SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2005.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number: 0-26059
COMET TECHNOLOGIES, INC.
--------------------------
(Exact name of Registrant as specified in its Charter)
Nevada 87-0430322
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8 East Broadway #428, Salt Lake City, Utah 84111
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number including Area Code: (801) 532-7851
Securities Registered Under Section 12(b) of the Exchange Act: None.
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock,
Par Value $0.001
Check whether the issuer is not required to file reports pursuant to Section
13 or 15(d) of the Exchange Act [ ]
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.
Yes [X] 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-KSB or any amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
State issuer's revenues (consisting only of interest income) for its most
recent fiscal year. $1,057.
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.) On the basis of the last sale price on March
24, 2006, of $3.00, the aggregate market value of the voting and non-voting
common equity held by non-affiliates was $1,235,535.
As of March 24, 2006, the registrant had outstanding 516,780 shares of its
common stock.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION
PART I Page No.
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Item 1. Description of Business........................................1
Item 2. Description of Property........................................6
Item 3. Legal Proceedings..............................................6
Item 4. Submission of Matters to a Vote of Security Holders............6
PART II
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Item 5. Market for Common Equity and Related Stockholder Matters.......6
Item 6. Management's Discussion and Analysis or Plan of Operation......7
Item 7. Financial Statements...........................................9
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure......................................9
Item 8A. Controls and Procedures........................................9
Item 8B. Other Information.............................................10
PART III
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Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.............10
Item 10. Executive Compensation........................................12
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters...................14
Item 12. Certain Relationships and Related Transactions................14
Item 13. Exhibits......................................................15
Item 14. Principal Accountant Fees and Services........................16
The information contained in this Form 10-KSB for the fiscal year ended
December 31, 2005, is as of the latest practicable date except for financial
information, which relates to the fiscal year.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Comet Technologies, Inc. (the "Company" or "Comet") is a "blank check"
company which has been seeking to locate a business enterprise which it may
acquire, merge or reorganize with, or become engaged in. Since the completion
of the Company's public offering in August 1986, the Company has reviewed and
evaluated numerous business ventures for possible acquisition or participation
by the Company. Until January, 2004, the Company had not entered into any
agreements with any companies. In January, 2004, the Company entered into an
agreement for a "reverse merger" with Town House Land Limited ("Town House"),
but this transaction was terminated in the beginning of 2005, because
management concluded that this transaction was not in the best interests of
the Company and its shareholders. To date, the Company has not acquired any
business venture or engaged in any active business operations.
Comet is a public company whose securities are quoted on the
over-the-counter Bulletin Board under the symbol "COMT."
To date, opportunities have been made available to the Company through
its officers and directors and through professional advisors including
securities broker-dealers and through members of the financial community. It
is anticipated that business opportunities will continue to be available
primarily from these sources.
To a large extent, a decision to participate in a specific business
opportunity may be made upon management's analysis regarding the quality of
the other firm's management and personnel, the asset base of such firm or
enterprise, the anticipated acceptability of new products or marketing
concepts, the merit of the firms business plan, and numerous other factors
which are difficult, if not impossible, to analyze through the application of
any objective criteria.
Since its inception, the Company has had no active business operations,
and has been seeking to acquire an interest in a business with long-term
growth potential. The Company currently has no commitment or arrangement to
participate in a business and cannot now predict what type of business it may
enter into or acquire. It is emphasized that the business objectives discussed
herein are extremely general and are not intended to be restrictive on the
discretion of the Company's management.
There are no plans or arrangements proposed or under consideration for
the issuance or sale of additional securities by the Company prior to the
identification of an acquisition candidate. Consequently, management
anticipates that it may be able to participate in only one potential business
venture, due primarily to the Company's limited capital. This lack of
diversification should be considered a substantial risk, because it will not
permit the Company to offset potential losses from one venture against gains
from another.
2
Selection of a Business
The Company anticipates that businesses for possible acquisition will be
referred by various sources, including its officers and directors,
professional advisors, securities broker-dealers, venture capitalists, members
of the financial community, and others who may present unsolicited proposals.
The Company will not engage in any general solicitation or advertising for a
business opportunity, and will rely on personal contacts of its officers and
directors and their affiliates, as well as indirect associations between them
and other business and professional people. By relying on "word of mouth,"
the Company may be limited in the number of potential acquisitions it can
identify. While it is not presently anticipated that the Company will engage
unaffiliated professional firms specializing in business acquisitions or
reorganizations, such firms may be retained if management deems it in the best
interest of the Company.
Compensation to a finder or business acquisition firm may take various
forms, including one-time cash payments, payments based on a percentage of
revenues or product sales volume, payments involving issuance of securities
(including those of the Company), or any combination of these or other
compensation arrangements. Consequently, the Company is currently unable to
predict the cost of utilizing such services.
The Company will not restrict its search to any particular business,
industry, or geographical location, and management reserves the right to
evaluate and enter into any type of business in any location. The Company may
participate in a newly organized business venture or a more established
company entering a new phase of growth or in need of additional capital to
overcome existing financial problems. Participation in a new business venture
entails greater risks since in many instances management of such a venture
will not have proved its ability, the eventual market of such venture's
product or services will likely not be established, and the profitability of
the venture will be unproved and cannot be predicted accurately. If the
Company participates in a more established firm with existing financial
problems, it may be subjected to risk because the financial resources of the
Company may not be adequate to eliminate or reverse the circumstances leading
to such financial problems.
In seeking a business venture, the decision of management will not be
controlled by an attempt to take advantage of any anticipated or perceived
appeal of a specific industry, management group, product, or industry, but
will be based on the business objective of seeking long-term capital
appreciation in the real value of the Company. The Company will not acquire or
merge with a business or corporation in which the Company's officers,
directors, or promoters, or their affiliates or associates, have any direct or
indirect ownership interest.
The analysis of new businesses will be undertaken by or under the
supervision of the officers and directors. In analyzing prospective
businesses, management will consider, to the extent applicable, the available
technical, financial, and managerial resources; working capital and other
prospects for the future; the nature of present and expected competition; the
quality and experience of management services which may be available and the
depth of that management; the potential for further research, development, or
exploration; the potential for growth and expansion; the potential for profit;
the perceived public recognition or acceptance of products, services, or trade
or service marks; name identification; and other relevant factors.
