UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended October 31, 2002
--------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from__________ to __________
Commission file number: 0 - 32093
---------------------
HIENERGY TECHNOLOGIES, INC.
-------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 91-2022980
-------- ----------
State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization
1601 Alton Parkway, Unit B, Irvine, California 92606
------------------------------------------------------------
(Address of principal executive offices)
(949) 757-0855
---------------------------
(Issuer's telephone number)
--------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of December 6, 2002, the issuer
had 24,042,360 shares of Common Stock, par value $0.001 per share, issued and
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
HIENERGY TECHNOLOGIES, INC.
INDEX TO
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED OCTOBER 31, 2002
PART I - FINANCIAL INFORMATION PAGE
Item 1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets as of April 30, 2002 and October 31, 2002
(unaudited)
Consolidated Statements of Operations for the three and six months
ended October 31, 2002 and 2001 (unaudited) and for the Period from
August 21, 1995 (Inception) to October 31, 2002 (unaudited)
Consolidated Statements of Shareholders' Equity for the Period from
August 21, 1995 (Inception) to October 31, 2002 (unaudited)
Consolidated Statements of Cash Flows for the six months ended October
31, 2002 and 2001 (unaudited) and for the Period from August 21, 1995
(Inception) to October 31, 2002 (unaudited)
Notes to the Consolidated Financial Statements (unaudited)
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 32
Item 3 Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . 36
PART II- OTHER INFORMATION
Item 1 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 36
Item 2 Changes in Securities and Use of Proceeds. . . . . . . . . . . 37
Item 4 Submission of Matters to a Vote of Security Holders. . . . . 38
Item 5 Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . 39
Item 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 39
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
CERTIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HIENERGY TECHNOLOGIES, INC.
(FORMERLY SLW ENTERPRISES, INC.)
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEET
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
========================================================================================
ASSETS
October 31, April 30,
2002 2002
------------ ------------
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,949,408 $ 1,078,136
Accounts receivable 70,000 29,166
Subscription receivable 184,000 -
Other current assets 220,721 7,500
------------ ------------
Total current assets 2,424,129 1,114,802
PROPERTY AND EQUIPMENT, net 496,427 114,568
------------ ------------
TOTAL ASSETS $ 2,920,556 $ 1,229,370
============ ============
The accompanying notes are an integral part of these financial statements.
1
HIENERGY TECHNOLOGIES, INC.
(FORMERLY SLW ENTERPRISES, INC.)
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEET
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
October 31, April 30,
2002 2002
------------ ------------
(unaudited)
CURRENT LIABILITIES
Accounts payable $ 525,533 $ 209,895
Accrued expenses 72,885 151,567
Accrued payroll and payroll taxes 350,000 350,000
Accrued interest 30,661 29,767
Notes payable - related parties 312,608 621,691
Convertible notes payable - related parties 10,400 35,400
------------ ------------
Total current liabilities 1,302,087 1,398,320
------------ ------------
MINORITY INTEREST IN SUBSIDIARY 18,923 18,923
------------ ------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Preferred stock, $0.001 par value
20,000,000 shares authorized
Series A convertible, redeemable preferred stock
8% dividends, voting rights, liquidation preference
$10,000 per share, 345 shares authorized
98 (unaudited) and 0 issued and outstanding 1 -
Additional paid-in capital 800,398 -
------------ ------------
Total redeemable convertible preferred stock 800,399 -
------------ ------------
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, $0.001 par value
100,000,000 shares authorized
24,042,360 (unaudited) and 22,075,200 shares
issued and outstanding 24,042 22,075
Additional paid-in capital 10,233,514 2,514,616
Committed shares, 45,755 (unaudited) and 0 outstanding 7,164 -
Deferred compensation (3,981,993) -
Deficit accumulated during the development stage (5,483,580) (2,724,564)
------------ ------------
Total shareholders' equity (deficit) 799,147 (187,873)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 2,920,556 $ 1,229,370
============ ============
The accompanying notes are an integral part of these financial statements.
2
HIENERGY TECHNOLOGIES, INC.
(FORMERLY SLW ENTERPRISES, INC.)
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 2002 AND 2001 (UNAUDITED),
FOR THE SIX MONTHS ENDED OCTOBER 31, 2002 AND 2001 (UNAUDITED), AND
FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31, 2002 (UNAUDITED)
================================================================================================
For the
Period from
August 21,
1995
For the Three Months Ended For the Six Months Ended (Inception) to
October 31, October 31, October 31,
2002 2001 2002 2001 2002
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
CONTRACT REVENUES $ 40,834 $ 26,000 $ 40,834 $ 117,000 $ 366,750
OPERATING EXPENSES
General and
administration 1,042,562 136,187 1,764,302 271,359 4,773,521
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,001,728) (110,187) (1,723,468) (154,359) (4,406,771)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 1,200 - 3,358 - 3,135
Interest expense (2,385) 1,385 (5,405) (1,164) (35,460)
Financing expense - - (223,710) - (223,710)
Forgiveness of accounts
payable - - 36,000 - 36,000
------------ ------------ ------------ ------------ ------------
Total other income
(expense) (1,185) 1,385 (189,757) (1,164) (220,035)
------------ ------------ ------------ ------------ ------------
LOSS BEFORE PROVISION
FOR INCOME TAXES (1,002,913) (108,802) (1,913,225) (155,523) (4,626,806)
PROVISION FOR INCOME
TAXES - - - - 10,983
------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
3
HIENERGY TECHNOLOGIES, INC.
(FORMERLY SLW ENTERPRISES, INC.)
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 2002 AND 2001 (UNAUDITED),
FOR THE SIX MONTHS ENDED OCTOBER 31, 2002 AND 2001 (UNAUDITED), AND
FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31, 2002 (UNAUDITED)
================================================================================================
For the
Period from
August 21,
1995
For the Three Months Ended For the Six Months Ended (Inception) to
October 31, October 31, October 31,
2002 2001 2002 2001 2002
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
NET LOSS $(1,002,913) $ (108,802) $(1,913,225) $ (155,523) $(4,637,789)
BENEFICIAL CONVERSION
FEATURE GRANTED ON (767,431) - (767,431) - (767,431)
PREFERRED STOCK
PREFERRED STOCK
DIVIDENDS (78,360) - (78,360) - (78,360)
------------ ------------ ------------ ------------ ------------
NET LOSS AVAILABLE TO
COMMON
SHAREHOLDERS (1,848,704) $ (108,802) (2,759,016) $ (155,523) (5,483,580)
============ ============ ============ ============ ============
BASIC AND DILUTED LOSS
AVAILABLE TO COMMON
SHAREHOLDERS PER
SHARE $ (0.08) $ (0.01) $ (0.12) $ (0.01) $ (0.45)
============ ============ ============ ============ ============
BASIC AND DILUTED
WEIGHTED-AVERAGE
COMMON SHARES
OUTSTANDING 22,973,597 16,222,711 22,783,343 15,833,315 12,173,702
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
4
HIENERGY TECHNOLOGIES, INC.
(FORMERLY SLW ENTERPRISES, INC.)
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31,2002
(UNAUDITED)
==================================================================================================================================
Deficit
Accumulated
Additional during the
Common Stock Paid-in Committed Deferred Development
--------------------------
Shares Amount Capital Shares Compensation Stage Total
------------ ------------ ------------ ----------- -------------- ------------ ----------
BALANCE, AUGUST 21, 1995
(INCEPTION) - $ - $ - $ - $ - $ -
RECAPITALIZATION UPON
REVERSE MERGER 6,470,000 6,470 (6,456) 14
ISSUANCE OF COMMON STOCK
FOR SERVICES 734,771 735 7,495 8,230
NET LOSS (39,387) (39,387)
------------ ------------ ------------ ----------- -------------- ------------ ----------
BALANCE, APRIL 30, 1996 7,204,771 7,205 1,039 - - (39,387) (31,143)
ISSUANCE OF COMMON STOCK
FOR SERVICES 3,219 3 33 36
NET LOSS (110,004) (110,004)
------------ ------------ ------------ ----------- -------------- ------------ ----------
BALANCE, APRIL 30, 1997 7,207,990 7,208 1,072 - - (149,391) (141,111)
ISSUANCE OF COMMON STOCK
FOR CASH 596,589 597 143,955 144,552
ISSUANCE OF COMMON STOCK
FOR SERVICES 1,451,928 1,452 15,598 17,050
NET LOSS (293,019) (293,019)
------------ ------------ ------------ ----------- -------------- ------------ ----------
The accompanying notes are an integral part of these financial statements.
5
HIENERGY TECHNOLOGIES, INC.
(FORMERLY SLW ENTERPRISES, INC.)
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31,2002
(UNAUDITED)
===================================================================================================================================
Deficit
Accumulated
Additional during the
Common Stock Paid-in Committed Deferred Development
--------------------------
Shares Amount Capital Shares Compensation Stage Total
------------ ------------ ------------ ----------- -------------- ------------ ----------
BALANCE, APRIL 30, 1998 9,256,507 $ 9,257 $ 160,625 $ - $ - $ (442,410) $(272,528)
ISSUANCE OF COMMON STOCK
FOR CASH 264,852 265 150,965 151,230
ISSUANCE OF COMMON STOCK
FOR SERVICES 2,167,620 2,167 47,592 49,759
NET LOSS (272,426) (272,426)
------------ ------------ ------------ ----------- -------------- ------------ ----------
BALANCE, APRIL 30, 1999 11,688,979 11,689 359,182 - - (714,836) (343,965)
ISSUANCE OF COMMON STOCK
FOR CASH 638,548 638 295,008 295,646
ISSUANCE OF COMMON STOCK
FOR SERVICES 1,914,570 1,915 83,322 85,237
NET LOSS (332,131) (332,131)
------------ ------------ ------------ ----------- -------------- ------------ ----------
BALANCE, APRIL 30, 2000 14,242,097 14,242 737,512 - - (1,046,967) (295,213)
ISSUANCE OF COMMON STOCK
FOR CASH 465,437 465 109,265 109,730
ISSUANCE OF COMMON STOCK
FOR SERVICES 371,035 371 36,097 36,468
NET LOSS (288,067) (288,067)
------------ ------------ ------------ ----------- -------------- ------------ ----------
The accompanying notes are an integral part of these financial statements.
