UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
___________________________________________
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to _____________
Commission file number:000-29209
_________
21ST CENTURY TECHNOLOGIES, INC.
______________________________________________
(Name of small business issuer in its charter)
NEVADA 48-111056
_______________________________ ____________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2700 W. Sahara Blvd., Suite 440, Las Vegas, NV 89102
________________________________________________________________
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (702) 248-1588
______________
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
$0.001 PAR VALUE COMMON VOTING STOCK
________________________________________________________________________________
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to ITEM 405 OF
REGULATION S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
State issuer's revenues for its most recent fiscal year.
$2,243,635
- -----------------------------------
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
NOTE: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date. 493,100,811 ISSUED
COMMON SHARES AS OF March 29, 2004.
DOCUMENTS INCORPORATED BY REFERENCE
NOT APPLICABLE.
Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]
PART I
ITEM 1.
BUSINESS
GENERAL
As a business development company, we provide long-term debt and equity
investment capital to support the expansion of companies in a variety of
industries. We generally invest in illiquid securities through privately
negotiated transactions. We generally invest in private small to middle market
companies though, from time to time, we may invest in public companies that lack
access to public capital or whose securities may not be marginable. Today, our
investment and lending activity is generally focused in private finance.
Our investment portfolio consists primarily of secured loans with or without
equity features, equity investments in companies, which may or may not
constitute a controlling equity interest, preferred shares in collateralized
debt obligations, and commercial mortgage loans. At December 31, 2003, our
investment portfolio totaled $10,439,075 at fair value. Our investment objective
is to achieve current income and capital gains.
CORPORATE HISTORY
21st Century Technologies, Inc. ("the Company") is a Nevada corporation. The
Company merged into a "public shell" (formerly First National Holding
Corporation) after acquiring certain assets of Innovative Weaponry, Inc., a
debtor in bankruptcy, and commenced trading on June 1, 1995. The name of the
Company was changed from Innovative Weaponry, Inc. to 21st Century Technologies,
Inc. on September 25, 1995. Effective October 1, 2003, the Company converted to
a Business Development Company under the Investment Company Act of 1940.
PORTFOLIO INVESTMENTS
The Company had investments in nine controlled (portfolio) corporations at the
end of the reporting fiscal year:
1. INNOVATIVE WEAPONRY INC.
Innovative Weaponry is a manufacturer of night sights utilizing tritium, a
radioactive isotope of hydrogen. Products are available to both public entities
and private gun owners. Encapsulated in phosphor-lined glass sight inserts, the
tritium causes the phosphors to glow, making the sights useful in low-light and
no-light conditions. The Innovative Weaponry products feature multi-color
tritium sights with the front sight brighter than the rear sight thereby
enhancing low light sighting. Innovative Weaponry products have been sold to
original equipment manufacturers, members of the United States military
(including Navy Seal Teams, United States Customs, Drug Enforcement agencies,
Fish and Game departments, and numerous state and local police departments
nationwide).
Innovative Weaponry sells under the federal trade mark protected name "PT Night
Sights (TM) a multi-color 3-dot night sight using the radioactive isotope
tritium in encapsulated form to provide light in low light and no light
situations. Innovative Weaponry's domestic competition is: (1) Trijicon (2)
Meprolight (3) Trilux. (4) Truglo. Each of these companies is private and no
public sales figures are available.
Tritium is a radioactive product that is regulated by the U.S. Nuclear
Regulatory Commission ("NRC") and the Texas Department of Health (TDH).
Innovative Weaponry is licensed with the NRC and TDH to import tritium in
connection with the manufacture of its night sights and low-light sights. IWI's
licensing by the NRC is currently under review to expand legal applications of
different configurations of PT NIGHT SIGHTS (TM). Innovative Weaponry is a New
Mexico corporation and is owned 100% by the Company.
2. TRIDENT TECHNOLOGIES, INC.
Trident Technologies, Inc. ("Trident") manufactures a series of products based
upon permanent magnets, which use patented technology employing rare earths and
sophisticated circuitry. Trident is a Nevada corporation and is owned 100% by
the Company. The magnets are used to attach leak-sealing devices to ferrous
surfaces. The devices are made in several configurations. One series is
engineered for maritime applications and is known in its various configurations
as "SeaPatch." The series engineered for land-based applications is known in its
various configurations as "ProMag."
The magnetic force exerted by the adhesion magnets employed by SeaPatch and
ProMag is so powerful that a cam-lever device is required to detach the devices
once they are deployed on ferrous surfaces. This technique is known as "cam-on
cam-off". The SeaPatch and ProMag have applications in both the disaster and
environmental markets. The technology is based on a patented magnetic means of
implementing emergency ship, storage container, pipeline and other repairs where
surface integrity has been breached as in the case of a rip or tear to a ship's
hull or a ruptured railroad tank car. The technology utilizes the rare-earth
magnetic pack and cam-on/cam-off technology to attach a compression patch to
tears, stress fractures and punctures in a ship's hull above or below the
waterline, or any of many various applications for the stopping of land-based
leaks, as occur in pipelines, storage tanks, tank cars and numerous other
ferrous-based containers of liquids or gases.
This technology provides a new approach to resolving a problem having high
public visibility due to the extensive environmental focus on potentially
hazardous chemical and oil spills from pipelines, storage containers, railroad
cars and marine transport vessels.
Trident markets its products to private industry, including the maritime and
salvage industries, as well as governmental entities.
3. GRIFFON USA, INC.
Griffon USA, Inc. ("Griffon"), was an importer of .45 caliber semi-automatic
pistols from Continental Weapons (Pty) located in South Africa. It no longer
engages in business of any kind
4. NET CONSTRUCTION, INC.
On June 19, 2001, the name of CQB Armor, Inc., a 100% owned subsidiary of the
Company, was changed to Net Construction, Inc. CQB Armor had been an inactive
subsidiary since its formation due to the failure of a planned acquisition to
close. The name was changed in order to effect the acquisition of Net
Construction, a telecommunications and networking company originally founded in
1999. It was the Company's intent to offer through Net Construction a variety of
telecommunications services. Due to higher than anticipated overhead expense,
the Company discontinued operations of Net Construction.
5. TRADE PARTNERS INTERNATIONAL, INC.
Trade Partners International, Inc. ("Trade Partners") did not engage in business
activities during the year 2003.
6. HALLMARK HUMAN RESOURCES, INC.
Hallmark Human Resources, Inc. ("Hallmark"), a wholly owned subsidiary of the
Company, did not engage in business during the year 2003.
7. MINIATURE MACHINE CORPORATION, INC.
In March 2001, the Company acquired the stock of Miniature Machine Corporation,
Inc. {"MMC"}, a manufacturer and distributor of gun sights. The primary
difference between the products is that Innovative Weaponry markets fixed
sights, while MMC sights are adjustable. The subject of precision machining, the
open sights offered by MMC are favorites of gun enthusiasts and serious
hobbyists. The manufacture and sale of MMC sights has been integrated smoothly
into the manufacture and sale of PT Night Sights offered by Innovative Weaponry,
Inc. MMC has subsequently been merged into IWI.
8. U.S. OPTICS TECHNOLOGIES, INC.
This Company had no business activity during 2003.
9. PARAMOUNT MULTISERVICES, INC.
Paramount was acquired at year-end 2003 from an investment group in which a
former member of the Board of Directors and current General Manager of
operations had an ownership interest. The Company acquired 100% ownership of
this company in an exchange of common stock and changed the name to Paramount
MultiServices, Inc. Paramount was valued by an independent business valuation
consultant. The Company exchanged a non-interest bearing note which will be paid
over 3 years with common stock.
Paramount has facilities located in Alliance, Nebraska; Corpus Christi, Texas;
and Duncanville, Texas and currently employs approximately 125 people in
positions with administrative, management, and telemarketing responsibilities.
Approximately 65% of Paramount's business relates to outbound telemarketing
calls, and the remaining 35% of sales relate to inbound calls. Outbound
telemarketing calls relate to attempts by financial services companies to sell
add-on services to existing customers. Inbound calls primarily relate to service
requests for insurance companies.
10. PRIZEWISE, INC.
PrizeWise is an online trading platform in which anyone can post and sell
anything of value, like eBay. Unlike eBay, items on PrizeWise are raffled off
rather than auctioned off. The seller sets the raffle price and PrizeWise takes
17% commission on the total sale. Buyers chance winning items for nearly
nothing, and sellers get higher sale prices. Instead of simple selling raffle
tickets for a dollar a piece, PrizeWise sells coupons to which the raffle
tickets are incidental, and which PrizeWise actually gets paid to distribute. It
is anticipated that the trading platform will be live during the second quarter
of 2004.
RESEARCH AND DEVELOPMENT.
The Company currently has no research and development group. Periodically, our
portfolio companies make refinements to their products on a line production
basis. AVAILABLE INFORMATION Our Internet address is
www.21stcenturytechnologies.com. We are in process of making available free of
charge on our website our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the SEC. Information contained on our website is not incorporated
by reference into this annual report on Form 10-K and you should not consider
information contained on our website to be part of this annual report on Form
10-K. Additionally, there will be a copy of our Corporate Code of Ethics posted
on the web site.
