UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, d.c. 20549
FORM 10-QSB
Quarterly Report of Small Business Issuers under Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended September 30,
2003
Commission File No. 333-42936
DND TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Nevada 84-1405298
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
375 E. Elliot Rd., Bldg. 6 85225
Chandler, Arizona (Zip Code)
(Address of principal executive offices)
Issuer's telephone number, including area code: (480) 892-7020
----------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since
last report)
The issuer has (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) been subject to
such filing requirements for the past 90 days.
- --------------------------------------------------------------------------------
Number of shares outstanding of each of the issuer's classes of common equity:
Class Outstanding as of November 18, 2003
----- -----------------------------------
Common stock, $0.001 par value 23,000,000
- --------------------------------------------------------------------------------
The issuer is not using the Transitional Small Business Disclosure format.
DND TECHNOLOGIES, INC.
Table of Contents
Page
----
PART I FINANCIAL INFORMATION.......................................... 3
Item 1. Consolidated Unaudited Financial Statements.................... 3
Consolidated Unaudited Balance Sheet...................................... 4
Consolidated Unaudited Statements of Operations........................... 6
Consolidated Unaudited Statements of Stockholders' (Deficit).............. 8
Consolidated Unaudited Statements of Cash Flows........................... 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................... 22
Item 3. Controls and Procedures........................................ 28
PART II OTHER INFORMATION.............................................. 29
Item 1. Legal Proceedings ............................................. 29
Item 6. Exhibits and Reports on Form 8-K............................... 29
SIGNATURES ............................................................... 30
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
3
DND TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 202,174
Accounts receivable, net of
allowance for doubtful accounts 1,068,378
Other receivables 16,705
Inventories, net of allowance for obsolescence 1,127,519
Prepaid expenses 103,511
-----------
TOTAL CURRENT ASSETS $ 2,518,287
PROPERTY AND EQUIPMENT, NET
OF ACCUMULATED DEPRECIATION 425,333
OTHER ASSETS
License agreement 3,883,002
Deposits 32,479
-----------
TOTAL OTHER ASSETS 3,915,481
-----------
TOTAL ASSETS $ 6,859,101
===========
4
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Notes payable:
Line of credit and note due to Merrill Lynch
(including interest) $ 1,005,586
Related parties 120,000
Other, current portion 630,769
Capital lease payable, current portion 27,219
Accounts payable 1,155,063
Accounts payable, Lam Research
Corporation 2,093,109
Accrued expenses and taxes 550,493
License payable, current portion 365,624
Amounts due to related parties 301,838
-----------
TOTAL CURRENT LIABILITIES $ 6,249,701
LONG-TERM LIABILITIES, NET OF
CURRENT PORTION
Notes payable, other 64,046
Capital lease payable 18,110
License payable 3,684,929
-----------
TOTAL LONG-TERM LIABILITIES 3,767,085
STOCKHOLDERS' (DEFICIT)
Preferred stock 0
Common stock, par value $.001 per share
Authorized - 50,000,000 shares
Issued and outstanding - 23,000,000 shares 23,000
Paid-in capital 1,957,161
Accumulated deficit (5,137,846)
-----------
TOTAL STOCKHOLDERS' (DEFICIT) (3,157,685)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) $ 6,859,101
===========
See Accompanying Notes
5
DND TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
REVENUE
Systems and Chillers $ 1,499,185 $ 412,080 $ 2,547,648 $ 1,254,168
Parts, assemblies and consumables 1,293,017 817,404 4,197,808 2,322,207
Field service and training 90,085 353,329 293,470 545,434
----------- ----------- ----------- -----------
TOTAL REVENUE 2,762,924 1,582,813 7,038,926 4,121,808
----------- ----------- ----------- -----------
COST OF REVENUE
Cost of revenues 1,790,132 984,409 4,533,527 2,484,768
Reserve for slow moving
and obsolete inventory 2,296,128 0 2,256,128 0
----------- ----------- ----------- -----------
TOTAL COST OF REVENUE 4,086,260 984,409 6,789,655 2,484,768
----------- ----------- ----------- -----------
GROSS PROFIT (LOSS) (1,323,336) 598,404 249,271 1,637,040
----------- ----------- ----------- -----------
OPERATING EXPENSES
Research and development 39,749 13,202 44,036 59,426
Sales and marketing 242,979 194,572 738,281 512,744
General and administrative 533,502 514,523 1,437,408 1,400,795
----------- ----------- ----------- -----------
TOTAL OPERATING
EXPENSES 816,230 722,297 2,219,725 1,972,965
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