6
HIENERGY TECHNOLOGIES, INC.
(FORMERLY SLW ENTERPRISES, INC.)
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31,2002
(UNAUDITED)
===================================================================================================================================
Deficit
Accumulated
Additional during the
Common Stock Paid-in Committed Deferred Development
--------------------------
Shares Amount Capital Shares Compensation Stage Total
------------ ------------ ------------ ----------- -------------- ------------ ----------
BALANCE, APRIL 30, 2001 15,078,569 $ 15,078 $ 882,874 $ - $ - $(1,335,034) $(437,082)
ISSUANCE OF COMMON STOCK
FOR CASH 712,071 712 180,857 181,569
ISSUANCE OF COMMON STOCK
FOR SERVICES 5,059,560 5,060 227,110 232,170
PRIVATE PLACEMENT 1,225,000 1,225 1,223,775 1,225,000
NET LOSS (1,389,530) (1,389,530)
------------ ------------ ------------ ----------- -------------- ------------ ----------
BALANCE, APRIL 30, 2002 22,075,200 22,075 2,514,616 - - (2,724,564) (187,873)
ISSUANCE OF COMMON STOCK IN
PRIVATE PLACEMENT (unaudited) 500,000 500 499,500 500,000
ISSUANCE OF COMMON STOCK IN
PRIVATE PLACEMENT (unaudited) 1,349,934 1,350 1,821,057 1,822,407
OFFERING COSTS (unaudited) - (196,793) (196,793)
------------ ------------ ------------ ----------- -------------- ------------ ----------
The accompanying notes are an integral part of these financial statements.
7
HIENERGY TECHNOLOGIES, INC.
(FORMERLY SLW ENTERPRISES, INC.)
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31,2002
(UNAUDITED)
===================================================================================================================================
Deficit
Accumulated
Additional during the
Common Stock Paid-in Committed Deferred Development
--------------------------
Shares Amount Capital Shares Compensation Stage Total
------------ ------------ ------------ ----------- -------------- ------------ ----------
DIVIDENDS ON PREFERRED STOCK
(unaudited) 68,150 $ 68 $ 78,292 $ (78,360) $ -
BENEFICIAL CONVERSION FEATURE
GRANTED IN CONNECTION WITH
ISSUANCE OF PREFERRED
STOCK (unaudited) - 767,431 (767,431) -
ISSUANCE OF COMMON STOCK TO
AN EMPLOYEE FOR A BONUS
(unaudited) 11,178 11 21,339 21,350
CONVERSION OF NOTES
PAYABLE TO COMMON
STOCK (unaudited) 37,898 38 37,858 37,896
FINANCING EXPENSE IN
CONNECTION WITH ISSUANCE
OF WARRANTS (unaudited) - 223,710 223,710
DEFERRED COMPENSATION IN
CONNECTION WITH ISSUANCE
OF STOCK OPTIONS TO
CONSULTANT (unaudited) - 761,007 $ (761,007) -
------------ ------------ ------------ ----------- -------------- ------------ ----------
The accompanying notes are an integral part of these financial statements.
8
HIENERGY TECHNOLOGIES, INC.
(FORMERLY SLW ENTERPRISES, INC.)
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31,2002
(UNAUDITED)
==================================================================================================================================
Deficit
Accumulated
Additional during the
Common Stock Paid-in Committed Deferred Development
--------------------------
Shares Amount Capital Shares Compensation Stage Total
------------ ------------ ------------ ----------- -------------- ------------ ----------
DEFERRED COMPENSATION IN
CONNECTION WITH ISSUANCE
OF STOCK OPTIONS TO
EMPLOYEE (unaudited) - $ 3,305,542 $(3,305,542) $ -
STOCK OPTIONS ISSUED TO A
CONSULTANT IN EXCHANGE FOR
ACCOUNTS PAYABLE (unaudited) - 50,000 50,000
WARRANTS ISSUED TO A CONSULTANT
FOR SERVICES RENDERED OR TO BE
RENDERED (unaudited) - 349,955 349,955
AMORTIZATION OF DEFERRED
COMPENSATION (unaudited) 84,556 84,556
EXERCISE OF STOCK OPTIONS
IN SUBSIDIARY (unaudited) $ 7,164 7,164
NET LOSS (unaudited) $(1,913,225) (1,913,225)
------------ ------------ ------------ ----------- -------------- ------------ ----------
BALANCE, OCTOBER 31, 2002
(UNAUDITED) 24,042,360 $ 24,042 $10,233,514 $ 7,164 $ (3,981,993) $(5,483,580) $ 799,147
============ ============ ============ =========== ============== ============ ==========
The accompanying notes are an integral part of these financial statements.
9
HIENERGY TECHNOLOGIES, INC.
(FORMERLY SLW ENTERPRISES, INC.)
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2002 AND 2001 (UNAUDITED), AND
FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31, 2002 (UNAUDITED)
===============================================================================================
For the
Period from
August 21,
1995
For the Six Months Ended (Inception)to
October 31, October 31,
-------------------------
2002 2001 2002
------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,913,225) $ (155,523) $(4,637,789)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 40,262 2,281 47,694
Compensation expense relating to issuance of
common stock in exchange for services
rendered - 47,030 428,954
Compensation expense relating to issuance of
common stock in exchange for services
rendered to minority shareholders - - 18,923
Warrants issued for services rendered 349,955 - 349,955
Common stock issued to an employee for a bonus 21,350 - 21,350
Additional compensation of officer - - 42,171
Amortization of deferred compensation 84,556 - 84,556
Financing expense 223,710 - 223,710
Forgiveness of accounts payable 36,000 - 36,000
Increase in
Accounts receivable (40,834) - (70,000)
Other current assets (213,221) - (220,721)
Increase (decrease) in
Accounts payable 329,641 22,779 539,536
Accrued expenses (78,682) (5,254) 72,885
Accrued payroll and payroll taxes - 15,000 350,000
Accrued interest 3,790 2,549 33,557
------------ ------------ ------------
Net cash used in operating activities (1,156,698) (71,138) (2,679,219)
------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
10
HIENERGY TECHNOLOGIES, INC.
(FORMERLY SLW ENTERPRISES, INC.)
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2002 AND 2001 (UNAUDITED), AND
FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31, 2002 (UNAUDITED)
===============================================================================================
For the
Period from
August 21,
1995
For the Six Months Ended (Inception)to
October 31, October 31,
-------------------------
2002 2001 2002
------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment $ (422,121) $ (44,818) $ (544,121)
------------ ------------ ------------
Net cash used in investing activities (422,121) (44,818) (544,121)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Book overdraft - 1,772 -
Proceeds from issuance of common stock in
private placement 2,122,407 - 3,347,407
Offering costs on common stock (180,793) - (180,793)
Proceeds from issuance of common stock - 95,000 882,723
Proceeds from issuance of preferred stock 979,300 979,300
Offering costs on preferred stock (178,904) (178,904)
Recapitalization of reverse merger - - 14
Exercise of stock options in subsidiary 7,164 - 7,164
Proceeds from notes payable - related parties - 40,000 579,520
Payments on notes payable - related parties (279,803) (15,057) (279,803)
Proceeds from convertible notes payable - related
parties - - 55,400
Payments on convertible notes payable - related
parties (19,280) (9,280) (39,280)
------------ ------------ ------------
Net cash provided by financing activities 2,450,091 112,435 5,172,748
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 871,272 (3,521) 1,949,408
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,078,136 3,521 -
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,949,408 $ - $ 1,949,408
============ ============ ============
The accompanying notes are an integral part of these financial statements.
11
HIENERGY TECHNOLOGIES, INC.
(FORMERLY SLW ENTERPRISES, INC.)
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2002 AND 2001 (UNAUDITED), AND
FOR THE PERIOD FROM AUGUST 21, 1995 (INCEPTION) TO OCTOBER 31, 2002 (UNAUDITED)
================================================================================================
For the
Period from
August 21,
1995
For the Six Months Ended (Inception)to
October 31, October 31,
-------------------------
2002 2001 2002
------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ 4,511 $ - $ 4,799
============ ============ ============
INCOME TAXES PAID $ - $ - $ 10,983
============ ============ ============
SUPPLEMENT SCHEDULE OF NON-CASH FINANCING ACTIVITIES
During the six months ended October 31, 2002 and 2001, and the period from
August 21, 1995 (inception) to October 31, 2002, the Company converted $37,896
(unaudited), $0 (unaudited) and $37,896 (unaudited), respectively, of notes
payable, including principal and interest, into 37,898 shares (unaudited), 0
shares (unaudited), and 37,898 shares (unaudited), respectively, of common
stock.
During the six months ended October 31, 2002 and 2001, and the period from
August 21, 1995 (inception) to October 31, 2002, the Company converted $50,000
(unaudited), $0 (unaudited) and $50,000 (unaudited), respectively of accounts
payable to a consultant into stock options to purchase 45,472 (unaudited), 0
(unaudited) and 45,472 (unaudited), respectively, shares of common stock.
During the six months ended October 31, 2002 and 2001, and the period from
August 21, 1995 (inception) to October 31, 2002, the Company issued 148,151
shares (unaudited), 0 shares (unaudited), and 148,151 shares (unaudited),
respectively, of common stock in a private placement in exchange for a
subscription receivable of $184,000 (unaudited), $0 (unaudited), and $184,000
(unaudited), respectively. The full amount was collected in November 2002.
The accompanying notes are an integral part of these financial statements.
12
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 1 - ORGANIZATION AND LINE OF BUSINESS
General
-------
HiEnergy Technologies, Inc. ("HiEnergy") was incorporated on March 20, 2000
under the laws of the state of Washington. In October 2002, HiEnergy
reincorporated under the laws of the state of Delaware.
HiEnergy and its subsidiaries (collectively, the "Company") are development
stage companies that were organized to develop the "Atometer," commercially
known as the "Supersenzor," which is technology for numerous governmental
and commercial applications and markets, including airport security
screening; border patrol/customs control drug and contraband detection;
bomb, biological, and chemical weapons detection, including landmine
clearance; detecting of impurities in crude oil, coal, and natural gas; and
"fingerprinting" of diamonds and other gemstones. This leading edge
detection technology can remotely and non-intrusively decipher (including
through metal) the chemical formulas of concealed biological agents,
explosives, drugs, and other substances and their locations.