The decision to participate in a specific business may be based on
management's analysis of the quality of the other firm's management and
personnel, the anticipated acceptability of new products or marketing
concepts, the merit of technological changes, and other factors which are
difficult, if not impossible, to analyze through any objective criteria. It is
3
anticipated that the results of operations of a specific firm may not
necessarily be indicative of the potential for the future because of the
requirement to substantially shift marketing approaches, expand significantly,
change product emphasis, change or substantially augment management, and other
factors.
The Company will analyze all available factors and make a determination
based on a composite of available facts, without reliance on any single
factor. The period within which the Company may participate in a business
cannot be predicted and will depend on circumstances beyond the Company's
control, including the availability of businesses, the time required for the
Company to complete its investigation and analysis of prospective businesses,
the time required to prepare appropriate documents and agreements providing
for the Company's participation, and other circumstances.
Acquisition of a Business
In implementing a structure for a particular business acquisition, the
Company may become a party to a merger, consolidation, or other reorganization
with another corporation or entity; joint venture; license; purchase and sale
of assets; or purchase and sale of stock, the exact nature of which cannot now
be predicted. Notwithstanding the above, the Company does not intend to
participate in a business through the purchase of minority stock positions. On
the consummation of a transaction, it is likely that the present management
and shareholders of the Company will not be in control of the Company. In
addition, a majority or all of the Company's directors may, as part of the
terms of the acquisition transaction, resign and be replaced by new directors
without a vote of the Company's shareholders.
In connection with the Company's acquisition of a business, the present
shareholders of the Company, including officers and directors, may, as a
negotiated element of the acquisition, sell a portion or all of the Company's
Common Stock held by them at a significant premium over their original
investment in the Company. As a result of such sales, affiliates of the
entity participating in the business reorganization with the Company would
acquire a higher percentage of equity ownership in the Company. Management
does not intend to actively negotiate for or otherwise require the purchase of
all or any portion of its stock as a condition to or in connection with any
proposed merger or acquisition. Although the Company's present shareholders
did not acquire their shares of Common Stock with a view towards any
subsequent sale in connection with a business reorganization, it is not
unusual for affiliates of the entity participating in the reorganization to
negotiate to purchase shares held by the present shareholders in order to
reduce the amount of shares held by persons no longer affiliated with the
Company and thereby reduce the potential adverse impact on the public market
in the Company's common stock that could result from substantial sales of such
shares after the business reorganization. Public investors will not receive
any portion of the premium that may be paid in the foregoing circumstances.
Furthermore, the Company's shareholders may not be afforded an opportunity to
approve or consent to any particular stock buy-out transaction.
In the event sales of shares by present shareholders of the Company,
including officers and directors, is a negotiated element of a future
acquisition, a conflict of interest may arise because directors will be
negotiating for the acquisition on behalf of the Company and for sale of their
shares for their own respective accounts. Where a business opportunity is well
suited for acquisition by the Company, but affiliates of the business
opportunity impose a condition that management sell their shares at a price
which is unacceptable to them, management may not sacrifice their financial
interest for the Company to complete the transaction. Where the business
opportunity is not well suited, but the price offered management for their
shares is
3
high, Management will be tempted to effect the acquisition to realize a
substantial gain on their shares in the Company. Management has not adopted
any policy for resolving the foregoing potential conflicts, should they arise,
and does not intend to obtain an independent appraisal to determine whether
any price that may be offered for their shares is fair. Stockholders must
rely, instead, on the obligation of management to fulfill its fiduciary duty
under state law to act in the best interests of the Company and its
stockholders.
It is anticipated that any securities issued in any such reorganization
would be issued in reliance on exemptions from registration under applicable
federal and state securities laws. In some circumstances, however, as a
negotiated element of the transaction, the Company may agree to register such
securities either at the time the transaction is consummated, under certain
conditions, or at specified times thereafter. Although the terms of such
registration rights and the number of securities, if any, which may be
registered cannot be predicted, it may be expected that registration of
securities by the Company in these circumstances would entail substantial
expense to the Company. The issuance of substantial additional securities and
their potential sale into any trading market which may develop in the
Company's securities may have a depressive effect on such market.
While the actual terms of a transaction to which the Company may be a
party cannot be predicted, it may be expected that the parties to the business
transaction will find it desirable to structure the acquisition as a so-called
"tax-free" event under sections 351 or 368(a) of the Internal Revenue Code of
1986, (the "Code"). In order to obtain tax-free treatment under section 351
of the Code, it would be necessary for the owners of the acquired business to
own 80% or more of the voting stock of the surviving entity. In such event,
the shareholders of the Company would retain less than 20% of the issued and
outstanding shares of the surviving entity. Section 368(a)(1) of the Code
provides for tax- free treatment of certain business reorganizations between
corporate entities where one corporation is merged with or acquires the
securities or assets of another corporation. Generally, the Company will be
the acquiring corporation in such a business reorganization, and the tax-free
status of the transaction will not depend on the issuance of any specific
amount of the Company's voting securities. It is not uncommon, however, that
as a negotiated element of a transaction completed in reliance on section 368,
the acquiring corporation issue securities in such an amount that the
shareholders of the acquired corporation will hold 50% or more of the voting
stock of the surviving entity. Consequently, there is a substantial
possibility that the shareholders of the Company immediately prior to the
transaction would retain less than 50% of the issued and outstanding shares of
the surviving entity. Therefore, regardless of the form of the business
acquisition, it may be anticipated that stockholders immediately prior to the
transaction will experience a significant reduction in their percentage of
ownership in the Company.
Notwithstanding the fact that the Company is technically the acquiring
entity in the foregoing circumstances, generally accepted accounting
principles will ordinarily require that such transaction be accounted for as
if the Company had been acquired by the other entity owning the business and,
therefore, will not permit a write-up in the carrying value of the assets of
the other company.
The manner in which the Company participates in a business will depend
on the nature of the business, the respective needs and desires of the Company
and other parties, the management of the business, and the relative
negotiating strength of the Company
and such other management.
4
The Company will participate in a business only after the negotiation
and execution of appropriate written agreements. Although the terms of such
agreements cannot be predicted, generally such agreements will require
specific representations and warranties by all of the parties thereto, will
specify certain events of default, will detail the terms of closing and the
conditions which must be satisfied by each of the parties prior to such
closing, will outline the manner of bearing costs if the transaction is not
closed, will set forth remedies on default, and will include miscellaneous
other terms.