OPERATIONS (2,139,566) (123,893) (1,970,454) (335,925)
INTEREST EXPENSE (75,688) (20,819) (278,109) (59,350)
----------- ----------- ----------- -----------
(LOSS) BEFORE
INCOME TAXES (2,215,254) (144,712) (2,248,563) (395,455)
INCOME TAXES 0 0 0 0
----------- ----------- ----------- -----------
NET (LOSS) $(2,215,254) (144,712) $(2,248,563) $ (395,455)
=========== =========== =========== ===========
See Accompanying Notes
6
DND TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
NET (LOSS)
PER COMMON SHARE
Basic and diluted $ (.10) $ (.00) $ (.10) $ (.02)
========== ========== ========== ==========
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 23,000,000 22,000,000 22,833,333 22,000,000
========== ========== ========== ==========
See Accompanying Notes
7
DND TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(UNAUDITED)
Preferred Stock Common Stock
--------------- ------------ Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- -----
Balance, January 1, 2003 0 $ 0 22,000,000 $ 22,000 $ 1,798,161 $(2,889,283) $(1,069,122)
Common stock issued
for accounts payable 0 0 1,000,000 1,000 159,000 0 160,000
Net (loss) for the nine
months ended
September 30, 2003 0 0 0 0 0 (2,248,563) (2,248,563)
------ ------ ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2003 0 $ 0 23,000,000 $ 23,000 $ 1,957,161 $(5,137,846) $(3,157,685)
====== ====== =========== =========== =========== =========== ===========
See Accompanying Notes
8
DND TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $(2,248,563) $ (395,455)
Adjustments to reconcile net (loss)
to net cash (used) by operating activities:
Depreciation 151,150 155,427
Amortization 305,405 0
Allowance for slow moving and obsolete inventories 2,256,128 0
Allowance for doubtful accounts receivable 25,000 0
Changes in operating assets and liabilities:
Accounts receivable (756,122) (238,309)
Other receivables (99) (44,912)
Inventories (355,314) (2,036)
Prepaid expenses and other assets (76,622) (4,063)
Accounts payable 512,147 322,604
Accrued expenses and amounts due to related parties (5,377) (286,196)
Deferred revenue 0 5,956
----------- -----------
NET CASH (USED) BY
OPERATING ACTIVITIES (192,267) (486,984)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,227) (26,382)
----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES (4,227) (26,382)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from line of credit 0 249,153
Proceeds from issuance of long-term debt 626,026 0
Principal payments on long-term debt (427,238) (92,746)
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 198,788 156,407
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALANTS 2,294 (356,959)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 199,880 419,690
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 202,174 $ 62,731
=========== ===========
See Accompanying Notes
9
DND TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
2003 2002
-------- -------
SUPPLEMENTARY DISCLOSURE
OF CASH FLOW INFORMATION:
Cash paid for interest $297,092 $28,501
======== =======
Cash paid for taxes $ 0 $ 0
======== =======
SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Common stock issued for
accounts payable $160,000 $ 0
======== =======
Acquisition of equipment
through capital lease $ 11,330 $ 0
======== =======
See Accompanying Notes
10
DND TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation
The interim consolidated financial statements of DND Technologies, Inc.
and subsidiary (the "Company") are condensed and do not include some of
the information necessary to obtain a complete understanding of the
financial data. Management believes that all adjustments necessary for a
fair presentation of results have been included in the unaudited
consolidated financial statements for the interim periods presented.
Operating results for the nine months ended September 30, 2003 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2003. Accordingly, your attention is directed to
footnote disclosures found in the December 31, 2002 Annual Report and
particularly to Note 1, which includes a summary of significant accounting
policies.
Certain accounts have been reclassified in order to conform with 2003
classifications.
Nature of Business and History of Company
DND Technologies, Inc. was organized on May 9, 1997, under the laws of the
state of Nevada. The Company operates as a holding company for subsidiary
acquisitions. The Company's operating subsidiary is Aspect Semiquip
International, Inc. (located in Arizona and Texas; hereinafter referred to
as "ASI").
The Company also owns 85% of ASI Team. ASI Team is inactive and has no
significant assets or liabilities and has not had any revenue or expenses.
ASI is a supplier of semiconductor manufacturing capital equipment. The
Company also supplies complete after market support of the Auto Etch and
Rainbow Plasma Dry Etch Systems, manufactured by LAM Research Corporation
including parts and assemblies.