As contemplated by the Securities and Exchange Commission under Item 310(b)
of Regulation S-B, the accompanying financial statements and footnotes have
been condensed and therefore do not contain all disclosures required by
accounting principles generally accepted in the United States of America.
The interim financial data is unaudited; however, in the opinion of
HiEnergy's management, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
statement of the results for the interim periods. Results for interim
periods are not necessarily indicative of those to be expected for the full
year.
Merger
------
On April 25, 2002, HiEnergy Microdevices, Inc. ("Microdevices") entered
into a voluntary share exchange agreement, whereby it acquired 92% of the
outstanding common stock of HiEnergy in exchange for 14,380,200 shares of
newly issued common stock. For accounting purposes, the transaction has
been treated as a recapitalization of HiEnergy, with Microdevices as the
accounting acquirer (reverse acquisition), and has been accounted for in a
manner similar to a pooling of interests.
Microdevices was incorporated on August 21, 1995 in the state of Delaware.
HiEnergy had minimal assets and liabilities at the date of the acquisition
and did not have significant operations prior to the acquisition.
Therefore, no pro forma information is presented.
13
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
which contemplate continuation of the Company as a going concern. However,
during the six months ended October 31, 2002 and 2001, the Company incurred
net losses of $1,913,225 (unaudited) and $155,523 (unaudited),
respectively, and it had negative cash flows from operations of $1,156,698
(unaudited) and $71,138 (unaudited), respectively. In addition, the Company
had an accumulated deficit of $5,483,580 (unaudited) and was in the
development stage as of October 31, 2002. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
Recovery of the Company's assets is dependent upon future events, the
outcome of which is indeterminable. Successful completion of the Company's
development program and its transition to the attainment of profitable
operations is dependent upon the Company achieving a level of sales
adequate to support the Company's cost structure. In addition, realization
of a major portion of the assets in the accompanying balance sheets is
dependent upon the Company's ability to meet its financing requirements and
the success of its plans to develop and sell its products. The financial
statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or amounts and classification
of liabilities that might be necessary should the Company be unable to
continue in existence.
In addition to the capital raised as of October 31, 2002 through a private
placement, the Company is currently negotiating with certain investors
about raising additional capital through private placement offerings.
Unless the Company raises additional funds, either by debt or equity
issuances, management believes that its current cash on hand will be
insufficient to cover its working capital needs until the Company's sales
volume reaches a sufficient level to cover operating expenses.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
-----------------------------
The consolidated financial statements include the accounts of HiEnergy and
its wholly owned subsidiaries, Microdevices and VWO II, Inc. All
significant inter-company accounts and transactions are eliminated in
consolidation.
Development Stage Enterprise
------------------------------
The Company is development stage companies as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company is devoting all of its present
efforts to its formation and to fundraising, and its planned principal
operations have not yet commenced. All losses accumulated since inception
have been considered as part of the Company's development stage activities.
14
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income
---------------------
The Company presents comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting comprehensive income and its components in a financial statement.
Comprehensive income as defined includes all changes in equity (net assets)
during a period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include foreign
currency translation adjustments and unrealized gains and losses on
available-for-sale securities. Comprehensive income is not presented in the
Company's financial statements since the Company did not have any of the
items of comprehensive income in any period presented.
Cash and Cash Equivalents
----------------------------
The Company maintains its cash deposits at several banks located throughout
California. Deposits at each bank are insured by the Federal Deposit
Insurance Corporation up to $100,000. As of April 30, 2002 and October 31,
2002, uninsured portions of the balances at those banks aggregated to
$1,125,206 and $1,852,625 (unaudited), respectively. The Company has not
experienced any losses in such accounts and believes it is not exposed to
any significant risk on cash and cash equivalents.
For the purpose of the statements of cash flows, the Company considers all
highly liquid investments purchased with original maturities of three
months or less to be cash equivalents.
Accounts Receivable
--------------------
Accounts receivable at April 30, 2002 and October 31, 2002 consisted of an
amount due from a governmental contract. The total accounts receivable
balance of $70,000 was collected in December 2002
Property and Equipment
------------------------
Property and equipment are recorded at cost and are depreciated using the
straight-line method over an estimated useful life of five years.
Patents
-------
The Company has filed several patent applications within and outside the
United States. The outcome is indeterminable.
15
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
---------------------------------------
For certain of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses,
accrued payroll and payroll taxes, and accrued interest, the carrying
amounts approximate fair value due to their short maturities. The amounts
shown for notes payable - related parties and convertible notes payable -
related parties also approximate fair value because current interest rates
offered to the Company for debt of similar maturities are substantially the
same.
Stock-Based Compensation
-------------------------
The Company accounts for its stock-based compensation plans in accordance
with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeds the exercise price.
The Company adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under SFAS No. 123, the Company
must disclose certain pro forma information related to employee stock
option grants as if the fair value-based method defined in SFAS No. 123 had
been applied.
Income Taxes
-------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year-end
based on enacted tax laws and statutory tax rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets
to the amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the period
in deferred tax assets and liabilities.
Loss per Share
----------------
The Company calculates loss per share in accordance with SFAS No. 128,
"Earnings per Share." Basic loss per share is computed by dividing the loss
available to common shareholders by the weighted-average number of common
shares outstanding. Diluted loss per share is computed similar to basic
loss per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common shares
were dilutive. Because the Company has incurred net losses, basic and
diluted loss per share are the same.
16
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss per Share (Continued)
----------------
The following potential common shares have been excluded from the
computation of diluted net loss per share for the periods presented because
the effect would have been anti-dilutive:
October 31,
2002
----------
Stock options outstanding 6,621,913
Warrants outstanding 1,815,686
Series A, convertible preferred stock 851,565
Microdevices minority shareholders 459,222
Microdevices option and warrant holders 997,272
----------
TOTAL 10,745,658
==========
Estimates
---------
The preparation of financial statements 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 revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
Recently Issued Accounting Pronouncements
--------------------------------------------
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." This
statement addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." This statement requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF Issue 94-3, a
liability for an exit cost, as defined, was recognized at the date of an
entity's commitment to an exit plan. The provisions of this statement are
effective for exit or disposal activities that are initiated after December
31, 2002 with earlier application encouraged. This statement is not
applicable to the Company.
17
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements (Continued)
--------------------------------------------
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions." SFAS No. 147 removes the requirement in SFAS No.
72 and Interpretation 9 thereto, to recognize and amortize any excess of
the fair value of liabilities assumed over the fair value of tangible and
identifiable intangible assets acquired as an unidentifiable intangible
asset. This statement requires that those transactions be accounted for in
accordance with SFAS No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." In addition, this statement amends
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," to include certain financial institution-related intangible
assets. This statement is not applicable to the Company.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at April 30, 2002 and October 31, 2002 consisted of
the following:
October 31, April 30,
2002 2002
-------- --------
(unaudited)
Micro sensor $ 53,115 $ 42,127
Laboratory equipment 401,572 -
Web site development 14,400 14,400
Computer equipment 17,034 7,473
Neutron generator 58,000 58,000
-------- --------
544,121 122,000
Less accumulated depreciation 47,694 7,432
-------- --------
TOTAL $496,427 $114,568
======== ========
Depreciation expense for the six months ended October 31, 2002 and 2001 and
the period from August 21, 1995 (inception) to October 31, 2002 was $40,262
(unaudited), $2,281 (unaudited), and $47,694 (unaudited), respectively.
18
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 5 - NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties at April 30, 2002 and October 31, 2002
consisted of the following:
October 31, April 30,
2002 2002
----------- ---------
(unaudited)
Unsecured notes to a majority shareholder/officer/
director of the Company, interest payable at 6%
per annum, maturing in December 2002. During
the six months ended October 31, 2002, the
notes were paid in full (unaudited). $ - $ 59,083
Unsecured note to a majority shareholder/officer/
director of the Company as a signing bonus.
Amount is non-interest-bearing, $50,000
payable upon receipt of $1,000,000 or more
from any source, and $50,000 payable upon
revenue in excess of $500,000 or $1,000,000
of additional funds from any source. During
the six months ended October 31, 2002,
$50,000 (unaudited) was repaid. $ 50,000 $ 100,000
Unsecured notes to a shareholder of the Company,
interest payable at 10.5% per annum, or 15%
per annum if in default, and due in November
1997. As of October 31, 2002, the notes were
in default (unaudited). 40,000 40,000
Unsecured notes to a prior officer of the Company,
interest payable at 6% per annum, and payable
in February and March 2002. The Company is
currently in litigation regarding these amounts.
As of October 31, 2002, these notes were in
default (unaudited). 27,608 27,608
Secured note to an officer/director of the Company,
non-interest-bearing, and due in March 2002.