PRIVATE FINANCE
We participate in the private equity business by providing privately negotiated
long-term debt and equity investment capital. Our private finance investment
activity is generally focused on providing capital in the form of debt with or
without equity features, such as warrants or options, often referred to as
mezzanine financing. In certain situations, we may also take a controlling
equity position in a company. Our private financing is generally used to fund
growth, buyouts, acquisitions, recapitalizations, note purchases, and bridge
financings. We generally invest in private companies though, from time to time,
we may invest in public companies that lack access to public capital or whose
securities may not be marginable.
At December 31, 2003, 16.2% of the private finance portfolio consisted of loans
and debt securities, 61.6% consisted of equity securities and 22.2% consisted of
investments in and advances to controlled companies.. Our private finance
portfolio includes investments in a wide variety of industries, including
homeland security products, business services, financial services, light
industrial products, retail, internet activities, and firearms and homeland
security related products.
We fund new investments using cash, through the issuance of our common equity,
the reinvestment of previously accrued interest and dividends in debt or equity
securities, or the current reinvestment of interest and dividend income through
the receipt of a debt or equity security (payment-in-kind income). From time to
time, we may also opt to reinvest accrued interest receivable in a new debt or
equity security, in lieu of receiving such interest in cash and providing a
subsequent investment. When we acquire a controlling interest in a company, we
may have the opportunity to acquire the company's equity with our common stock.
The issuance of our stock as consideration may provide us with the benefit of
raising equity without having to access the public markets in an underwritten
offering, including the added benefit of the elimination of any underwriter
commissions.
As a business development company, we are required to make significant
managerial assistance available to the companies in our investment portfolio. In
addition to the interest and dividends received from our private finance
investments, we will often generate additional fee income for the structuring,
diligence, transaction and management services and guarantees we provide to our
portfolio companies.
There is no one methodology to determine enterprise value and, in fact, for any
one portfolio company, enterprise value is best expressed as a range of fair
values, from which we derive a single estimate of enterprise value. To determine
the enterprise value of a portfolio company, we analyze its historical and
projected financial results. We generally require portfolio companies to provide
annual audited and monthly unaudited financial statements, as well as annual
projections for the upcoming fiscal year. Typically in the private equity
business, companies are bought and sold based upon multiples of EBITDA, cash
flow, net income, revenues or, in limited instances, book value. The private
equity industry uses financial measures such as EBITDA or EBITDAM (Earnings
Before Interest, Taxes, Depreciation, Amortization and, in some instances,
Management fees) in order to assess a portfolio company's financial performance
and to value a portfolio company. EBITDA and EBITDAM are not intended to
represent cash flow from operations as defined by accounting principles
generally accepted in the United States of America and such information should
not be considered as an alternative to net income, cash flow from operations, or
any other measure of performance prescribed by accounting principles generally
accepted in the United States of America. When using EBITDA to determine
enterprise value, we may adjust EBITDA for non-recurring items. Such adjustments
are intended to normalize EBITDA to reflect the portfolio company's earnings
power. Adjustments to EBITDA may include compensation to previous owners,
acquisition, recapitalization, or restructuring related items or one-time
non-recurring income or expense items.
In determining a multiple to use for valuation purposes, we look to private
merger and acquisition statistics, discounted public trading multiples or
industry practices. In estimating a reasonable multiple, we consider not only
the fact that our portfolio company may be a private company relative to a peer
group of public comparables, but we also consider the size and scope of our
portfolio company and its specific strengths and weaknesses. In some cases, the
best valuation methodology may be a discounted cash flow analysis based on
future projections. If a portfolio company is distressed, a liquidation analysis
may provide the best indication of enterprise value.
If there is adequate enterprise value to support the repayment of our debt, the
fair value of our loan or debt security normally corresponds to cost unless the
borrower's condition or other factors lead to a determination of fair value at a
different amount. The fair value of equity interests in portfolio companies are
determined based on various factors, including the enterprise value remaining
for equity holders after the repayment of the portfolio company's debt and other
pertinent factors such as recent offers to purchase a portfolio company's equity
interest or other potential liquidity events. The determined equity values are
generally discounted when we have a minority position, restrictions on resale,
specific concerns about the receptivity of the capital markets to a specific
company at a certain time, or other factors.
VALUATION PROCESS.
Upon conversion to a business development company, we employed independent
business valuation experts to value our portfolio companies, (formerly wholly
owned subsidiaries), inactive shell corporations, significant acquisitions,
(Paramount MultiServices, Inc.) and certain portfolio investments(HCIA Preferred
Stock). The portfolio companies were valued effective September 30, 2003 and
December 31, 2003. Acquisitions and portfolio investments were valued as of
December 31, 2003. The result of these evaluations is shown as unrealized
appreciation (depreciation) on investments in the balance sheet and as
cumulative effect of conversion to business development corporation on the
statement of operations.
The following is a description of the steps we will take in future quarters to
determine the value of our portfolio:
o Our quarterly valuation process begins with each portfolio company or
investment being initially valued by the investment professionals responsible
for the portfolio investment.
o Preliminary valuation conclusions are then discussed and documented in a
valuation write-up and/ or worksheet and then discussed with our portfolio
management team under the supervision of the Chief Financial Officer.
o The investment committee, consisting of our Independent Directors, meets to
discuss valuations as preliminarily determined and documented by our
investment professionals, questions the valuation data and conclusions, and
arrives at an investment committee view of valuation.
o The investment committee provides comments on the preliminary valuation and
the deal team and portfolio management team respond and supplement the
documentation based upon those comments.
o The valuation documentation is updated and distributed to our board of
directors and the audit committee of the board of directors.
o The audit committee meets in advance of the board of directors to discuss the
valuations and supporting documentation.
o The board of directors meets to discuss valuations and review the input of
the audit committee and management.
o To the extent changes or additional information is deemed necessary, a
follow-up board meeting, executive committee meeting or audit committee
meeting may take place.
o The board of directors determines the fair value of the portfolio in good
faith.
CERTAIN GOVERNMENT REGULATIONS
We operate in a highly regulated environment. The following discussion generally
summarizes certain government regulations.
BUSINESS DEVELOPMENT COMPANY. A business development company is defined and
regulated by the 1940 Act. A business development company must be organized in
the United States for the purpose of investing in or lending to primarily
private companies and making managerial assistance available to them. A business
development company may use capital provided by public shareholders and from
other sources to invest in long-term, private investments in businesses. A
business development company provides shareholders the ability to retain the
liquidity of a publicly traded stock, while sharing in the possible benefits, if
any, of investing in primarily privately owned companies.
As a business development company, we may not acquire any asset other than
"qualifying assets" unless, at the time we make the acquisition, the value of
our qualifying assets represent at least 70% of the value of our total assets.
The principal categories of qualifying assets relevant to our business are:
o Securities purchased in transactions not involving any public offering, the
issuer of which is an eligible portfolio company;
o Securities received in exchange for or distributed with respect to securities
described in the bullet above or pursuant to the exercise of options,
warrants or rights relating to such securities; and
o Cash, cash items, government securities or high quality debt securities
(within the meaning of the 1940 Act), maturing in one year or less from the
time of investment.
An eligible portfolio company is generally a domestic company that is not an
investment company (other than a small business investment company wholly owned
by a business development company), and that:
o does not have a class of securities registered on an exchange or a class of
securities with respect to which a broker may extend margin credit;
o is actively controlled by the business development company and has an
affiliate of a business development company on its board of directors; or
o meets such other criteria as may be established by the SEC.
Control under the 1940 Act is presumed to exist where a business development
company beneficially owns more than 25% of the outstanding voting securities of
the portfolio company.
To include certain securities described above as qualifying assets for the
purpose of the 70% test, a business development company must make available to
the issuer of those securities significant managerial assistance such as
providing significant guidance and counsel concerning the management,
operations, or business objectives and policies of a portfolio company or making
loans to a portfolio company. We offer to provide managerial assistance to each
of our portfolio companies.
As a business development company, we are entitled to issue senior securities in
the form of stock or senior securities representing indebtedness, including debt
securities and preferred stock, as long as each class of senior security has an
asset coverage of at least 200% immediately after each such issuance.
We may also be prohibited under the 1940 Act from knowingly participating in
certain transactions with our affiliates without the prior approval of our board
of directors who are not interested persons and, in some cases, prior approval
by the SEC.
We are periodically examined by the SEC for compliance with the 1940 Act. As of
the date of this filing we have not been examined by the SEC and have not been
notified of a pending examination.
As with other companies regulated by the 1940 Act, a business development
company must adhere to certain substantive regulatory requirements. A majority
of our directors must be persons who are not interested persons, as that term is
defined in the 1940 Act. Additionally, we are required to provide and maintain a
bond issued by a reputable fidelity insurance company to protect us against
larceny and embezzlement. Furthermore, as a business development company, we are
prohibited from protecting any director or officer against any liability to the
Company or our shareholders arising from willful malfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
person's office.
