC.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Common Stock Additional
----------------- Paid In
Shares $.001 Par Capital Deficit
------ --------- ---------- -------
BALANCES, Inception, June 1, 1998 - - - -
Share issued for cash 1 100 - -
------- ------ ------ -----
BALANCES, December 31, 1998 1 100 - -
Common share cancelled (1) (100) -
Shares issued:
For cash, $.01 per share 2,000 20 -
For services, $.01 per share 2,401,902 24,019 -
For development costs, $.01
per share 1,924,467 19,245 14
Net loss - - - (270,705)
--------- ------ ------ ---------
BALANCES, December 31, 1999 4,328,369 43,284 14 (270,705)
Shares issued:
For cash, $1.50 per share 274,604 2,746 409,161
For services, $1.12 per
share 214,000 2,140 238,400
For development costs, $.01
per share 300,000 3,000 -
Net loss - - - (727,083)
-------- ------ ------- ---------
BALANCES, December 31, 2000 $5,116,973 $ 51,170 $ 647,575 $(997,788)
Sale of common shares, $2.00 per
share, net 67,500 675 123,525
Employee stock option compensation
expense 238,400
Exercise of options, $.01 per
share 1,500,000 15,000 -
Shareholder assumption of
l iabilities 462,854
Net loss - - - (588,653)
--------- ------ ------- ---------
BALANCES, December 31, 2001 6,684,473 66,845 1,472,354 (1,586,441)
Net loss - - - (34,332)
--------- ------ ------- ---------
BALANCES, December 31, 2002 6,684,473 66,845 1,472,354 (1,620,773)
Net loss - - - (15,157)
--------- ------ ------- ---------
BALANCES, September 30, 2003
(Unaudited) 6,684,473 66,845 1,472,354 (1,635,930)
========== ======= ========= ==========
SPECTRUM MEDITECH, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
[Enlarge/Download Table]
For the
Period From
Nine Months Inception
Ended Year Ended Year Ended June 1, 1998
December 31, December 31, December 31, through December 31,
2003 2002 2001 2002
----------- ----------- ------------ --------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
Net income (loss) (15,157) $ (34,332) $ (588,653) $ (1,635,930)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 3 4 5,938 10,540
Stock compensation expense - - 238,400 525,218
(Increase) decrease in accounts
receivable - - 30,093 -
(Decrease) increase in prepaid expenses - - 1,023 -
Increase (decrease) in accounts payable 12,500 22,633 (30,227) 82,883
------- ------- -------- ------
Net cash provided by (used
in) operating activities (2,654) (11,695) (343,426) (1,017,289)
------- -------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - - - (26,408)
Purchase of patents - - - (34)
------- -------- --------- ----------
Net cash provided by
investing activities - - - (26,442)
------- -------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from (to) related party 2,400 (66,500) - (64,100)
Advance from related party 78,473 203,017 557,213
Sale of common shares, net - - 139,200 551,127
------- -------- --------- --------
Net cash provided by
financing activities 2,400 11,973 342,217 1,044,240
------- -------- --------- ---------
NET INCREASE (DECREASE) IN CASH (254) 278 (1,209) 509
CASH, beginning of year 763 485 1,694 -
------- -------- --------- ---------
CASH, end of year $ 509 $ 763 $ 485 $ 509
========= ========= ========== =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Assumption of liabilities by
shareholder, net of property and
equipment transferred $ - $ - $ 462,854 $ 462,854
======== ======== ========== =========
SPECTRUM MEDITECH, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(continued)
NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business
Spectrum Meditech, Inc., "Company", a Delaware corporation, was incorporated
June 18, 1998, and is a development stage company. The Company was inactive
until November, 1999, when it acquired certain patents for an invention
(Needle-Ease(TM)) to safely incinerate used needles and hypodermic syringes
using an electrical charge. During 2000 and 2001, it worked to develop and
market this invention but did not achieve any standardized production of units
or significant sales. In November, 2001, the Company entered into an exclusive
license agreement with a company controlled by its President and majority
shareholder allowing that company to continue the development of the
Needle-Ease(TM) technology. See Note 4 for additional information.
The accompanying financial statements are presented in contemplation that the
Company will continue as a going concern. However, its activities to date have
resulted in accumulated losses of $(1,365,195) and a working capital deficiency
of $(66,845) at December 31, 2002. There is substantial doubt as to the
Company's ability to meet its current obligations or achieve profitable
operations with additional financing. The financial statements do not give
effect to any adjustments which would be necessary should the Company be unable
to continue as a going concern and therefore be required to realize its assets
and discharge its liabilities in the normal course of business at amounts
different from those reflected in the financial statements.
Use of Estimates
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 of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as the reported amounts of revenue and expenses
during the period. Actual results could differ from those estimates and such
differences could be material to the financial statements.
Cash Equivalents
For purposes of reporting cash and cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
Accounts Receivable
The Company uses the allowance method to provide for uncollectible accounts.
Under this method, estimated bad debts are recorded as an allowance when
accounts receivable are recognized and actual write offs of uncollectible
accounts are charged to the allowance.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets. Normal maintenance and repair costs that do not extend the
useful life of the related asset are expensed as incurred while significant
betterments to assets are capitalized and depreciated over the remaining useful
life of the asset.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
the recoverability test is performed using undiscounted net cash flows estimated
to be generated by the asset. If such review indicates that the asset is
impaired, the asset's carrying amount is written down to fair value. Long-lived
assets to be disposed of are reported at the lower of carrying amount or fair
value less cost to sell.
NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
Revenues from royalties in connection with the Company's licensing agreement are
recognized as earned based on product sales by the licensee. Revenue from the
sale of products is recognized at the time of shipment.
Advertising Costs
Advertising expenses are charged to operations as incurred without regard to any
expected future benefit. The Company did not incur any direct advertising costs
in 2002 or 2001.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled.
Stock-Based Compensation
In October, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 encourages, but does not require, companies to
record compensation expense for stock-based employee compensation plans at fair
value. The Company has elected to account for its stock-based compensation plans
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" . Under the
provisions of APB No. 25, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's common stock at the
date of grant over the amount an employee must pay to acquire the stock. SFAS
No. 123 does, however, require pro forma disclosure of the fair value
compensation expense that would be recorded if it were adopted. See Note 7 to
these financial statements for such disclosure.
Net Income (Loss) Per Share of Common Stock
Net income (loss) per common share is calculated in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" requiring companies
to report basic and diluted earnings per share. Basic net income per common
share is computed using the weighted average number of common shares issued and
outstanding during the period. Diluted net income per common share is computed
using the weighted average number of common shares issued and outstanding plus
any dilutive potential common shares outstanding during the period. For 2003,
the dilutive potential common shares outstanding were due to the conversion
rights of the Company's preferred stock and all preferred dividends were added
back to net income available to common shareholders in computing diluted
earnings per share. For 2002, any dilutive potential common shares are excluded
from the computations of net loss per share because their effect would be
anti-dilutive.
Business Segments
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" establishes standards for public
enterprises to report information about their operating segments in annual
financial statements. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
operating performance. Management has determined that the Company currently
operates in only one business segment. Therefore, the Company does not have any
separate operating segment information to report other than the amounts
reflected in its financial statements.
NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 requires the disclosure of
fair value of financial instruments. The estimated fair value amounts have been
determined by the Company's management using available market information and
other valuation methods. However, considerable judgment is required to interpret
market data in developing the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The carrying amounts
reported in the consolidated balance sheets were used in estimating fair value
disclosure for cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses and notes payable because of the short maturity of those
instruments. For the long-term portion of notes payable, the Company believes
that the estimated fair value does not vary substantially from the amounts
reported in the consolidated balance sheets due to the effect of the interest
rate.
Research and Development Costs
All costs for research and development related to new products and improvements
to existing products is charged to expense as incurred.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") finalized
Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS
141 requires the use of the purchase method of accounting and prohibits the use
of the pooling-of-interests method of accounting for business combinations
initiated after June 30, 2001. SFAS 141 also requires that the Company recognize
acquired intangible assets apart from goodwill if the acquired intangible assets
meet certain criteria. SFAS 142 requires the Company to reclassify the carrying
amounts of intangible assets and goodwill based on that standard's criteria. It
also requires, among other things, that companies no longer amortize goodwill,
but instead test goodwill for impairment at least annually. In addition, it
requires that the Company identify reporting units for the purposes of assessing
potential future impairments of goodwill, reassess the useful lives of other
existing recognized intangible assets, and cease amortization of intangible
assets with an indefinite useful life. An intangible asset with an indefinite
useful life should be tested for impairment in accordance with the guidance in
that standard. SFAS 142 is required to be applied in fiscal years beginning
after December 15, 2001 to all goodwill and other intangible assets recognized
at that date, regardless of when those assets were initially recognized. It also
required the Company to complete a transitional goodwill impairment test six
months from the date of adoption and to reassess the useful lives of other
intangible assets within the first interim quarter after adoption of SFAS 142.
The adoption of SFAS 141 and SFAS 142 did not have any effect on the Company's
financial position and results of operations.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets", resolving significant implementation issues
related to FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", and superseding the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", for the disposal of a business
segment. SFAS 144 is effective for fiscal years beginning after December 15,
2001, and interim periods within those fiscal years, with early application
encouraged. The adoption of SFAS 144 did not effect the Company's consolidated
financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
This SFAS requires any gain or loss on extinguishments of debt to be presented
as a component of continuing operations (unless specific criteria are met)
whereas SFAS No. 4 required that such gains and losses be classified as an
extraordinary item in determining net income. The adoption of SFAS 145 did not
effect the Company's consolidated financial position or results of operations.
NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements (continued)
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". Such standard requires costs associated with
exit or disposal activities (including restructurings) to be recognized when the
costs are incurred, rather than at a date of commitment to an exit or disposal
plan. SFAS No. 146 nullifies EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". Under the new standard,
a liability related to an exit or disposal activity is not recognized until such
liability has actually been incurred whereas under EITF Issue No. 94-3 a
liability was recognized at the time of a commitment to an exit or disposal
plan. The adoption of SFAS 146 did not effect the Company's financial position
or results of operations.
On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure". This standard amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. This standard also requires prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. See Note 7 for the Company's disclosures under this
standard.
In May, 2003, SFAS 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity", was issued. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. Generally, a financial instrument, whether
in the form of shares or otherwise, that is mandatorily redeemable, i.e. that
embodies an unconditional obligation requiring the issuer to redeem it by
transferring its shares or assets at a specified or determinable date (or dates)
or upon an event that is certain to occur, must be classified as a liability (or
asset in some circumstances). In some cases, a financial instrument that is
conditionally redeemable may also be subject to the same treatment. This
Statement does not apply to features that are embedded in a financial instrument
that is not a derivative (as defined) in its entirety. For public entities, this
Statement is effective for financial instruments entered into or modified after
May 31, 2003. The adoption of SFAS 150 did not effect the Company's financial
position or results of operations.