The note is secured by 7,857 shares of
common stock. As of April 30, 2002, the note
was in default. During the six months ended
October 31, 2002, the note was paid in full
(unaudited). - 50,000
19
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 5 - NOTES PAYABLE - RELATED PARTIES (CONTINUED)
October 31, April 30,
2002 2002
----------- ---------
(unaudited)
Secured notes to a shareholder/prior officer and
director of the Company, non-interest-bearing,
and due in March 2002. The notes are secured
by 23,571 shares of common stock. As of April
30, 2002, the notes were in default. During the
six months ended October 31, 2002, the notes
were paid in full. In addition, since the notes
were in default and the principal balance of
$150,000 was paid late, the Company granted
the holder of the notes a warrant to purchase
150,000 shares of common stock (unaudited). $ - $ 150,000
Unsecured amount to a prior officer of the Company
as severance, non-interest-bearing, and payable
upon demand. The Company is currently in
litigation regarding this amount. As of October
31, 2002, this amount was in default (unaudited). 150,000 150,000
Unsecured notes to an unrelated party, non-interest-
bearing, and payable upon demand. 45,000 45,000
----------- ---------
312,608 621,691
Less current portion 312,608 621,691
----------- ---------
LONG-TERM PORTION $ - $ -
=========== =========
20
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 6 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
Convertible notes payable - related parties at April 30, 2002 and October 31,
2002 consisted of the following:
October 31, April 30,
2002 2002
----------- ---------
(unaudited)
Secured note to a shareholder/director of the
Company, interest payable at 8% per annum,
and due in July 2001. The note is secured
by the patent application for Europe, Canada,
and Japan. The holder of the note has the
option to convert the principal and interest into
shares of common stock. During the six
months ended October 31, 2002, this note plus
accrued interest of $780 was converted into
5,780 shares of common stock (unaudited). $ - $ 5,000
Secured notes to a shareholder/director of the
Company, interest payable at 8% per annum,
$5,000 due in July 2001, and $5,400 due in
July 2002. The notes are secured by the
patent application for Europe, Canada, and
Japan. The holder of the notes has the option
to convert the principal and interest into shares
of common stock. As of October 31, 2002, the
notes were in default (unaudited). 10,400 10,400
Secured note to a shareholder/director of the
Company, interest payable at 8% per annum,
and due in July 2001. The note is secured by
the patent application for Europe, Canada, and
Japan. The holder of the note has the option
to convert the principal and interest into shares
of common stock. During the six months ended
October 31, 2002, this note plus accrued
interest of $1,678 was converted into 11,678
shares of common stock (unaudited). - 10,000
21
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 6 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES (CONTINUED)
October 31, April 30,
2002 2002
----------- ---------
(unaudited)
Secured note to a shareholder/director/prior officer
of the Company, interest payable at 8% per
annum, and due in July 2001. The note is
secured by the patent application for Europe,
Canada, and Japan. The holder of the note
has the option to convert the principal and
interest into shares of common stock. During
the six months ended October 31, 2002, the
notes were paid in full (unaudited). $ - $ 5,000
Unsecured note to a shareholder/director/prior
officer of the Company, interest payable at
7% per annum, and due in January 2002. The
holder of the note has the option to convert
the principal and interest into shares of common
stock. During the six months ended October 31,
2002, the notes were paid in full (unaudited). - 5,000
----------- ---------
10,400 35,400
Less current portion 10,400 35,400
----------- ---------
LONG-TERM PORTION $ - $ -
=========== =========
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Employment Agreements
----------------------
In March 2002, the Company entered into an employment agreement with its
Chief Scientist/Chairman of the Board. Major terms of the agreement are as
follows:
- The Company must pay a signing bonus of $100,000, of which $50,000
(unaudited) was paid during the six months ended October 31, 2002.
- The Company must pay an annual bonus, which must not be less than 20%
of the total amount of bonuses paid to officers of the Company. If the
pretax profit in any fiscal year exceeds $0.20 per share, then his
bonus in that year must not be less than $50,000.
22
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements (Continued)
----------------------
- The Company granted options to purchase 2,482,011 shares of common
stock at an exercise price of $0.134 per share, vesting immediately,
and which are exercisable from time to time within the period ending
November 30, 2008.
- The Company will grant its Chief Scientist/Chairman of the Board
annually during the term of five years 1% per annum of the Company's
stock issued and outstanding with an exercise price of the average
price for the preceding 30 days. He must not receive less than 10% of
the total number of options granted by the Company for services in
that year. As of October 31, 2002, the Company is required to grant
options to purchase 405,492 shares of common stock.
- The Company will provide its Chief Scientist/Chairman of the Board a
car, pay his and his family's health insurance, provide life and
disability insurance and will reimburse him for reasonable
out-of-pocket expenses, not to exceed $20,000 in any one year, and
reimburse him for any personal tax liabilities arising up to $75,000.
During the six months ended October 31, 2002, the Company paid $17,500
(unaudited) for an automobile deposit on behalf of its Chief
Scientist/Chairman of the Board.
- The Company must pay a base salary payable in cash as follows:
- January 1, 2002 to December 31, 2002 $125,000 per year
- January 1, 2003 to December 31, 2003 $137,500 per year
- January 1, 2004 to December 31, 2004 $151,250 per year
- January 1, 2005 to December 31, 2005 $166,375 per year
- January 1, 2006 to December 31, 2006 $283,013 per year
- In December 2002, the Company increased its Chief Scientist/Chairman
of the Board's base salary to $175,000 per year, effective November
2002.
- If the agreement is terminated by the Company without cause, the
Company shall pay its Chief/Scientist/Chairman of the Board, on the
termination date, an amount equal to two years of the minimum annual
base salary.
23
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements (Continued)
----------------------
In September 2002, the Company entered into a three-year employment
agreement with its President/Chief Executive Officer. Major terms of the
agreement are as follows:
- The Company must pay a base salary as follows:
- $135,000 per year
- $175,000 per year when the Company receives new revenue and/or
new financing in excess of $2,000,000
- $250,000 per year when the Company receives new revenue and/or
new financing in excess of $4,000,000
- The officer is entitled to a bonus equal to $250,000 once the
Company achieves two consecutive quarters of positive cash flows
from operations.
- The Company granted options to purchase 3,005,038 shares of
common stock, which represents an amount equal to 10% of the
Company's outstanding common stock on a fully diluted basis as of
September 30, 2002. Of these options, 75% vest 1/12 on a
quarterly basis over the next 36 months. The remaining 25% vest
on the earlier of a) the date when the Company's closing price of
its common stock has equaled or exceeded $1.75 for 90 consecutive
calendar days, b) the date immediately preceding a sale of the
Company for $1.75 per share of common stock or more, or c) if the
Company's common stock ceased to be publicly traded on the date
following the closing of an offering at a deemed price per share
of common stock of $1.75 or more.
The exercise price is fixed six months after September 25, 2002
at the lesser of a) $1 per share, b) for any offering of
preferred or common stock that closes within six months from
September 25, 2002, the following percentage of price per unit:
(i) for preferred with warrants - 70%, (ii) for preferred without
warrants - 80%, (iii) for common with warrants - 90%, (iv) for
common without warrants - 100%. The Company granted the stock
options below the fair market on the date of grant. As none of
the stock options vested as of October 31, 2002, the Company
recorded deferred compensation of $3,305,542, which will be
expensed as the options vest.
- If the agreement is terminated without cause, the Company must
pay its President/Chief Executive Officer an amount equal to the
executive's annual salary, payable in 12 monthly installments
following the termination date, and health insurance benefits for
12 months.
24
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements (Continued)
----------------------
In February 2002, Microdevices entered into a one-year employment agreement
with its Vice President/Corporate Secretary. In May 2002, the Company
assumed the employment agreement. Under the agreement, the Company will pay
a salary of $91,000 per year, a car allowance of $100 per week, a quarterly
bonus of 5,589 shares of the Company's common stock, starting May 2002, and
a non-qualified stock option to purchase 89,410 shares of common stock at
$0.157 per share, vesting immediately and having a five-year term. As of
October 31, 2002, the 11,178 shares of common stock given under this
agreement were valued at $21,350, which approximates the fair value of the
shares.
Consulting Agreements (unaudited)
----------------------
In July 2002, the Company entered into a three-year consulting agreement,
whereby the consultant will assist the Company with business development,
product and corporate image advertising, and access to government grants
and purchases. The Company will pay the consultant $20,000 per month, plus
5% of any gross revenues collected in cash from government grants or
business and other third-party business that the consultant produces for
the Company. Furthermore, the consultant was granted options to purchase
1,000,000 shares of common stock. Of these options, 500,000 vested
immediately, and the remaining 500,000 vest one year after the Company's
Minisenzor product is operational and ready to be shown. The stock options
have an exercise price of $1 per share and are exercisable for six years
from the date of grant.
The Company recorded deferred compensation of $761,007 related to the
vested options, which will be amortized over three years, which represents
the term of the consulting agreement. During the six months ended October
31, 2002, $84,556 was expensed and is included in general and
administration expenses in the accompanying statement of operations.
In August 2002, the Company entered into a one-year consulting agreement
with an investor and media relations firm. Under the terms of the
agreement, the Company will pay $10,000 per month, plus approved expenses.
In addition, upon execution of the agreement, the Company issued a warrant
to purchase 400,000 shares of common stock, vesting immediately at an
exercise price of $2 per share, exercisable for two years. The warrants
were valued at $187,163, of which $46,791 was expensed and is included in
general and administration expenses in the accompanying statement of
operations. The remaining balance of $140,372 is included in other current
assets, which will be amortized over the term of the consulting agreement.
Either party may terminate the agreement six months after the commencement
of this agreement.
In September 2002, the Company entered into a one-year consulting agreement
with its prior Chief Executive Officer. Under the terms of the agreement,
the Company will pay $5,000 per month, plus out-of-pocket expenses.
25
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Placement Agent Agreement
---------------------------
In August 2002, the Company entered into an exclusive one-year agreement
with a placement agent to arrange the sale of debt or equity securities.
Major terms of the agreement are as follows:
- Upon execution of the agreement, the Company issued warrants to
purchase 100,000 shares of common stock, exercisable at $0.01 per
share. The warrants vest immediately and expire five years from date
of grant.
- The Company paid a placement fee equal to 8% on any gross proceeds
received by the Company.
- The Company issued warrants to purchase 10% of the amounts of
securities issued to investors. The exercise price of the warrants
were equal to the price at which the security was issued. The warrants
vest immediately and expire five years from the date of grant. Upon
the closing of the preferred stock private placement and closing of
the common stock private placement, the Company issued a warrant to
purchase 117,994 and 161,994 shares of common stock, respectively at
an exercise price of $1.15 per share and $1.35 per share,
respectively.
- In December 2002, to cancel the remainder of the terms of this
agreement, the Company issued a warrant to purchase 150,000 shares of
common stock. The warrants vest immediately, with an exercise price of
$2.48 per share, and expire five years from the date of grant.
Delinquent Tax Returns
------------------------
The Company has not filed its federal and state tax returns for the years
ended April 30, 1995 through 2001; however, management reports that the
minimum tax for the state of California has been paid. While the estimated
tax owed has been accrued, the Company will not be in compliance until such
reporting is made. The Board of Directors has approved the Company filing
these tax returns.