Operation of Business After Acquisition
The Company's operation following its acquisition of a business will be
dependent on the nature of the business and the interest acquired. The
Company is unable to predict whether the Company will be in control of the
business or whether present management will be in control of the Company
following the acquisition. It may be expected that the business will present
various risks, which cannot be predicted at the present time.
Governmental Regulation
It is impossible to predict the government regulation, if any, to which
the Company may be subject until it has acquired an interest in a business.
The use of assets and/or conduct of businesses that the Company may acquire
could subject it to environmental, public health and safety, land use, trade,
or other governmental regulations and state or local taxation. In selecting a
business in which to acquire an interest, management will endeavor to
ascertain, to the extent of the limited resources of the Company, the effects
of such government regulation on the prospective business of the Company. In
certain circumstances, however, such as the acquisition of an interest in a
new or start-up business activity, it may not be possible to predict with any
degree of accuracy the impact of government regulation. The inability to
ascertain the effect of government regulation on a prospective business
activity will make the acquisition of an interest in such business a higher
risk.
Competition
The Company will be involved in intense competition with other business
entities, many of which will have a competitive edge over the Company by
virtue of their stronger financial resources and prior experience in business.
There is no assurance that the Company will be successful in obtaining
suitable investments.
Employees
The Company is a development stage company and currently has no
employees. Its officers perform services on behalf of the Company on an
hourly basis.
Officers devote only such time to the affairs of the Company as they
deem appropriate. Management of the Company expects to use consultants,
attorneys, and accountants as necessary, and does not anticipate a need to
engage any full-time employees so long as it is seeking and evaluating
businesses. The need for employees and their availability will be addressed
in connection with a decision whether or not to acquire or participate in a
specific business industry.
5
ITEM 2. DESCRIPTION OF PROPERTY
The Company uses offices and related clerical services at 8 East
Broadway #428, Salt Lake City, Utah 84111, provided by an officer and director
of the Company at a monthly rental rate of $200.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings,
and to the best of its knowledge, no such proceedings by or against the
Company have been threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fiscal year
ended December 31, 2005. However, in January, 2006, holders of over 50% of
the outstanding common stock approved a 1-for-8 reverse split ("Reverse
Split") of the outstanding common stock of the Company, by a majority consent.
The Reverse Split was effective as of March 9, 2006. On or about February 15,
2006, the Company sent to its shareholders an information statement filed with
the U.S. Securities and Exchange Commission ("SEC"), reporting the Reverse
Split.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Although quotations for the Company's common stock appear on the OTC
Bulletin Board, there is no established trading market for the common stock.
For the past two calendar years to the present, transactions in the common
stock can only be described as sporadic. Consequently, the Company is of the
opinion that any published prices cannot be attributed to a liquid and active
trading market and, therefore, are not indicative of any meaningful market
value.
The following table sets forth for the respective periods indicated the
prices of the Company's Common Stock in the over-the-counter market ("COMT"),
as reported and summarized by the OTC Bulletin Board. Such prices are based
on inter-dealer bid and asked prices, without markup, markdown, commissions,
or adjustments and may not represent actual transactions.
Calendar Quarter Ended High Bid ($) Low Bid ($)
---------------------- ------------ -----------
March 31, 2004 2.4000 1.2000
June 30, 2004 2.0000 1.9200
September 30, 2004 2.3200 1.6000
December 31, 2004 2.3200 1.6800
March 31, 2005 2.7200 1.2000
June 30, 2005 1.6000 1.2800
September 30, 2005 2.6400 1.6000
December 31, 2005 2.5600 1.6000
* All numbers give effect to a 1-for-8 reverse split effective
as of March 9, 2006.
6
As of March 24, 2006, the closing bid price for the Company's common
stock was $3.00. There are outstanding options to purchase 25,000 shares of
common stock at an exercise price of $1.50, which expire in March 2009. There
is an outstanding warrant to purchase 6,250 shares of the Company's common
stock at an exercise price of $1.50, which expires in March 2009. All shares
of common stock outstanding may be sold without restriction under Rule 144(k)
promulgated under the Securities Act of 1933, except 104,935 shares, which are
held by officers and directors ("Control Shares"). Control Shares may be sold
subject to complying with all of the terms and conditions of Rule 144, except
the one-year holding period, which has been satisfied.
Since its inception, no dividends have been paid on the Company's common
stock. The Company intends to retain any earnings for use in its business
activities, so it is not expected that any dividends on the common stock will
be declared and paid in the foreseeable future.
At March 24, 2006, there were approximately 100 holders of record of the
Company's common stock.
Sales of Unregistered Securities
On January 28, 2006, Richard B. Stuart, an officer and director of the
Company, exercised his remaining option to purchase a total of 9,490 shares of
the Company's common stock at a price of $1.50 per share, or a total purchase
price of $14,235. This was a private transaction and was entered into in
reliance upon an exemption from the registration provisions of the Securities
Act of 1933 (the "Act"), as amended, under Section 4(2) of the Act, as a
transaction not involving a public offering. The transaction occurred without
the use of an underwriter, and the certificates representing the shares of
common stock bear a restrictive legend permitting transfer only upon
registration or pursuant to an exemption from registration under the Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING INFORMATION AND CAUTIONARY STATEMENTS
When used in this report on Form 10-KSB, the words "may," "will,"
"expect," "anticipate," "continue," "estimate," "project," "intend," and
similar expressions are intended to identify forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934 regarding events, conditions, and
financial trends that may affect the Company's future plans of operations,
business strategy, operating results, and financial position. Persons
reviewing this report are cautioned that any forward-looking statements are
not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from those
included within the forward-looking statements as a result of various factors.
Such factors are discussed under the headings "Item 1. Description of
Business," and "Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations," and also include general economic
factors and conditions that may directly or indirectly impact the Company's
financial condition or results of operations.
7
PLAN OF OPERATION
The Company had no revenue from continuing operations for the years
ended December 31, 2005 and 2004. The Company's plan is to seek a business
venture in which to participate. The selection of a business opportunity in
which to participate is complex and extremely risky and will be made by
management in the exercise of its business judgment. There is no assurance
that the Company will be able to identify and acquire any business opportunity
that will ultimately prove to be beneficial to the Company and its
shareholders.