NOTE 2 - RELATED PARTY TRANSACTIONS
On November 12, 2001, the Company entered into an exclusive licensing agreement
related to its Needle-Ease(TM) patents with a company controlled and operated by
its President, Sharps Elimination Technologies, Inc. (SETI). The agreement
provides that SETI has worldwide rights to market and sell products using the
licensed technology, to use the Needle-Ease(TM) trademarks and tradenames and to
otherwise develop and exploit the technology. The Company was to receive a cash
payment of $300,000 by April 30, 2003 (subsequently extended to September 30,
2003), was issued 800,000 common shares of SETI and is to receive a royalty of
$3.25 per "licensed product" sold under the agreement, with a minimum royalty of
$100,000 due annually beginning in 2004. In addition, SETI agreed to assume
approximately $486,000 of the Company's liabilities consisting primarily of
advances payable to its President and the Company transferred its production and
office equipment with a net book value of $15,886 to SETI. At the time of the
agreement, SETI was a development stage company with no revenues or substantial
operations and did not have the ability to pay the agreed amounts. No amounts
have been paid under the agreement and SETI has not achieved production or sales
of products using the Needle-Ease(TM) technology.
Accordingly, a valuation allowance for the full amount of the account receivable
of $300,000 for the initial payment due under the licensing agreement has been
recorded by the Company. The common shares of SETI received had no fair value.
The assumption of liabilities by SETI net of the production and office equipment
transferred has been recorded as a contribution to the Company's additional paid
in capital as the entities are under common control and the transaction cannot
be determined to be at arms length.
NOTE 2 - RELATED PARTY TRANSACTIONS (continued)
The Company has received various advances totaling $78,473 from the licensee of
its patent technology which are non interest bearing and have no specified due
date. In addition, it has made various advances to a company controlled by its
President and majority shareholder totaling $66,500 at December 31, 2002, which
are also non interest bearing and have no specified due date.
NOTE 3 - SHAREHOLDERS' EQUITY
In May, 2001, the Company sold 67,500 shares of its common stock for $135,000
cash. In October, 2001, it issued 1,500,000 shares of its common stock pursuant
to the exercise of stock options held by its President for $15,000 cash.
Stock Options and Warrants
In May, 2001, the Board of Directors adopted an employee stock option plan to
grant options qualified as "incentive stock options" under the Internal Revenue
Code generally allowing grantees to defer taxable income until the shares
acquired through the exercise of such options is sold. The plan provides that
qualified options for a total of 500,000 common shares may be issued. There were
no grants under this plan for the years ended December 31, 2002 and 2001. In
addition, the Company's Board of Directors grants non-qualified options for the
purchase of its common shares on a discretionary basis. In May, 2001, the Board
granted such options for a total of 160,000 common shares at an exercise price
of $.01 per share. As this exercise price was less than the current $1.50 per
share fair value of the Company's common shares, stock compensation expense of
$238,400 was recorded.
The following table summarizes the activity for all options for each year end
indicated.
Exercise Weighted Weighted
Price Average Average Years
Options Range Exercise Remaining
Price Life
------- ------- --------- -------------
Balances at December 31,
2000 $3,600,000 $ 0.01 $ 0.01 $ 1.2
==========
Granted 160,000 0.01 0.01
Exercised/Expired (1,500,000) 0.01 0.01
--------- ------ -------
Balances at December 31,
2001 2,260,000 0.01 0.01 0.8
==========
Granted - - - -
Exercised/Expired (2,100,000) 0.01 0.01
--------- ----- ------
Balances at December 31,
2002 160,000 0.01 0.01 8.4
======== ===== ===== =========
NOTE 4 - INCOME TAXES
At December 31, 2002, the Company had an unused net operating loss carryforward
of approximately $(1,125,000) for income tax purposes, expiring in the years
2014 through 2017. However, the ability to utilize such losses to offset future
taxable income is subject to various limitations imposed by the rules and
regulations of the Internal Revenue Service. The net operating loss
carryforwards may result in future income tax benefits of approximately
$423,000; however, because realization is uncertain at this time, a valuation
reserve in the same amount has been established. During 2002 and 2001, the
valuation allowance increased approximately $5,000 and $47,000 respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the treatment of revenues and expenses for financial reporting purposes
and the amounts used for income tax purposes.
NOTE 4 - INOME TAXES (continued)
The significant components of the Company's deferred tax assets and liabilities
as of December 31, 2002 and 2001 are presented in the following table:
2002 2001
---------- -----------
Deferred tax liabilities: $ - $ -
Deferred tax assets:
Net operating loss carryforwards 415,600 415,600
-------- -------
Net deferred tax asset 415,600 415,600
Valuation allowance for deferred
tax assets (415,600) (415,600)
--------- --------
$ - $ -
========= ========
The Company's actual effective tax rate for these years is reconciled to the
expected statutory tax rate as follows:
2003 2002
--------- ---------
Expected Federal statutory tax
(benefit) rate (34.00)% (34.00)%
Expected state tax (benefit) rate,
net of Federal tax (3.60)% (3.60)%
---------- -----------
Expected combined statutory tax rate (37.60)% (37.60)%
Valuation allowance for deferred
tax assets 37.60 % 37.60 %
---------- -----------
Effective income tax rate 0.00 % 0.00 %
========== ===========
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The terms of the Company's original agreement under which it acquired its
patents for the Needle-Ease(TM) technology requires it to pay $.17 per licensed
product it sells with a minimum payment of $16,666 annually.
PART II
ITEM 1. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of November 30, 2003, there were 86 record owners of the Company's
common stock. As of November 30, 2003 the Company's common stock was not
publicly traded.