In addition, the Company has not filed certain of its 1099's, W-2's, and
payroll tax returns for the calendar years ended December 31, 1995 through
2001. As of April 30, 2002 and October 31, 2002, the Company has accrued
$350,000 and $350,000 (unaudited), respectively, for payroll taxes,
penalties, and interest. The Board of Directors has approved the Company
filing these items.
26
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation
----------
The Company is involved in certain legal proceedings and claims which arise
in the normal course of business. Management does not believe that the
outcome of these matters will have a material effect on the Company's
financial position or results of operations.
Furthermore, the Company is being sued by a prior officer of the Company
for failure to pay wages, breach of contract, false representations, and
fraud. Management does not believe that the outcome of these matters will
have a material effect on the Company's financial position or results of
operations.
Minority Shareholders
----------------------
Microdevices has 20,540 minority shares issued and outstanding. The Company
has agreed that in the event of any merger or other consolidation of
Microdevices with HiEnergy, each remaining Microdevices shareholder will
receive the greater of the market value of his/her Microdevices shares or
shares in the Company on the same terms as the voluntary share exchange. If
all minority shareholders convert, the Company will be required to issue
459,222 additional shares of common stock to the minority shareholders.
Warrant and Option Holders
-----------------------------
Microdevices has granted stock options and warrants to purchase 12,365 and
32,247 shares, respectively, of common stock. These stock options and
warrants are exercisable at $3.50 per share. If the stock option and
warrant holders exercise their stock options and warrants, the Company has
agreed to allow these stock option and warrant holders to voluntarily
exchange their shares in Microdevices for shares in HiEnergy at an exchange
rate of 22.3524 per share (or $0.157 per share). If these stock option and
warrant holders exercise and convert their shares, the Company will be
required to issue 997,272 additional shares of common stock to the stock
option and warrant holders.
During the six months ended October 31, 2002, 2,047 (unaudited) of the
above stock options were exercised via a cash payment of $7,164
(unaudited), or $3.50 per share. The Company has agreed to exchange these
shares in Microdevices for shares in HiEnergy at an exchange rate of
22.3524 per share, or 45,755 (unaudited) shares of common stock.
During the six months ended October 31, 2002, options to purchase 4,000
(unaudited) shares of Microdevices' common stock were assumed by the
Company at an exchange rate of 22.3524 per share (or $0.157 per share).
Therefore, the Company issued options to purchase 89,410 shares of its
common stock at an exercise price of $0.157 per share.
27
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 8 - PREFERRED STOCK
Series A Convertible, Redeemable Preferred Stock (unaudited)
-----------------------------------------------------
In August 2002, the Board of Directors approved an amendment to the
Company's Articles of Incorporation to establish Series A convertible
preferred stock (the "Series A"), par value $0.001 per share. The Company
is authorized to issue 345 shares of the Series A. Each share is
convertible on either of these events a) any time at the option of the
holder at $1.15 per share or b) mandatorily convertible two years following
the issuance date at $1.15 per share. Under certain circumstances the
conversion price is subject to adjustment. Furthermore, upon a certain
major transaction or triggering event, the holder of the Series A has the
right to require the Company to redeem all or a portion of the Series A at
a price per share equal to the liquidation preference, plus any accrued but
unpaid dividends and liquidated damages.
The liquidation preference is $10,000 per share. The holders of the Series
A are entitled to receive, when and as declared by the Board of Directors,
dividends at a rate of 8%, or $800 per share in advance for each of the
first two years. The dividends may be paid in cash or common stock at the
election of the Board of Directors. The Series A has certain class voting
rights and general voting rights.
In October 2002, the Company sold 98 shares of the Series A for net cash
proceeds of $800,396. At the time of issuance, the conversion price of the
preferred stock was less than the fair market value of the common stock.
Since the Series A was convertible immediately, the Company recorded a
beneficial conversion feature upon issuance of $767,431.
As of December 2002, the Company may be in default with a triggering event,
therefore the holders of the Series A may be able to request the Company to
redeem their shares in cash at $10,000 per share. If all holders were to
request redemption, the Company would be required to make a cash payment of
$979,300.
NOTE 9 - SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock Issued for Cash (unaudited)
--------------------------------
During the six months ended October 31, 2002 and 2001 and the period from
August 21, 1995 (inception) to October 31, 2002, the Company issued 0,
344,255, and 2,677,497, shares, respectively, of common stock in exchange
for cash of $0, $95,000, and $882,723, respectively.
Common Stock Issued for Services Rendered (unaudited)
----------------------------------------------
During the six months ended October 31, 2002 and 2001 and the period from
August 21, 1995 (inception) to October 31, 2002, the Company issued 0,
1,051,318, and 11,702,703 shares, respectively, of common stock in exchange
for services rendered valued at the fair market value of the stock given of
$0, $47,030, and $428,954, respectively.
28
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 9 - SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Notes Payable Converted into Common Stock (unaudited)
----------------------------------------------
During the six months ended October 31, 2002 and 2001 and the period from
August 21, 1995 (inception) to October 31, 2002, the Company issued 37,898,
0, and 37,898 shares, respectively, of common stock for principal and
accrued interest of $37,896, $0, and $37,896, respectively.
Common Stock Issued in Private Placements
----------------------------------------------
In April 2002, the Company completed its first closing of its private
placement, whereby 1,225,000 shares of common stock were issued in exchange
for cash of $1,225,000. The private placement offering was originally
slated to close at the same time as the voluntary share exchange. HiEnergy
extended the term of the offering and increased the size to a maximum of
2,000,000 shares of common stock at $1 per share.
In June 2002, the Company completed its second closing of its private
placement, whereby 500,000 shares (unaudited) of common stock were issued
in exchange for cash of $500,000 (unaudited). The private placement has
been closed.
In October 2002, the Company completed a private placement, issuing
1,349,934 (unaudited) shares of common stock in exchange for net cash
proceeds of $1,625,614 (unaudited), of which $184,000 (unaudited) was
recorded as a subscription receivable and collected in November 2002.
Common Stock Issued for Dividends (unaudited)
-------------------------------------
In October 2002, the Company issued 68,150 shares of common stock for
$78,360 of dividends accrued on the Series A.
Common Stock Issued for Employee Bonus (unaudited)
-------------------------------------------
The Company issued 11,178 shares of common stock to an employee of the
Company in lieu of a cash bonus. The shares were valued at $21,350, which
approximates the fair value of the shares.
Stock Splits
-------------
In September 1998 and May 1999, the Company effectuated 2-for-1 stock
splits. All share and per share data have been retroactively restated to
reflect these stock splits.
29
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 9 - SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Stock Options and Warrants (unaudited) The following summarizes the stock
options and warrant transactions:
Weighted- Weighted- Weighted- Weighted-
Average Average Average Average
Granted Stock Granted Granted Total Granted
Stock Price Options Price Warrants Price Options Price
Options Per Non- Per Non- Per and Per
Employee Share Employee Share Employee Share Warrants Share
--------- ------ --------- ------ --------- ------ --------- ------
Out-
standing,
April 30,
2002 2,482,011 $ 0.13 - $ - - $ - 2,482,011 $ 0.13
Granted 3,005,038 $ 1.00 1,045,454 $ 1.00 1,815,686 $ 1.68 5,866,178 $ 1.21
Trans-
ferred 89,410 $ 0.16 - $ - - $ - 89,410 $ 0.16
--------- --------- --------- ---------
OUT-
STANDING,
OCTOBER
31, 2002 5,576,459 $ 0.60 1,045,454 $ 1.00 1,815,686 $ 1.68 8,437,599 $ 0.88
========= ========= ========= =========
OUT-
STANDING,
OCTOBER
31, 2002 2,571,421 $ 0.13 500,000 $ 1.00 1,815,686 $ 1.68 4,887,107 $ 0.80
========= ========= ========= =========
NOTE 10 - FINANCING EXPENSE - RELATED PARTY (UNAUDITED)
In May 2002, the Company issued warrants to purchase 150,000 shares of
common stock to a shareholder/prior director of the Company. The warrants
vest immediately, are exercisable at $1 per share, and expire on May 31,
2005. Since the Company was in default on the note payable for $150,000 to
this shareholder/prior officer/director of the Company, the Company granted
these warrants. Accordingly, the Company recorded financing expense of
$223,710 during the six months ended October 31, 2002.
30
HIENERGY TECHNOLOGIES, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND OCTOBER 31, 2002 (UNAUDITED)
================================================================================
NOTE 11 - RELATED PARTY TRANSACTIONS
During the six months ended October 31, 2002 and 2001 and the period from
August 21, 1995 (inception) to October 31, 2002, the Company purchased
$4,767 (unaudited), $0 (unaudited), and $4,767 (unaudited), respectively,
of property and equipment from a Board member.
See Notes 5, 6, and 10 for additional related party transactions.
NOTE 12 - SUBSEQUENT EVENTS
In November 2002, the Company entered into a four month consulting
agreement with a public relations firm. Under the terms of the agreement,
the Company will pay $12,500 per month, plus out-of-pocket expenses.
31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information presented in this document, the matters
discussed in this Form 10-QSB, and specifically in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," or otherwise
incorporated by reference into this document contain "forward looking
statements" (as such term is defined in the Private Securities Litigation Reform
Act of 1995). These statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "intends," "should,"
or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy that involve risks and
uncertainties. The safe harbor provisions of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended, apply to forward-looking statements made by HiEnergy Technologies.
You should not place undue reliance on forward-looking statements.
Forward-looking statements involve risks and uncertainties. The actual results
that we achieve may differ materially from any forward-looking statements due to
such risks and uncertainties. These forward-looking statements are based on
current expectations, and we assume no obligation to update this information.
Readers are urged to carefully review and consider the various disclosures made
by us in this report on Form 10-QSB and in our other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect our business.
The following discussion and analysis of our financial condition and plan of
operation should be read in conjunction with the unaudited financial statements
and accompanying notes and the other financial information appearing elsewhere
in this report and with the audited financial statements contained in our Form
10-KSB for the year ended April 30, 2002.