We maintain a code of ethics that establishes procedures for personal investment
and restricts certain transactions by our personnel. Our code of ethics
generally does not permit investment by our employees in securities that may be
purchased or held by us. The code of ethics is filed as an exhibit to this 10K
which will be on file at the SEC. You may read and copy the code of ethics at
the SEC's Public Reference Room in Washington, D.C. You may obtain information
on operations of the Public Reference Room by calling the SEC at (202) 942-8090.
In addition, the code of ethics is available on the EDGAR Database on the SEC
Internet site at http://www.sec.gov. You may obtain copies of the code of
ethics, after paying a duplicating fee, by electronic request at the following
email address: publicinfo@sec.gov, or by writing to the SEC's Public Reference
Section, 450 5th Street, NW, Washington, D.C. 20549. Additionally, the code of
ethics will be posted on our corporate website, www.21stcenturytechnologies.com.
As a business development company under the 1940 Act, we are entitled to provide
loans to our employees in connection with the exercise of options. However, as a
result of provisions of the Sarbanes-Oxley Act of 2002, we are prohibited from
making new loans to, or materially modifying existing loans with, our executive
officers in the future.
We may not change the nature of our business so as to cease to be, or withdraw
our election as, a business development company unless authorized by vote of a
"majority of the outstanding voting securities," as defined in the 1940 Act, of
our shares. A majority of the outstanding voting securities of a company is
defined under the 1940 Act as the lesser of: (i) 67% or more of such company's
shares present at a meeting if more than 50% of the outstanding shares of such
company are present and represented by proxy or (ii) more than 50% of the
outstanding shares of such company. Since we made our business development
company election, we have not made any substantial change in the nature of our
business.
REGULATED INVESTMENT COMPANY STATUS. We have not elected to be taxed as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986.
COMPLIANCE WITH THE SARBANES-OXLEY ACT OF 2002 AND NYSE CORPORATE GOVERNANCE
REGULATIONS. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley
Act of 2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act imposes a wide
variety of new regulatory requirements on publicly-held companies and their
insiders. Many of these requirements will affect us. For example:
o Our chief executive officer and chief financial officer must now certify the
accuracy of the financial statements contained in our periodic reports;
o Our periodic reports must disclose our conclusions about the effectiveness of
our disclosure controls and procedures;
o Our periodic reports must disclose whether there were significant changes in
our internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses; and
o We may not make any loan to any director or executive officer and we may not
materially modify any existing loans.
The Sarbanes-Oxley Act has required us to review our current policies and
procedures to determine whether we comply with the Sarbanes-Oxley Act and the
new regulations promulgated thereunder. We will continue to monitor our
compliance with all future regulations that are adopted under the Sarbanes-Oxley
Act and will take actions necessary to ensure that we are in compliance
therewith.
RISK FACTORS
INVESTING IN 21ST CENTURY TECHNOLOGIES, INC. INVOLVES A NUMBER OF SIGNIFICANT
RISKS RELATING TO OUR BUSINESS AND INVESTMENT OBJECTIVE. AS A RESULT, THERE CAN
BE NO ASSURANCE THAT WE WILL ACHIEVE OUR INVESTMENT OBJECTIVE. IN ADDITION TO
THE RISK FACTORS DESCRIBED BELOW, OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY INCLUDE:
o GLOBAL ECONOMIC DOWNTURNS, COUPLED WITH WAR OR THE THREAT OF WAR;
o RISK ASSOCIATED WITH POSSIBLE DISRUPTION IN OUR OPERATIONS DUE TO TERRORISM;
o FUTURE REGULATORY ACTIONS AND CONDITIONS IN OUR OPERATING AREAS; AND
o OTHER RISKS AND UNCERTAINTIES AS MAY BE DETAILED FROM TIME TO TIME IN OUR
PUBLIC ANNOUNCEMENTS AND SEC FILINGS.
INVESTING IN PRIVATE COMPANIES INVOLVES A HIGH DEGREE OF RISK. Our portfolio
consists of primarily long-term loans to and investments in private companies.
Investments in private businesses involve a high degree of business and
financial risk, which can result in substantial losses and accordingly should be
considered speculative. There is generally no publicly available information
about the companies in which we invest, and we rely significantly on the
diligence of our employees and agents to obtain information in connection with
our investment decisions. In addition, some smaller businesses have narrower
product lines and market shares than their competition, and may be more
vulnerable to customer preferences, market conditions or economic downturns,
which may adversely affect the return on, or the recovery of, our investment in
such businesses.
OUR PORTFOLIO OF INVESTMENTS IS ILLIQUID. We generally acquire our investments
directly from the issuer in privately negotiated transactions. The majority of
the investments in our portfolio may be subject to restrictions on resale or
otherwise have no established trading market. We typically exit our investments
when the portfolio company has a liquidity event such as a sale,
recapitalization, or initial public offering of the company. The illiquidity of
our investments may adversely affect our ability to dispose of debt and equity
securities at times when it may be otherwise advantageous for us to liquidate
such investments. In addition, if we were forced to immediately liquidate some
or all of the investments in the portfolio, the proceeds of such liquidation
would be significantly less than the current value of such investments.
Substantially all of our portfolio investments are recorded at fair value as
determined in good faith by our board of directors and, as a result, there is
uncertainty regarding the value of our portfolio investments. At December 31,
2003, approximately 97% of our total assets represented portfolio investments
recorded at fair value. Pursuant to the requirements of the 1940 Act, we value
substantially all of our investments at fair value as determined in good faith
by our board of directors on a quarterly basis. Since there is typically no
readily ascertainable market value for the investments in our portfolio, our
board of directors determines in good faith the fair value of these investments
pursuant to a valuation policy and a consistently applied valuation process.
Initial valuations as of September 30, 2003 and December 31, 2003, respectively,
were provided by independent valuation specialists.
There is no single standard for determining fair value in good faith. As a
result, determining fair value requires that judgment be applied to the specific
facts and circumstances of
each portfolio investment while employing a consistently applied valuation
process for the types of investments we make. Unlike banks, we are not permitted
to provide a general reserve for anticipated loan losses; we are instead
required by the 1940 Act to specifically value each individual investment on a
quarterly basis, and record unrealized depreciation for an investment that we
believe has become impaired, including where collection of a loan or realization
of an equity security is doubtful, or when the enterprise value of the company
does not currently support the cost of our debt or equity investment.
Conversely, we will record unrealized appreciation if we believe that the
underlying portfolio company has appreciated in value and, therefore, our equity
security has also appreciated in value. Without a readily ascertainable market
value and because of the inherent uncertainty of valuation, the fair value of
our investments determined in good faith by the board of directors may differ
significantly from the values that would have been used had a ready market
existed for the investments, and the differences could be material.
We adjust quarterly the valuation of our portfolio to reflect the board of
directors' determination of the fair value of each investment in our portfolio.
Any changes in estimated fair value are recorded in our statement of operations
as "Net unrealized gains (losses)."
ECONOMIC RECESSIONS OR DOWNTURNS COULD IMPAIR OUR PORTFOLIO COMPANIES AND HARM
OUR OPERATING RESULTS. Many of the companies in which we have made or will make
investments may be susceptible to economic slowdowns or recessions. An economic
slowdown may affect the ability of a company to engage in a liquidity event. Our
non-performing assets are likely to increase and the value of our portfolio is
likely to decrease during these periods. These conditions could lead to
financial losses in our portfolio and a decrease in our revenues, net income,
and assets.
Our business of making private equity investments and positioning them for
liquidity events also may be affected by current and future market conditions.
The absence of an active senior lending environment may slow the amount of
private equity investment activity generally. As a result, the pace of our
investment activity may slow. In addition, significant changes in the capital
markets could have an effect on the valuations of private companies and on the
potential for liquidity events involving such companies. This could affect the
amount and timing of gains realized on our investments.
OUR BORROWERS MAY DEFAULT ON THEIR PAYMENTS, WHICH MAY HAVE AN EFFECT ON OUR
FINANCIAL PERFORMANCE. We make long-term unsecured, subordinated loans and
invest in equity securities, which may involve a higher degree of repayment
risk. We primarily invest in companies that may have limited financial resources
and that may be unable to obtain financing from traditional sources. Numerous
factors may affect a borrower's ability to repay its loan, including the failure
to meet its business plan, a downturn in its industry, or negative economic
conditions. Deterioration in a borrower's financial condition and prospects may
be accompanied by deterioration in any related collateral.
OUR PRIVATE FINANCE INVESTMENTS MAY NOT PRODUCE CURRENT RETURNS OR CAPITAL
GAINS. Private finance investments are typically structured as debt securities
with a relatively high fixed rate of interest and with equity features such as
conversion rights, warrants, or options. As a result, private finance
investments are generally structured to generate interest income from the time
they are made and may also produce a realized gain from an accompanying equity
feature. We cannot be sure that our portfolio will generate a current return or
capital gains.
