Amendment to Annual Report — Small Business — Form 10-KSB
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10KSB/A Annual Report 51 223K
2: EX-10.2 Employment Agreement 10 40K
3: EX-10.3 Promissory Note 7 25K
4: EX-10.4 Letter of Intent 2 11K
5: EX-31.1 Rule 13A-14(A)/15D-14(A) Certification of CEO 2± 10K
6: EX-31.2 Rule 13A-14(A)/15D-14(A) Certification of CFO 2± 10K
7: EX-32 Section 1350 Certifications 1 7K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB/A
Amendment No. 1
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2002
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ___________________.
Commission File No. 333-42936
DND TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
--------------------------------------
Nevada 84-1405298
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
375 E. Elliot Rd., Bldg. 6
Chandler, Arizona 85225
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (480) 892-7020
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
|X| Yes |_| No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
The issuer's total revenues for the fiscal year ended December 31, 2002
were $5,371,933.
As of January 21, 2004, there were 23,000,000 outstanding shares of the
issuer's common stock, par value $0.001 per share ("Common Stock"), which is the
only class of common stock of the issuer. As of January 21, 2004, the aggregate
market value of the shares of Common Stock held by non-affiliates of the issuer,
computed based on the closing bid price of the Common Stock as quoted on the OTC
Bulletin Board, was approximately $255,000.
Documents Incorporated by Reference
None.
Transitional Small Business Disclosure Format: |_| Yes |X| No
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TABLE OF CONTENTS
Page
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PART I.........................................................................1
Item 1. Business..............................................................1
Item 2. Properties............................................................7
Item 3. Legal Proceedings.....................................................7
PART II........................................................................7
Item 5. Market for Common Equity and Related Stockholder Matters..............7
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................9
Item 7. Financial Statements.................................................18
PART III......................................................................18
Item 10. Executive Compensation...............................................18
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters...........................18
Item 13. Exhibits, Financial Statements and Reports on Form 8-K...............19
Item 14. Controls and Procedures..............................................20
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES..................................F-1
Report of Independent Auditors...............................................F-1
EXPLANATORY NOTE
This amendment on Form 10-KSB/A amends Items 1, 2 and 3 of Part I, Items
5, 6 and 7 of Part II and Items 10 and 11 of Part III of the Annual Report of
DND Technologies, Inc. (the "Company") on Form 10-KSB previously filed for the
year ended December 31, 2002. The purpose of this amendment is to clarify and
expand certain disclosures in the amended Items. Except where the context
indicates otherwise, this amendment speaks as of April 15, 2003, the filing date
of the original Form 10-KSB. While minor changes have been made to the financial
statements and notes, the Company's previously issued financial statements for
the year ended December 31, 2002 have not been restated.
PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, "DND", "Company", "we", "us" and
"our" refer to DND Technologies, Inc., and its subsidiaries combined.
Overview
DND Technologies, Inc., a Nevada corporation ("DND"), began operations
under the name "DND Technologies, Inc." on August 2, 2002, following the merger
of Zurickirch Corp., a Nevada corporation ("Zurickirch"), with Aspect Semiquip
International, Inc., an Arizona corporation ("ASI"). Zurickirch was incorporated
in Nevada on May 9, 1997 as Weston Caribbean Corp. On March 9, 2000, the name
was changed to Zurickirch Acquisitions, Inc. and on April 17, 2000, the name was
changed to Zurickirch Corp. The merger was effected through an Agreement & Plan
of Reorganization, under the terms of which DND exchanged 18,000,000 shares of
its common stock for all of the issued and outstanding shares of ASI. At the
time of this stock exchange, Douglas Dixon, CEO of DND, as the sole shareholder
of ASI, owned 18,000,000 shares of DND following the mergers, with 4,000,000 DND
shares held by others following the merger. Following the merger, ASI became a
wholly-owned subsidiary of DND. DND, through ASI, provides proprietary capital
equipment to the manufacturers of computer chips, and is a manufacturer and
supplier of wholesale parts and contract services to the semiconductor industry.
ASI, incorporated in Arizona in 1990, is a supplier of semiconductor
equipment and equipment renovation programs currently providing new and used Lam
Research Corp. AutoEtch and Drytek plasma etch systems. ASI also offers new and
refurbished support equipment for etch products, including assemblies,
consumables and chillers (refrigeration units that pump coolant through
equipment to regulate internal temperature), along with repair parts, and a
variety of refurbished temperature controllers (originally manufactured by Lam
Research Corp., Neslab and M&W). ASI also provides engineering services, field
support and training for customers using our tool technologies. In March of
2001, ASI, then named Aspect Systems, Inc., merged with Semiquip, Inc. Semiquip,
based in Texas, is a supplier of reconditioned assemblies and a provider of
service programs specific to major original equipment manufacturer ("OEM")
semiconductor fabrication equipment, used to manufacture computer chips and
other semiconductor devices. ASI has a website under construction, located at
http://www.aspectsemiquip.com, and a temporary website, which is designed to
briefly describe our products and services during the construction of our
website, located at http://semiconductor-technology.com/contractors/wafer/
8aspects/index.html.
Since 1990, ASI has provided a cost effective alternative to purchasing
new etch systems, which utilize a dry-plasma process to "etch" wafers, by
supplying second tier Lam Research Corp. ("Lam") remanufactured etch systems and
replacement parts. In addition to providing the capital equipment, ASI provides
warranties, installation, and after-sales technical support. Although ASI
primarily supplies Lam systems and replacement parts, ASI also provides
replacement parts manufactured by other OEMs, such as Applied Materials and
Tokyo Electron. In addition, ASI provides engineering services to assist
customers with designing processes, repairing or reconfiguring equipment and
optimizing the performance of their equipment.
On January 31, 2003, DND signed a non-binding letter of intent to acquire
ESL Elektronik Handels GmbH ("ESL"), organized in Germany, a developer,
manufacturer and servicer of semiconductor and related equipment. The letter of
intent anticipates that DND would acquire ESL through an exchange of up to
3,200,000 DND shares for 100% ownership of ESL. Negotiations between DND and ESL
have been suspended pending a resolution of DND's lawsuit with Merrill Lynch
Business Financial Services, Inc., described below. Management cannot currently
estimate when negotiations will resume, if ever, or when the acquisition will
occur, and cannot provide any assurance that the acquisition will ever be
consummated. DND intends to engage in future acquisitions when appropriate to
expand our range of products and services.
Our Operating Subsidiary
Organized in 1990, our operating subsidiary ASI manufactures, assembles,
markets and services semiconductor wafer fabrication equipment for the worldwide
semiconductor industry. Customers for ASI's products include semiconductor wafer
manufacturers and semiconductor integrated circuit (or chip) manufacturers,
which either use the chips they manufacture in their own products or sell them
to other companies for use in advanced electronic components.
In 2002, ASI began manufacturing a proprietary product known as the
"Nitrogen Clean System" ("NCS"), which provides superior cleaning of wafer
fabrication equipment as compared to existing high efficiency particulate
arresting ("HEPA") filtration devices. One of our customers, Texas Instruments,
field-tested our NCS against competing models and elected to purchase our NCS.
The superior cleaning ability of the NCS reduces contamination of wafers and
increases the yield obtained from each wafer. This equipment provides in situ
continuous cleaning of the reaction chamber that reduces particulates thereby
greatly extending the uptime between required equipment cleaning cycles. The NCS
is adaptable to work with etch or chemical vapor deposition equipment producing
any wafer size. We sold and installed our first NCS in 2002, and, as of April
10, 2003, we had approximately nine installed units, all sold to Texas
Instruments. The technology underlying the NCS is partially protected by two
issued patents that we hold jointly with Air Products and Chemicals, Inc. We
believe that the NCS provides important diversification of our business by
providing a proprietary product for us to market.
Chip Industry
Most chips are built on a silicon wafer base and include a variety of
circuit components, such as transistors and other devices, that are connected by
multiple layers of wiring (interconnects). As the density of the circuit
components is increased to enable greater computing power in the same or smaller
area, the complexity of building the chip also increases, necessitating the
formation of smaller structures and more intricate wiring schemes. To build a
chip, the transistors, capacitors and other circuit components are first created
on the surface of the wafer by performing a series of processes to deposit and
remove selected film layers. Similar processes are then used to build the layers
of wiring structures on the wafer. A typical, simplified process sequence for
building the wiring portion of copper-based chips involves initially depositing
a dielectric film layer onto the base layer of circuit components using a
chemical vapor deposition (CVD) system. An etch system is then used to create
openings and patterns in the dielectric layer. We sell the second generation
machines that etch the dielectric layer. To form the metal wiring, openings and
patterns etched in the dielectric layer are subsequently filled with conducting
material using physical vapor deposition (PVD) and/or electroplating
technologies. A chemical mechanical polishing (CMP) step then polishes the wafer
to maintain a flat surface. Additional deposition, etch and CMP steps are then
performed to build up the layers of wiring needed to complete the
interconnection of the circuit elements to form the chip. Advanced chip designs
require about 500 steps involving these and other processes to complete the
manufacturing of the wafer.
Throughout its history, the semiconductor industry has migrated to
increasingly larger wafers to build chips, from 25 millimeter (mm), or one-inch,
wafers to 300mm, or 12-inch, wafers. The predominant size for capacity
production today is 200mm, or eight-inch, wafers. To gain the economic
advantages of a larger surface area, however, the industry has begun using 300mm
wafers.
Our Market Niche and Growth Strategy
We provide equipment and parts to a discrete sector in the semiconductor
industry. While most suppliers of capital equipment design, develop, manufacture
and market a complete line of capital equipment, we sell primarily older
generation capital equipment and replacement parts from a variety of
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OEMs. Historically, this approach has allowed us to benefit from downturns in
the economy, but the recent downturn has been so significant that it has
resulted in a glut of older generation equipment and parts on the market. The
semiconductor industry is highly cyclical, and many semiconductor manufacturers
choose to repair older systems, or even purchase complete older generation
systems, rather than buying the latest, more costly equipment in recessionary
environments.
During the past two years, we have been subject to increasing competition
from failing semiconductor manufacturers, which frequently will sell their
capital equipment at a substantial discount upon becoming insolvent. Should the
economy improve, competition from liquidation sales will decrease, although this
decrease may be offset by an increased willingness among manufacturers to
upgrade their equipment to the latest generation products.
Through entry into an asset sale and license agreement with Lam Research
Corporation, a Delaware corporation ("Lam"), in November 2002, we have been able
to obtain a large distribution network for our second generation etch equipment
and a direct relationship with the supplier of that equipment. We intend to
expand our market share further through aggressive marketing of our products and
services, and by entering into contracts with OEMs to distribute their older
generation products.
Our Asset Sale and License Agreement with Lam, dated November 8, 2002,
granted us a non-exclusive license to several of Lam's patents and other
intellectual property, which enables us to sell, import, repair and distribute
products using this licensed intellectual property. To date, we have purchased
equipment for approximately $1.6 million under the Agreement, and we are
required to pay approximately $5,376,000 over 96 months as a royalty for the
licensed intellectual property.
Recent Product Development
We are in the process of developing a new ultra-deep trench etch product,
known as the Crystal 2000 tool, and have applied for patent protection for this
new product. The Crystal 2000 tool is designed to allow etching of 150 mm
wafers, which are used predominately in the micro electronic mechanical systems
(MEMS) market, due to the 150 mm wafers' ability to allow growth of gallium
arsenide crystals. Wafers containing gallium arsenide are used primarily in
research laboratories, and currently Surface Technology Systems dominates this
niche market. With our Crystal 2000 tool, we plan to expand into this niche
market, which we anticipate will provide us with further diversification of our
business.