OVERVIEW
Our parent public company was incorporated under the laws of the State of
Washington on March 20, 2000, under the name SLW Enterprises Inc. On April 30,
2002, SLW changed its name to HiEnergy Technologies, Inc. in conjunction with
the acquisition of an approximately 92% interest in HiEnergy Microdevices, Inc.,
a Delaware corporation based in Irvine, California in the business of developing
a stoichiometric-based technology that can remotely determine the empirical
chemical composition of substances, including explosives, biological weapons and
illegal drugs. HiEnergy Microdevices was formed on August 21, 1995.
The acquisition of HiEnergy Microdevices by SLW occurred on April 25, 2002. SLW
acquired HiEnergy Microdevices pursuant to a Voluntary Share Exchange Agreement
that provided the framework for the exchange of outstanding common stock of
HiEnergy Microdevices for shares of common stock of SLW. Pursuant to the
voluntary share exchange, SLW offered to exchange 22.3524 shares of its common
stock for each outstanding share of HiEnergy Microdevices' common stock. On the
closing date of the offering, 14,380,200 shares of common stock of SLW were
issued in exchange for approximately 92% of HiEnergy Microdevices' outstanding
shares of common stock in a reverse take-over transaction. As a result of this
transaction, former stockholders of HiEnergy Microdevices came to own
approximately 65% of the outstanding equity of the parent public company and the
five directors of HiEnergy Microdevices comprised five of the six directors of
the parent public company. The composition of our board of directors has
subsequently evolved due to resignations and an appointment to fill a vacancy on
the board.
On October 22, 2002, we changed the domicile of our parent public company from
the State of Washington to Delaware. Our parent public company's name remains
HiEnergy Technologies, Inc., and our common shares continue to trade on the
NASD's Over-the-Counter Bulletin Board under the symbol "HIET".
We plan to develop three detection systems based on our innovative
stoichiometric technology, which has been proven in the laboratory to remotely
and non-intrusively determine the chemical formulas of certain concealed
substances in controlled situations and "see through" metals and other
materials.
Prior to the reverse take-over transaction, SLW's initial efforts focused on
establishing a web-based nutritional supplement sales business.
32
BASIS OF PRESENTATION
For accounting purposes, the voluntary share exchange transaction between
HiEnergy Technologies and HiEnergy Microdevices has been treated as a
recapitalization of HiEnergy Technologies, with HiEnergy Microdevices as the
accounting acquirer (reverse acquisition), and has been accounted for in a
manner similar to a pooling of interests.
We have prepared our unaudited Consolidated Financial Statements on a going
concern basis in accordance with generally accepted accounting principles in the
United States. This going concern basis of presentation assumes that we will
continue operations for the foreseeable future and will be able to realize our
assets and discharge our liabilities and commitments in the normal course of
business. As described below under Liquidity and Capital Resources, there is
substantial uncertainty about our ability to continue as a going concern. Our
financial statements do not include adjustments that might result from the
outcome of this uncertainty.
CRITICAL ACCOUNTING ESTIMATES
The discussion and analysis of our financial condition and results of operations
are based on our unaudited Consolidated Financial Statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates. We base our
estimates on assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis of making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
OPERATING RESULTS
For the six months ended October 31, 2002, we incurred a net loss of
approximately $1.9 million, as compared to a net loss of approximately $156,000
for the same period in 2001. For the three months ended October 31, 2002, we
incurred a net loss of approximately $1.0 million, as compared to a net loss of
approximately $109,000 for the same period in 2001. For the six months ended
October 31, 2002, we had negative cash flows from operations of approximately
$1.2 million. In addition, we had an accumulated deficit of approximately $5.5
million and were in the development stage as of October 31, 2002. These factors,
among others, raise substantial doubt about our ability to continue as a going
concern. Our consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
THREE MONTHS ENDED OCTOBER 31, 2002 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
2001
REVENUE
We had revenues of approximately $41,000 during the three-month period ended
October 31, 2002, as compared to revenues of approximately $26,000 during the
same period last year. Our revenues were derived from government grants for
development and testing of our remote detection technology. We have not
commenced selling our products. Until we complete development of one of our
detector systems, our revenues will most likely be limited to government grants.
We cannot predict exactly when we will complete development of our planned
detection systems and begin production for specific applications, but we expect
that it will not be within the fiscal year that will end on April 30, 2003.
OPERATING EXPENSES
Our operating expenses consist primarily of salaries and benefits, costs for
general corporate functions, including finance, accounting and facilities, and
fees for professional services.
Our general and administration expenses increased to approximately $1.0 million
during the three-month period ended October 31, 2002, from approximately
$136,000 during the same period in 2001. The increase in operating expenses was
primarily due to increases in administrative personnel, general office, legal,
accounting and investor relations expenses, as well as research and development
expenses.
33
DEPRECIATION
Accumulated depreciation for property and equipment at October 31, 2002 was
approximately $48,000. Depreciation expense for the three-month periods ended
October 31, 2002 and 2001 was approximately $26,000 and $1,000, respectively.
SIX MONTHS ENDED OCTOBER 31, 2002 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 2001
REVENUE
We had revenues of approximately $41,000 during the six-month period ended
October 31, 2002, as compared to revenues of approximately $117,000 during the
same period last year. Our revenues were derived from government grants for
development and testing of our remote detection technology.
OPERATING EXPENSES
Our general and administration expenses increased to approximately $1.8 million
during the six-month period ended October 31, 2002, from approximately $271,000
during the same period in 2001. The increase in operating expenses was primarily
due to increases in administrative personnel, general office, legal, accounting
and investor relations expenses, as well as research and development expenses.
OTHER MATTERS
DELINQUENT TAX RETURNS
HiEnergy Microdevices, our majority-owned subsidiary, has not filed its federal
and state tax returns due for the years ended April 30, 1996 through 2001. While
the estimated tax has been accrued as an expense, we will not be in compliance
until such reporting is made. The Boards of Directors of HiEnergy Microdevices
and HiEnergy Technologies have directed that any delinquent tax returns be
filed.
HiEnergy Microdevices has also not filed certain of its Forms 1099 and W-2 and
payroll tax returns for the years ended April 30, 1996 through 2002. As of April
30, 2002, HiEnergy Microdevices had accrued $350,000 for payroll taxes,
penalties and interest. The Boards of Directors of HiEnergy Microdevices and
HiEnergy Technologies have directed that any delinquent Forms 1099 and W-2 and
payroll tax returns be filed.
RECENT ACCOUNTING PRONOUNCEMENTS
The subsection of Note 3 to the unaudited Notes to the Financial Statements
entitled "Recently Issued Accounting Pronouncements" is incorporated herein by
reference.
LIQUIDITY AND CAPITAL RESOURCES; PLAN OF OPERATION
During the six months ended October 31, 2002, we used approximately $1.2 million
for operating activities, approximately $422,000 to acquire equipment and
approximately $300,000 to repay related party liabilities. These uses of cash
were funded principally through opening cash on April 30, 2002 of approximately
$1.1 million and private placement offerings that provided net proceeds of
approximately $2.9 million. As of October 31, 2002, we had cash of approximately
$1.9 million, funds in transit from a closing of approximately $184,000 and
current liabilities of approximately $1.3 million.
We raised approximately $2.5 million in net proceeds (after commissions) during
the three months ended October 31, 2002. On October 7, 2002, we closed an
offering of our Series A Convertible Preferred Stock, providing net proceeds
(after commissions) of approximately $855,000. We issued approximately 98 Series
A Preferred shares at a face value of $10,000 per share. The Series A Preferred
shares are convertible into common stock at a fixed rate of $1.15 per share.
Each investor also received 30% warrant coverage, based on the number of common
shares their Series A Preferred can be converted into, with an exercise price of
$1.50 per share. We also paid an 8% dividend on
34
the Series A Preferred in advance by issuing approximately 68,000 common shares
to the investors. On October 31, 2002, we completed an offering of our common
stock, providing net proceeds (after commissions) of approximately $1.7 million.
We issued approximately 1.3 million common shares at a price per share of $1.35.
Each investor also received 20% warrant coverage, based on the number of common
shares purchased, with an exercise price of $2.50 per share. The offerings and
sales of our Series A Preferred Stock and our common stock were not registered
under the Securities Act and were conducted pursuant to applicable exemptions
from the Securities Act's registration requirements. This disclosure is not an
offer of securities by us or a solicitation of an offer to buy securities from
us. Placements were made only to accredited investors with preexisting contacts
with HiEnergy Technologies and its authorized representatives.
Before December 31, 2002, we plan to repay $50,000 of the approximately $323,000
of related party notes payable that were outstanding. Of the remaining unpaid
balance, approximately $178,000 is the subject of litigation with the former
president of HiEnergy Microdevices and approximately $95,000 is in default or
due on demand. After filing our delinquent tax returns, we intend to negotiate
payment schedules with relevant taxing authorities. As of October 31, 2002, we
had accrued $350,000 as an estimate of our liability in connection with unfiled
returns, principally due to unpaid employee withholding, social security and
medicare taxes.
On November 6, 2002, we filed a registration statement on Form SB-2 to register
an offering of common stock by some of our shareholders on a delayed and
continuous basis. The Securities and Exchange Commission has notified us that
it will not review the registration statement. During the course of our ongoing
due diligence in connection with this filing, we have determined that certain
disclosures should be updated prior to requesting that the Securities and
Exchange Commission declare the registration statement effective. We intend to
file a pre-effective amendment to the registration statement that updates these
disclosures and includes updated financial statements. Certain shareholders may
have rights under their respective registration rights agreements to demand
payment of penalties because we have not requested the Securities and Exchange
Commission to declare our registration statement effective. Although we believe
we have valid reasons for amending our registration statement, we may be liable
for these penalties nonetheless. If a court determines us liable for these
penalties, or if we agree to pay them to avoid litigation, the penalties would
be approximately $28,000 for the first month (ending in December) and
approximately $42,000 per month thereafter. We cannot predict whether the
Securities and Exchange Commission will decide to review our pre-effective
amendment, but a decision to review our filing could substantially lengthen the
period during which we will be exposed to liability for penalties. We have the
option to pay a portion of these penalties in common stock that would be
included in the registration statement. Although we believe we have valid
reasons for amending our registration statement, it may be possible for our
Series A shareholders to claim a right to redeem their Series A Convertible
Preferred Stock by alleging that our decision to update and amend our
registration statement is a material breach of our registration rights agreement
with them. If all of our Series A shareholders made such a claim and prevailed,
we would have to redeem their Series A shares in an amount of approximately $1.0
million. Although this claim is a reasonable possibility, we do not believe it
is probable, and we believe we have defenses against it.