The Company anticipates that businesses for possible acquisition will be
referred by various sources, including its officers and directors,
professional advisors, securities broker-dealers, venture capitalists, members
of the financial community, and others who may present unsolicited proposals.
The Company will not engage in any general solicitation or advertising for a
business opportunity, and will rely on personal contacts of its officers and
directors and their affiliates, as well as indirect associations between them
and other business and professional people. By relying on "word of mouth", the
Company may be limited in the number of potential acquisitions it can
identify. While it is not presently anticipated that the Company will engage
unaffiliated professional firms specializing in business acquisitions or
reorganizations, such firms may be retained if management deems it in the best
interest of the Company.
Compensation to a finder or business acquisition firm may take various
forms, including one-time cash payments, payments based on a percentage of
revenues or product sales volume, payments involving issuance of securities
(including those of the Company), or any combination of these or other
compensation arrangements. Consequently, the Company is currently unable to
predict the cost of utilizing such services.
The activities of the Company are subject to several significant risks
that arise primarily as a result of the fact that the Company has no specific
business and may acquire or participate in a business opportunity based on the
decision of management which will, in all probability, act without the
consent, vote, or approval of the Company's shareholders. A description of
the manner in which the Company will pursue the search for and participation
in a business venture is described under "Item 1. Business," above.
Although the Company has no operations, it does incur expenses in
connection with complying with reporting requirements under the Securities
Exchange Act of 1934. General and administrative expenses for the years ended
December 31, 2005 and 2004, consisted of general corporate administration,
officer compensation, legal and professional expenses, and accounting and
auditing costs. In 2004, the Company incurred significant legal, accounting
and other expenses in connection with a proposed business combination with
Town House, which was terminated in the first quarter of 2005. Total general
and administrative expenses were $48,461, and $94,101 for 2005 and 2004,
respectively. The increased expenses in 2004 were due in large part to
expenses incurred relating to the proposed transaction between the Company and
Town House, which has been terminated.
The Company had no interest expense in 2005 or 2004. Interest income
resulted from the investment of funds in short-term, liquid cash equivalents.
Interest income was $1,057 in 2005 and $350 in 2004.
8
During the 2004 and 2005 fiscal years, the Company accrued compensation
to its officers in the amount of $57,795 and $30,000, respectively, for
services performed by such individuals on behalf of the Company. Of such
amounts, a total of $69,795 were converted into common stock in 2005. A total
of $18,000 was still owing to the Company's officers as of December 31, 2005.
As a result of the foregoing factors, the Company realized a net loss of
$47,404 in 2005, as compared to a net loss of $91,593 in 2004.
At December 31, 2005, the Company had working capital of $77,395.
Working capital consisted of cash and cash equivalents less current
liabilities. Management believes that the Company has sufficient cash and
short-term investments to meet the anticipated needs of the Company's
operations through at least the next 12 months. However, there can be no
assurances to that effect, as the Company has no significant revenues and the
Company's need for capital may change dramatically if it acquires an interest
in a business opportunity during that period. The Company's current operating
plan is to handle the administrative and reporting requirements of a public
company and search for potential businesses, products, technologies and
companies for acquisition. At present, the Company has no understandings,
commitments or agreements with respect to the acquisition of any business
venture, and there can be no assurance that the Company will identify a
business venture suitable for acquisition in the future. Further, there can be
no assurance that the Company would be successful in consummating any
acquisition on favorable terms, if at all, or that it will be able to
profitably manage the business venture it acquires.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by this Item 7 begin on Page 18 with
the Index to the Financial Statements and are located following the signature
page. All information that has been omitted is either inapplicable or not
required.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There are no reportable changes in or disagreements with accountants.
ITEM 8A. CONTROLS AND PROCEDURES
With the participation of management, the Company's chief executive
officer and chief financial officer evaluated the Company's disclosure
controls and procedures on December 31, 2005. Based on this evaluation, the
chief executive officer and the chief financial officer concluded that the
disclosure controls and procedures are effective in connection with the
Company's filing of its annual report on Form 10-KSB for the year ended
December 31, 2005.
During the fourth quarter of the year ended December 31, 2005, there
were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls, and no significant
deficiencies or material weaknesses of internal controls that would require
corrective action were identified during that period.
9
ITEM 8B. OTHER INFORMATION
During the fiscal year ended December 31, 2005, the Company filed two
reports on Form 8-K. On February 14, 2005, the Company filed a Current Report
on Form 8-K, reporting the termination of the Exchange Agreement among the
Company, Town House, and the shareholders of Town House. On September 28,
2005, the Company filed a Current Report on Form 8-K, reporting: (a) the
exercise of options of the Company's current officers and directors to
eliminate certain indebtedness owed to them; and (b) the sale by the Company
on the same date, to an unrelated party, of a total of 12,500 shares of
restricted common stock at a price of $2.00 per share for total cash proceeds
of $25,000.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND OFFICERS
Current Management of the Company
The following table sets forth the names, ages, and positions with the
Company for each of the directors and officers of the Company.
Name Age Positions* Since
------------------------- ------ -------------------------------------- ------
Richard B. Stuart 72 President and Director 1986
Jack M. Gertino 67 Secretary, Treasurer and Director 1986
*In August, 2003, Philip C. Gugel, Vice President and a director, passed away.
Mr. Gugel has not been replaced.
All executive officers are elected by the Board and hold office until
the next Annual Meeting of stockholders or until their successors are duly
elected and qualified.
The following is information on the business experience of each director
and officer.
Richard B. Stuart earned his BA at New York University in 1955 and
masters and doctoral degrees at Columbia University in 1960 and 1965,
respectively. He currently holds the following positions: President,
Behavior Change Systems (Ann Arbor, MI), a firm offering business consulting
and program development services; Clinical Professor Emeritus, Department of
Psychiatry, University of Washington (Seattle, WA). Dr. Stuart also provides
psychological services through a private practice in Seattle, WA. From 1972
to 1983, he was Psychological Director of Weight Watchers International and
President of its subsidiary, One-To-One Weight Control Clinics. Dr. Stuart
has also been a consultant to companies involved in businesses ranging from
wholesale groceries to auto parts production and human services. Dr. Stuart
was an officer and director of Domino Investments (Salt Lake City, UT).