Additional R&D is required to take the Crystal 2000 beyond prototype and
into the manufacturing stage, at which point we plan to begin manufacturing the
tool in our existing manufacturing facilities. Management intends to wait until
funds become available to complete the development of this tool.
Manufacturing
Our manufacturing operations consist mainly of assembling and testing
components and subassemblies that are then integrated into finished systems.
Most of the assembly and testing of our products is conducted in cleanroom
environments. Prior to shipping a completed system, customer representatives may
perform acceptance tests at our facility. After passing these acceptance tests,
the system is vacuum-bagged in a cleanroom environment and prepared for
shipment.
Certain of the components and subassemblies included in our products are
obtained from a single supplier or a limited group of suppliers. We believe that
alternative sources could be obtained and qualified to supply these products.
Nevertheless, a prolonged inability to obtain certain components could have an
adverse short-term effect on our operating results and could unfavorably impact
our customer relationships.
3
Research and Development Activities
Our R&D expenditures were $24,324 during the 2002 fiscal year, and
$166,243 during the 2001 fiscal year. These expenditures were targeted at
continued development of our NCS and "ultra-deep trench" etch applications, and
enhancements to our existing products.
The market for semiconductor capital equipment is characterized by rapid
technological change and product innovation. Our ability to maintain competitive
advantage depends in part on our ability to maintain our existing relationships
with companies like Lam. Our outsourcing contracts with companies like Lam allow
us to obtain the benefits of newer technologies without having to invest
substantial portions of our revenue into R&D activities.
Semiconductor Industry Background
Over the past twenty years, the semiconductor industry has grown rapidly
as a result of increasing demand for personal computers, the expansion of the
Internet and the telecommunications industry, and the emergence of new
applications in consumer electronics. More recently, growth has slowed, and
there are signs that the industry may be beginning to mature. While unit demand
for semiconductor devices continues to rise, the average selling prices are
declining. There is increasing pressure on chipmakers to reduce manufacturing
costs while increasing the value of their products at the same time. The
semiconductor industry has also been cyclical in nature over its history, with
periods of rapid expansion followed by periods of over-capacity.
Several technological trends characterize semiconductor manufacturing.
Perhaps the most prominent of these trends is increasing density. Moore's Law,
first postulated in the mid-1960s and still accurate almost 40 years later,
states that the density of circuitry on an individual semiconductor chip doubles
every 18 months. Today's advanced devices are being manufactured with line
widths as small as 0.13 micron and with up to eight layers of interconnect
circuitry. By increasing circuit density, manufacturers can pack more electronic
components on a chip and thereby provide higher performance and value. The next
generation of chips will likely see line widths as small as 90 nanometer (0.09
micron) and below, requiring even more sophisticated interconnect wiring to keep
pace.
Another trend worth noting is the transition to copper wiring in place of
aluminum as the primary conductive material in semiconductor devices. Copper has
a lower electrical resistance value than aluminum, and this provides a number of
performance advantages. Because of the superior properties of copper, a chip
made with copper may need only half as many metal layers as one made with
aluminum. This provides a significant reduction in manufacturing cost. In
addition, copper wiring produces a significant improvement in device performance
and a significant reduction in power requirements as compared to aluminum.
A similar transition is underway to low-k dielectric insulators, which are
replacing traditional silicon oxide films. Low-k dielectrics are better at
limiting the capacitance that occurs between metal lines in a device. This
quality is important to the goal of smaller line widths and increasing component
density. However, low-k materials are also less stable than silicon oxide, and
this poses a host of new challenges to the semiconductor industry in pursuing
its goals of increased circuit density and, at the same time, lower cost of
manufacture and higher performance and value of the manufactured product.
Another important trend is the move to larger wafer sizes. Chipmakers are
migrating to larger, 300mm wafers because of the potential manufacturing cost
advantages these larger wafers provide (through the production of more
integrated circuits on each individual wafer) compared to the 200mm wafers that
have been the industry standard for approximately the past ten years.
We supply equipment solely for the 150mm and 200mm markets and not for the
300mm market.
4
Patents and Trademarks
We intend to evaluate any technology we develop on a case-by-case basis
and pursue legal protection for our technology through patent and trade secret
protection where we believe the benefits of such protection outweigh the
associated costs. Most of our technology is not currently patented and most of
our equipment is not proprietary but is remanufactured equipment acquired from
various vendors. Our registered United States patents, which are owned by our
subsidiary, Aspect Systems, Inc., jointly with Air Products and Chemicals, Inc.,
are: "Partial clean fluorine thermal cleaning process," Pat. No. 5,868,852
granted on February 9, 1999 with a term ending in February of 2017, and "Diluted
nitrogen trifluoride thermal cleaning process, "Pat. No. 5,714,011 granted on
February 3, 1998 with a term ending in February of 2015, and relate to our NCS
product. We intend to file additional patent applications as appropriate.
Our subsidiary, ASI, owns the following registered trademark: "ASI Aspect
Systems, Inc." We believe that this trademark is known and recognized within our
market and is valuable to our business. We intend to vigorously enforce all
violations of our trademark as we believe the goodwill associated with it is
important to the development of our business.
Competition
The global semiconductor equipment industry is highly competitive and is
characterized by increasingly rapid technological advancements and demanding
worldwide service requirements. DND's ability to compete depends on its ability
to commercialize its technology and continually improve its products, processes
and services, as well as its ability to market new products that meet constantly
evolving customer requirements. Significant competitive factors for succeeding
in the semiconductor manufacturing equipment market include the equipment's
technical capability, productivity and cost-effectiveness, overall reliability,
ease of use and maintenance, contamination and defect control, and the level of
technical service and support provided by the vendor. The importance of each of
these factors varies depending on the specific customer's needs and criteria,
including considerations such as the customer's process application, product
requirements, timing of the purchase and particular circumstances of the
purchasing decision. The pace of technological change is rapid, with customers
continually moving to smaller critical dimensions and larger wafer sizes and
adopting new materials for use in semiconductor manufacturing. Sometimes,
existing technology can be adapted to the new requirements; however, these
requirements sometimes create the need for an entirely new technical approach.
The rapid pace of technological change continually creates opportunities for
existing competitors and start-ups, and can quickly diminish the value of
existing technologies.
Substantial competition exists for each of DND's products. Competitors
range from small companies that compete with a single product to companies with
a large and diverse line of semiconductor processing products. In addition, we
continue to face competition from insolvent semiconductor manufacturers, which
in the past two years have been selling their capital equipment at reduced
prices as part of their liquidation. Competitors in a given technology tend to
have different degrees of market presence in the various regional markets.
Management believes that DND is a strong competitor and that its competitive
position is based on the ability of its products and services to continue to
address customer requirements on a cost effective basis and provide services in
a timely manner.
Distribution Methods
We sell equipment and aftermarket support, which includes spare parts
sales and technical contract services. In fiscal year 2002, spare parts and
technical services accounted for 70% of our total sales. Of these sales, 80%
occurred in the U.S. and 20% occurred overseas. In the U.S., we market and sell
our products and services directly over the phone, by mail and fax, through
in-person sales calls on potential customers, and at trade shows. The number of
potential customers is limited, as we only sell to manufacturers of computer
chips, and thus we have the resources to handle marketing internally. Our
5
overseas marketing is conducted through marketing representatives in Europe and
Asia that stock spare parts, employ technicians, and call on computer chip
manufacturers in their area.
Sales of equipment are handled similarly, but with the addition of
independent sales representatives in the U.S. who visit potential customers to
market out products, along with other manufacturers' non-competing product
lines.
Marketing, Sales and Service
Our marketing and sales efforts are focused on building long-term
relationships with our customers. These efforts are supported by a team of
product marketing professionals, direct sales personnel as well as equipment and
process engineers, that work closely with individual customers to develop
solutions to their processing needs. After-sales support is an essential element
of our marketing and sales programs. We maintain ongoing support relationships
with our customers and have a network of field service personnel in place
throughout the United States. We believe that comprehensive support programs and
close working relationships with customers are essential to maintaining our
competitiveness in the marketplace.
Suppliers and Customers
Our major supplier is Lam, which accounted for 54% of our inventory in
fiscal year 2002. We have no other significant suppliers, and are able to change
all suppliers other than Lam easily and without material negative effects to our
business. Our customers include many of the world's leading semiconductor
manufacturers including Intel, Texas Instruments, ST Micro, Motorola, National
Semiconductor, and On-Semi. In fiscal years 2002 and 2001, revenue from Texas
Instruments accounted for approximately 31% and 20%, respectively, of total
revenue. We do not have contracts or any other formal relationship with our
customers.
A material reduction in orders from several of our larger customers, due
to market or business conditions in the semiconductor industry could adversely
affect our results of operations and projected financial conditions. Our
business depends upon the capital expenditures of semiconductor manufacturers,
which in turn depend on the current and anticipated market demand for integrated
circuits and products utilizing integrated circuits. Beginning in the first half
of fiscal 2001, a slowing U.S. economy and worldwide decline in demand for
integrated circuits resulted in excess capacity in the semiconductor industry
and a severe contraction of the manufacturing equipment market. Our customers
reduced their level of capital expenditures, which caused a steep decline in
demand for our products in fiscal 2001 and 2002.
Employees
DND currently has two full-time employees, our CEO and our CFO. ASI has
approximately 35 full-time employees, 3 part-time employees and 12 regular
contractors.
Government and Environmental Regulations
Other than minimal environmental regulation, we are not subject to
governmental regulation of our business. We are currently not aware of any
pending notices of violation, fines, lawsuits or investigations arising from
environmental matters that would have any material effect on our business. As we
do no manufacturing, only assembly, of our products, we are subject to a minimal
number of governmental regulations related to the management of hazardous
materials, including disposal of certain fluids and gases as part of the
assembly process. We believe that we are in general compliance with these
regulations and that we have obtained (or will obtain or are otherwise
addressing) all necessary environmental permits to conduct our business. We
currently have arrangements with local and state authorities that permit us to
dispose of these fluids and gases at minimal cost. Nevertheless, the failure to
comply with present or future regulations could result in fines being imposed on
us, suspension of
6
production, cessation of our operations or reduction in our customers'
acceptance of our products. These regulations could require us to alter our
current operations, to acquire significant equipment or to incur substantial
other expenses to comply with environmental regulations. Our failure to control
the use, sale, transport or disposal of hazardous substances could subject us to
future liabilities.
ITEM 2. PROPERTIES
DND, through its subsidiary ASI, currently leases two facilities. ASI's
principal Arizona facility is located at 375 East Elliot Road, Chandler, Arizona
85225. This facility consists of 23,264 square feet of office and warehouse
space on a lease from Teachers Insurance and Annuity Corporation, a New York
corporation, and Elliot Chandler, LLC, an Arizona limited liability company,
that runs through December 31, 2004. ASI's principal Texas facility is located
at 1215 Commerce Drive, Richardson, Texas 75081. This facility consists of
11,643 square feet on a lease from TCIT Dallas Industrial, Inc. that runs
through November 30, 2008. Monthly rental payments for both facilities for the
year ended December 31, 2002 were approximately $30,000. The Company is not
affiliated with any of its lessors. The Company's management believes that all
facilities occupied by the Company are adequate for present requirements, and
that the Company's current equipment is in good condition and is suitable for
the operations involved.
ITEM 3. LEGAL PROCEEDINGS
DND and its subsidiary, ASI, are currently involved in one legal
proceeding, which was described in the Company's Form 8-K filed on January 14,
2003. The suit, Merrill Lynch Business Financial Services, Inc. v. Aspect
Semiquip International, Inc. et al., is currently pending in the United States
District Court for the District of Arizona. At issue in the suit is DND's
default on its $1 million line of credit with Merrill Lynch, and Merrill Lynch
is requesting as relief the amounts due under the line of credit plus interest,
costs and attorney's fees. The complaint was filed on December 18, 2002, and
Merrill Lynch agreed to extend the time for answering into April. DND and the
other defendants filed their answers on April 7, 2003. DND is current on its
payments under the line of credit. DND is engaged in negotiations with Merrill
Lynch for a forbearance agreement to extend the loan for an additional period of
time, although management can provide no assurance that such an agreement will
be reached.