During the second quarter of 2002, our monthly cash used in operations has been
around $225,000, and we expect our monthly cash used in operations to increase
to approximately $250,000 per month. We have no contractual obligations to make
capital expenditures. Thus far during the fiscal year ending April 30, 2003, we
have made capital expenditures of approximately $680,000. We intend to make
additional capital expenditures of approximately $400,000, for a total of
approximately $1.1 million during the fiscal year ending April 30, 2003, to
further the development and testing of our technology and proposed products. If
we make all of these capital expenditures and our cash used in operations
remains steady at approximately $250,000 per month, we expect to have enough
cash to support our operations for approximately 9 to 12 months.
The continued development and testing of our technology to create market-ready
products depends upon raising additional funds. We anticipate needing an
additional $3.0 million for the year ending April 30, 2004, in order to continue
our operations at their current level. We believe we have sufficient authorized
capital to raise approximately $3.0 million during the coming fiscal year, as
our Certificate of Incorporation authorizes 100,000,000 shares of common stock
and 20,000,000 shares of preferred stock. As of December 6, 2002, there were
24,042,360 shares of common stock and approximately 98 shares of preferred stock
outstanding. There can, however, be no assurance that we will be able to
continue as a going concern or achieve material revenues or profitable
operations.
In August 2002, our project to develop the SuperSenzor was competitively
selected by the Department of Defense Small Business Innovation Research
("SBIR") program to receive up to $780,000 in funding over two years for Phase
35
II testing and development of an anti-tank landmine detection system. The total
cost of the project is $1,400,000, which includes private matching funds of
$550,000 and $70,000 granted by the Department of Defense for Phase I testing of
the system currently being completed. The private contribution consists of
approximately $200,000 in matching funds from private individuals and
approximately $350,000 worth of HiEnergy's hi-tech equipment. The selection is
subject to successful contract negotiations and is based on availability of
government funds. We are continuing to negotiate the contractual terms with the
Department of Defense.
We plan to continue to utilize a combination of equity financings and government
grants to fund our short-term growth. We have no definitive plans or
arrangements in place with respect to additional capital sources at this time.
We have no lines of credit available to us at this time. There is no assurance
that additional capital will be available when or if required.
The forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that involves
risks and uncertainties. Our actual funding requirements may differ materially
as a result of a number of factors, including unknown expenses associated with
the development and testing of our products, the cost of production of our
products and the timing of bringing our products to market. There can be no
guarantee that financing adequate to carry out our business plan will be
available on terms acceptable to us, or at all.
ITEM 3. CONTROLS AND PROCEDURES
(A) EVALUATION OF CONTROLS AND PROCEDURES
Our Chief Executive Officer and Principal Financial Officer, Tom Pascoe, has
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as such term is defined in Rules 13(a) -14(c) and
15(d)-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) as of a date within 90 days prior to the filing date of this quarterly
report (the "Evaluation Date"). Based on such evaluation, he has concluded that,
as of the Evaluation Date, our disclosure controls and procedures are effective
to ensure that he is alerted on a timely basis to material information relating
to HiEnergy Technologies (including its consolidated subsidiaries) required to
be included in our reports filed or submitted under the Exchange Act and that
such information is recorded, processed and reported as and when required.
(B) CHANGES IN INTERNAL CONTROLS
Since the Evaluation Date, there have not been any significant changes in our
internal controls or in other factors that could significantly affect such
controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The lawsuit filed by Mr. Keith Cowan, a former CEO and President of HiEnergy
Microdevices, against HiEnergy Microdevices, Dr. Maglich and Mr. Alden has been
previously reported in our Form 10-KSB for the fiscal year ended April 30, 2002,
which was filed with the Commission on July 29, 2002. A summary judgment hearing
was held on October 10, 2002. The court denied Mr. Cowan's motion for summary
judgment and the case is proceeding towards trial, which is scheduled to take
place in March 2003. As of the date of this report, no settlement has been
reached.
Except as described above and in our Form 10-KSB for the fiscal year ended April
30, 2002, to the knowledge of our executive officers and directors, neither we
nor our subsidiaries are party to any legal proceeding or litigation and none of
our property is the subject of a pending legal proceeding and our executive
officers and directors know of no other threatened or contemplated legal
proceedings or litigation.
36
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
SALES OF UNREGISTERED SECURITIES DURING THE THREE-MONTH PERIOD ENDED OCTOBER 31,
2002
- - In October 2002, we issued 1,349,934 shares of common stock and 269,990
warrants in connection with a private placement offering of our common
stock at $1.35 per unit for aggregate gross proceeds from the offering of
approximately $1.8 million. The warrants have an exercise price of $2.50
and a term of 3 years. Fees consisting of approximately $146,000 and
warrants to purchase approximately 162,000 shares of common stock, with an
exercise price of $1.35 per share and a term of five years, were paid to
H.C. Wainwright & Co., Inc., our placement agents, in connection with this
offering. All of the investors who purchased shares of common stock through
the private placement were accredited investors. We believe that the offer
and sale of the securities through the private placement offering were
exempt from registration under Rule 506 of Regulation D and/or Section 4(2)
under the Securities Act. In addition, for those investors who reside
outside the United States and are not United States citizens, comprising
approximately $887,000 of the offering, we believe that the offer and sale
of securities was exempt pursuant to Regulation S under the Securities Act.
- - In October 2002, we issued approximately 98 shares of Series A Convertible
Preferred Stock, approximately 68,000 shares of common stock, and
approximately 256,000 warrants in connection with the closing of a private
placement offering of our Series A Convertible Preferred Stock at a face
value of $10,000 per share for aggregate gross proceeds of approximately
$930,000. The shares of Series A Preferred are convertible into common
stock at an exchange rate of $1.15 per share. The warrants have an exercise
price of $1.50 per share and a term of two years. Fees consisting of
approximately $74,000 and warrants to purchase approximately 118,000 shares
of common stock, with an exercise price of $1.15 per share and a term of
five years, were paid to H.C. Wainwright & Co., Inc., our placement agents,
in connection with this offering. All of the investors who purchased Series
A Preferred shares and warrants through the private placement were
accredited investors. We believe that the offer and sale of the securities
through the private placement offering were exempt from registration under
Rule 506 of Regulation D and/or Section 4(2) under the Securities Act. In
addition, for those investors who reside outside the United States and are
not United States' citizens, comprising $190,000 of the offering, we
believe that the offer and sale of securities were exempt pursuant to
Regulation S under the Securities Act.
- - In September 2002, we issued a stock option to Tom Pascoe, our President
and CEO and a director, to purchase 3,005,038 shares of common stock in
connection with his employment agreement with us. Mr. Pascoe is an
accredited investor. We believe the issuance of securities was exempt under
Rule 506 of Regulation D and/or Section 4(2) under the Securities Act.
- - As an accommodation to adjust amounts owing to QED Law Group, P.L.L.C., on
September 25, 2002, we issued stock options to Shea Wilson and Derek
Woolston to purchase an aggregate of 45,454 shares of common stock at $1.00
per share. September 25, 2002 was the third trading day following our
filing of a report on Form 10-QSB for the quarterly period ended July 31,
2002. The closing sales price on September 25, 2002 was $2.10. We believe
the issuance of securities was exempt under Rule 506 of Regulation D and/or
Section 4(2) under the Securities Act.
- - In September 2002, we issued a stock option to Michal Levy, our Corporate
Secretary and Vice President, to purchase 89,410 shares of common stock at
$0.157 per share pursuant to her employment agreement with us. In September
2002, we also issued 11,178 shares of common stock to Ms. Levy pursuant to
her employment agreement with us. Ms. Levy is an accredited investor. We
believe the issuances of securities were exempt under Rule 506 of
Regulation D and/or Section 4(2) under the Securities Act.
- - In August 2002, we issued warrants to purchase 100,000 shares of common
stock, with an exercise price of $0.01 per share and a term of five years,
to H.C. Wainwright & Co., Inc. as a retainer fee in connection with a
placement agent letter agreement. We believe the issuance of securities was
exempt under Rule 506 of Regulation D and/or Section 4(2) under the
Securities Act.
37
- - In August 2002, we issued a warrant to Primoris Group Inc. to purchase
400,000 shares of common stock at $2.00 per share with a term of 2 years in
connection with a consulting agreement. Primoris Group Inc. provides
investor relations services to us. Since Primoris Group Inc. is an Ontario
corporation and has its headquarters in Toronto, Ontario, we believe the
issuance of securities was exempt from registration under Regulation S
under the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 10, 2002, we held our annual meeting of stockholders in Irvine,
California. At the meeting, our stockholders were asked to vote on the election
of members to the Board of Directors. All of the directors nominated for
election served as directors immediately prior to the annual meeting. The
following directors were elected by our stockholders as a result of the
following votes:
Votes "For" Election Votes "Withheld"
Bogdan C. Maglich 16,831,957 1,550
Gregory F. Gilbert 16,831,957 1,550
Barry Alter 16,831,957 1,550
Harb S. Al Zuhair 16,831,957 1,550
Richard F. Alden 16,800,663 32,844
In addition to the election of directors, the following matters were voted upon
at the annual meeting:
- - To ratify the Board of Directors' selection of Singer Lewak Greenbaum &
Goldstein as our independent auditors for the fiscal year ending April 30,
2003. The votes were cast as follows: 16,820,578 in favor of ratification;
954 against ratification; and 16,975 abstaining.
- - To ratify the Board of Directors' grant of a stock option to Dr. Bogdan
Maglich to purchase 2,482,011 shares of common stock of the Company at
$0.134 per share. The votes were cast as follows: 7,370,799 in favor of
ratification and 11,404 against ratification. 8,457,359 shares whose
beneficial ownership is attributed to Dr. Maglich under rules administered
by the Commission were excluded from the voting group entitled to vote on
this proposal.