WE MAY BORROW MONEY WHICH MAGNIFIES THE POTENTIAL FOR GAIN OR LOSS ON AMOUNTS
INVESTED AND MAY INCREASE THE RISK OF INVESTING IN US. Borrowings, also known as
leverage, magnify the potential for gain or loss on amounts invested and,
therefore, increase the risks associated with investing in our securities. We
can borrow from and issue senior debt securities to banks, insurance companies,
and other lenders. Lenders of these senior securities would have fixed dollar
claims on our consolidated assets that are superior to the claims of our common
shareholders. If the value of our consolidated assets increases, then leveraging
would cause the net asset value attributable to our common stock to increase
more sharply than it would have had we not leveraged. Conversely, if the value
of our consolidated assets decreases, leveraging would cause net asset value to
decline more sharply than it otherwise would have had we not leveraged.
Similarly, any increase in our consolidated income in excess of consolidated
interest payable on the borrowed funds would cause our net income to increase
more than it would without the leverage, while any decrease in our consolidated
income would cause net income to decline more sharply than it would have had we
not borrowed. At December 31, 2003, we had $1,959,267 of outstanding
indebtedness, bearing a weighted average annual interest cost of 5%.
CHANGES IN INTEREST RATES MAY AFFECT OUR COST OF CAPITAL AND NET INVESTMENT
INCOME. Because we can borrow money to make investments, our net investment
income before net realized and unrealized gains or losses, or net investment
income, can be dependent upon the difference between the rate at which we borrow
funds and the rate at which we invest these funds. As a result, there can be no
assurance that a significant change in market interest rates will not have a
material adverse effect on our net investment income. In periods of rising
interest rates, our cost of funds would increase, which would reduce our net
investment income. We can use a combination of long-term and short-term
borrowings and equity capital to finance our investing activities.
WE OPERATE IN A COMPETITIVE MARKET FOR INVESTMENT OPPORTUNITIES. We compete for
investments with a large number of private equity funds and mezzanine funds,
investment banks and other equity and non-equity based investment funds, and
other sources of financing, including traditional financial services companies
such as commercial banks. Some of our competitors have greater resources than we
do. Increased competition would make it more difficult for us to purchase or
originate investments at attractive prices. As a result of this competition,
sometimes we may be precluded from making otherwise attractive investments.
WE DEPEND ON KEY PERSONNEL. We depend on the continued services of our executive
officers and other key management personnel. If we were to lose any of these
officers or other management personnel, such a loss could result in
inefficiencies in our operations and lost business opportunities.
CHANGES IN THE LAW OR REGULATIONS THAT GOVERN US COULD HAVE A MATERIAL IMPACT ON
US OR OUR OPERATIONS. We are regulated by the SEC. In addition, changes in the
laws or regulations that govern business development companies, regulated
investment companies, real estate investment trusts, and small business
investment companies may significantly affect our business. Any change in the
law or regulations that govern our business could have a material impact on us
or our operations. Laws and regulations may be changed from time to time, and
the interpretations of the relevant laws and regulations also are subject to
change.
RESULTS MAY FLUCTUATE AND MAY NOT BE INDICATIVE OF FUTURE PERFORMANCE. Our
operating results will fluctuate and, therefore, you should not rely on current
or historical period results to be indicative of our performance in future
reporting periods. Factors that could cause operating results to fluctuate
include, among others, variations in the investment origination volume and fee
income earned, variation in timing of prepayments, variations in and the timing
of the recognition of realized and unrealized gains or losses, the degree to
which we encounter competition in our markets, and general economic conditions.
OUR COMMON STOCK PRICE MAY BE VOLATILE. The trading price of our common stock
may fluctuate substantially. The price of the common stock may be higher or
lower than the price you pay for your shares, depending on many factors, some of
which are beyond our control and may not be directly related to our operating
performance. These factors include the following:
o price and volume fluctuations in the overall stock market from time to time;
o significant volatility in the market price and trading volume of securities
of business development companies or other financial services companies;
o changes in regulatory policies or tax guidelines with respect to business
development companies or regulated investment companies;
o actual or anticipated changes in our earnings or fluctuations in our
operating results or changes in the expectations of securities analysts;
o general economic conditions and trends;
o loss of a major funding source; or
o departures of key personnel.
ITEM 2. PROPERTIES
Our principal offices are located at 2700 W. Sahara, Suite 440 and 420, Las
Vegas, NV. The office is equipped with an integrated network of computers for
word processing, financial analysis, accounting and loan servicing. We believe
our office space is suitable for our needs for the foreseeable future.
As of the close of the reporting period, the Company and its wholly owned non
consolidated portfolio companies had approximately 155 employees.
Innovative Weaponry is in process of moving to new offices at 2900 S. Highland
Dr., Suite 18B, Las Vegas, NV and Trident has production and sales offices
located at 4011 C HWY 377 South, Fort Worth, TX 76116.
ITEM 3. LEGAL PROCEEDINGS
We may be a party to certain other lawsuits including legal proceedings
incidental to the normal course of our business. While the outcome of these
legal proceedings cannot at this time be predicted with certainty, we do not
expect that these proceedings will have a material effect upon our financial
condition or results of operations.
On September 5, 2001, Patricia Wilson, a former officer, director and employee
of the Company, filed suit against the Company and directors Ken Wilson, Jim
Mydlach and Dave Gregor. The suit is pending in the 153rd District Court of
Tarrant County, Texas in Cause Number 153-189311-01. The suit arises out of Ms.
Wilson's termination as an officer and director of the company on August 31,
2001. The causes of action asserted against the Defendants include breach of
fiduciary duty, breach of contract, defamation and negligent investigation. The
Petition seeks actual damages of $500,000.00, exemplary damages of $10,000,000,
and 9,000,000 shares of Company stock. A further discussion of the litigation is
included in the Company's Form 8- K filed as of September 26, 2001.
On February 20, 2004, in Case No. 02-1927 RGK, in the United States District
Court for the Central District of California, in a case styled Bike Doctor, a
California Partnership -vs- 21st Century Technologies, Inc., Kenneth E. Wilson
and Scott Sheppard, a judgment was entered against the Company for $145,000,
together with interest and costs. The judgment arises out of a Motion for
Summary Judgment filed by the Plaintiff. The Company has given notice of appeal
to the 9th Circuit Court of Appeals. Counsel for the Company is reviewing the
record to determine the efficacy of grounds for appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By affirmative vote of the majority of the outstanding voting rights, on
February 20, 2003, the Company effected a 100 to 1 reverse split of its common
stock and raised its authorized common shares to 300,000,000 shares with a par
value of $.001 per share. On November 11, 2003, by affirmative vote of the
majority of the outstanding voting rights, the Company amended its Articles of
Incorporation to increase the number of authorized common shares to 750,000,000
with a par value of $.001 per share.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded over the counter and quoted on the OTC NASDAQ
Electronic Bulletin Board under the Signal "TFCT." That symbol became effective
after the accomplishment of the recapitalization on February 20, 2003. The
following table represents the range of the high and low bid prices of the
Company's stock for each fiscal quarter for the last two fiscal years ending
December 31, 2003. Such quotations represent prices between dealers and may not
include markups, markdowns, or commissions and may not necessarily represent
actual transactions.
As Restated
------------------
Year Quarter High Low High Low
2002 First Quarter .04 .02 4.00 2.00
Second Quarter .04 .02 4.00 2.00
Third Quarter .03 .01 3.00 1.00
Fourth Quarter .02 .01 2.00 1.00
2003 First Quarter .95 .01 95.00 1.00
Second Quarter .45 .03 45.00 3.00
Third Quarter .09 .01 9.00 1.00
Fourth Quarter .12 .04 12.00 4.00
Our market has traded sporadically and is often thinly traded with large changes
in volume of shares traded on any particular day. Shareholders should consider
the possibility of the loss of the entire value of their shares.
As of December 31, 2003 the authorized capital of the company is 750,000,000
shares of common voting stock par value $.001 per share and 50,000,000 shares of
preferred stock. As of December 31, 2003 the Company has outstanding 437,173,162
shares of common stock and 17,200,000 shares of $.001 preferred stock.
Prior to restating for the 100:1 reverse stock split which was effective
February 20, 2003, the Company had issued an outstanding capital of 120,831,994
shares of $.001 par value common voting stock and 79,095,106 preferred warrants
outstanding at December 31, 2002.
After the recapitalization effective February 20, 2003, there were 300,000,000
shares of $.001 par value common stock authorized with 92,303,426 issued and
outstanding.
On October 7, 2003, by vote of the majority voting interests, the Company
increased its authorized common shares to 750,000,000 shares of $.001 par value
common shares.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with our
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and notes thereto. As discussed in Note
A to the Financial Statements, we converted to a Business Development Company
effective October 1, 2003. The results of operations for 2003 are divided into
two periods, the "Post-Conversion as a Business Development Company" period and
"Pre-Conversion prior to becoming a Business Development Company" period.