On May 2, 2003, Scott Magoon, a former shareholder and employee of Aspect
Semiquip International, Inc., a subsidiary of DND, filed a complaint in the
Dallas County, Texas court, naming DND Technologies, Inc., Aspect Semiquip
International, Inc., Semiquip, Inc. and Doug N. Dixon as defendants. The
complaint alleges that the defendants defrauded Mr. Magoon and requests, among
other forms of relief, that the court divest DND of its wholly owned subsidiary,
Semiquip, Inc. The action has since been removed to federal district court. If
Mr. Magoon is successful in his claim, it is possible the Company could lose its
Texas operations, which would adversely affect our operations as the Company's
Texas operations account for approximately 33% of the Company's total
operations.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
DND currently has 23,000,000 shares of common stock outstanding.
7
Number of Shareholders
The number of beneficial shareholders of record of the Common Stock of the
Company as of the close of business on April 10, 2003 was approximately 50.
Dividend Policy
To date, the Company has paid no cash dividends on its Common Stock, and
does not expect to pay cash dividends in the near term. The Company intends to
retain future earnings, if any, to provide funds for operation and growth of its
business.
Our common stock is currently traded on the Over the Counter Bulletin
Board ("OTCBB") under the symbol "DNDT.OB." There is limited trading activity in
our securities, and there can be no assurance a regular trading market for our
common stock will be sustained. We began trading on the OTCBB on December 15,
2001. There was no trading activity in our stock from December 15, 2001 until
May of 2002. The following table sets forth, for the periods indicated, the bid
price range of our common stock.
Period Average Low Average High
------ ----------- ------------
Fourth Quarter 2002 $0.02 $0.51
Third Quarter 2002 $0.07 $1.45
Second Quarter 2002 $0.90 $2.05
First Quarter 2002 n/a n/a
Such market quotations reflect inter-dealer prices and are the high bid
and low prices as reflected by the OTCBB, without retail mark-up, markdown or
commissions, and may not necessarily represent actual transactions.
Disclosure of Equity Compensation Plans
[Enlarge/Download Table]
Number of securities to Weighted-average exercise Number of securities
be issued upon exercise price of outstanding remaining available for
of outstanding options, options, warrants and future issuance under
Plan Category warrants and rights (#) rights ($) equity compensation plans
--------------------------- --------------------------- -----------------------------
Equity compensation
plans approved by N/A N/A N/A
shareholders
Equity compensation
plans not approved by N/A N/A N/A
shareholders
Total N/A N/A N/A
Recent Sales of Unregistered Securities
In January 2003, DND issued 1,000,000 common shares to a vendor in
exchange for forgiveness of $160,000 of accounts payable in reliance on the
ss.4(2) exemption from registration for non-public offerings. DND was initially
obligated to register these shares within 120 days of issuance, although this
vendor, in August of 2003, agreed to payment of $15,000 in lieu of registration.
In March 2002, Zurickirch issued, in reliance on the ss.4(2) exemption
from registration for non-public offerings, 3,255,000 shares to John Chris
Kirch, as payment for loans to Zurickirch totaling
8
$50,466. The shares were subsequently cancelled in connection with the
acquisition between Zurickirch and DND.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. In consultation with our Board of Directors and Audit
Committee, we have identified seven accounting policies that we believe are key
to an understanding of our financial statements. These are important accounting
policies that require management's most difficult, subjective judgments.
1. Going Concern
These financial statements are presented on the basis that the Company is
a going concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. The Company has incurred significant operating losses for the
years ended December 31, 2002 and 2001, has negative working capital and a
stockholders' deficit and is in violation of its loan covenants on its line of
credit. These factors raise uncertainty as to the Company's ability to continue
as a going concern.
Management's plans to eliminate the going concern situation include, but
are not limited to, the following:
1 - Restructure the line of credit to allow amortization of the
principal balance.
2 - Obtain additional equity or debt financing from investors.
In addition, the Company completed an agreement with Lam Research
Corporation whereby the Company received inventory, intellectual properties and
support programs of Lam's Auto Etch and Dry Tek models of plasma dry etch
equipment. This agreement should enable the Company to increase its revenues and
operating profits.
2. Revenue Recognition
Product sales - The Companies recognize revenue from product sales when
the goods are shipped and title passes to its customers.
Service income - The Companies recognize revenue from service income when
services are performed and completed.
3. Accounts Receivable
Accounts receivable are reported at the customers' outstanding balances
less any allowance for doubtful accounts. Interest is not accrued on overdue
balances. The Company's subsidiary, Aspect Semiquip International, Inc.
("A.S.I."), does require advance payments on certain orders of its larger
systems.
4. Allowance for Doubtful Accounts
The allowance for doubtful accounts on accounts receivable is charged to
income in amounts sufficient to maintain the allowance for uncollectible
accounts at a level management believes is adequate to cover any probable
losses.
9
5. Inventories
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Cost includes raw materials, labor and
manufacturing overhead.
6. Income Taxes
Provisions for income taxes are based on taxes payable or refundable for
the current year and deferred taxes on temporary differences between the amount
of taxable income and pretax financial income and between the tax basis of
assets and liabilities and their reported amounts in the financial statements.
Deferred tax assets and liabilities are included in the financial statements at
currently enacted income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or settled as
prescribed in FASB Statement No. 109, Accounting for Income Taxes. As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
7. Property and Equipment
Depreciation is provided for by the accelerated and straight-line methods
over the following estimated useful lives:
Office furniture, fixtures and equipment 5-7 Years
Leasehold improvements 3-15 Years
Machinery and equipment 7 Years
Laboratory tools 7 Years
Vehicles 5 Years
8. Warranty Reserve
A.S.I. provides a reserve on its Chiller and Auto Etch systems to cover
anticipated repairs or replacement. The Company provides a warranty on its
systems ranging from 90 days to six months from date of sale.
9. Reclassifications
Certain 2001 amounts have been reclassified to conform with 2002
presentations.
Results Of Operations
Following is summary financial information reflecting our operations for
the periods indicated:
Year ended December 31,
2002 2001
---- ----
Net revenue $ 5,371,933 $ 8,102,843
Cost of revenue $ 4,274,479 $ 6,137,258
Gross profit $ 1,097,454 $ 1,965,525
Operating expenses $ 2,377,428 $ 3,339,304
(Loss) from operations ($1,279,974) ($1,373,779)
Net (loss) ($1,460,477) ($1,448,538)
The year ended December 31, 2002 compared to the year ended December 31, 2001.
Revenues. Our revenue from operations for the year ended December 31, 2002
were $5,371,933, as compared to revenues of $8,102,843 for the year ended
December 31, 2001, a 34% decrease. We
10
believe one of the reasons for the decrease was a severe decrease in the
purchase of capital equipment in our industry. During the year ended December
31, 2002, the majority of our revenue was generated from sales of replacement
parts as compared to the year ended December 31, 2001 when the revenue was a mix
of capital equipment sales and replacement parts. We also believe the reason for
the decrease in our revenues was due to the general decline in the economy of
the United States, which we believe has had an adverse effect on discretionary
consumer spending.
Cost of Revenues. Our cost of revenues of $4,274,479 (80% of revenues) in
the year ended December 31, 2002 decreased from $6,137,258 (76% of revenues) for
the year ended December 31, 2001. The decrease in dollars is related to the
corresponding decrease in sales experienced in 2002. The increase of 4% in the
percentage of cost of revenues to total revenues is primarily a result of
writing off obsolete inventories.
Selling, General and Administrative Expenses. Selling and marketing
expenses decreased from $1,041,673 (13% of revenues) in 2001 to $648,799 (12% of
revenues) in 2002. The decreased dollars are due to layoffs of sales personnel
due to the declining sales. General and administrative expenses decreased from
$2,131,388 in 2001 to $1,704,305 in 2002. The decrease in expenses is attributed
to the reduction in staff and expenses at both subsidiaries due to the declining
sales.
Interest Expense. Interest expense increased 103% to $171,593 in the year
ended December 31, 2002 from $84,704 in the year ended December 31, 2001. The
increase in interest is a result of our inability to reduce the principal
balance of debt during the year ended December 31, 2002.
Income Tax Expense. Income tax expense increased 30% to $11,500 in the
year ended December 31, 2002 from $8,860 in the year ended December 31, 2001.
The increase in income tax is a result of the subsidiary's taxable income for
Texas Franchise Tax purposes.
Liquidity
Our liquidity has been negatively impacted by the decline in sales
revenues we experienced during the year ended December 31, 2002. We attribute
this decline in revenues primarily to the general decline in the economy of the
United States, which we believe has driven down discretionary spending by
consumers. As a result, consumers are purchasing fewer products in the computer
and semiconductor industries.
To date, we have financed our operations with cash from our operating
activities, a bank line of credit and a new loan for $200,000. This new loan for
$200,000 was made by Jean Charles Cartier in October of 2002, with a
twelve-month term and at an interest rate of 1% per month. Mr. Cartier also
received warrants to acquire 200,000 shares at $0.20 per share and 200,000
shares at $1.00 per share.
Our bank line of credit with Merrill Lynch Business Financial Services,
Inc. matured on April 1, 2002. Interest accrued at Libor plus 2.75% with an
effective rate of 6.13% at December 31, 2002. The note is secured by a first
lien on certain assets that amounted to approximately $5,000,000 at September
30, 2003 and has been personally guaranteed by the majority shareholder. The
note contains numerous loan covenants that we are not in compliance with. As of
the date of this report, we have not received waivers on the covenants and are
working with Merrill Lynch to renegotiate the note and establish a repayment
plan for the loan. The balance on the line of credit and a term loan, including
accrued interest, at September 30, 2003 was $1,136,742. Merrill Lynch filed a
lawsuit against us in connection with our default on the line of credit in
December of 2002. Should Merrill Lynch successfully foreclose on its line of
credit, Merrill Lynch could take all of our assets and we would be forced to
cease operations. The Company, on April 7, 2003, as part of its answer, filed a
counterclaim against Merrill Lynch, alleging breach of the covenant of good
faith and fair dealing in connection with loan agreements, interference with
contract, and interference with business relations, and is continuing its
negotiations with Merrill Lynch as of the date of this filing.
11
Our Asset Sale and License Agreement with Lam, dated November 8, 2002,
granted us a non-exclusive license to several of Lam's patents and other
intellectual property, which enables us to sell, import, repair and distribute
products using this licensed intellectual property. To date, we have purchased
equipment for approximately $1.6 million under the Agreement, and we are
required to pay approximately $5,376,000 over 96 months as a royalty for the
licensed intellectual property.
The Company and Lam are mutually in default under the Lam license
agreement. We are in the process of negotiating a resolution for the default,
and management believes that Lam and the Company will reach an agreement to
resolve the defaults, without damages payable by the Company, but there can be
no assurance that this will occur. Management's view is that Lam's sole remedy
under the license agreement is to recover under its purchase money security
interest in the inventory we have purchased from Lam, but Lam may choose to
bring additional claims against us, and a court could give Lam remedies not
provided for in our agreement.
We are in default on our $200,000 bridge loan due to an individual. We are
in the process of negotiating more favorable terms of repayment, but there can
be no assurance that we will succeed.