Jack M. Gertino has been a private investor and business consultant in
Salt Lake City, Utah, for the past ten years. For the past ten years, he has
also been engaged in the private development of, and investment in, commercial
and residential real estate in Utah, Arizona and New Mexico. He currently
provides consulting services for financial institutions. Mr. Gertino
10
has been involved in private and public financings over the past twenty years.
From February 1992 to August 2005, he served as a director of Red Horse
Entertainment Corporation, a publicly held shell corporation seeking a
business acquisition.
Audit Committee Financial Expert
Because we have had minimal operations, we do not have an audit
committee serving at this time. Accordingly, we do not have an audit
committee financial expert serving on an audit committee or any other
committee of the Board.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and persons who own more than ten percent of a
registered class of our equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of our common stock. The Company believes all forms required to be
filed under Section 16 of the Exchange Act have been filed. However, a review
reveals that a Form 5 filed by Jack M. Gertino, Secretary, on March 24, 2006,
was filed late, and a Form 4 filed on March 24, 2006, by Richard B. Stuart,
President, was also filed late.
Code of Ethics
Due to the fact that we have minimal operations, we have not adopted a
code of ethics for our principal executive and financial officers. Our
management intends to promote honest and ethical conduct, full and fair
disclosure in our reports to the SEC, and compliance with applicable
governmental laws and regulations.
Other Shell Company Activities
Mr. Gertino was a director of Red Horse Entertainment Corporation ("Red
Horse"), a publicly held shell corporation. In July, 2005, Red Horse
completed the acquisition of Silverstrand International Holdings Limited under
a Stock Exchange Agreement. Mr. Gertino resigned as a director on August 5,
2005. The possibility exists that one or more of the officers and directors
of the Company could become officers and/or directors of other shell companies
in the future, although they have no intention of doing so at the present
time. Certain conflicts of interest are inherent in the participation of the
Company's officers and directors as management in other shell companies, which
may be difficult, if not impossible, to resolve in all cases in the best
interests of the Company. Failure by management to conduct the Company's
business in its best interests may result in liability of management of the
Company to the shareholders.
11
ITEM 10. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following sets forth the compensation of Comet's executive officers for
the three fiscal years ended December 31, 2005.
------------------------------------------------------------------------------
Fiscal
Name and Principal Year Ended All Other
Position December 31 Salary($) Bonus($) Options(#) Compensation($)
------------------- ------------ --------- -------- ---------- ---------------
Richard B. Stuart 2005 0 0 0(4) 10,000(1)
President and 2004 0 0 0 19,265(2)
Chief Executive 2003 0 0 0 10,000(3)
Officer
------------------- ------------ --------- -------- ---------- ---------------
Jack M. Gertino 2005 0 0 0(4) 20,000(1)
Secretary/Treasurer 2004 0 0 0 38,530(2)
and Chief Financial 2003 0 0 0 20,000(3)
Officer
------------------------------------------------------------------------------
(1) The Company recorded compensation expense for Richard B. Stuart and Jack
M. Gertino, computed on an hourly basis, in the amounts indicated, for their
efforts in reviewing specific business opportunities for a possible business
combination during the fiscal year, participating in meetings and conference
calls in connection with such opportunities, and undertaking related
activities.
(2) The Company recorded compensation expense for Richard B. Stuart and Jack
M. Gertino, computed on an hourly basis, in the amounts indicated, for their
efforts in reviewing the business opportunity with Town House for a possible
business combination during the fiscal year 2004, participating in meetings
and conference calls in connection with such opportunity, assisting in the
negotiation and preparation of agreements and in the preparation of disclosure
documents, and undertaking related activities.
(3) The Company recorded compensation expense for Richard B. Stuart and Jack
M. Gertino, computed on an hourly basis, in the amounts indicated, for their
efforts in reviewing the business opportunity with Town House for a possible
business combination during the fiscal year 2003, participating in meetings
and conference calls in connection with such opportunity, and undertaking
related activities.
(4) On March 11, 1999, the Company granted to Richard B. Stuart, Phillip C.
Gugel (deceased) and Jack M. Gertino, officers and directors, options to
purchase 25,000 shares of common stock each at an exercise price of $1.50,
which was the average of the bid and asked prices for the common stock on that
date. The options were issued to compensate these persons for their services
to the Company over the past 13 years, for which they had received no other
compensation. On September 26, 2005, the Company's current officers and
directors agreed to eliminate certain indebtedness owed to them through the
exercise of certain stock options referenced above. Accordingly, Jack M.
Gertino exercised his stock options in full, for the conversion of a total of
$37,500 in indebtedness to him, into a total of 25,000 shares of restricted
common stock at a price of $1.50 per share. Richard B. Stuart agreed to
convert the entire obligation to him ($23,265), into a total of 15,510 shares
of common stock under his stock options at a price of $1.50 per share.
Because Dr. Stuart did not exercise all of his stock options, he was reissued
stock options to purchase a total of 9,490 shares at $1.50 per share.
12
These options were exercised on January 28, 2006, for cash. Therefore, the
options of Richard B. Stuart and Jack M. Gertino have now been fully
exercised. The options of Mr. Gugel have now passed on to his estate.
The Company has no agreement or understanding, express or implied, with
any officer, director, or principal stockholder, or their affiliates or
associates, regarding employment with the Company or compensation for
services. The Company has no plan, agreement, or understanding, express or
implied, with any officer, director, or principal stockholder, or their
affiliates or associates, regarding the issuance to such persons of any shares
of the Company's authorized and unissued common stock. There is no
understanding between the Company and any of its present stockholders
regarding the sale of a portion or all of the common stock currently held by
them in connection with any future participation by the Company in a business.
There are no other plans, understandings, or arrangements whereby any of
the Company's officers, directors, or principal stockholders, or any of their
affiliates or associates, would receive funds, stock, or other assets in
connection with the Company's participation in a business. No advances have
been made or contemplated by the Company to any of its officers, directors, or
principal stockholders, or any of their affiliates or associates.
There is no policy that prevents management from adopting a plan or
agreement in the future that would provide for cash or stock based
compensation for services rendered to the Company.
On acquisition of a business, it is possible that current management
will resign and be replaced by persons associated with the business acquired,
particularly if the Company participates in a business by effecting a stock
exchange, merger, or consolidation. In the event that any member of current
management remains after effecting a business acquisition, that member's time
commitment and compensation will likely be adjusted based on the nature and
location of such business and the services required, which cannot now be
foreseen.