Different accounting principles are used in the preparation of financial
statements of a business development company under the Investment Company Act of
1940 and, as a result, the financial results for periods prior to October 1,
2003 are not comparable to the period commencing on October 1, 2003 and are not
expected to be representative of our financial results in the future. As a
result of the change, the financial results for periods prior to January 1, 2003
are not comparable to the period commencing on January 1, 2003 and are not
expected to be representative of our financial results in the future.
Years Ended December 31 2003 2002 2001
----------------------------------------
Total Investment Income $1,158,168 -0- -0-
Net Change in unrealized appreciation $ 868,000 -0- -0-
Cumulative Effect of conversion to BDC $ 232,996 -0- -0-
Income (loss) from Operations $105,535 $(2,038,822) $(5,189,510)
Per Share of Common Stock 0.00 (0.01) (0.03)
At December 31:
Total Assets $13,489,476 $2,534,637 $3,981,905
Total Liabilities $ 2,005,224 $1,984,410 $1,567,252
Stockholders' Equity $11,484,252 $ 547,069 $2,411,495
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in this section should be read in conjunction
with the Selected Financial Data and our Financial Statements and notes thereto
appearing elsewhere in this 10K. The 10K, including the Management's Discussion
and Analysis of Financial Condition and Results of Operations, contains
forward-looking statements that involve substantial risks and uncertainties.
These forward-looking statements are not historical facts, but rather are based
on current expectations, estimates and projections about our industry, our
beliefs, and our assumptions. Words such as "anticipates", "expects", "intends",
"plans", "believes", "seeks", and "estimates" and variations of these words and
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties, and other factors, some of which are beyond our control and
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements including
without limitation (1) any future economic downturn could impair our customers'
ability to repay our loans and increase our non-performing assets, (2) a
contraction of available credit and/or an inability to access the equity markets
could impair our lending and investment activities, (3) interest rate volatility
could adversely affect our results, (4) the risks associated with the possible
disruption in the Company's operations due to terrorism and (5) the risks,
uncertainties and other factors we identify from time to time in our filings
with the Securities and Exchange Commission, including our Form 10-Ks, Form
10-Qs and Form 8-Ks. Although we believe that the assumptions on which these
forward-looking statements are based are reasonable, any of those assumptions
could prove to be inaccurate, and as a result, the forward-looking statements
based on those assumptions also could be incorrect. In light of these and other
uncertainties, the inclusion of a projection or forward-looking statement in
this Annual Report should not be regarded as a representation by us that our
plans and objectives will be achieved. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this Annual
Report.
OVERVIEW
21st Century Technologies, Inc is a financial services company
providing financing and advisory services to small and medium-sized companies
throughout the United States. Effective October 1, 2003, we converted to a
Business Development Company under the Investment Company Act of 1940. Upon
completion of this conversion, we became an internally managed, diversified,
closed-end investment company. Prior to the conversion we were a diversified
holding company.
The results of operations for the year ended December 31, 2003 and the
three-month period from October 1, 2003 through December 31, 2003 reflect our
results as a business development company under the Investment Company Act of
1940. The three-month period from October 1, 2003 through December 31, 2003
includes a one-time conversion adjustment. The nine-month period from January 1,
2003 through September 30, 2003 reflects our results prior to operating as a
business development company under the Investment Company Act of 1940. The
principal difference between these two reporting periods relate to accounting
for investments at fair value rather than cost; the fact that we no longer
consolidate our wholly owned subsidiaries (Portfolio Companies). See Note A to
our Financial Statements. In addition, certain prior year items have been
reclassified to conform to the current year presentation as a business
development company.
PORTFOLIO COMPOSITION
Our primary business is lending to and investing in businesses, with
subordinated debt and equity-based investments, including warrants and equity
appreciation rights. The total portfolio value of investments in publicly traded
and non-publicly traded securities was $10.4 million at fair value at December
31, 2003.
OPERATING INCOME
Operating income includes interest income on commercial loans, advisory and
management fees, and other income. Interest income is comprised of commercial
loan interest at contractual rates and upfront fees that are amortized into
income over the life of the loan.
Income from operations before cumulative effect of accounting change for the 3
months ended December 31, 2003 was $1,776,585. Net income after cumulative
effect of accounting change was $2,009,581. Operating income before cumulative
effect of accounting change was $105,535 and after cumulative effect of
accounting change was $337,531. Net Loss for the period ended September 30,
2003 was $1,671,050. Net losses for the years ended December 31, 2002 and 2001
respectively was $1,930,845 and $5,766,572, respectively.
OPERATING EXPENSES
Operating expenses include interest expense on borrowings, employee compensation
and general and administrative expenses.
Operating expenses for the 3-months ended December 31, 2003 were $249,583 and
$1,530,079 for the nine-months ended September 30, 2003 for a total annual cost
of $1,779,662. This compares with operating expenses of $2,457,330 and
$5,561,418 for the years ended December 31, 2002 and 2001 respectively. Cost
containment, efficiencies of operations and discontinuing unprofitable
operations are the primary factors making these decreases possible.
RECONCILIATION OF NET OPERATING INCOME TO NET INCREASE (DECREASE)
IN STOCKHOLDER'S EQUITY FROM EARNINGS (LOSS)
Because we are a business development company, our investments are carried at
fair value. (See discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview"). Realized gain for the
year ended December 31, 2003 was $337,531. The net change in unrealized
appreciation for the 3-months ended December 31, 2003 was $868,000 and the net
change in unrealized depreciation on investments for the nine-months ended
September 30, 2003 was $3,345,891. The appreciation occurred in investments made
after conversion to a business development company and the depreciation is
reflected by the accounting change to fair value of the formerly consolidated
subsidiaries which are now recorded at fair value.
CUMULATIVE EFFECT OF ACCOUNTING CHANGES (CONVERSION TO
BUSINESS DEVELOPMENT COMPANY)
The results of operations for 2003 are divided into two periods. The
nine-month period, representing the period January 1, 2003 through September 30,
2003, reflects the Company's results prior to operating as a business
development company under the Investment Company Act of 1940, as amended. The
three-month period ended December 31, 2003, reflects the Company's results as a
business development company under the Investment Company Act of 1940, as
amended. Accounting principles used in the preparation of the financial
statements beginning October 1, 2003 are different than those of prior periods
and, therefore, the financial position and results of operations of these
periods are not directly comparable. The primary differences in accounting
principles relate to the carrying value of investments--see corresponding
sections below for further discussion.
The cumulative effect adjustment for the three-month period ended
December 31, 2003 reflects the effects of conversion to a business development
company as follows:
CUMULATIVE EFFECT OF BUSINESS
DEVELOPMENT COMPANY CONVERSION
------------------------------
Effect of recording equity investments at fair value $ (4,213,891)
Adjustments for previously adjusted net assets 4,570,444
Adjustment for previously consolidated net loss (123,557)
-----------------
$ 232,996
=================
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
CASH AND CASH EQUIVALENTS
At December 31, 2003 and December 31, 2002, we had $1.8 million and
$-0-, respectively, in cash and cash equivalents. We had investments in equity
securities with fair value of $6,430,000 and $-0- at December 31, 2003 and
December 31, 2002, respectively. Our objective is to maintain a low cash
balance, while keeping sufficient cash on hand to cover current funding
requirements and operations.
LIQUIDITY AND CAPITAL RESOURCES
We expect our cash on hand and cash generated from operations, to be
adequate to meet our cash needs at our current level of operations, including
the next twelve months. We generally fund new originations using cash on hand,
advances under our credit facilities and equity financings.
BORROWINGS
The Company's borrowings consist of a non-interest bearing purchase note payable
incurred in the acquisition of Paramount MultiServices, Inc. and several
installment and promissory notes, which bear interest at 6.0% to 10%, are
unsecured and contain no restrictions.
The purchase note payable is payable in annual installments of either the
Company's restricted common stock or cash through December 2006. Because the
terms of the note did not provide for interest, the Company has discounted the
carrying value of this note to its fair value using a discounted interest rate
of 5%.
On September 27,2002, the Company issued a $200,000 convertible promissory note
convertible into 1,200,000 shares of Series A Convertible Preferred Stock, when
authorized and issued, with rights and preferences as the Company may determine,
to Fredericks Partners, a California partnership. The note provided for interest
at 10% and was due March 27, 2003. In addition, the note gave its holders
600,000,000 votes as "debt votes" awarded by the Board of Directors by
resolution of September 27, 2002. The note provided that it may be converted at
any time prior to payment. On February 20, 2003, Fredericks Partners exercised
its conversion priviledge.
CRITICAL ACCOUNTING POLICIES
The financial statements are based on the selection and application of
significant accounting policies, which require management to make significant
estimates and assumptions.
INCOME RECOGNITION
Interest on commercial loans is computed by methods that generally
result in level rates of return on principal amounts outstanding. When a loan
becomes 90 days or more past due, or if we otherwise do not expect the customer
to be able to service its debt and other obligations, we will, as a general
matter, place the loan on non-accrual status and cease recognizing interest
income on that loan until all principal has been paid. However, we may make
exceptions to this policy if the investment is well secured and in the process
of collection.