On May 2, 2003, Scott Magoon, a former shareholder and employee of Aspect
Semiquip International, Inc., a subsidiary of DND, filed a complaint in the
Dallas County, Texas court, naming DND Technologies, Inc., Aspect Semiquip
International, Inc., Semiquip, Inc. and Doug N. Dixon as defendants. The
complaint alleges that the defendants defrauded Mr. Magoon and requests, among
other forms of relief, that the court divest DND of its wholly owned subsidiary,
Semiquip, Inc. The action has since been removed to federal district court. If
Mr. Magoon is successful in his claim, it is possible the Company could lose its
Texas operations, which would adversely affect our operations as the Company's
Texas operations account for approximately 33% of the Company's total
operations.
Should Merrill Lynch, Lam or Cartier successfully foreclose on their
security interests, as provided in their agreements with the Company, or should
any of these three parties obtain judgments against us in court, we could lose
part or all of our assets, the Company could be forced to cease operations and
our stock could become worthless. In addition, should Mr. Magoon obtain a
judgment in his lawsuit which divests us of our Texas operations, our operations
would be reduced significantly and we anticipate that revenues would
significantly decline. It is management's view that the lawsuit with Mr. Magoon
has no merit.
In November 2003, the Company entered into an agreement with Axcelis
Technologies, Inc. and acquired an exclusive license on all future
manufacturing, sales, service and parts support for certain dry strip
semiconductor manufacturing equipment marketed under the trade names "System
One" and "System Ten". The agreement provides for the payment of 18% of net
revenues from these sales by the Company per quarter until $2,750,000 (the
license fee) has been paid and the payment of a royalty on related sales ranging
from 2% to 10% through December 31, 2010.
Our future cash requirements and the adequacy of available funds will
depend on many factors, including the pace at which we expand our business
generally, and our inventory in particular, the general state of the economy,
which impacts the amount of money that may be spent for computer related
purchases and our ability to negotiate a repayment plan for our line of credit
with Merrill Lynch Business Financial Services, Inc. and a settlement of the
Merrill Lynch lawsuit.
Because of our tight cash flow, it is likely that during the next 12 month
period we will seek financing from one or more sources such as capital
investment firms or private fund managers. Preparations are underway to present
a corporate profile and backgrounder to this end, followed by an aggressive
search for funding. However, we do not have any commitments for financing or
other plans in place to obtain financing. Additional financing may not be
available on acceptable terms, or at all.
Our investing activities for the year ended December 31, 2002 used
$25,327, as compared to $178,957, which was used in the year ended December 31,
2001. These amounts reflect investments in
12
property and equipment. Our financing activities for the year ended December 31,
2002 provided cash of $314,395 compared to $226,922, for the year ended December
31, 2001. Financing activities in the year ended December 31, 2002 consisted of
$248,716 net borrowings from the line of credit, issuance of $200,000 of
long-term debt and repayments of $134,321 of long-term debt. Financing
activities in the year ended December 31, 2001 consisted of $746,216 net
borrowings from the line of credit, issuance of $250,000 long-term debt,
repayments of $69,029 of long-term debt and distributions paid in the amount of
$700,265.
Capital Resources
Working capital is summarized and compared as follows:
December 31, 2002 December 31, 2001
----------------- -----------------
Current assets $ 3,627,681 $ 2,826,617
Current liabilities 4,820,078 2,828,348
-------------- --------------
Working capital (deficit) $ (1,192,397) $ (1,731)
============== ==============
The increase in the deficit in working capital was primarily due to the
loss from operations and the Company's inability to reduce vendor debt. The
Company plans to remedy this working capital deficit through its newly
engineered sales plan that allows the Company to break even selling replacement
parts alone and not relying on the revenue generated from the sales of capital
equipment.
Cautionary Note Regarding Forward-looking Statements and Risk Factors
The Company's Form 10-KSB, any Form 10-QSB or any Form 8-K of the Company
or any other written or oral statements made by or on behalf of the Company may
contain forward-looking statements which reflect the Company's current views
with respect to future events and financial performance. The words "believe,"
"expect," "anticipate," "intends," "estimate," "forecast," "project," and
similar expressions identify forward-looking statements. All statements other
than statements of historical fact are statements that could be deemed
forward-looking statements, including any statements of the plans, strategies
and objectives of management for future operations; any statements concerning
proposed new products, services, developments or industry rankings; any
statements regarding future economic conditions or performance; any statements
of belief; and any statements of assumptions underlying any of the foregoing.
Such "forward-looking statements" are subject to risks and uncertainties set
forth from time to time in the Company's SEC reports and include, among others,
the Risk Factors below.
Readers are cautioned not to place undue reliance on such forward-looking
statements as they speak only of the Company's views as of the date the
statement was made. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
Risk Factors
You should consider the following discussion of risks as well as other
information regarding our common stock. The risks and uncertainties described
below are not the only ones. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations. If any of the following risks actually occur, our business could be
harmed.
We are in default on our line of credit, and our creditor could foreclose
on our business at any time.
13
We are in default on our $1 million line of credit with Merrill Lynch
Business Financial Services ("Merrill Lynch"). On April 7, 2003, we filed our
answer, which denied the allegations in the complaint, and sought relief against
Merrill Lynch for breach of its duty of good faith and fair dealing in
connection with the line of credit and for interference with contract and the
Company's business relations. On December 18, 2002, Merrill Lynch filed a
lawsuit against us in connection with our default on the line of credit. Merrill
Lynch may foreclose on our business at any time and is under no obligation to
forbear collecting its $1 million line of credit. Management is currently
seeking to negotiate a forbearance agreement with this lender, but there is no
assurance that this agreement will ultimately be agreed to.
We depend on key management personnel and the loss of any of them would
seriously disrupt our operations.
Douglas Dixon, our CEO and Chairman of the Board, is vital to our
continued operations due to his relationship with Lam Research Corp. and his
past experience working in the semiconductor industry. His loss would adversely
impact our operations.
We are in default on our license agreement.
We are in mutual default with Lam Research Corp. on our license agreement.
Management's view is that Lam's sole remedy under the license agreement is to
recover under its purchase money security interest in the inventory we have
purchased from Lam, but Lam may choose to bring additional claims against us,
and a court could give Lam remedies not provided for in our agreement.
The demand for our products may decline, which would result in a decline
of operations and a corresponding decline in profitability of our company.
Demand for our products has continued to decline. We heavily rely on sale
of remanufactured and spare parts to cover our costs. Many of our competitors
have liquidated and sold their products well below cost making it increasingly
difficult to sell any of our new products at a profit. Our sales will continue
to decrease as long as sustained price discounting in the industry continues and
without significant increases in demand we will not return to profitability.
Our independent accountants have expressed doubt about our ability to
continue as a going concern, which may hinder our ability to obtain future
financing.
Our ability to continue as a going concern is an issue raised as a result
of the Company's $2.7 million of operating losses incurred since January 1,
2001, its negative working capital, and its violation of loan covenants on its
line of credit. We continue to experience net operating losses. Our ability to
continue as a going concern is subject to our ability to generate a profit and
obtain necessary funding from outside sources, including obtaining additional
funding from the sale of our securities, increasing sales or obtaining loans and
grants from various financial institutions where possible. The going concern
increases the difficulty in meeting such goals and there can be no assurances
that such methods will prove successful.
Cyclical downturns are prevalent in the semiconductor industry.
Our business depends predominantly on the capital expenditures of
semiconductor manufacturers, which in turn depend on current and anticipated
market demand for integrated circuits and the products that use them. The
semiconductor industry has historically been very cyclical and has experienced
periodic downturns that have had a material adverse effect on the demand for
semiconductor processing equipment, including equipment that we market. During
downturns, our replacement parts are generally in higher demand, due to the cost
effectiveness of repairing existing equipment instead of buying new equipment.
However, during prolonged downturns, our replacement parts business faces
competition from failing semiconductor manufacturers, who will frequently sell
their capital equipment at substantial discounts as part of bankruptcy
proceedings.
14
During periods of reduced and declining demand, we must be able to quickly
and effectively align our costs with prevailing market conditions, as well as
motivate and retain key employees. In particular, our inventory levels during
periods of reduced demand have at times reached higher-than-necessary levels
relative to the current levels of production demand. During periods of rapid
growth, we must be able to acquire and develop sufficient capacity to meet
customer demand, and hire and assimilate a sufficient number of qualified
people. We cannot give assurances that our next sales and operating results will
not be adversely affected if the current downturn in the semiconductor industry
continues, or if other downturns or slowdowns in the rate of capital investment
in the semiconductor industry occur in the future.
The semiconductor industry is intensely competitive and capital-intensive.
We face substantial competition in the industry, both from potential new
entrants into the market and established competitors. Some of these companies
may have greater financial, marketing, technical or other resources than we do,
as well as broader product lines, greater customer service capabilities, or
larger and more established sales organizations and customer bases. Remaining
competitive in the market depends in part upon our ability to offer new and
enhanced systems and services, at competitive prices on a timely basis.
Our customers must incur substantial expenditures to install and integrate
capital equipment into their semiconductor production lines. Once a manufacturer
has selected another vendor's capital equipment, the manufacturer is generally
reliant upon that equipment vendor for the specific production line application
in question. Accordingly, we may experience difficulty in selling a product to a
particular customer for a significant period of time when that customer has
selected a system from a manufacturer we do not have a relationship with. In
addition, sales of our systems depend in significant part upon a prospective
customer's decision to increase manufacturing capacity or expand current
manufacturing capacity - both of which typically involve a significant capital
commitment. From time to time, we have experienced delays in finalizing system
sales following initial system qualification. Due to these and other factors,
our systems may have a lengthy sales cycle, during which we may expend
substantial funds and management effort.
The semiconductor industry is based on rapidly changing technology.
We rely heavily on the development of new and improved products by the
companies, such as Lam, from which we obtain systems and parts, and we seek to
maintain close relationships with our customers in order to remain responsive to
their product needs. In addition, we engage in development and improvement of
the products we manufacture. As is typical in the semiconductor capital
equipment market, we have experienced delays from time to time in the
introduction of and certain technical difficulties with certain of our products
and product enhancements.
Our success in developing and selling systems depends upon a variety of
factors. These include product selection, timely and efficient completion of
product design and development, timely and efficient implementation of assembly
processes, product performance in the field, and effective sales and marketing.
There can be no assurance that we will be successful in selecting, developing,
and marketing new products, or in enhancing our existing products. In addition,
we could incur substantial unanticipated costs to ensure the functionality and
reliability of our future product introductions early in their product life
cycles. If new products have reliability or quality problems, reduced orders, or
higher manufacturing costs, then delays in collective accounts receivable and
additional service and warrant expenses may result. Any of these events could
materially adversely affect our business, financial condition or results of
operations.
We may experience supply shortages.
We use numerous suppliers to obtain parts, components, sub-assemblies and
final products. Although we make reasonable efforts to ensure that such parts
are available from multiple suppliers,
15
certain key parts may only be obtained from a single or limited source. These
suppliers are in some cases thinly capitalized, independent companies that
generate significant portions of their business from us and a small group of
other companies in the semiconductor industry. We seek to reduce our dependence
on the limited group of sources. However, disruption or termination of certain
of those suppliers may occur. Such disruptions could have an adverse effect on
our operations. A prolonged inability to obtain certain parts could have a
material adverse effect on our business, financial condition or results of
operations, and could result in our inability to meet customer demands on time.
DND is exposed to the risks of operating a global business.
Currently, approximately 10% of DND's revenues result from sales outside
the U.S., with an increasing percentage of sales to customers headquartered in
Asia. Managing DND's global operations presents challenges, including periodic
regional economic downturns, trade balance issues, varying business conditions
and demands, political instability, variations in enforcement of intellectual
property and contract rights in different jurisdictions, differences in the
ability to develop relationships with suppliers and other local businesses,
changes in U.S. and international laws and regulations including U.S. export
restrictions, fluctuations in interest and currency exchange rates, the ability
to provide sufficient levels of technical support in different locations,
cultural differences, shipping delays and terrorist acts or acts of war, among
other risks. Many of these challenges are present in China, which represents a
large potential market for semiconductor equipment and where DND anticipates
significant opportunity for growth. Global uncertainties with respect to: 1)
economic growth rates in various countries; 2) the recent outbreak of a new and
often fatal respiratory disease in the Far East region; 3) the sustainability of
demand for electronics products; 4) capital spending by semiconductor
manufacturers; 5) price weakness for certain semiconductor devices; and 6)
political instability in regions where DND has operations, such as Asia, may
also affect DND's business, financial condition and results of operations.