Holders of common stock are entitled to receive dividends as may be
declared by the Board of Directors and, in the event of liquidation, to share
pro rata in any distribution of the Company's assets after payment of
liabilities. The Board of Directors is not obligated to declare a dividend. The
Company has not paid any dividends and does not have any current plans to pay
any dividends.
ITEM 2. LEGAL PROCEEDINGS
In September 2003 Erika Gardner commenced a civil action in the Supreme
Court of British Columbia against Travelshorts.com, Inc., the president of
Travelshorts and the Company. In her complaint Gardner alleges that Travelshorts
and/or Fielder are liable to Gardner for a loan in the amount of approximately
$250,000 (USD), and that Fielder and the Company failed to deliver approximately
8,000,000 shares of the common stock of Travelshorts which were to be held by
Gardner as security for the loan. As part of this civil action Gardner also
obtained an order from the British Columbia Court which, among other things,
restrained Fielder and the Company from selling, transferring or voting any
shares of Travelshorts which they owned.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following shows all shares of the Company's common stock which were
issued during the past three years.
Name Date Shares Consideration
---------- ------- ------ -------------
Dennis Wilhelm 4/20/00 2,222 $ 3,333
Charles Evans 4/21/00 10,000 Services rendered
John Cooper 4/21/00 10,000 Services rendered
Walter Martin 6/12/00 100,000 $150,000
John Cooper 6/12/00 10,000 Services rendered
Name Date Shares Consideration
---------- ------- ------ -------------
David Bauer 11/30/00 978 $ 1,467
Paul Bauer 11/30/00 4,444 $ 6,666
Robert Bauer and
Georgetta Mazilu 11/30/00 1,333 $ 1,999.50
John Bauer and
Ruth Bauer 11/30/00 2,222 $ 3,333
Willi Bauer and
Helen Bauer 11/30/00 6,667 $10,000
Michael Bellai and
Sandra Bellai 11/30/00 2,222 $ 3,333
Anthony Bezpaly 11/30/00 1,111 $ 1,666.50
Leanne Bezpaly 11/30/00 667 $ 1,000.50
Joe Bezpaly 11/30/00 444 $ 666
Kenneth Bovaird 11/30/00 2,222 $ 3,333
Stephen Bradley and
Toni Bradley 11/30/00 4,444 $ 6,666
Brailin Investments Ltd. 11/30/00 4,444 $ 6,666
George Brown 11/30/00 4,444 $ 6,666
Seth Catton and
Lianne Catton 11/30/00 444 $ 666
Kathryn Childerhose 11/30/00 4,444 $ 6,666
Scott Childerhose 11/30/00 3,333 $ 4,999.50
Don Clark 11/30/00 1,778 $ 2,667
Dwayne Cormier and
Carolyn Cormier 11/30/00 2,222 $ 3,333
Glenn Duyvestyn and
Virginia Duyvestyn 11/30/00 1,467 $ 2,200.50
Name Date Shares Consideration
---------- ------- ------ -------------
Lina Finoro 11/30/00 2,889 $ 4,333.50
Peter Grivich and Joanne
Grivich 11/30/00 667 $ 1,000.50
Paul Golden 11/30/00 2,222 $ 3,333
John Hacket 11/30/00 444 $ 666
Jeff Hannon 11/30/00 1,400 $ 2,100
Tony Henhoeffer 11/30/00 2,222 $ 3,333
Earl Hunter and
Margaret O'Connell 11/30/00 2,222 $ 3,333
Andrew Janik and
Theresa Janik 11/30/00 1,333 $ 1,999.50
Kinsman's 11/30/00 6,500 $ 9,750
Craig Labaune 11/30/00 1,111 $ 1,666.50
John Lind 11/30/00 3,778 $ 5,667
William Little and
Susan Little 11/30/00 4,444 $ 6,666
Chad McCullough 11/30/00 1,333 $ 1,999.50
Kelly McInnes 11/30/00 444 $ 666
Ken Mohr and Marjorie
Mohr 11/30/00 1,000 $ 1,500
Robert Murovec and
Christine Murovec 11/30/00 1,111 $ 1,666.50
Alvin Penner 11/30/00 1,000 $ 1,500
Carlo Pica and Silvia Pica 11/30/00 978 $ 1,467
George Valamparampil 11/30/00 2,000 $ 3,000
Name Date Shares Consideration
---------- ------- ------ -------------
Jamie Zielke 11/30/00 2,000 $ 3,000
Charles Evans 11/30/00 20,000 Services rendered
Riad Daoud 11/30/00 66,666 $100,000
Michael and Sandra Bellai 11/30/00 889 $ 1,333.50
Financial Concept Group 11/30/00 4,444 $ 6,666
Jose Marco Molina 11/30/00 400 $ 600
Carlo Pica 11/30/00 2,222 $ 3,333
Brian Voll 11/30/00 8,889 $ 13,334
John Bauer and
Georgetta Mazilu 11/30/00 444 $ 666
Roy Decaire 12/31/00 50,000 Services rendered
Clarence Debelle 12/31/00 10,000 Services rendered
Aaron Van Pykstra 12/31/00 100,000 Services rendered
Wallis W. Wood 5/15/01 5,000 $ 10,000
Jack P. Rutherford 5/15/01 50,000 $100,000
James L. Hostetler 5/15/01 12,500 $ 25,000
Kelly Fielder 10/24/01 1,500,000 $ 15,000
These shares were all issued to non-U.S. persons who reside outside of the
United States. The negotiations and agreements relating to the issuance of these
shares were made by the Company's President (who is a Canadian citizen) from the
Company's offices in Vancouver, British Columbia. The shares were restricted
from resale in the public markets for a period of one year from the date of
their issuance. During the one-year period following the date of their issuance
none of these shares were transferred.