In accordance with GAAP, we include in income certain amounts that we
have not yet received in cash, such as contractual payment-in-kind (PIK)
interest, which represents contractually deferred interest added to the loan
balance that is generally due at the end of the loan term. However, in certain
cases, a customer makes principal payments on its loan prior to making payments
to reduce the PIK loan balances and, therefore, the PIK portion of a customer's
loan can increase while the total outstanding amount of the loan to that
customer may stay the same or decrease. There is no PIK loan balance at December
31, 2003.
Loan origination fees are deferred and amortized as adjustments to the
related loan's yield over the contractual life of the loan. In certain loan
arrangements, warrants or other equity interests are received from the borrower
as additional origination fees. The borrowers granting these interests are
typically non-publicly traded companies. We record the financial instruments
received at estimated fair value as determined by our board of directors or an
independent valuation expert. Fair values are determined using various valuation
models which attempt to estimate the underlying value of the associated entity.
These models are then applied to our ownership share considering any discounts
for transfer restrictions or other terms which impact the value. Changes in
these values are recorded through our statement of operations. Any resulting
discount on the loan from recordation of warrant and other equity instruments
are accreted into income over the term of the loan.
VALUATION OF INVESTMENTS
At December 31, 2003, approximately 97% of our total assets represented
investments recorded at fair value. Value, as defined in Section 2(a)(41) of
1940 Act, is (i) the market price for those securities for which a market
quotation is readily available and (ii) for all other securities and assets,
fair value is as determined in good faith by the board of directors. Since there
is typically no readily ascertainable market value for the investments in our
portfolio, we value substantially all of our investments at fair value as
determined in good faith by the board of directors pursuant to a valuation
policy and a consistent valuation process. Because of the inherent uncertainty
of determining the fair value of investments that do not have a readily
ascertainable market value, the fair value of our investments determined in good
faith by the board of directors may differ significantly from the values that
would have been used had a ready market existed for the investments, and the
differences could be material.
There is no single standard for determining fair value in good faith.
As a result, determining fair value requires that judgment be applied to the
specific facts and circumstances of each portfolio investment. Unlike banks, we
are not permitted to provide a general reserve for anticipated loan losses.
Instead, we must determine the fair value of each individual investment on a
quarterly basis. We will record unrealized depreciation on investments when we
believe that an investment has become impaired, including where collection of a
loan or realization of an equity security is doubtful. Conversely, we will
record unrealized appreciation if we believe that the underlying portfolio
company has appreciated in value and, therefore, our investment has also
appreciated in value, where appropriate.
As a business development company, we invest primarily in illiquid
securities including debt and equity securities of private companies. The
structure of each debt and equity security is specifically negotiated to enable
us to protect our investment and maximize our returns. We generally include many
terms governing interest rate, repayment terms, prepayment penalties, financial
covenants, operating covenants, ownership parameters, dilution parameters,
liquidation preferences, voting rights, and put or call rights. Our investments
are generally subject to some restrictions on resale and generally have no
established trading market. Because of the type of investments that we make and
the nature of our business, our valuation process requires an analysis of
various factors. Our fair value methodology includes the examination of, among
other things, the underlying investment performance, financial condition and
market changing events that impact valuation.
VALUATION OF LOANS AND DEBT SECURITIES
As a general rule, we do not value our loans or debt securities above
cost, but loans and debt securities will be subject to fair value write-downs
when the asset is considered impaired. In many cases, our loan agreements allow
for increases in the spread to the base index rate if the financial or
operational performance of the customer deteriorates or shows negative variances
from the customer's business plan and, in some cases, allow for decreases in the
spread if financial or operational performance improves or exceeds the
customer's plan.
VALUATION OF EQUITY SECURITIES
With respect to private equity securities, each investment is valued
using industry valuation benchmarks, and then the value is assigned a discount
reflecting the illiquid nature of the investment, as well as our minority,
non-control position. When an external event such as a purchase transaction,
public offering, or subsequent equity sale occurs, the pricing indicated by the
external event will be used to corroborate our private equity valuation.
Securities that are traded in the over-the-counter market or on a stock exchange
generally will be valued at the prevailing bid price on the valuation date.
However, restricted and unrestricted publicly traded securities may be valued at
discounts from the public market value due to restrictions on sale, the size of
our investment or market liquidity concerns.
RECENT DEVELOPMENTS
The Company has entered into a letter of intent to acquire DLC, Inc., a Las
Vegas based general contracting firm. DLC has a multi-year history of successful
projects, including several federal and local government projects. DLC currently
has gross income of approximately $3 million dollars per year. We anticipate
closing this transaction in the second quarter of 2004.
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our business activities contain elements of risk. We consider the principal
types of risk to be portfolio valuations and fluctuations in interest rates. We
consider the management of risk essential to conducting our businesses.
Accordingly, our risk management systems and procedures are designed to identify
and analyze our risks, to set appropriate policies and limits and to continually
monitor these risks and limits by means of reliable administrative and
information systems and other policies and programs.
As a business development company, we invest in illiquid securities including
debt and equity securities of primarily private companies. Our investments are
generally subject to restrictions on resale and generally have no established
trading market. We value substantially all of our investments at fair value as
determined in good faith by the board of directors in accordance with our
valuation policy. There is no single standard for determining fair value in good
faith. As a result, determining fair value requires that judgment be applied to
the specific facts and circumstances of each portfolio investment while
employing a consistently applied valuation process for the types of investments
we make.
We determine fair value to be the amount for which an investment could be
exchanged in an orderly disposition over a reasonable period of time between
willing parties other than in a forced or liquidation sale. Our valuation policy
considers the fact that no ready market exists for substantially all of the
securities in which we invest. Our valuation policy is intended to provide a
consistent basis for determining the fair value of the portfolio. We will record
unrealized depreciation on investments when we believe that an investment has
become impaired, including where collection of a loan or realization of an
equity security is doubtful, or when the enterprise value of the company does
not currently support the cost of our debt or equity investments. Conversely, we
will record unrealized appreciation if we believe that the underlying portfolio
company has appreciated in value and, therefore, our equity security has also
appreciated in value. The value of investments in public securities are
determined using quoted market prices discounted for restrictions on resale.
Without a readily ascertainable market value and because of the inherent
uncertainty of valuation, the fair value of our investments determined in good
faith by the board of directors may differ significantly from the values that
would have been used had a ready market existed for the investments, and the
differences could be material. In addition, the illiquidity of our investments
may adversely affect our ability to dispose of debt and equity securities at
times when it may be otherwise advantageous for us to liquidate such
investments. In addition, if we were forced to immediately liquidate some or all
of the investments in the portfolio, the proceeds of such liquidation would be
significantly less than the current value of such investments.
Because we can borrow money to make investments, our net investment income
before net realized and unrealized gains or losses, or net investment income,
can be dependent upon the difference between the rate at which we borrow funds
and the rate at which we invest these funds. As a result, there can be no
assurance that a significant change in market interest rates will not have a
material adverse effect on our net investment income. In periods of rising
interest rates, our cost of funds would increase, which would reduce our net
investment income. We use a combination of long-term and short-term borrowings
and equity capital to finance our investing activities. Our long-term fixed-rate
investments are financed primarily with long-term debt and equity. We may use
interest rate risk management techniques in an effort to limit our exposure to
interest rate fluctuations. Such techniques may include various interest rate
hedging activities to the extent permitted by the 1940 Act.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
21ST CENTURY TECHNOLOGIES, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
C O N T E N T S
INDEPENDENT AUDITORS' REPORT..........................................F-1
BALANCE SHEETS........................................................F-2 - F-3
STATEMENTS OF OPERATIONS..............................................F-4
STATEMENTS OF STOCKHOLDERS' EQUITY....................................F-5
STATEMENTS OF CASH FLOWS..............................................F-6
SCHEDULE OF INVESTMENTS...............................................F-7
NOTES TO FINANCIAL STATEMENTS.........................................F-8 - F-30
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
21st Century Technologies, Inc.
Las Vegas, Nevada
We have audited the accompanying balance sheets of 21st Century Technologies,
Inc. as of December 31, 2003 and 2002, including the schedule of investments, as
of December 31, 2003 and the related statements of operations, stockholders'
equity, and cash flows for the three months ended December 31, 2003 and the nine
months ended September 30, 2003 and for each of the years ended December 31,
2002 and 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 21st Century Technologies,
Inc., as of December 31, 2003, and the results of their operations and their
cash flows for the three months ended December 31, 2003 and the nine months
ended September 30, 2003 and for each of the years ended December 31, 2002 and
2001 in conformity with accounting principles generally accepted in the United
States of America.
As discussed in Note 1 to the financial statements, accounting principles used
in the preparation of the financial statements beginning October 1, 2003 (upon
conversion to a business development company under the Investment Company Act of
1940) are different than those of prior periods and therefore are not directly
comparable.
Certified Public Accountants
March 18, 2004
F-1
21ST CENTURY TECHNOLOGIES, INC.