DND is exposed to risks as a result of ongoing changes in the
semiconductor industry.
Ongoing changes in the semiconductor industry, including more complex
technology requirements, the growth in Asia, increasing pressure on
semiconductor manufacturers to allocate resources to activities that enhance
their competitive advantage, the increasing significance of consumer electronics
as a driver for demand for semiconductors and the related focus on lower costs,
have in turn resulted in the increasing importance of spares and service as a
growing percentage of semiconductor equipment suppliers' business. These changes
are also requiring semiconductor manufacturing equipment suppliers to provide
increasing levels of process integration support. If DND does not successfully
manage the risks resulting from these changes in the semiconductor industry, its
business, financial condition and results of operations could be materially and
adversely affected.
DND is exposed to risks associated with a highly concentrated customer
base.
DND's customer base is highly concentrated including one customer that
accounts for approximately 20% of sales. Orders from a relatively limited number
of semiconductor manufacturers have accounted for, and likely will continue to
account for, a substantial portion of DND's net sales, which may lead customers
to demand pricing and other terms less favorable to DND. In addition, sales to
any single customer may vary significantly from quarter to quarter. If current
customers delay, cancel or do not place orders, DND may not be able to replace
these orders with new orders. As DND's products are configured to customer
specifications, changing, rescheduling or canceling orders may result in
significant and often non-recoverable costs. The resulting fluctuations in the
amount of or terms for orders could have a material adverse effect on DND's
business, financial condition and results of operations.
DND is subject to risks of non-compliance with environmental and safety
regulations.
DND is subject to environmental and safety regulations in connection with
its business operations, including but not limited to regulations related to the
development, manufacturing and use of
16
its products. Failure or inability to comply with existing or future
environmental and safety regulations could result in significant remediation
liabilities, the imposition of fines and/or the suspension or termination of
development, manufacturing or use of certain of its products, each of which
could have a material adverse effect on DND's business, financial condition and
results of operations.
DND is exposed to risks associated with acquisitions.
DND has made, and may in the future make, acquisitions of, or significant
investments in, businesses with complementary products, services and/or
technologies. Acquisitions involve numerous risks, including but not limited to:
1) diversion of management's attention from other operational matters; 2) the
inability to realize expected synergies resulting from the acquisition; 3)
failure to commercialize purchased technology; and 4) impairment of acquired
intangible assets as a result of technological advancements or
worse-than-expected performance of the acquired company. Mergers and
acquisitions are inherently subject to multiple significant risks, and the
inability to effectively manage these risks could materially and adversely
affect DND's business, financial condition and results of operations.
Our ability to raise additional financing is uncertain.
We currently anticipate that our available cash resources combined with
our anticipated revenues will meet any immediate working capital needs we have.
A shortfall in projected revenues primarily from our recent contract with Lam
Research Corp. would negatively impact any future expansion of our operations.
Although we have been actively searching for available capital, we do not have
any current arrangements for additional outside sources of financing and we
cannot provide any assurance that such financing will be available.
Our operations are not diversified and we will not have the benefit of
reducing our financial risks by relying on other revenues.
We are engaged in the business of manufacturing capital equipment and
replacement parts used in the production of semiconductor devices, and in
providing engineering support services to purchasers of our products. As a
result, our financial viability will depend exclusively on our ability to
generate revenues from our operations. We will not have the benefit of reducing
our financial risks by relying on revenues derived from other operations.
There is a limited market for our common stock.
Currently only a very limited trading market exists for DND common stock.
Our common stock trades on the OTC Bulletin Board under the symbol "DNDT.OB."
The Bulletin Board is a limited market and subject to substantial restrictions
and limitations in comparison to the NASDAQ system. Any broker/dealer that makes
a market in our stock or other person that buys or sells our stock could have a
significant influence over its price at any given time. We cannot assure our
shareholders that a market for our stock will be sustained. There is no
assurance that our shares will have any greater liquidity than shares that do
not trade on a public market.
Our common stock is subject to penny stock regulation.
Our shares are subject to the provisions of Section 15(g) and Rule 15g-9
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be penny stock unless
that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
The NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
registrant's net tangible assets; or exempted from the definition by the
Commission. Since our shares are deemed to be "penny stocks", trading in the
shares will be subject to additional sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors.
ITEM 7. FINANCIAL STATEMENTS
The information required by this Item is submitted as a separate section
of this Form 10-KSB. See Item 13.
17
PART III
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
[Enlarge/Download Table]
--------------------------------------------------------------------------------------------------------------------
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------------------------------------------------------------------------------
Other Annual Restricted Securities
Name and Principal Salary Bonus Compensation Stock Underlying LTIP
Position Year (US $) (US $) (US $) Awards Options Payouts
--------------------------------------------------------------------------------------------------------------------
2000 141,617 0 0 0 0 0
-------------------------------------------------------------------------------------
Douglas N. Dixon (CEO) 2001 99,228 0 12,369 0 0 0
-------------------------------------------------------------------------------------
2002 104,567 0 8,763 0 0 0
--------------------------------------------------------------------------------------------------------------------
Scott Magoon (former 2002 105,692 0 6,293 0 0 0
director of ASI)
--------------------------------------------------------------------------------------------------------------------
DND has not entered into any employment agreements with its management,
other than an employment agreement with its CEO, Douglas Dixon, dated June 1,
2001. This agreement is terminable by either Mr. Dixon or the Company at the
anniversary date of the agreement each year upon 60 days written notice. Under
the agreement, Mr. Dixon receives an annual base salary of $150,000, and
receives certain benefits and bonuses as described in the Agreement.
Members of the Board of Directors do not receive any cash compensation for
their service as Directors but the Company intends to award stock options to
directors for their service during the 2003 fiscal year. All expenses for
meeting attendance or out of pocket expenses connected directly with their Board
representation are reimbursed by DND.
Director liability insurance may be provided to all members of the Board
of Directors. DND has not yet obtained such insurance and does not have any
specifics for available cost and coverage. DND does not have a specific time
frame to obtain the insurance. No differentiation is made in the compensation of
"outside directors" and those officers of DND serving in that capacity.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
There are currently 23,000,000 common shares outstanding. The following
tabulates holdings of shares of DND by each person who, subject to the above, as
of April 10, 2003, holds of record or is known by Management to own beneficially
more than 5.0% of the common shares and, in addition, by all directors and
officers of DND individually and as a group.
18
SHARE OWNERSHIP AS OF APRIL 10, 2003
[Download Table]
Name and Address of Amount of Percent of
Beneficial Owner (1) Common Shares Owned Common Shares Owned
Douglas Dixon(2) 18,000,000(3) 78.3%
375 E. Elliot Rd., Bldg. 6
Chandler, Arizona 85225
Paul Gallo(2) 0(4) n/a
375 E. Elliot Rd., Bldg. 6
Chandler, Arizona 85225
Ernie Recsetar(2) 0 n/a
375 E. Elliot Rd., Bldg. 6
Chandler, Arizona 85225
Lowell Giffhorn(2) 0 n/a
375 E. Elliot Rd., Bldg. 6
Chandler, Arizona 85225
All Officers and Directors
as a group (4 persons) 18,000,000 78.3%
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared voting
power (including the power to vote or direct the voting) and/or sole or shared
investment power (including the power to dispose or direct the disposition) with
respect to a security whether through a contract, arrangement, understanding,
relationship or otherwise. Unless otherwise indicated, each person indicated
above has sole power to vote, or dispose or direct the disposition of all shares
beneficially owned, subject to applicable community property laws.
(2) Denotes officer or director of DND.
(3) Mr. Dixon's shares are subject to a potential claim, as described in DND's
Form 8-K filed on June 3, 2003, by Scott Magoon, a former director of ASI, that,
if successful, could reduce his share ownership by up to 5,400,000 shares. DND
cannot currently estimate when this potential claim will be resolved.
(4) Mr. Gallo has an option to acquire up to 4,200,000 shares from Mr. Dixon at
an exercise price of $1/share.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
[Enlarge/Download Table]
Page Number
-----------
1. Financial Statements:
Report of Independent Auditors F-1
Consolidated Balance Sheets at December 31, 2002
Consolidated Statements of Operations for each of the two years
ended December 31, 2002
Consolidated Statements of Stockholders' Equity for each of the two years
ended December 31, 2002
Consolidated Statements of Comprehensive (Loss) for each of the two years
ended December 31, 2002
Consolidated Statements of Cash Flows for each of the two years
ended December 31, 2002
Notes to Consolidated Financial Statements F-8
Exhibits included or incorporated herein: See Exhibit Index.
19
(b) Reports on Form 8-K:
On May 21, 2002, the Company filed a Current Report on Form 8-K,
announcing the execution on May 16, 2002 of an Agreement and Plan of
Reorganization between the Company and Aspect Semiquip International, Inc.
On August 7, 2002, the Company filed a Current Report on Form 8-K to
announce the issuance of a press release and the amendment of the Agreement and
Plan of Reorganization filed with the Form 8-K on May 21, 2002.
On September 27, 2002, the Company filed an amended Current Report on Form
8-K/A relating to the Form 8-K filed on May 21, 2002.
On October 7, 2002, the Company filed an amended Current Report on Form
8-K/A relating to the Form 8-K filed on August 7, 2002.
On November 19, 2002, the Company filed a Current Report on Form 8-K
announcing the resignation of Andersen, Andersen & Strong, L.C., and the
appointment of Farber & Hass, L.L.P., as the Company's independent auditor.
ITEM 14. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the design and operation of our disclosure controls
and procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), within 90 days of the filing date of this report. Based on that
evaluation, our principal executive officer and our principal financial officer
concluded that the design and operation of our disclosure controls and
procedures were effective to ensure that information required to be included in
our Securities and Exchange Commission reports is recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms.
(b) In addition, there were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date, including any corrective actions with regard
to significant deficiencies and material weaknesses.
20
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.
DND TECHNOLOGIES, INC.,
a Nevada corporation
By: /s/ Douglas N. Dixon
------------------------------------
Douglas N. Dixon
Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Douglas N. Dixon, his/her
attorney-in-fact, with the power of substitution, for him/her in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file the
same, with Exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or substitute or substitutes may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Douglas N. Dixon Chief Executive Officer January 26, 2004
--------------------------- and Director
Douglas N. Dixon
/s/ Dennis Key Chief Financial Officer January 26, 2004
--------------------------- and Director
Dennis Key
/s/ Ernie L. Recsetar Director January 26, 2004
---------------------------
Ernie L. Recsetar
/s/ Lowell W. Giffhorn Director January 26, 2004
---------------------------
Lowell W. Giffhorn
EXHIBIT INDEX
Exhibit No. Description
2.1(3) Agreement and Plan of Reorganization, dated May 15, 2002,
between ASI, Zurickirch Corp. and John Chris Kirch.
2.2(3) First Amendment to Agreement and Plan of Reorganization, dated
August 2, 2002.
3.1(4) Restated Articles of Incorporation
3.2(4) Restated Bylaws
3.3(2) First Amendment to Articles of Incorporation.
10.1(5) Asset Sale and License Agreement, dated November 8, 2002,
between Lam Research Corporation and Aspect Systems, Inc.