The following table sets forth certain information with respect to
unexercised options held by the executive officers as of December 31, 2005.
Number of Securities Value of Unexercised
Name and Principal Underlying Unexercised Options In-the-Money Options
Position at December 31, 2005 (#)(2) at December 31, 2005 ($)(1)
------------------------- -------------------------------- ---------------------------
Exerciseable/Unexerciseable Exerciseable/Unexerciseable
--------------------------- ---------------------------
Richard B. Stuart,
President 9,490/ -0- -0-/ -0-
(1) This value is determined on the basis of the difference between the average of
the high bid and asked prices on December 31, 2005, of the securities
underlying the options, and the exercise price.
(2) Dr. Stuart exercised all of this option on January 28, 2006, for $14,235 in
cash.
13
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth as of March 23, 2006, the number and
percentage of the 516,780 outstanding shares of common stock which, according
to the information supplied to the Company, were beneficially owned by (i)
each person who is currently a director of the Company, (ii) each executive
officer, (iii) all current directors and executive officers of the Company as
a group and (iv) each person who, to the knowledge of the Company, is the
beneficial owner of more than 5% of the outstanding common stock. Except as
otherwise indicated, the persons named in the table have sole voting and
dispositive power with respect to all shares beneficially owned, subject to
community property laws where applicable.
Name and Address Common Shares (1) Percent of Class
----------------------------- ----------------- ----------------
Richard B. Stuart (2)(3)
PO Box 236
Edmonds, Washington 98020 50,960(2) 9.86
Jack M. Gertino (3)
8 East Broadway #428
Salt Lake City, Utah 84111 53,975 10.44
The Harker Group
Limited Partnership
1717 Monte Carlo Drive
Salt Lake City, UT 84121 51,944 10.05
All Executive Officers and
Directors as a Group
(2 persons) 104,935 20.30
(1) These individuals hold no options or warrants or other rights to
purchase stock. All shares are held of record and beneficially, except as
noted in (2) below.
(2) Ownership is held of record by Pershing, LLC ("Pershing"), a limited
liability company of which Richard B. Stuart is the owner, of 25,960 shares.
The remaining shares are held by Dr Stuart individually.
(3) Messrs. Stuart and Gertino are officers and directors of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 26, 2005, Jack Gertino and Richard Stuart, M.D., officers
and directors, exercised Options resulting in the issuance of 29,515 shares
and 15,510 shares of restricted common stock, respectively, to Mr. Gertino and
Dr. Stuart. Mr. Gertino and Dr. Stuart were owed $46,530, and $23,265,
respectively, for services rendered to the Company, primarily in connection
with a possible merger transaction that, after several months of efforts, was
terminated. The options were issued in exchange for the cancellation of debt
to Messrs. Gertino and Stuart. For additional information concerning these
transactions, reference is made to a Current Report on Form 8-K filed on or
about September 28, 2005, incorporated herein by reference. Following this
transaction, Dr. Stuart's remaining option entitled him to purchase an
additional 9,490 shares at $1.50 per share, which he exercised for cash on
January 28, 2006.
14
Except as indicated above, there are no proposed transactions and no
transactions during the past two years to which the Company was a party and in
which any officer, director, or principal shareholder, or their affiliates or
associates, was also a party.
Effective March 9, 2006, the Company completed a 1-for-8 reverse split
of its outstanding common stock. All numbers in this report give effect to
the reverse split.
ITEM 13. EXHIBITS
(a) Exhibits. Copies of the following documents are included as
exhibits to this report pursuant to Item 601 of Regulation S-B.
3.1 Articles of Incorporation, as amended (incorporated by reference
to Exhibit 3.1 to the Company's Registration Statement on Form
10-SB, as filed with the Securities and Exchange Commission on May
13, 1999).
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form 10-SB, as filed
with the Securities and Exchange Commission on May 13, 1999).
10.1 Option granted to Richard B. Stuart dated March 11, 1999
(incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form 10-SB, as filed with the Securities
and Exchange Commission on May 13, 1999).
10.2 Option granted to Philip C. Gugel dated March 11, 1999
(incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form 10-SB, as filed with the Securities
and Exchange Commission on May 13, 1999).
10.3 Option granted to Jack M. Gertino dated March 11, 1999
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form 10-SB, as filed with the Securities
and Exchange Commission on May 13, 1999).
10.4 Warrant granted to Mark E. Lehman dated March 11, 1999
(incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form 10-SB, as filed with the Securities
and Exchange Commission on May 13, 1999).
31.1* Certification of Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Principal Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1* Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Filed as exhibits to this annual report on Form 10-KSB.
15
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees billed by our principal accounting firm, for fees
billed for fiscal years ended December 31, 2005 and 2004 are as follows:
Audit Fee
---------
The aggregate fees billed for each of the last two fiscal years for
professional services rendered by HJ & Associates, LLC, the Company's
principal accountant, for the audit of the Company's annual financial
statement and review of financial statements included in the Company's 10-QSB
reports and services normally provided by the accountant in connection with
statutory and regulatory filings or engagements were $5,480 for fiscal year
2005 and $3,410 for fiscal year 2004.
Audit-Related Fees
-------------------
The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are reasonably
related to the performance of the audit or review of the Company's financial
statements that are not reported above were $0 for fiscal year ended 2005 and
$0 for fiscal year ended 2004.
Tax Fees
--------
The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax compliance,
tax advice, and tax planning were $247 for fiscal year 2005 and $396 for
fiscal year 2004.
All Other Fees
--------------
The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than the
services reported above were $0 for fiscal year 2005 and $0 for fiscal year
ended 2004.
The Company does not currently have an audit committee. As a result our
board of directors performs the duties of an audit committee. The Company's
board of directors will evaluate and approve in advance, the scope and cost of
the engagement of an auditor before the auditor renders audit and non-audit
services. We do not rely on pre-approval policies and procedures.
16
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
COMET TECHNOLOGIES, INC.
Date: March 28, 2006 By: /s/ Richard B. Stuart
Richard B. Stuart, President and CEO
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: March 28, 2006 /s/ Richard B. Stuart
Richard B. Stuart
President, CEO and Director
(Principal Executive Officer)
Date: March 28, 2006 /s/ Jack M. Gertino
Jack M. Gertino
Secretary, CFO and Director
(Principal Accounting Officer)
17
CONTENTS
Report of Independent Registered Public Accounting Firm....................19
Balance Sheet..............................................................20
Statements of Operations...................................................21
Statements of Stockholders' Equity.........................................22
Statements of Cash Flows...................................................24
Notes to the Financial Statements..........................................25
18
Report of Independent Registered Public Accounting Firm
Board of Directors
Comet Technologies, Inc.