Although these shares were not technically issued in accordance with
Regulation S, these shares were nevertheless exempt from the registration
requirements of the Securities Act of 1933 by virtue of Release 4708, which was
the predecessor to Regulation S.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law and the Company's bylaws require the
Company to indemnify its directors and officers. Under these provisions, when an
individual in his or her capacity as an officer or a director is made or
threatened to be made a party to any suit or proceeding, the individual may be
indemnified if he or she acted in good faith and in a manner reasonably believed
to be in or not opposed to our best interest. The Company's bylaws further
provide that this indemnification is not exclusive of any other rights to which
the individual may be entitled. Insofar as indemnification pursuant to the
Company's bylaws or otherwise may be permitted to our directors and officers for
liabilities arising under the securities laws, we have been advised that in the
opinion of the Securities and Exchange Commission this type of indemnification
is against public policy and is, therefore, unenforceable.
PART III
ITEMS 1 AND 2. INDEX AND DESCRIPTION OF EXHIBITS
Exhibit No. Description Page No.
----------- ----------- --------
3.1 Certificate of Incorporation (as amended) ____
3.2 Bylaws ____
10.1 License and Technical Assistance Agreement ____
10.2 Asset Purchase Agreement ____
SPECTRUM MEDITECH, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002
AND DECEMBER 31, 2001
SPECTRUM MEDITECH, INC.
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants 3
Balance Sheets 4
Statements of Operations 5
Statements of Changes in Shareholders' Equity 6
Statements of Cash Flows 7
Notes to Financial Statements 8 - 13
Spicer, Jeffries LLP
Certified Public Accountants
5251 SOUTH QUEBEC STREET, SUITE 200
GREENWOOD VILLAGE, COLORADO 80111
TELEPHONE: (303) 753-1959
FAX: (303) 753-0338
www.spicerjeffries.com
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Spectrum Meditech, Inc.
We have audited the accompanying balance sheets of Spectrum Meditech, Inc. as of
December 31, 2002 and December 31, 2001, and the related statements of
operations, changes in shareholders' equity, and cash flows for the years then
ended. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Spectrum Meditech, Inc. as of
December 31. 2002 and December 31, 2001, and the results of its operations and
its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Spicer, Jeffries LLP
Denver, Colorado
November 7, 2003
SPECTRUM MEDITECH, INC.
(A Development Stage Company)
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
September December December
30, 2003 31, 2002 31, 2001
---------- -------- --------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 509 $ 763 $ 485
Accounts receivable, net (Note 2) - - -
Due from related party (Note 2) 64,100 66,500 -
------- ------ -------
Total current assets 64,609 67,263 485
OTHER ASSETS - Patent (Note 2) 16 19 23
------ ------ -------
TOTAL ASSETS $ 64,625 $ 67,282 $ 508
======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 82,883 $ 70,383 $ 47,750
Due to related party (Note 2) 78,473 78,473 -
------- ------- --------
TOTAL LIABILITIES 161,356 148,856 47,750
-------- ------- --------
COMMITMENTS AND CONTINGENCIES (Note 5) - - -
SHAREHOLDERS' DEFICIT (Note 3):
Cumulative convertible preferred stock,
$.01 par value, 1,000,000 shares
authorized, none issued - - -
Common stock, $.01 par value, 10,000,000
shares authorized, 6,684,473 shares issued
and outstanding 66,845 66,845 66,845
Additional paid-in capital 1,472,354 1,472,354 1,472,354
Deficit (1,635,930) (1,620,773) (1,586,441)
---------- --------- ----------
TOTAL SHAREHOLDERS' DEFICIT (96,731) (81,574) (47,242)
---------- -------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 64,625 $ 67,282 $ 508
========== ========= =========
SPECTRUM MEDITECH, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
[Enlarge/Download Table]
For the Period
Nine Months From Inception
Ended Year Ended Year Ended June 1, 1998
September 30, December 31, December 31, through
2003 2002 2001 September 30, 2003
------------ ----------- ------------ --------------------
(Unaudited)
REVENUES $ - $ 9,081 $ 14,903 $ 74,391
---------- --------- ---------- ---------
OPERATING EXPENSES:
Royalties 12,500 16,666 16,666 65,998
Professional and consulting fees 2,500 26,160 177,543 727,843
Stock compensation expense - - 238,400 238,400
Travel - - 74,569 210,224
Product development costs and
supplies - - 41,399 108,434
Other general and administrative 154 583 49,041 348,882
Depreciation and amortization 3 4 5,938 10,540
------ ------ ------- --------
Total operating expenses 15,157 43,413 603,556 1,710,321
------- ------- -------- ---------
NET INCOME (LOSS) BEFORE INCOME TAXES (15,157) (34,332) (588,653) (1,635,930)
======== ======== ========= ===========
BASIC AND DILUTED NET INCOME (LOSS)
PER COMMON SHARE (Note 1):
Basic and Diluted $ (0.00) $ (0.01) $ (0.11)
======== ======== =========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
Basic and Diluted 6,684,473 6,684,473 5,438,959
========== ========== =========
SPECTRUM MEDITECH, INC.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Common Stock Additional
$.001 Paid In
Shares Par Capital Deficit
--------- --------- -----------------------
BALANCES, Inception, June 1, 1998 - - - -
Share issued for cash 1 100 - -
------ ----- ----- -----
BALANCES, December 31, 1998 1 100 - -
Common share cancelled (1) (100) -
Shares issued:
For cash, $.01 per share 2,000 20 -
For services, $.01 per share 2,401,902 24,019 -
For development costs, $.01
per share 1,924,467 19,245 14
Net loss - - - (270,705)
-------- ------ ----- ---------
BALANCES, December 31, 1999 4,328,369 43,284 14 (270,705)
Shares issued:
For cash, $1.50 per share 274,604 2,746 409,161
For services, $1.12 per
share 214,000 2,140 238,400
For development costs, $.01
per share 300,000 3,000 -
Net loss - - - (727,083)