10.2(6) Employment Agreement, dated June 1, 2001, between Aspect
SemiQuip International, Inc. and Douglas Dixon
10.3(6) Promissory Note, dated October 3, 2002, between the Company
and Jean Charles Cartier and Jacqueline Cartier
10.4(6) Letter of Intent, dated January 31, 2003, between the Company
and ESL Elektronik Handels GmbH
16.1(1) Letter on Change in Certifying Accountant
21.1(5) Subsidiaries of the Company.
24.1(5) Power of Attorney (see signature page of this Annual Report on
Form 10-KSB).
31.1(6) Rule 13a-14(a)/15d-14(a) Certification of Principal Executive
Officer
31.2(6) Rule 13a-14(a)/15d-14(a) Certification of Principal Financial
Officer
32(6) Section 1350 Certifications
(1) Incorporated by reference, filed with the Company's Form 8-K on
January 19, 2003.
(2) Incorporated by reference, filed with the Company's Form 8-K/A on
October 7, 2002.
(3) Incorporated by reference, filed with the Company's Form 8-K/A on
September 27, 2002.
(4) Incorporated by reference, filed with the Company's Form SB-2 on August 3,
2000.
(5) Incorporated by reference, filed with the Company's Form 10-KSB on
April 15, 2003.
(6) Filed herewith.
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
DND Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet at December 31, 2002
and the related consolidated statements of operations, stockholders' (deficit)
and cash flows of DND Technologies, Inc. and Subsidiaries for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management.
Our responsibility is to express an opinion on the financial statements based on
our audit. We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respect, the financial position of the Company at
December 31, 2002 and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred significant operating losses, has
negative working capital and is in default on its line of credit. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding these matters are described in Note 17.
The consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ Farber & Hass, LLP
Oxnard, California
March 18, 2003
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
Aspect Semiquip International, Inc.
We have audited the accompanying statement of operations and cash flows of
Aspect Semiquip International, Inc. for the year ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respect, the results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Woods & Dwyer, P.L.C.
Phoenix, Arizona
March 5, 2002
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 199,880
Accounts receivable, net of
allowance 337,256
Other receivables 16,606
Inventories, net of allowance 3,028,333
Prepaid expenses, other 45,606
-------------
TOTAL CURRENT ASSETS $ 3,627,681
PROPERTY AND EQUIPMENT, NET
OF ACCUMULATED DEPRECIATION 560,926
OTHER ASSETS
License agreement 4,188,407
Rent security deposits 13,762
-------------
TOTAL OTHER ASSETS 4,202,169
-------------
TOTAL ASSETS $ 8,390,776
=============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
[Enlarge/Download Table]
CURRENT LIABILITIES
Line of credit $ 994,932
Notes payable, current portion
Related parties 130,000
Other 749,686
Capital lease payable, current portion 14,206
Accounts payable 802,917
Accounts payable, Lam Research
Corporation, current 978,056
Accrued expenses and taxes 548,258
Royalty payable, current portion 281,919
Amounts due to related parties 320,104
-------------
TOTAL CURRENT LIABILITIES $ 4,820,078
LONG-TERM LIABILITIES, NET OF
CURRENT PORTION
Notes payable, other 46,852
Capital lease payable 34,445
Accounts payable, Lam Research Corporation 652,036
Royalty payable 3,906,488
-------------
TOTAL LONG-TERM LIABILITIES 4,639,821
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' (DEFICIT)
Preferred stock 0
Common stock, par value $.001 per share
Authorized - 50 million shares; Reserved - 4 million
Issued and outstanding - 22,000,000 shares 22,000
Paid-in capital 1,798,160
Accumulated deficit (2,889,283)
-------------
TOTAL STOCKHOLDERS' (DEFICIT) (1,069,123)
-------------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) $ 8,390,776
=============
See Accompanying Notes.
2
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
------------ ------------
REVENUE
Chiller machines $ 524,990 $ 1,235,010
Auto Etch Systems 764,591 2,708,632
Parts and consumables 3,002,066 1,532,900
Field service and training 254,631 464,472
Other 825,655 2,161,829
------------ ------------
TOTAL REVENUE 5,371,933 8,102,783
COST OF REVENUE 4,274,479 6,137,258
------------ ------------
GROSS PROFIT 1,097,454 1,965,525
------------ ------------
OPERATING EXPENSES
Sales and marketing 648,799 1,041,673
General and administrative 1,704,305 2,131,388
Research and development 24,324 166,243
------------ ------------
TOTAL OPERATING EXPENSES 2,377,428 3,339,304
------------ ------------
(LOSS) FROM OPERATIONS (1,279,974) (1,373,779)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (171,593) (84,704)
Other income 2,590 18,805
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (169,003) (65,899)
------------ ------------
(LOSS) BEFORE INCOME TAXES (1,448,977) (1,439,678)
INCOME TAXES 11,500 8,860
------------ ------------
NET (LOSS) $ (1,460,477) $ (1,448,538)
============ ============
NET (LOSS) PER COMMON SHARE
Basic and diluted (Pro forma - 2001) $ (.07) $ (.06)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic and diluted (Pro forma - 2001) 22,000,000 22,000,000
============ ============
See Accompanying Notes.
3
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 2002
[Enlarge/Download Table]
Preferred Stock Common Stock Paid-In-Capital
--------------- ------------ ---------------
Shares Amount Shares Amount
------ ------ ------ ------
Balance, January 1, 2002 0 $ 0 6,745,000 $ 6,745
Shares cancelled 0 0 (2,745,000) (2,745)
--------- --------- ------------ -----------
Balance after shares cancelled 0 0 4,000,000 4,000
Common stock
issued pursuant to
acquisition of Aspect
Semiquip International, Inc.
and ASI Team Asia Ltd. 0 0 18,000,000 18,000
--------- --------- ------------ -----------
Balance after acquisition 0 0 22,000,000 22,000
Net (loss) for the year
ended December 31, 2002 0 0 0 0
--------- --------- ------------ -----------
Balance, December 31, 2002 0 $ 0 $ 22,000,000 $ 22,000
========= ========= ============ ===========
Paid-In- Accumulated
Capital Deficit Total
------- ------- -----
Balance, January 1, 2002 $ 312,957 $ (366,377) (46,675)
Shares cancelled 2,745 0 0
------------ ------------ ------------
Balance after shares cancelled 315,702 (366,377) (46,675)
Common stock
issued pursuant to
acquisition of Aspect
Semiquip International, Inc.
and ASI Team Asia Ltd. 1,482,458 (1,062,429) 438,029
------------ ------------ ------------
Balance after acquisition 1,798,160 (1,428,806) 391,354
Net (loss) for the year
ended December 31, 2002 0 (1,460,477) (1,460,477)
------------ ------------
Balance, December 31, 2002 $ 1,798,160 $ (2,889,283) ($1,069,123)
============ ============ ============
See Accompanying Notes.
4
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
[Download Table]
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $(1,460,477) $(1,448,538)
Adjustments to reconcile net (loss)
to net cash (used) by operating activities:
Depreciation and amortization 211,242 208,406
Loss on disposal of property and equipment 71,911
Reserve for obsolescence 521,000
Changes in operating assets and liabilities:
Accounts receivable 119,238 2,131,410
Other receivables (16,606)
Inventories (1,660,083) 632,917
Prepaid expenses and other assets 1,815 (11,997)
Accounts payable 2,121,930 (1,155,452)
Accrued expenses and amounts due to related parties (346,937) (624,350)
----------- -----------
NET CASH (USED) BY
OPERATING ACTIVITIES (508,878) (195,693)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (25,327) (182,197)
Proceeds from the sale of property 3,240
----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES (25,327) (178,957)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from line of credit 248,716 746,216
Proceeds from issuance of long-term debt 200,000 250,000
Principal payments on long-term debt (134,321) (69,029)
Distributions paid (700,265)
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 314,395 226,922
----------- -----------
NET (DECREASE) IN CASH AND
CASH EQUIVALANTS (219,810) (147,728)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 419,690 567,418
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 199,880 $ 419,690
=========== ===========
See Accompanying Notes.
5
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
---------- ----------
SUPPLEMENTARY DISCLOSURE
OF CASH FLOW INFORMATION:
Cash paid for interest $ 49,901 $ 53,700
========== ==========
Cash paid for taxes $ 23,000 $ 0
========== ==========
SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
License agreement acquired by debt $4,188,407 $ 0
========== ==========
Assets acquired through capital leases $ 0 $ 8,392
========== ==========
See Accompanying Notes.
6
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and History of Company
DND Technologies, Inc. (hereinafter referred to as the "Company" or
collectively as the "Companies") was organized on May 9, 1997, under
the laws of the state of Nevada. The Company operates as a holding
company for subsidiary acquisitions.
Aspect Semiquip International, Inc. (hereinafter referred to as
"A.S.I.") was organized on November 2, 1990, under the laws of the
state of Arizona.
Semiquip, Inc. (hereinafter referred to as "S.E.I.") was organized
on February 16, 1999 in the state of Texas.
In 2000, the Company created a subsidiary company known as ASI Team
Asia, Ltd. (hereinafter referred to as "A.S.I. Team") in Hong Kong
for sales and marketing of the Company's products and services to
customers in Asia. The Company owns 85% of A.S.I. Team. A.S.I. Team
is inactive and has no significant assets or liabilities and has not
had any revenue or expenses.
A.S.I. and S.E.I. operate in one business segment, which consists of
the manufacturing of equipment for the semiconductor industry and
the related servicing and parts for such equipment.
On May 15, 2002, the Board of Directors of the Company approved a
share exchange agreement whereby the Company issued 18,000,000
shares of its common stock for 100% of the stock of A.S.I., S.E.I.
and 85% of A.S.I. Team. In connection with the legal form of this
transaction, A.S.I., S.E.I. and A.S.I. Team became subsidiaries of
the Company. For accounting purposes, the acquisition was treated as
a recapitalization of A.S.I., S.E.I. and A.S.I. Team rather than a
business combination.
7
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Going Concern
These consolidated financial statements are presented on the basis
that the Company is a going concern. Going concern contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business over a reasonable length of time. The
Company has incurred significant operating losses in 2001 and 2002,
has negative working capital and a stockholders' deficit and is in
default on its Merrill Lynch line of credit. These factors raise
substantial doubt as to the Company's ability to continue as a going
concern.
Principles of Consolidation
The consolidated financial statements include the accounts of DND
Technologies, Inc. and its wholly-owned subsidiaries, Aspect
Semiquip International, Inc. and Semiquip, Inc. and its 85% owned
subsidiary, ASI Team Asia Ltd. All material inter-company accounts
and transactions have been eliminated.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are reported at the customers' outstanding
balances less any allowance for doubtful accounts. Interest is not
accrued on overdue accounts receivable. A.S.I. does require advance
payments on certain orders of large systems.
8
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allowance For Doubtful Accounts
The allowance for doubtful accounts on accounts receivable is
charged to income in amounts sufficient to maintain the allowance
for uncollectible accounts at a level management believes is
adequate to cover any probable losses. Management determines the
adequacy of the allowance based on historical write-off percentages
and information collected from individual customers. Accounts
receivable are charged off against the allowance when collectibility
is determined to be permanently impaired (bankruptcy, lack of
contact, account balance over one year old, etc.).
Inventory
Inventory is valued at the lower of cost or market. Cost is
determined on the first-in, first-out method. Cost includes raw
materials, freight, labor and manufacturing overhead.
License Agreement
The license agreement is being amortized using the straight-line
method over the life of the contract with Lam Research Corporation
(8 years).
Property and Equipment
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while replacements,
maintenance and repairs, which do not improve or extend the lives of
the respective assets, are expensed. At the time property and
equipment are retired or otherwise disposed of, the asset and
related accumulated depreciation accounts are relieved of the
applicable amounts. Gains or losses from retirements or sales are
credited or charged to income.