(A Development Stage Company)
Salt Lake City, Utah
We have audited the accompanying balance sheet of Comet Technologies, Inc. (a
development stage company) as of December 31, 2005 and the related statements
of operations, stockholders' equity, and cash flows for the years ended
December 31, 2005 and 2004 and from inception on February 7, 1986 through
December 31, 2005. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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 Comet Technologies, Inc. (a
development stage company) as of December 31, 2005, and the results of its
operations and its cash flows for the years ended December 31, 2005 and 2004
and from inception on February 7, 1986 through December 31, 2005, in
conformity with U.S. generally accepted accounting principles.
/s/ HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
March 17, 2006
19
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Balance Sheet
ASSETS
December 31,
2005
-------------
CURRENT ASSETS
Cash and cash equivalents $ 95,981
-------------
Total Current Assets 95,981
-------------
TOTAL ASSETS $ 95,981
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Account payable $ 586
Payable - related parties 18,000
-------------
Total Current Liabilities 18,586
-------------
TOTAL LIABILITIES 18,586
-------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 5,000,000
shares authorized; none issued or outstanding -
Common stock, $0.001 par value, 20,000,000
shares authorized; 507,290 issued and outstanding 507
Capital in excess of par value 336,447
Deficit accumulated during the development stage (259,559)
-------------
Total Stockholders' Equity 77,395
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 95,981
=============
The accompanying notes are an integral part of these financial statements.
20
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Operations
From
Inception on
February 7,
For the Years Ended 1986 through
December 31, December 31,
2005 2004 2005
------------- ------------- -------------
REVENUES $ - $ - $ -
------------- ------------- -------------
EXPENSES
General and administrative 48,461 94,101 409,078
------------- ------------- -------------
Total Expenses 48,461 94,101 409,078
------------- ------------- -------------
LOSS FROM OPERATIONS (48,461) (94,101) (409,078)
------------- ------------- -------------
OTHER INCOME
Dividend income - - 5,493
Interest income 1,057 350 148,518
Reimbursement of fees - 2,158 2,158
Unrealized loss from
marketable securities - - (6,650)
------------- ------------- -------------
Total Other Income 1,057 2,508 149,519
------------- ------------- -------------
NET LOSS $ (47,404) $ (91,593) $ (259,559)
============= ============= =============
BASIC LOSS PER SHARE $ (0.10) $ (0.20)
============= =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 465,038 449,750
============= =============
The accompanying notes are an integral part of these financial statements.
21
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
From Inception on February 7, 1986 through December 31, 2005
Deficit
Accumulated
Common Stock Capital in During
------------------------- Excess of Development
Shares Amount Par Value Stage
------------- ----------- ----------- -------------
Balance at Inception on
February 7, 1986 - $ - $ - $ -
Issuance of 137,250 shares
of common stock to
officers, directors and
other individuals for
$0.182 per share on
February 7, 1986 137,250 137 24,863 -
Public offering of the
Company's common stock
(Note 2) 312,500 313 249,687 -
Deferred offering costs
offset against capital
in excess of par value - - (32,841) -
Net loss from inception
on February 7, 1986
through December 31, 1997 - - - (41,568)
------------- ----------- ----------- -------------
Balance, December 31, 1997 449,750 450 241,709 (41,568)
Net loss for the year
ended December 31, 1998 - - - (1,761)
------------- ----------- ----------- -------------
Balance, December 31, 1998 449,750 450 241,709 (43,329)
Net income for the year
ended December 31, 1999 - - - 145
------------- ----------- ----------- -------------
Balance, December 31, 1999 449,750 450 241,709 (43,184)
Net loss for the year
ended December 31, 2000 - - - (1,803)
------------- ----------- ----------- -------------
Balance, December 31, 2000 449,750 450 241,709 (44,987)
Net loss for the year
ended December 31, 2001 - - - (7,412)
------------- ----------- ----------- -------------
Balance, December 31, 2001 449,750 450 241,709 (52,399)
Net loss for the year
ended December 31, 2002 - - - (28,074)
------------- ----------- ----------- -------------
Balance, December 31, 2002 449,750 $ 450 $ 241,709 $ (80,473)
------------- ----------- ----------- -------------
The accompanying notes are an integral part of these financial statements.
22
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (continued)
From Inception on February 7, 1986 through December 31, 2005
Deficit
Accumulated
Common Stock Capital in During
------------------------- Excess of Development
Shares Amount Par Value Stage
------------- ----------- ----------- -------------
Balance, December 31, 2002 449,750 $ 450 $ 241,709 $ (80,473)
Net loss for the year
ended December 31, 2003 - - - (40,089)
------------- ----------- ----------- -------------
Balance, December 31, 2003 449,750 450 241,709 (120,562)
Net loss for the year
ended December 31, 2004 - - - (91,593)
------------- ----------- ----------- -------------
Balance, December 31, 2004 449,750 450 241,709 (212,155)
Issuance of 40,510 shares
of common stock to officers
and directors under option
for $1.50 per share on
September 26, 2005 for
related party indebtedness 40,510 40 60,725 -
Issuance of 4,515 shares of
common stock to an officer
and director for related
party indebtedness for
$2.00 per share on
September 26, 2005 4,515 4 9,026 -
Issuance of 12,500 shares
of common stock for cash
for $2.00 per share 12,500 13 24,987 -
Adjustment for fractional
shares in 1-for-8 reverse
split 15 - - -
Net loss for the year
ended December 31, 2005 - - - (47,404)
------------- ----------- ----------- -------------
Balance, December 31, 2005 507,290 $ 507 $ 336,447 $ (259,559)
============= =========== =========== =============
The accompanying notes are an integral part of these financial statements.