------ ----- -------- ---------
BALANCES, December 31, 2000 $ 5,116,973 $51,170 $647,575 $(997,788)
Sale of common shares, $2.00 per
share, net 67,500 675 123,525
Employee stock option compensation
expense 238,400
Exercise of options, $.01 per
share 1,500,000 15,000 -
Shareholder assumption of
liabilities 462,854
Net loss - - - (588,653)
------- ----- ------- ---------
BALANCES, December 31, 2001 6,684,473 66,845 1,472,354 (1,586,441)
Net loss - - - (34,332)
--------- ------ --------- ---------
BALANCES, December 31, 2002 6,684,473 66,845 1,472,354 (1,620,773)
Net loss - - - (15,157)
--------- ------ --------- ---------
BALANCES, September 30, 2003 6,684,473 66,845 1,472,354 (1,635,930)
(Unaudited) ========= ======= ========= ==========
SPECTRUM MEDITECH, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
[Enlarge/Download Table]
For the Period
Nine Months From Inception
Ended Year Ended Year Ended June 1, 1998
December 31, December 31, December 31, through
2003 2002 2001 December 31, 2002
------------ ----------- ------------ --------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (15,157) $ (34,332) $ (588,653) $ (1,635,930)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 3 4 5,938 10,540
Stock compensation expense - - 238,400 525,218
(Increase) decrease in accounts
receivable - - 30,093 -
(Decrease) increase in prepaid expenses - - 1,023 -
Increase (decrease) in accounts payable 12,500 22,633 (30,227) 82,883
------- ------- -------- -------
Net cash provided by (used
in) operating activities (2,654) (11,695) (343,426) (1,017,289)
------- -------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - - - (26,408)
Purchase of patents - - - (34)
Net cash provided by investing
activities - - - (26,442)
------- -------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from (to) related party 2,400 (66,500) - (64,100)
Advance from related party 78,473 203,017 557,213
Sale of common shares, net - - 139,200 551,127
------- -------- --------- -----------
Net cash provided by
financing activities 2,400 11,973 342,217 1,044,240
------- -------- --------- -----------
NET INCREASE (DECREASE) IN CASH (254) 278 (1,209) 509
CASH, beginning of year 763 485 1,694 -
------- -------- --------- -----------
CASH, end of year $ 509 $ 763 $ 485 $ 509
======== ======== ========== ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Assumption of liabilities by shareholder,
net of property and equipment transferred $ - $ - $ 462,854 $ 462,854
======== ======== ========== ==========
SPECTRUM MEDITECH, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
(continued)
NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business
Spectrum Meditech, Inc., "Company", a Delaware corporation, was incorporated
June 18, 1998, and is a development stage company. The Company was inactive
until November, 1999, when it acquired certain patents for an invention
(Needle-Ease(TM)) to safely incinerate used needles and hypodermic syringes
using an electrical charge. During 2000 and 2001, it worked to develop and
market this invention but did not achieve any standardized production of units
or significant sales. In November, 2001, the Company entered into an exclusive
license agreement with a company controlled by its President and majority
shareholder allowing that company to continue the development of the
Needle-Ease(TM) technology. See Note 4 for additional information.
The accompanying financial statements are presented in contemplation that the
Company will continue as a going concern. However, its activities to date have
resulted in accumulated losses of $(1,365,195) and a working capital deficiency
of $(66,845) at December 31, 2002. There is substantial doubt as to the
Company's ability to meet its current obligations or achieve profitable
operations with additional financing. The financial statements do not give
effect to any adjustments which would be necessary should the Company be unable
to continue as a going concern and therefore be required to realize its assets
and discharge its liabilities in the normal course of business at amounts
different from those reflected in the financial statements.
Use of Estimates
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 of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as the reported amounts of revenue and expenses
during the period. Actual results could differ from those estimates and such
differences could be material to the financial statements.
Cash Equivalents
For purposes of reporting cash and cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
Accounts Receivable
The Company uses the allowance method to provide for uncollectible accounts.
Under this method, estimated bad debts are recorded as an allowance when
accounts receivable are recognized and actual write offs of uncollectible
accounts are charged to the allowance.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets. Normal maintenance and repair costs that do not extend the
useful life of the related asset are expensed as incurred while significant
betterments to assets are capitalized and depreciated over the remaining useful
life of the asset.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
the recoverability test is performed using undiscounted net cash flows estimated
to be generated by the asset. If such review indicates that the asset is
impaired, the asset's carrying amount is written down to fair value. Long-lived
assets to be disposed of are reported at the lower of carrying amount or fair
value less cost to sell.
NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
Revenues from royalties in connection with the Company's licensing agreement are
recognized as earned based on product sales by the licensee. Revenue from the
sale of products is recognized at the time of shipment.
Advertising Costs
Advertising expenses are charged to operations as incurred without regard to any
expected future benefit. The Company did not incur any direct advertising costs
in 2002 or 2001.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled.