BALANCE SHEET
DECEMBER 31, 2003
ASSETS
Investments:
Investments in equity securities, at fair value
(cost of $5,625,000) $ 6,430,000
Investments in and advances to controlled
companies, at fair value (cost of $6,467,320) 2,316,430
Commercial loans, at fair value (cost of $1,692,645) 1,692,645
---------------
Total investments 10,439,075
Cash and cash equivalents 1,796,294
Receivables:
Investment advisory and management fees 1,150,000
Interest and dividends 8,168
Other assets 95,939
---------------
$ 13,489,476
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 45,957
Advances from stockholders 443,611
Notes payable, controlled companies 1,228,430
Notes payable, others 287,226
---------------
Total liabilities 2,005,224
---------------
Commitments and contingencies -
Stockholders' equity:
Preferred stock, Series A, $.001 par value, 1,200,000
shares authorized, no shares issued and outstanding -
Preferred stock, Series B, $.001 par value, 1,200,000
shares authorized, issued and outstanding 1,200
Preferred stock, Series C, $.001 par value, 15,000,000
shares authorized, issued and outstanding 15,000
Preferred stock, Series D, $1 stated value, 1,000,000
shares authorized, 10,000 shares issued and outstanding 10,000
Common stock, $.001 par value, 750,000,000 shares
authorized, 437,173,162 shares issued and outstanding 437,173
Additional paid in capital 24,583,483
Common stock subscriptions receivable (443,000)
Accumulated deficit (9,773,713)
Unrealized appreciation (depreciation) on investments (3,345,891)
---------------
Total stockholders' equity 11,484,252
---------------
$ 13,489,476
===============
The accompanying notes are an integral part of the financial statements.
F-2
21ST CENTURY TECHNOLOGIES, INC.
BALANCE SHEET
DECEMBER 31, 2002
ASSETS
Current assets:
Cash and cash equivalents $ -
Accounts receivable, trade net of allowance for
doubtful accounts of $290,591 143,424
Inventories 501,706
Prepaid expense 36,443
Advances to stockholders, net of allowance for
uncollectible amounts $55,728 112,591
----------------
Total current assets 794,164
Property and equipment, net of accumulated depreciation of $716,457 1,202,265
Other assets:
Intangible assets, net of accumulated amortization of $40,218 368,188
Goodwill 43,256
Reorganization value, net of accumulated amortization of $384,539 126,764
----------------
$ 2,534,637
================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 956,145
Advances from stockholders 577,180
Notes payable 251,085
Convertible promissory note payable 200,000
----------------
Total current liabilities 1,984,410
----------------
Commitments and contingencies -
Minority interest 3,158
Stockholders' equity:
Preferred stock, Series A, $.001 par value, 1,200,000
shares authorized, no shares issued and outstanding -
Preferred stock, Series B, $.001 par value, 1,200,000
shares authorized, issued and outstanding -
Preferred stock, Series C, $.001 par value, 15,000,000
shares authorized, issued and outstanding -
Preferred stock, Series D, $1 stated value, 1,000,000
shares authorized, 10,000 shares issued and outstanding -
Common stock, $.001 par value, 750,000,000 shares
authorized, 1,999,271shares issued and outstanding 1,999
Additional paid in capital 14,003,205
Common stock subscriptions receivable
Accumulated deficit (13,458,135)
Unrealized appreciation (depreciation) on investments
----------------
Total stockholders' equity 547,069
----------------
$ 2,534,637
================
The accompanying notes are an integral part of the financial statements.
F-3
21ST CENTURY TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
Prior to Becoming a Business
Development Company
-------------------------------------------------
Three Months Nine Months
Ended Ended Year Ended Year Ended
Dec. 31, 2003 Sept. 30, 2003 Dec. 31, 2002 Dec. 31, 2001
------------- -------------- ------------- -------------
Operating income:
Manufacturing and other revenues $ - $ 467,050 $ 1,262,393 $ 1,714,941
Investment income 8,168 - 12,507 6,218
Investment advisory and management fees 1,150,000 - - -
-----------------------------------------------------------------
Total operating income 1,158,168 467,050 1,274,900 1,721,159
Direct cost of sales - 364,084 677,265 1,106,617
-----------------------------------------------------------------
Gross profit 1,158,168 102,966 597,635 614,542
-----------------------------------------------------------------
Operating expenses:
Interest expense 7,673 54,722 69,553 52,429
Advertising and selling 29,496 70,314 87,604 151,956
Compensation costs 97,500 303,932 506,038 1,178,547
General and administrative 114,914 1,057,865 1,794,135 4,178,486
Impairment related charges - 43,246 - -
-----------------------------------------------------------------
Total operating expenses 249,583 1,530,079 2,457,330 5,561,418
-----------------------------------------------------------------
Net operating income (loss)/investment income (loss)
before investment gains and losses 908,585 (1,427,113) (1,859,695) (4,946,876)
Loss on sale of assets - (243,937) (179,127) (242,634)
Net change in unrealized appreciation
(depreciation) on investments 868,000 - - -
-----------------------------------------------------------------
Income (loss) from continuing operations before income taxes 1,776,585 (1,671,050) (2,038,822) (5,189,510)
Income tax provision (benefit) - - - -
-----------------------------------------------------------------
Income (loss) from continuing operations 1,776,585 (1,671,050) (2,038,822) (5,189,510)
Income (loss) from discontinued operations
of ELM, TPI and NCI, net of income taxes - - 107,977 (577,062)
-----------------------------------------------------------------
Income (loss) before cummulative effect of
accounting change 1,776,585 (1,671,050) (1,930,845) (5,766,572)
Cummulative effect of conversion to business
development company, net of income tax effect 232,996 - - -
-----------------------------------------------------------------
Net increase (decrease) in stockholders' equity
resulting from net income (loss) $ 2,009,581 $ (1,671,050) $ (1,930,845) $ (5,766,572)
=================================================================
Earnings per share, both basic and dilutive:
Income (loss) per common from continuing operations $ 0.01 $ (0.01) $ (1.09) $ (4.55)
Income (loss) per common share from discontinued operations $ - $ - $ 0.06 $ (0.51)
Cummulative effect of conversion to business
development company $ - $ - $ - $ -
Net income (loss) per common share $ 0.01 $ (0.01) $ (1.03) $ (5.06)
The accompanying notes are an integral part of the financial statements.
F-4
21ST CENTURY TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
Preferred Series A Preferred Series B Preferred Series C
------------------ ------------------ ------------------
DESCRIPTION # of shs. Amount # of shs. Amount # of shs. Amount
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000
Issuance of common stock for cash
Issuance of common stock for services
Repayment of note payable and interest
Repayment of stockholder advances
Issuance of commn stock for assets
Cancelation of treasury stock
Net loss
------------------------------------------------------------------------
Balance at December 31, 2001 0 0 0 0 0 0
Issuance of common stock for cash
Issuance of common stock for services
Issuance of common stock previously earned
Receipt of 19 million shares as consideration
for sale of assets
Reissuance of above shares for services
Cancelation of treasury stock and
stock purchase subscriptions
Net loss
------------------------------------------------------------------------
Balance at December 31, 2002 0 0 0 0 0 0
Adjustment for shares not going through
reverse stock split, issuance of
preferred warrants 1,200,000 1,200
Conversion of preferred warrants into
common stock shares
Conversion of Series A preferred shares
into Series B preferred shares and
common shares and debt repayment (1,200,000) (1,200) 1,200,000 1,200
Common stock issued as debt repayment
Common stock issued for cash
Common and preferred stock issued for services 15,000,000 15,000
Common stock returned for repayment
of advances receivable
Common stock issued for inventory
Net Loss
------------------------------------------------------------------------
Balance at September 30, 2003 0 0 1,200,000 1,200 15,000,000 15,000
Reclassification of unrealized depreciation
upon conversion to a business
development company
Issuance of common stock for cash
Preferred shares issued to acquire HCIA
preferred stock shares
Net income
------------------------------------------------------------------------
Balance at December 31, 2003 $ 0 0 1,200,000 $ 1,200 15,000,000 $15,000
========================================================================
Treasury
Preferred Series D Common Stock Additional Stock & Stock
------------------ ------------
DESCRIPTION # of shs. Amount # of shs. Amount Paid in Capital Subscriptions
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 779,874 781 7,614,412 323,622
Issuance of common stock for cash 364,193 364 2,142,460
Issuance of common stock for services 329,461 329 2,493,591
Repayment of note payable and interest 35,000 35 769,111
Repayment of stockholder advances 17,107 17 171,063
Issuance of commn stock for assets 105,000 105 422,895
Cancelation of treasury stock (16,934) 16,934
Net loss
-------------------------------------------------------------------------------
Balance at December 31, 2001 0 0 1,630,635 1,631 13,596,598 340,556
Issuance of common stock for cash 166,136 166 28,753
Issuance of common stock for services 12,500 12 37,488
Issuance of common stock previously earned 190,000 190 359,810 (360,000)
Receipt of 19 million shares as consideration