23
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Cash Flows
From
Inception on
For the Years Ended February 7,
December 31, 1986 through
--------------------------- December 31,
2005 2004 2005
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from operations $ (47,404) $ (91,593) $ (259,559)
Adjustments to reconcile net loss
to net cash used by operating activities:
Amortization - - 301
Change in operating assets and liabilities:
Increase in taxes payable - - 300
Increase in accounts payable 27,521 30,860 88,080
------------- ------------- -------------
Net Cash used by Operating Activities (19,883) (60,733) (170,878)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES - - -
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Organizational costs - - (300)
Sale of stock 25,000 - 25,000
Net stock offering proceeds - - 242,159
------------- ------------- -------------
Net Cash Provided by Financing Activities - - 266,859
------------- ------------- -------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,117 (60,733) 95,981
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 90,864 151,597 -
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 95,981 $ 90,864 $ 95,981
============= ============= =============
CASH PAID FOR:
Taxes $ - $ - $ -
Interest $ - $ - $ -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issue for settlement
of related party indebtedness $ 69,795 $ - $ 69,795
The accompanying notes aer an integral part of these financial statements
24
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2005 and 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The financial statements presented are those of Comet Technologies, Inc. (the
Company). The Company was incorporated in the State of Nevada on February 7,
1986. The Company was incorporated for the purpose of providing a vehicle
which could be used to raise capital and seek business opportunities believed
to hold a potential for profit. The Company has not presently identified a
specific business area or direction that it will follow. Therefore, no
principal operations have yet begun.
b. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has adopted a calendar year end.
c. Basic Loss Per Share
The computation of basic loss per share of common stock is based on the
weighted average number of shares issued and outstanding during the period of
the financial statements as follows:
December 31,
----------------------------
2005 2004
-------------- -------------
Numerator - loss $ (47,404) $ (91,593)
Denominator - weighted average number of
shares outstanding 465,038 449,750
-------------- -------------
Loss per share $ (0.10) $ (0.20)
============== =============
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
e. Provision for Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax assets are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
25
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2005 and 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Provision for Taxes (Continued)
Net deferred tax assets consist of the following components as of December 31,
2005 and 2004:
2005 2004
------------- -------------
Deferred tax assets:
NOL Carryover $ 58,694 $ 51,860
Accrued Expenses 7,249 23,735
Deferred tax liabilities: - -
Valuation allowance (65,943) (75,595)
------------- -------------
Net deferred tax asset $ - $ -
============= =============
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal and state income tax rates of 39% to pretax income
from continuing operations for the years ended December 31, 2005 and 2004 due
to the following:
2005 2004
------------- -------------
Book income $ (18,488) $ (35,720)
Other (39) (39)
Stock for related party indebtedness 11,700 -
Valuation allowance 6,827 35,759
------------- -------------
$ - $ -
============= =============
At December 31, 2005, the Company had net operating loss carryforwards of
approximately $147,500 that may be offset against future taxable income from
the year 2005 through 2025. No tax benefit has been reported in the December
31, 2005 consolidated financial statements since the potential tax benefit is
offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net
operating loss carryforwards may be limited as to use in future years.
26
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2005 and 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period.
NOTE 2 - PUBLIC OFFERING OF UNITS
In July of 1986, the Company completed a public offering of 312,500 shares of
its previously authorized but unissued common stock to the public. An
offering price of $0.80 per share was arbitrarily determined by the Company.
Offering costs totaled $32,841 and were offset against capital in excess of
par value. The net proceeds to the Company from the offering were $217,159,
which equals $250,000 minus offering costs of $32,841.
NOTE 3 - PREFERRED STOCK
None of the Company's authorized 5,000,000 shares of preferred stock is issued
and outstanding and the Company currently has no plans to issue any preferred
stock. The Company's board of directors has authority, without action by the
shareholders, to issue all or any portion of the authorized but unissued
preferred stock in one or more series and to determine the voting rights,
preferences as to dividends and liquidation, conversion rights and other
rights of such series. The preferred stock, if and when issued, may carry
rights superior to those of the common stock.
NOTE 4 - NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the year ended December 31, 2005, the Company adopted the following
accounting pronouncements which had no impact on the financial statements or
results of operations:
. SFAS No. 154, Accounting Changes and Error Corrections-a replacement
of APB Opinion No. 20 and FASB Statement No. 3; and
. SFAS No. 155, Accounting for Certain Hybrid Financial Instruments-an
amendment of FASB Statements No. 133 and 140.
NOTE 5 - RELATED PARTY TRANSACTION
As of December 31, 2005, the Company owed $18,000 to related parties for
unpaid services rendered to the Company.
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COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2005 and 2004
NOTE 6 - STOCK OPTIONS AND WARRANTS AND SALE OF STOCK
On March 11, 1999, the Company granted to each of its three (3) directors,
options to purchase 25,000 shares of common stock each at an exercise price of
$1.50, which was the average of the bid and asked prices for the common stock
on that date. The options are vested and expire in March 2009. The options
were issued to compensate these persons for their services to the Company over
the past 13 years, for which they had received no other compensation. The
options of one of the directors, now deceased, have passed on to his estate.
On September 26, 2005, the Company's current officers and directors agreed to
eliminate certain indebtedness owed to them through the exercise of certain
stock options referenced above. Accordingly, one of the officers and
directors exercised his stock options in full, for the conversion of a total
of $37,500 in indebtedness to him, into a total of 25,000 shares of restricted
common stock at a price of $1.50 per share. The other officer and director
agreed to convert the entire obligation to him ($23,265), into a total of
15,510 shares of common stock under his stock options at a price of $1.50 per
share. Because he did not exercise all of his stock options, he was reissued
stock options to purchase a total of 9,490 shares at $1.50 per share. One of
the officers and directors above who was owed an additional $9,030 converted
such debt on the same date to 4,515 shares of restricted common stock at a
price of $2.00 per share.
To provide the Company with additional capital, the Company sold on the same
date, to an unrelated party, a total of 12,500 shares of restricted common
stock at a price of $2.00 per share for total cash proceeds of $25,000.
There is an outstanding warrant to purchase 6,250 shares of the Company's
common stock held by an unrelated third party at an exercise price of $1.50,
which expires in March 2009.
NOTE 7 - SUBSEQUENT EVENT
On January 28, 2006, an officer and director of the Company exercised his
remaining stock options to purchase a total of 9,490 shares at $1.50 per
share.
Effective March 9, 2006, the Company effected a 1-for-8 reverse split of its
issued and outstanding shares of common stock, following approval of such
stock split by holders of a majority of the outstanding common stock. All
figures in these financial statements give retroactive effect to the reverse
split.
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