Stock-Based Compensation
In October, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 encourages, but does not require, companies to
record compensation expense for stock-based employee compensation plans at fair
value. The Company has elected to account for its stock-based compensation plans
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" . Under the
provisions of APB No. 25, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's common stock at the
date of grant over the amount an employee must pay to acquire the stock. SFAS
No. 123 does, however, require pro forma disclosure of the fair value
compensation expense that would be recorded if it were adopted. See Note 7 to
these financial statements for such disclosure.
Net Income (Loss) Per Share of Common Stock
Net income (loss) per common share is calculated in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" requiring companies
to report basic and diluted earnings per share. Basic net income per common
share is computed using the weighted average number of common shares issued and
outstanding during the period. Diluted net income per common share is computed
using the weighted average number of common shares issued and outstanding plus
any dilutive potential common shares outstanding during the period. For 2003,
the dilutive potential common shares outstanding were due to the conversion
rights of the Company's preferred stock and all preferred dividends were added
back to net income available to common shareholders in computing diluted
earnings per share. For 2002, any dilutive potential common shares are excluded
from the computations of net loss per share because their effect would be
anti-dilutive.
Business Segments
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" establishes standards for public
enterprises to report information about their operating segments in annual
financial statements. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
operating performance. Management has determined that the Company currently
operates in only one business segment. Therefore, the Company does not have any
separate operating segment information to report other than the amounts
reflected in its financial statements.
NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 requires the disclosure of
fair value of financial instruments. The estimated fair value amounts have been
determined by the Company's management using available market information and
other valuation methods. However, considerable judgment is required to interpret
market data in developing the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The carrying amounts
reported in the consolidated balance sheets were used in estimating fair value
disclosure for cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses and notes payable because of the short maturity of those
instruments. For the long-term portion of notes payable, the Company believes
that the estimated fair value does not vary substantially from the amounts
reported in the consolidated balance sheets due to the effect of the interest
rate.
Research and Development Costs
All costs for research and development related to new products and improvements
to existing products is charged to expense as incurred.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") finalized
Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS
141 requires the use of the purchase method of accounting and prohibits the use
of the pooling-of-interests method of accounting for business combinations
initiated after June 30, 2001. SFAS 141 also requires that the Company recognize
acquired intangible assets apart from goodwill if the acquired intangible assets
meet certain criteria. SFAS 142 requires the Company to reclassify the carrying
amounts of intangible assets and goodwill based on that standard's criteria. It
also requires, among other things, that companies no longer amortize goodwill,
but instead test goodwill for impairment at least annually. In addition, it
requires that the Company identify reporting units for the purposes of assessing
potential future impairments of goodwill, reassess the useful lives of other
existing recognized intangible assets, and cease amortization of intangible
assets with an indefinite useful life. An intangible asset with an indefinite
useful life should be tested for impairment in accordance with the guidance in
that standard. SFAS 142 is required to be applied in fiscal years beginning
after December 15, 2001 to all goodwill and other intangible assets recognized
at that date, regardless of when those assets were initially recognized. It also
required the Company to complete a transitional goodwill impairment test six
months from the date of adoption and to reassess the useful lives of other
intangible assets within the first interim quarter after adoption of SFAS 142.
The adoption of SFAS 141 and SFAS 142 did not have any effect on the Company's
financial position and results of operations.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets", resolving significant implementation issues
related to FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", and superseding the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", for the disposal of a business
segment. SFAS 144 is effective for fiscal years beginning after December 15,
2001, and interim periods within those fiscal years, with early application
encouraged. The adoption of SFAS 144 did not effect the Company's consolidated
financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
This SFAS requires any gain or loss on extinguishments of debt to be presented
as a component of continuing operations (unless specific criteria are met)
whereas SFAS No. 4 required that such gains and losses be classified as an
extraordinary item in determining net income. The adoption of SFAS 145 did not
effect the Company's consolidated financial position or results of operations.
NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements (continued)
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". Such standard requires costs associated with
exit or disposal activities (including restructurings) to be recognized when the
costs are incurred, rather than at a date of commitment to an exit or disposal
plan. SFAS No. 146 nullifies EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". Under the new standard,
a liability related to an exit or disposal activity is not recognized until such
liability has actually been incurred whereas under EITF Issue No. 94-3 a
liability was recognized at the time of a commitment to an exit or disposal
plan. The adoption of SFAS 146 did not effect the Company's financial position
or results of operations.
On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure". This standard amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. This standard also requires prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. See Note 7 for the Company's disclosures under this
standard.
In May, 2003, SFAS 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity", was issued. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. Generally, a financial instrument, whether
in the form of shares or otherwise, that is mandatorily redeemable, i.e. that
embodies an unconditional obligation requiring the issuer to redeem it by
transferring its shares or assets at a specified or determinable date (or dates)
or upon an event that is certain to occur, must be classified as a liability (or
asset in some circumstances). In some cases, a financial instrument that is
conditionally redeemable may also be subject to the same treatment. This
Statement does not apply to features that are embedded in a financial instrument
that is not a derivative (as defined) in its entirety. For public entities, this
Statement is effective for financial instruments entered into or modified after
May 31, 2003. The adoption of SFAS 150 did not effect the Company's financial
position or results of operations.