Depreciation is provided for by the accelerated and straight-line
methods over the following estimated useful lives:
Office furniture, fixtures and equipment 5-7 Years
Leasehold improvements Term of lease
Machinery and equipment 7 Years
Laboratory tools 7 Years
Vehicles 5 Years
9
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets
Statement of Financial Accounting Standards No.121, "Accounting For
The Impairment of Long-Lived Assets and For Long-Lived Assets to Be
Disposed of ", requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that
the historical cost-carrying value of an asset may no longer be
appropriate. The Company assesses recoverability of the carrying
value of an asset by estimating the future net cash flows expected
to result from the asset, including eventual disposition. If the
future net cash flows are less than the carrying value of the asset,
an impairment loss is recorded equal to the difference between the
asset's carrying value and fair value. This standard did not have a
material effect on the Company's results of operations, cash flows
or financial position.
Warranty Reserve
A.S.I. provides a reserve on its Chiller and Auto Etch Systems to
cover anticipated repairs and/or replacement. The warranty on these
systems normally ranges from 90 days to six months (see Note 13).
Revenue Recognition Policy
Product sales - The Companies recognize revenue from product sales
when the goods are shipped and title passes to its customers.
Service income - The Companies recognize revenue from service income
when services are performed and completed.
Shipping and Handling Costs
The Companies' policy is to classify shipping and handling costs as
part of cost of goods sold in the statements of operations.
Advertising
The Companies expense all advertising as incurred. For the years
ended December 31, 2002 and 2001, the two companies charged to
operations $3,829 and $3,724, respectively.
10
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development Costs
Costs incurred in research and development are expensed as incurred.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable
for the current year and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income and
between the tax bases of assets and liabilities and their reported
amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or
settled as prescribed in FASB Statement No. 109, "Accounting for
Income Taxes". As changes in tax laws or rates are enacted, deferred
assets and liabilities are adjusted through the provision for income
taxes.
Net (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No.
128 that requires the reporting of both basic and diluted (loss) per
share. Basic (loss) per share is computed by dividing net (loss)
available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted (loss) per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock. In accordance with FASB 128, any anti-dilutive
effects on net (loss) per share are excluded.
Accounting Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance with accounting principles generally
accepted in the United States. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported
revenues and expenses. Actual results could vary from the estimates
that were used.
11
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk
Financial instruments which potentially subject the Companies to
concentrations of credit risk consists principally of cash and trade
accounts receivable. The Companies place their temporary cash
investments in reputable financial institutions. At December 31,
2002, the Companies had approximately $119,407 on deposit with one
financial institution. A maximum of $100,000 is insured by the
Federal Government.
Concentration of credit risk with respect to trade receivables is
limited due to the large number of customers comprising the
Companies' customer base and their dispersion across different
geographic areas. The Companies routinely assess the financial
strength of its customers. At December 31, 2002, the Companies had
three customers (28%, 15% and 10%, respectively) which exceeded 10%
of net accounts receivable.
Revenues
For the years ended December 31, 2002 and 2001, the Companies had
one customer whose revenues exceeded 10% of total revenues (2002 -
31%; 2001-20%).
Revenues in 2002 outside the United States included Asia (7%) and
Europe (2%).
Disclosure About Fair Value of Financial Instruments
The Company estimates that the fair value of all financial
instruments as of December 31, 2002, as defined in FASB 107, does
not differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance sheet.
The estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation
methodologies. Considerable judgment is required in interpreting
market data to develop the estimates of fair value, and accordingly,
the estimates are not necessarily indicative of the amounts that the
Company could realize in a current market exchange.
12
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently-Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS
141, "Business Combinations", and SFAS 142, "Goodwill and Other
Intangible Assets", effective for fiscal years beginning after
December 15, 2002. Under the new rules, goodwill and certain
intangible assets will no longer be amortized, but will be subject
to annual impairment tests. Other intangible assets with finite
useful lives will continue to be amortized over their useful lives.
The Company does not expect any material effect on its financial
position or results of operations from the adoption of these
statements. The Company adopted this pronouncement on January 1,
2002.
In August 2001, the FASB issued SFAS 143, "Accounting for Asset
Retirement Obligations", effective for fiscal years starting after
June 15, 2002. SFAS 143 establishes accounting standards for
recognition and measurement of a liability for the costs of asset
retirement obligations. Under SFAS 143, the costs of retiring an
asset will be recorded as a liability when the retirement
obligations arise, and will be amortized to expense over the life of
the asset. The Company does not expect any material effect on its
financial position or results of operations from the adoption of
this statement. The Company adopted this pronouncement on January 1,
2003.
In October, 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", effective for fiscal
years starting after December 15, 2001 and interim periods within
those years. SFAS 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets and discontinued
operations. The Company does not expect any material effect on its
financial position or results of operations from the adoption of
this statement. The Company adopted this pronouncement on January 1,
2002.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which nullifies EITF
Issue 94-3. SFAS 146 is effective for exit and disposal activities
that are initiated after December 31, 2002 and requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred in contrast to the date of
an entity's commitment to an exit plan, as required by EITF Issue
94-3. The Company adopted this pronouncement on January 1, 2003 and
is not expected to have a material impact on the Company.
13
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 2002, the FASB issued SFAS 148 "Accounting for
Stock-Based Compensation" an amendment to SFAS 123. SFAS 148
provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure
requirements of Statement 123 to require 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. This Statement is effective for
fiscal years ending after December 15, 2002 for transition guidance
and annual disclosure provisions; for financial reports containing
financial statements for interim periods beginning after December
15, 2002 for interim disclosure provisions. The Company adopted this
pronouncement on January 1, 2003
Reclassifications
Certain 2001 amounts have been reclassified to conform to 2002
presentations.
NOTE 2 ACCOUNTS RECEIVABLE
A summary of accounts receivable and allowance for doubtful accounts
is as follows:
Accounts receivable $ 346,256
Allowance for doubtful accounts 9,000
---------
Net accounts receivable $ 337,256
=========
Allowance For Doubtful Accounts
Balance, January 1, 2002 $ 0
Additions for the year 14,979
Write-off of uncollectible
accounts for the year (5,979)
---------
Balance, December 31, 2002 $ 9,000
=========
14
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 3 INVENTORIES
The inventories are comprised of the following:
Parts and materials $ 3,449,662
Work-in-process 254,671
Allowance for obsolescence (676,000)
------------
$ 3,028,333
============
NOTE 4 LICENSE AGREEMENT AND ROYALTY PAYABLE
In November 2002, A.S.I. entered into an asset purchase and
licensing agreement with Lam Research Corporation ("Lam"). Under the
agreement, ASI purchased approximately $1.6 million of inventory
(see Note 9) from Lam and entered into a licensing agreement
requiring royalty payments totaling $5,376,000 (payable in 96 equal
monthly installments of $56,000). A.S.I. has recorded the royalty
payable as a long-term liability after imputing interest at 6%. The
royalty payable is collateralized by the inventory noted above.
Estimated amortization of the license agreement is as follows:
December 31, 2003 $ 436,293
December 31, 2004 523,551
December 31, 2005 523,551
December 31, 2006 523,551
December 31, 2007 and thereafter 2,181,461
------------
$ 4,188,407
============
Future minimum royalty payments under the agreement at December 31,
2002 are as follows:
Total Principal
Payments Portion
----------- -----------
December 31, 2003 $ 560,000 $ 281,919
December 31, 2004 672,000 449,848
December 31, 2005 672,000 477,594
December 31, 2006 672,000 507,050
December 31, 2007 and thereafter 2,800,000 2,471,996
----------- -----------
$ 5,376,000 $ 4,188,407
=========== ===========
15
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 5 LINE OF CREDIT
A.S.I. had a $1,000,000 revolving line of credit with Merrill Lynch
Business Financial Services, Inc. ("Merrill Lynch") which matured on
April 1, 2002. Interest accrued at Libor plus 2.75% with an
effective rate of 6.13% at December 31, 2002. The note is secured by
a first lien on the Companies' accounts receivable and inventories
and has been personally guaranteed by the majority shareholder.
The note contains numerous loan covenants that A.S.I. is not in
compliance with at December 31, 2002. As of the date of this report,
A.S.I. has not received waivers on the covenants and is trying to
renegotiate the note and establish a repayment plan for the loan
(see note 15). The loan balance, including accrued interest, at
December 31, 2002 was $994,932.
NOTE 6 NOTES PAYABLE, RELATED PARTIES
Current
Portion Total
------------ ------------
Douglas Dixon $ 10,000 $ 10,000
On April 1, 2002, the Company
received a $10,000 loan from
Douglas Dixon. The note bears
interest at 11%, is unsecured and
is due on demand
Douglas Dixon 120,000 120,000
On December 31, 1997 and March 6,
1998, the Company borrowed
$120,000 from Douglas Dixon. The
loans are unsecured and were due
on December 31, 1998. The Company
has not repaid the notes and is
accruing interest at 7%,
compounded daily
------------ ------------
$ 130,000 $ 130,000
============ ============
16
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 7 NOTES PAYABLE, OTHER
Term loan payable to Merrill Lynch
Business Financial Services, Inc.:
On May 18, 2001, the Company received
a $250,000 term loan. The loan is
payable in sixty monthly installments
of $4,167 including interest at Libor
plus 2.75% with and effective rate of
6.13% at December 31, 2002. The loan
is secured by the lien referenced
above $173,375
Note payable, bearing interest at 12%,
is due in November 2003, requires
monthly interest payments of $2,000
and is secured by a second lien on the
receivables and inventory of A.S.I.
which total $2,912,920 at December 31,
2002. The note includes options to
purchase shares of the Company's
common stock (200,000 shares @ $0.20
per share and 200,000 shares at $1.00
per share) 200,000
Note payable to an individual. On June
12, 1997, the Company acquired 35% of
the outstanding stock of A.S.I from
the former president of A.S.I. and
issued a note payable to the seller
for $483,630. The note is payable in
quarterly installments of $24,319
including interest at 10% and matures
on May 15, 2004. The note is secured
by 947,000 shares of A.S.I. stock held
in escrow. 133,813
17
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 7 NOTES PAYABLE, OTHER (CONTINUED)
Various unsecured demand notes
due to an individual with interest accruing at 7%. 289,350
-----------
Total 796,538
Less current position 749,686
-----------
Long-term portion $ 46,852
===========
NOTE 8 CAPITAL LEASE PAYABLE
On March 27, 2000, the Company leased a Norstar Modular ICS Key
System (net book amount of $41,271 at December 31, 2002). The lease
requires sixty monthly payments of $1,626 including interest at 14%.
The lease matures on September 1, 2005.
Future minimum lease payments under the lease at December 31, 2002
are as follows:
December 31, 2003 $ 19,507
December 31, 2004 19,507
December 31, 2005 18,941
-----------
57,955
Less amount representing interest 9,304
-----------
Present value of future minimum
lease payments 48,651
Less current portion 14,206
-----------
Long-term portion $ 34,445
===========
NOTE 9 ACCOUNTS PAYABLE, LAM RESEARCH CORPORATION
The initial inventory purchase from LAM is payable as follows:
March 20, 2003 $ 163,009
June 30, 2003 163,009
Balance in twelve monthly payments of ($108,673) 1,304,074
-----------
Total $ 1,630,092
===========
18
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 10 AMOUNTS DUE TO RELATED PARTIES
The due to related parties at December 31, 2002 consists of the
following:
Accrued expenses $ 25,951
Accrued interest 22,873
Accrued officer's salaries 271,280
------------
Total Amount Due To Related Parties $ 320,104
============
NOTE 11 INCOME TAXES
Provision (Benefit)
The provision for income taxes for the year ended December 31, 2002
and 2001 represents primarily Texas franchise taxes and consists of
the following:
2002 2001
------------- -------------
Current $ 11,500 $ 8,860
Deferred 0 0
Deferred Tax Components
Significant components of the Company's deferred tax assets are as
follows at December 31, 2002:
Net operating loss carryforwards $ 407,080
Allowance for doubtful accounts 1,980
Accrued expenses 85,870
------------
494,930
Less valuation allowance 494,930
------------
Net deferred tax assets $ 0
============
Summary of valuation allowance
Balance, January 1, 2002 $ 145,540
Addition for the year ended
December 31, 2002 349,390
------------
Balance, December 31, 2002 $ 494,930
============
19
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 11 INCOME TAXES (CONTINUED)
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment.