- - To ratify the Board of Directors' approval of HiEnergy Technologies'
Employment Agreement, as amended, with Dr. Bogdan Maglich, including the
issuance of additional stock options to Dr. Maglich during the term of his
Employment Agreement. The votes were cast as follows: 7,332,002 in favor of
ratification and 50,201 against ratification. 8,457,359 shares whose
beneficial ownership is attributed to Dr. Maglich under rules administered
by the Commission were excluded from the voting group entitled to vote on
this proposal.
- - To ratify the Board of Directors' grant of a stock option to Mr. Isaac
Yeffet to purchase 1,000,000 shares of common stock of the Company at $1.00
per share. At the meeting several stockholders proposed to add a
performance condition to Mr. Yeffet's consulting agreement with HiEnergy
Technologies requiring Mr. Yeffet to provide additional and more specific
performance requirements for his services to HiEnergy Technologies,
including a monthly written report, weekly communications and a defined
time commitment. The votes were cast as follows: 8,457,359 shares were
voted at the meeting in favor of ratifying Mr. Yeffet's option, subject to
the Board negotiating the proposed change with Mr. Yeffet; 7,298,207 shares
voted by proxy in favor of ratifying Mr. Yeffet's option, without advance
notice of the proposed change; 7,404 voted against ratification; and 17,975
abstained.
- - To adopt and approve the Agreement and Plan of Merger to effect a change in
domicile of the Company from Washington to Delaware. The votes were cast as
follows: 15,837,608 in favor of ratification; 1,954 against ratification;
and 0 abstaining.
No other matters were submitted to our stockholders at the annual meeting.
38
ITEM 5. OTHER INFORMATION
RESIGNATION OF DIRECTOR
After serving on HiEnergy Microdevices' Board of Directors since 1997 and on
HiEnergy Technologies' Board of Directors since April 2002, Mr. Richard Alden
has resigned as a director from both Boards, effective December 2, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
2.1* Agreement and Plan of Merger dated October 18, 2002 by and between the
Registrant and its wholly owned subsidiary, HiEnergy Technologies,
Inc., a Delaware corporation
3.1* Certificate of Incorporation filed on October 17, 2002
3.2* Bylaws adopted on October 18, 2002
4.1* Specimen Common Stock Certificate
4.2* Specimen Series A Convertible Preferred Stock Certificate
4.3 Designation of Relative Rights and Preferences of the Series A
Convertible Preferred Stock (see Exhibit 3.1)
4.4* Form of Registration Rights Agreement between the Registrant and each
June 2002 Private Placement Common Stock investor
4.5* Registration Rights Agreement dated July 12, 2002 between the
Registrant and Isaac Yeffet
4.6* Registration Rights Agreement dated August 19, 2002 between the
Registrant and Primoris Group Inc.
4.7* Form of Registration Rights Agreement dated October 7, 2002 between
the Registrant and the Series A Convertible Preferred Stock investors
4.8* Form of Warrant Certificate dated October 7, 2002 issued by the
Registrant to each Series A Convertible Preferred Stock investor
4.9* Form of Registration Rights Agreement between the Registrant and each
October 2002 Private Placement Common Stock Investor
4.10* Form of Warrant Certificate issued by the Registrant to each October
2002 Private Placement Common Stock investor
10.1* Lease Agreement dated August 15, 2002 between the Registrant and Del
Mar Avionics
10.2* Amended and Restated Nonqualified Stock Option dated July 12, 2002
issued by the Registrant to Isaac Yeffet
39
10.3* Consulting Agreement dated August 1, 2002 between the Registrant and
Primoris Group Inc.
10.4* Amendment No. 1 to the Consulting Agreement dated August 19, 2002
between the Registrant and Primoris Group Inc.
10.5* Nonqualified Stock Option (Warrant) dated August 1, 2002 issued by the
Registrant to Primoris Group Inc.
10.6* Letter Employment Agreement dated February 26, 2002 between HiEnergy
Microdevices, Inc. and Michal Levy
10.7* Assignment, Assumption and Amendment of Employment Agreement dated
September 17, 2002 by and among the Registrant, HiEnergy Microdevices,
Inc. and Michal Levy
10.8* Nonqualified Stock Option dated September 17, 2002 issued by the
Registrant to Michal Levy
10.9* Nonqualified Stock Option dated September 25, 2002 issued by the
Registrant to Chapin E. Wilson
10.10* Nonqualified Stock Option dated September 25, 2002 issued by the
Registrant to Derek W. Woolston
10.11* Employment Agreement dated September 25, 2002 between the Registrant
and Tom Pascoe
10.12* Nonqualified Stock Option effective September 25, 2002 issued by the
Registrant to Tom Pascoe
10.13* Form of Series A Convertible Preferred Stock Purchase Agreement dated
October 7, 2002 between the Registrant and the investors named therein
10.14* Consulting Agreement dated September 25, 2002 between the Registrant
and Barry Alter
10.15* Form of Subscription Agreement between the Registrant and each April
2002 Private Placement Common Stock investor
10.16* Form of Subscription Agreement between the Registrant and each October
2002 Private Placement Common Stock investor
10.17 Form of Warrant Certificate dated August 11, 2002 issued by the
Registrant to H.C. Wainwright & Co., Inc. and Assigns
10.18 Form of Warrant Certificate dated October 7, 2002 issued by the
Registrant to H.C. Wainwright & Co., Inc. and Assigns
10.19 Form of Warrant Certificate dated October 31, 2002 issued by the
Registrant to H.C. Wainwright & Co., Inc. and Assigns
* Filed on November 6, 2002 as an exhibit to HiEnergy Technologies' registration
statement on Form SB-2 (File No. 333-101055) and incorporated herein by
reference.
(B) REPORTS ON FORM 8-K
On September 20, 2002, we filed a report on Form 8-K dated September 20, 2002.
The report contained an Item 7, listing exhibits, and an Item 9 disclosure
regarding the Section 906 Certifications under the Sarbanes-Oxley Act.
40
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HIENERGY TECHNOLOGIES, INC.
Date: December 16, 2002 By: /s/ Tom Pascoe
------------------------------ ------------------------
Name: Tom Pascoe
Title: Chief Executive Officer and
Principal Financial Officer
41
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Tom Pascoe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of HiEnergy
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: December 16, 2002 /s/ Tom Pascoe
----------------------------- ------------------------
Tom Pascoe
Chief Executive Officer and
Principal Financial Officer
42
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
2.1* Agreement and Plan of Merger dated October 18, 2002 by and between the
Registrant and its wholly owned subsidiary, HiEnergy Technologies,
Inc., a Delaware corporation
3.1* Certificate of Incorporation filed on October 17, 2002
3.2* Bylaws adopted on October 18, 2002
4.1* Specimen Common Stock Certificate
4.2* Specimen Series A Convertible Preferred Stock Certificate
4.3 Designation of Relative Rights and Preferences of the Series A
Convertible Preferred Stock (see Exhibit 3.1)
4.4* Form of Registration Rights Agreement between the Registrant and each
June 2002 Private Placement Common Stock investor
4.5* Registration Rights Agreement dated July 12, 2002 between the
Registrant and Isaac Yeffet
4.6* Registration Rights Agreement dated August 19, 2002 between the
Registrant and Primoris Group Inc.
4.7* Form of Registration Rights Agreement dated October 7, 2002 between
the Registrant and the Series A Convertible Preferred Stock investors
4.8* Form of Warrant Certificate dated October 7, 2002 issued by the
Registrant to each Series A Convertible Preferred Stock investor
4.9* Form of Registration Rights Agreement between the Registrant and each
October 2002 Private Placement Common Stock Investor
4.10* Form of Warrant Certificate issued by the Registrant to each October
2002 Private Placement Common Stock investor
10.1* Lease Agreement dated August 15, 2002 between the Registrant and Del
Mar Avionics
10.2* Amended and Restated Nonqualified Stock Option dated July 12, 2002
issued by the Registrant to Isaac Yeffet
43
10.3* Consulting Agreement dated August 1, 2002 between the Registrant and
Primoris Group Inc.
10.4* Amendment No. 1 to the Consulting Agreement dated August 19, 2002
between the Registrant and Primoris Group Inc.
10.5* Nonqualified Stock Option (Warrant) dated August 1, 2002 issued by the
Registrant to Primoris Group Inc.
10.6* Letter Employment Agreement dated February 26, 2002 between HiEnergy
Microdevices, Inc. and Michal Levy
10.7* Assignment, Assumption and Amendment of Employment Agreement dated
September 17, 2002 by and among the Registrant, HiEnergy Microdevices,
Inc. and Michal Levy
10.8* Nonqualified Stock Option dated September 17, 2002 issued by the
Registrant to Michal Levy
10.9* Nonqualified Stock Option dated September 25, 2002 issued by the
Registrant to Chapin E. Wilson
10.10* Nonqualified Stock Option dated September 25, 2002 issued by the
Registrant to Derek W. Woolston
10.11* Employment Agreement dated September 25, 2002 between the Registrant
and Tom Pascoe
10.12* Nonqualified Stock Option effective September 25, 2002 issued by the
Registrant to Tom Pascoe
10.13* Form of Series A Convertible Preferred Stock Purchase Agreement dated
October 7, 2002 between the Registrant and the investors named therein
10.14* Consulting Agreement dated September 25, 2002 between the Registrant
and Barry Alter
10.15* Form of Subscription Agreement between the Registrant and each April
2002 Private Placement Common Stock investor
10.16* Form of Subscription Agreement between the Registrant and each October
2002 Private Placement Common Stock investor
10.17 Form of Warrant Certificate dated August 11, 2002 issued by the
Registrant to H.C. Wainwright & Co., Inc. and Assigns
10.18 Form of Warrant Certificate dated October 7, 2002 issued by the
Registrant to H.C. Wainwright & Co., Inc. and Assigns
10.19 Form of Warrant Certificate dated October 31, 2002 issued by the
Registrant to H.C. Wainwright & Co., Inc. and Assigns
* Filed on November 6, 2002 as an exhibit to HiEnergy Technologies' registration
statement on Form SB-2 (File No. 333-101055) and incorporated herein by
reference.
44