NOTE 2 - RELATED PARTY TRANSACTIONS
On November 12, 2001, the Company entered into an exclusive licensing agreement
related to its Needle-Ease(TM) patents with a company controlled and operated by
its President, Sharps Elimination Technologies, Inc. (SETI). The agreement
provides that SETI has worldwide rights to market and sell products using the
licensed technology, to use the Needle-Ease(TM) trademarks and tradenames and to
otherwise develop and exploit the technology. The Company was to receive a cash
payment of $300,000 by April 30, 2003 (subsequently extended to September 30,
2003), was issued 800,000 common shares of SETI and is to receive a royalty of
$3.25 per "licensed product" sold under the agreement, with a minimum royalty of
$100,000 due annually beginning in 2004. In addition, SETI agreed to assume
approximately $486,000 of the Company's liabilities consisting primarily of
advances payable to its President and the Company transferred its production and
office equipment with a net book value of $15,886 to SETI. At the time of the
agreement, SETI was a development stage company with no revenues or substantial
operations and did not have the ability to pay the agreed amounts. No amounts
have been paid under the agreement and SETI has not achieved production or sales
of products using the Needle-Ease(TM) technology.
Accordingly, a valuation allowance for the full amount of the account receivable
of $300,000 for the initial payment due under the licensing agreement has been
recorded by the Company. The common shares of SETI received had no fair value.
The assumption of liabilities by SETI net of the production and office equipment
transferred has been recorded as a contribution to the Company's additional paid
in capital as the entities are under common control and the transaction cannot
be determined to be at arms length.
NOTE 2 - RELATED PARTY TRANSACTIONS (continued)
The Company has received various advances totaling $78,473 from the licensee of
its patent technology which are non interest bearing and have no specified due
date. In addition, it has made various advances to a company controlled by its
President and majority shareholder totaling $66,500 at December 31, 2002, which
are also non interest bearing and have no specified due date.
NOTE 3 - SHAREHOLDERS' EQUITY
In May, 2001, the Company sold 67,500 shares of its common stock for $135,000
cash. In October, 2001, it issued 1,500,000 shares of its common stock pursuant
to the exercise of stock options held by its President for $15,000 cash.
Stock Options and Warrants
In May, 2001, the Board of Directors adopted an employee stock option plan to
grant options qualified as "incentive stock options" under the Internal Revenue
Code generally allowing grantees to defer taxable income until the shares
acquired through the exercise of such options is sold. The plan provides that
qualified options for a total of 500,000 common shares may be issued. There were
no grants under this plan for the years ended December 31, 2002 and 2001. In
addition, the Company's Board of Directors grants non-qualified options for the
purchase of its common shares on a discretionary basis. In May, 2001, the Board
granted such options for a total of 160,000 common shares at an exercise price
of $.01 per share. As this exercise price was less than the current $1.50 per
share fair value of the Company's common shares, stock compensation expense of
$238,400 was recorded.
The following table summarizes the activity for all options for each year end
indicated.
Exercise Weighted Weighted
Price Average Average Years
Options Range Exercise Remaining
Price Life
-----------------------------------------------
Balances at December 31,
2000 3,600,000 $ 0.01 $ 0.01 1.2
Granted 160,000 $ 0.01 $ 0.01 =====
Exercised / Expired (1,500,000) $ 0.01 $ 0.01
----------- ------- ------
Balances at December 31,
2001 2,260,000 $ 0.01 $ 0.01 0.8
=====
Granted - - - -
Exercised/Expired (2,100,000) $ 0.01 $ 0.01
----------- ----- ----
Balances at December 31,
2002 160,000 $ 0.01 $ 0.01 8.4
========== ===== ===== ====
NOTE 4 - INCOME TAXES
At December 31, 2002, the Company had an unused net operating loss carryforward
of approximately $(1,125,000) for income tax purposes, expiring in the years
2014 through 2017. However, the ability to utilize such losses to offset future
taxable income is subject to various limitations imposed by the rules and
regulations of the Internal Revenue Service. The net operating loss
carryforwards may result in future income tax benefits of approximately
$423,000; however, because realization is uncertain at this time, a valuation
reserve in the same amount has been established. During 2002 and 2001, the
valuation allowance increased approximately $5,000 and $47,000 respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the treatment of revenues and expenses for financial reporting purposes
and the amounts used for income tax purposes.
NOTE 4 - INCOME TAXES (continued)
The significant components of the Company's deferred tax assets and liabilities
as of December 31, 2002 and 2001 are presented in the following table:
2002 2001
---------- -----------
Deferred tax liabilities: $ - $ -
Deferred tax assets:
Net operating loss carryforwards 415,600 415,600
------- --------
Net deferred tax asset 415,600 415,600
Valuation allowance for deferred
tax assets (415,600) (415,600)
--------- ---------
$ - $ -
========= ========
The Company's actual effective tax rate for these years is reconciled to the
expected statutory tax rate as follows:
2003 2002
---------- -----------
Expected Federal statutory tax
(benefit) rate (34.00)% (34.00)%
Expected state tax (benefit) rate,
net of Federal tax (3.60)% (3.60)%
---------- -----------
Expected combined statutory tax rate (37.60)% (37.60)%
Valuation allowance for deferred
tax assets 37.60 % 37.60 %
--------- ---------
Effective income tax rate 0.00 % 0.00 %
========== ===========
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The terms of the Company's original agreement under which it acquired its
patents for the Needle-Ease(TM) technology requires it to pay $.17 per licensed
product it sells with a minimum payment of $16,666 annually.
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPECTRUM MEDITECH, INC.
(Registrant)
By: /s/ Kelly Fielder
-----------------------------
Date: December 31, 2003 Kelly Fielder, President,
Chief Executive Officer and
Chief Financial Officer
Dates Referenced Herein and Documents Incorporated by Reference
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