NOTE 12 NET OPERATING LOSSES
The Company has the following net operating loss carryforwards:
[Enlarge/Download Table]
Aspect
DND Semiquip
Technologies, International, Inc.
Year of Loss Expiration Date Inc. and Semiquip, Inc. Total
----------------- ----------------- --------------- -------------------- --------------
December 31, 1997 December 31, 2017 $ 82,403 $ 0 $ 82,403
December 31, 1998 December 31, 2018 17,297 0 17,297
December 31, 2000 December 31, 2020 117,915 0 117,915
December 31, 2001 December 31, 2021 142,448 134,299 276,747
December 31, 2002 December 31, 2022 1,486,968 0 1,486,968
--------------- ------------------- --------------
$ 1,847,031 $ 134,299 $ 1,981,330
=============== =================== ==============
$360,063 of DND Technology Inc.'s loss can only be used to offset
income derived by that company.
NOTE 13 PRODUCT WARRANTY PROVISION
The Company maintains a provision for warranty costs for all system
sales. A summary of the warranty liability is as follows:
Balance, January 1, 2002 $ 60,000
Addition to warranty liability
for the year ended December 31, 2002 58,924
Payment of warranty costs for the
the year ended December 31, 2002 (71,795)
------------
Balance, December 31, 2002 $ 47,129
============
20
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 14 PREFERRED STOCK
The Company is authorized to issue 10,000,000 of $.0001 par value
preferred stock. The Board of Directors is authorized to establish
the series of preferred stock and all preference rights. No shares
were issued or outstanding at December 31, 2002.
NOTE 15 COMMITMENTS AND CONTINGENCIES
Real Estate Leases
The Company leases its Arizona and Texas facilities under the
following terms and conditions:
Arizona
1 - Commencement date - January 1, 2000
2 - Expiration date - December 31, 2004
3 - Base monthly rent plus costs and taxes
January 1, 2002 - December 31, 2002 $ 13,828
January 1, 2003 - December 31, 2003 $ 14,294
January 1, 2004 - December 31, 2004 $ 14,759
Texas
1 - Commencement date - July 1, 2000
2 - Expiration date - June 30, 2003
3 - Base monthly rent - $7,762
4 - Renewal option - one three year option at fair market
value rate
Future minimum lease payments on the real estate leases are of
follows:
December 31, 2003 $ 218,100
December 31, 2004 177,100
-----------
$ 395,200
===========
Rent expense for the years ended December 31, 2002 and 2001 was
$337,383 and $259,003, respectively.
21
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 15 COMMITMENTS AND CONTINGENCIES (Continued)
Litigation
Merrill Lynch has filed a lawsuit against the Company seeking
repayment of its line of credit and term loan. The Company has filed
a countersuit against Merrill Lynch. Should Merrill Lynch
successfully foreclose on its line of credit, our available funds
and ability to continue our operations will be adversely affected.
NOTE 16 EMPLOYEE BENEFIT PLAN
Effective January 1, 1997, the Company adopted the Aspect Systems
Retirement Savings Plan (the "Plan"), a defined contribution pension
plan covering substantially all employees that have met certain
eligibility and participation requirements as defined in the Plan
document. The Plan was amended in 2000 to allow discretionary
employer contributions. During the year ended December 31, 2002 and
2001, Company contributions totaled $-0- and $5,451, respectively.
NOTE 17 MANAGEMENT PLANS
Management's plans to eliminate the going concern situation include,
but are not limited to, payment of debt by issuing common stock,
negotiate a long-term payment plan for the Merrill Lynch line of
credit and create additional sales and profits from the sale of its
new Lam product line.
NOTE 18 FOURTH QUARTER RESULTS
The following table indicates the nine-month periods ended September
30, 2002 and 2001 "As Originally Reported", "As Restated" and the
fourth quarter ended December 31, 2002 and 2001 "As Restated":
[Enlarge/Download Table]
----------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended Quarter Ended
September 30, 2002 September 30, 2002 December 31, 2002
2002 (as originally reported) (as restated) (as restated)
---- ------------------------ ------------- -------------
----------------------------------------------------------------------------------------------------
Revenues $ 4,391,350 $ 4,121,916 $ 1,250,017
----------------------------------------------------------------------------------------------------
Cost of Revenues 1,862,422 2,754709 1,519,770
----------------------------------------------------------------------------------------------------
Gross Margin 2,528,928 1,367,207 (269,753)
----------------------------------------------------------------------------------------------------
Other Expenses 2,924,383 1,762,662 (783,769)
----------------------------------------------------------------------------------------------------
Net Loss $ (395,455) $ (395,455) $(1,065,022)
----------------------------------------------------------------------------------------------------
22
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
[Enlarge/Download Table]
----------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended Quarter Ended
September 30, 2001 September 30, 2001 December 31, 2001
2001 (as originally reported) (as restated) (as restated)
---- ------------------------ ------------- -------------
----------------------------------------------------------------------------------------------------
Revenues $ 7,205,437 $ 7,205,437 $ 897,346
----------------------------------------------------------------------------------------------------
Cost of Revenues 3,734,487 5,618,126 519,132
----------------------------------------------------------------------------------------------------
Gross Margin 3,470,950 1,587,311 378,132
----------------------------------------------------------------------------------------------------
Other Expenses 4,606,287 2,722,648 691,415
----------------------------------------------------------------------------------------------------
Net Loss $(1,135,337) $(1,135,337) $ (313,201)
----------------------------------------------------------------------------------------------------
2002: The nine months ended 2002 originally classified only direct material
costs in Cost of Goods Sold. The amounts have been reclassified to reflect labor
and overhead associated with costs of goods sold. The quarter ended December 31,
2002 reflects approximately $400,000 in slow moving and obsolescence reserves
recorded in this quarter. During the first nine months of 2002, sales had
steadily increased and management believed during this period that such sales
would continue to increase. Beginning in the fourth quarter, sales began to drop
off significantly and the mix began changing away from higher margin systems to
lower margin parts. At the end of the fourth quarter, management reevaluated its
forecasted revenues and concluded that sales of its systems and parts would not
meet previous forecasts, accordingly, inventories were analyzed as to future
salability and an appropriate reserve was deemed necessary.
2001: The nine months ended 2001 originally classified only direct material
costs in Cost of Goods Sold. The amounts have been reclassified to reflect labor
and overhead associated with costs of goods sold. Sales in the fourth quarter
had decreased significantly, primarily in the lower margin parts sales.
Management had evaluated its forecasts and had concluded that the decrease was
temporary, primarily due to September 11, 2001.
23
DND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ZURICKIRCH CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 19 SUBSEQUENT EVENTS
Issuance of Common Stock
On January 30, 2003, the Company issued 1,000,000 shares of
restricted common stock to a vendor in exchange for $160,000 of
accounts payable with A.S.I. The Company is obligated to register
these shares as "free trading" within 120 days of issuance.
Intent to Acquire ESL Elektronik Handels GMBH
On January 31, 2003, the Company signed a Letter of Intent to
acquire ESL Elektronic Handels GMBH (ESL). ESL is in the business of
selling, developing, manufacturing and servicing semiconductor and
related equipment. The terms of the proposed merger are that the
Company will acquire 100% of ESL in exchange for the following:
A. 2,000,000 shares of common stock for 100% of ESL.
B. An additional 200,000 shares of common stock issued to
certain key employees of ESL.
C. Up to 1,000,000 additional shares based on performance
over the next five years.
24
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘10KSB/A’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 12/31/17 | | 47 |
| | 12/31/10 | | 15 |
| | 11/30/08 | | 10 |
| | 12/31/07 | | 42 |
| | 9/1/05 | | 45 |
| | 12/31/04 | | 10 | | 48 | | | 10KSB, 5, NT 10-K |
| | 5/15/04 | | 44 |
| Filed on: | | 1/27/04 | | | | | | | 10QSB/A, 8-K/A |
| | 1/26/04 | | 24 |
| | 1/21/04 | | 2 |
| | 1/1/04 | | 48 |
| | 12/31/03 | | 42 | | 48 | | | 10KSB, NT 10-K |
| | 9/30/03 | | 14 | | | | | 10QSB, NT 10-Q |
| | 6/30/03 | | 48 | | | | | 10QSB, 10QSB/A, NT 10-Q |
| | 6/3/03 | | 22 | | | | | 8-K |
| | 5/2/03 | | 10 | | 15 |
| | 4/15/03 | | 3 | | 25 | | | 10KSB |
| | 4/10/03 | | 5 | | 22 |
| | 4/7/03 | | 10 | | 17 |
| | 3/20/03 | | 45 |
| | 3/18/03 | | 26 |
| | 1/31/03 | | 4 | | 51 |
| | 1/30/03 | | 51 |
| | 1/19/03 | | 25 |
| | 1/14/03 | | 10 | | | | | 8-K |
| | 1/1/03 | | 40 | | 48 |
| For Period End: | | 12/31/02 | | 1 | | 51 | | | 10KSB, NT 10-K |
| | 12/18/02 | | 10 | | 17 |
| | 12/15/02 | | 40 | | 41 |
| | 11/19/02 | | 23 | | | | | 10QSB, 8-K |
| | 11/8/02 | | 6 | | 25 |
| | 10/7/02 | | 23 | | 25 | | | 8-K/A |
| | 10/3/02 | | 25 |
| | 9/30/02 | | 49 | | | | | 10QSB, NT 10-Q |
| | 9/27/02 | | 23 | | 25 | | | 8-K/A |
| | 8/7/02 | | 23 | | | | | 8-K |
| | 8/2/02 | | 4 | | 25 | | | 3 |
| | 6/15/02 | | 40 |
| | 5/21/02 | | 23 | | | | | 8-K |
| | 5/16/02 | | 23 | | | | | 8-K, 8-K/A |
| | 5/15/02 | | 25 | | 34 |
| | 4/1/02 | | 14 | | 43 |
| | 3/5/02 | | 27 |
| | 1/1/02 | | 31 | | 48 |
| | 12/31/01 | | 12 | | 50 | | | 10KSB, 10KSB/A |
| | 12/15/01 | | 11 | | 40 |
| | 9/30/01 | | 49 | | 50 | | | 10QSB, 10QSB/A |
| | 9/11/01 | | 50 |
| | 6/1/01 | | 21 | | 25 |
| | 5/18/01 | | 44 |
| | 1/1/01 | | 17 |
| | 12/31/00 | | 47 |
| | 8/3/00 | | 25 | | | | | SB-2 |
| | 7/1/00 | | 48 |
| | 4/17/00 | | 4 |
| | 3/27/00 | | 45 |
| | 3/9/00 | | 4 |
| | 1/1/00 | | 48 |
| | 2/16/99 | | 34 |
| | 2/9/99 | | 8 |
| | 12/31/98 | | 43 | | 47 |
| | 3/6/98 | | 43 |
| | 2/3/98 | | 8 |
| | 12/31/97 | | 43 | | 47 |
| | 6/12/97 | | 44 |
| | 5/9/97 | | 4 | | 34 |
| | 1/1/97 | | 49 |
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