for sale of assets (350,000)
Reissuance of above shares for services 350,000
Cancelation of treasury stock and
stock purchase subscriptions (19,444) 19,444
Net loss
-------------------------------------------------------------------------------
Balance at December 31, 2002 0 0 1,999,271 1,999 14,003,205 0
Adjustment for shares not going through
reverse stock split, issuance of
preferred warrants (790,951) (791) 791
Conversion of preferred warrants into
common stock shares 79,095,106 79,095 (79,095)
Conversion of Series A preferred shares
into Series B preferred shares and
common shares and debt repayment 12,000,000 12,000 196,000
Common stock issued as debt repayment 11,000,000 11,000 179,000
Common stock issued for cash 44,849,760 44,850 1,355,127
Common and preferred stock issued for services 83,496,072 83,496 243,492
Common stock returned for repayment
of advances receivable (2,429,157) (2,429) (110,161)
Common stock issued for inventory 1,000,000 1,000 59,000
Net loss
-------------------------------------------------------------------------------
Balance at September 30, 2003 - - 230,220,101 230,220 15,847,359 -
Reclassification of unrealized depreciation
upon conversion to a business
development company
Issuance of common stock for cash 206,953,061 206,953 3,446,124 (443,000)
Preferred shares issued to acquire HCIA
preferred stock shares 10,000,000 10,000 5,290,000
Net income
--------------------------------------------------------------------------------
Balance at December 31, 2003 10,000,000 $10,000 437,173,162 $437,173 $24,583,483 $(443,000)
================================================================================
Unrealized
Accumulated Apprec on
DESCRIPTION Deficit Investments Total
- ----------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 (5,760,718) 0 2,178,097
Issuance of common stock for cash 2,142,824
Issuance of common stock for services 2,493,920
Repayment of note payable and interest 769,146
Repayment of stockholder advances 171,080
Issuance of commn stock for assets 423,000
Cancelation of treasury stock 0
Net loss (5,766,572) (5,766,572)
--------------------------------------------------------
Balance at December 31, 2001 (11,527,290) 0 2,411,495
Issuance of common stock for cash 28,919
Issuance of common stock for services 37,500
Issuance of common stock previously earned 0
Receipt of 19 million shares as consideration
for sale of assets (350,000)
Reissuance of above shares for services
Cancelation of treasury stock and
stock purchase subscriptions 0
Net loss (1,930,845) (1,930,845)
--------------------------------------------------------
Balance at December 31, 2002 (13,458,135) 0 547,069
Adjustment for shares not going through
reverse stock split, issuance of
preferred warrants 1,200
Conversion of preferred warrants into
common stock shares 0
Conversion of Series A preferred shares
into Series B preferred shares and
common shares and debt repayment 208,000
Common stock issued as debt repayment 190,000
Common stock issued for cash 1,399,977
Common and preferred stock issued for services 341,988
Common stock returned for repayment
of advances receivable (112,590)
Common stock issued for inventory 60,000
Net loss (1,671,050) (1,671,050)
--------------------------------------------------------
Balance at September 30, 2003 (15,129,185) - 964,594
Reclassification of unrealized depreciation
upon conversion to a business
development company 4,213,891 (4,213,891) 0
Issuance of common stock for cash 3,210,077
Preferred shares issued to acquire HCIA
preferred stock shares 5,300,000
Net income 1,141,581 868,000 2,009,581
--------------------------------------------------------
Balance at December 31, 2003 $(9,773,713) $(3,345,891) $11,484,252
========================================================
The accompanying notes are an integral part of the financial statements.
F-5
21ST CENTURY TECHNOLOGIES, INC.
STATEMENTs OF CASH FLOWS
Prior to Becoming a
Business Development
Company
-------------------
Three Months Nine Months
Ended Ended
Dec. 31, 2003 Sept. 30, 2003
------------- --------------
Operating activities:
Net Income (loss) $ 1,543,588 $ (1,671,050)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operations
Depreciation and amortization 9,833 74,806
Provision for bad debts
Common stock issued for services 401,988
Loss on disposal of assets 243,937
Unrealized appreciation on investments (868,000)
Cumulative effect of accounting change 232,997
Changes in asset and liability accounts:
(Increase) decrease in accounts receivable 75,367
(Increase) decrease in interest and fees receivable (1,158,168)
(Increase) decrease in inventory
(Increase) decrease in prepaid expenses 40,031 (58,088)
Increase (decrease) in accounts payable (84,278) (415,850)
Increase (decrease) in accrued expenses
Increase (decrease) in deferred revenue
-------------------------------------------
Net cash provided by (used in) operating activities (283,997) (1,348,890)
-------------------------------------------
Investing activities:
Proceeds from disposal of assets 765,000
Purchase of property and equipment
Cash acquired in MMC acquisition
Advances to stockholder
Repayment of stockholder advances
Investments in equity securities (208,837)
Investments in commercial loans (1,692,645)
-------------------------------------------
Net cash provided by (used in) investing activities (1,901,482) 765,000
-------------------------------------------
Financing activities:
Issuance of common stock 3,210,077 1,409,177
Proceeds from notes payable 231,841
Repayments of notes payable (200,672) (99,191)
Advances from stockholders 98,521 404,490
Repayments of stockholder advances (488,580)
-------------------------------------------
Net cash provided by (used in) financing activities 3,107,926 1,457,737
-------------------------------------------
Net increase (decrease) in cash 922,447 873,847
Cash at beginning of period 873,847
-------------------------------------------
Cash at end of period $ 1,796,294 $ 873,847
===========================================
Prior to Becoming a Business
Development Company
-------------------------------------------
Year Ended Year Ended
Dec. 31, 2002 Dec. 31, 2001
------------- -------------
Operating activities:
Net Income (loss) $ (1,930,845) $ (5,766,572)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operations
Depreciation and amortization 279,561 374,388
Provision for bad debts (58,688) 5,600
Common stock issued for services 387,500 2,493,920
Loss on disposal of assets 431,699 240,192
Unrealized appreciation on investments
Cumulative effect of accounting change
Changes in asset and liability accounts:
(Increase) decrease in accounts receivable (2,652) 400,216
(Increase) decrease in interest and fees receivable
(Increase) decrease in inventory 260,067 (284,551)
(Increase) decrease in prepaid expenses 16,318 134,756
Increase (decrease) in accounts payable 108,120 589,039
Increase (decrease) in accrued expenses (118,032) 144,702
Increase (decrease) in deferred revenue (225,000)
---------------------------------------------
Net cash provided by (used in) operating activities (626,952) (1,893,310)
---------------------------------------------
Investing activities:
Proceeds from disposal of assets 11,101
Purchase of property and equipment (16,842) (1,320,068)
Cash acquired in MMC acquisition 6,065
Advances to stockholder (6,477) (55,763)
Repayment of stockholder advances 10,871
Investments in equity securities
Investments in commercial loans
---------------------------------------------
Net cash provided by (used in) investing activities (12,218) (1,358,895)
---------------------------------------------
Financing activities:
Issuance of common stock 28,919 2,142,824
Proceeds from notes payable 263,371 1,005,000
Repayments of notes payable (237,421) (76,842)
Advances from stockholders 582,180 100,100
Repayments of stockholder advances (5,100)
---------------------------------------------
Net cash provided by (used in) financing activities 631,949 3,171,082
---------------------------------------------
Net increase (decrease) in cash (7,221) (81,123)
Cash at beginning of period 7,221 88,344
---------------------------------------------
Cash at end of period $ - $ 7,221
=============================================
The accompanying notes are an integral part of the financial statements.
F-6
21ST CENTURY TECHNOLOGIES, INC.
SCHEDULE OF INVESTMENTS
Title of Security Percentage of December 31, 2003
-----------------
Portfolio Company Industry Held by Company Class Held Fair Value Cost
----------------- -------- --------------- ---------- ----------- ----
Investments in equity securities:
Jane Butel Corporation Food Services Common Stock 4.22% $ 200,000 $ 200,000
TransOne, Inc. Financial Services Common Stock 4.76% 930,000 125,000
Health Care Investors of
America, Inc. Real Estate Series B Preferred 15.38% 5,300,000 5,300,000
----------------------------------
6,430,000 5,625,000
----------------------------------
Investments in and advances to controlled companies:
Paramount MultiServices, Inc. Financial Services Common Stock 100% 1,228,430 1,228,430
Prizewise, Inc. Technologies Common Stock 100% 30,000 30,000
Innovative Weaponry, Inc. Manufacturing Common Stock 100% 181,000 2,948,260
Trident Technologies, Inc. Manufacturing Common Stock 100% 719,000 1,828,075
Griffon USA, Inc. Inactive Common Stock 100% 9,000 378,326
Hallmark Human Resources, Inc. Inactive Common Stock 100% 45,000 51,229
Trade Partners International, Inc. Inactive Common Stock 100% 48,000 1,000
Net Construction, Inc. Inactive Common Stock 100% 8,000 1,000
U.S. Optics Technologies, Inc. Inactive Common Stock 100% 48,000 1,000
--------------------