Going Concern
These consolidated financial statements are presented on the basis that
the Company is a going concern. Going concern contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business over a reasonable length of time. The Company has incurred
significant operating losses in 2001 and 2002 and the nine months ended
September 30, 2003, has negative working capital and a stockholders'
deficit and is in default on a significant portion of its debt. These
factors raise uncertainty as to the Company's ability to continue as a
going concern.
See Accompanying Notes
11
DND TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of Consolidation
The consolidated financial statements include the accounts of DND
Technologies, Inc. and its wholly-owned subsidiary, Aspect Semiquip
International, Inc. and its 85% owned subsidiary, ASI Team Asia Ltd. All
material inter-company accounts and transactions have been eliminated.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are reported at the customers' outstanding balances
less any allowance for doubtful accounts. Interest is not accrued on
overdue accounts receivable. ASI does require advance payments on certain
orders of large systems.
Allowance For Doubtful Accounts
The allowance for doubtful accounts on accounts receivable is charged to
income in amounts sufficient to maintain the allowance for uncollectible
accounts at a level management believes is adequate to cover any probable
losses. Management determines the adequacy of the allowance based on
historical write-off percentages and information collected from individual
customers. Accounts receivable are charged off against the allowance when
collectibility is determined to be permanently impaired (bankruptcy, lack
of contact, account balance over one year old, etc.)
Inventory
Inventory is valued at the lower of cost or market. Cost is determined on
the first-in, first-out method. Cost includes raw materials, freight,
labor and manufacturing overhead.
See Accompanying Notes
12
DND TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
License Agreement
The license agreement is being amortized using the straight-line method
over the life of the contract with Lam Research Corporation (8 years).
Property and Equipment
Property and equipment are stated at cost. Major renewals and improvements
are charged to the asset accounts while replacements, maintenance and
repairs, which do not improve or extend the lives of the respective
assets, are expensed. At the time property and equipment are retired or
otherwise disposed of, the asset and related accumulated depreciation
accounts are relieved of the applicable amounts. Gains or losses from
retirements or sales are credited or charged to income.
Depreciation is provided for by the accelerated and straight-line methods
over the following estimated useful lives:
Office furniture, fixtures and equipment 5-7 Years
Leasehold improvements Term of lease
Machinery and equipment 7 Years
Laboratory tools 7 Years
Vehicles 5 Years
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the historical cost-carrying
value of an asset may no longer be appropriate. The Company assesses
recoverability of the carrying value of an asset by estimating the future
net cash flows expected to result from the asset, including eventual
disposition. If the future net cash flows are less than the carrying value
of the asset, an impairment loss is recorded equal to the difference
between the asset's carrying value and fair value. The Company did not
record any impairment in the nine months ended September 30, 2003.
See Accompanying Notes
13
DND TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Warranty Reserve
ASI provides a reserve on its Chiller and Auto Etch Systems to cover
anticipated repairs and/or replacement. The Company provides a warranty on
its systems ranging from ninety days to nine months from date of
acceptance, not to exceed eleven months from the ship date.
Revenue Recognition Policy
Product sales - The Company recognizes revenue when the goods are shipped
and title passes to its customers.
Service income - The Company recognizes revenue from service income when
services are performed and completed.
Shipping and Handling Costs
The Company's policy is to classify shipping and handling costs as part of
cost of goods sold in the statement of operations.
Advertising
The Company expenses all advertising as incurred.
Research and Development Costs
Costs incurred in research and development are expensed as incurred.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for
the current year and deferred taxes on temporary differences between the
amount of taxable income and pretax financial income and between the tax
bases of assets and liabilities and their reported amounts in the
financial statements. Deferred tax assets and liabilities are included in
the financial statements at currently enacted income tax rates applicable
to the period in which the deferred tax assets and liabilities are
expected to be realized or settled as prescribed in FASB Statement No.
109, "Accounting for Income Taxes". As changes in tax laws or rates are
enacted, deferred assets and liabilities are adjusted through the
provision for income taxes.
See Accompanying Notes
14
DND TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Income (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No. 128
that requires the reporting of both basic and diluted income (loss) per
share. Basic income (loss) per share is computed by dividing net income
(loss) available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted income (loss) per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock. In accordance with FASB 128, any anti-dilutive effects on net
income (loss) per share are excluded.
Accounting Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance with accounting principles generally accepted in
the U.S. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual results could
vary from the estimates that were used.
Concentration of Risk
Financial Instruments
Financial instruments which potentially subject the Company to
concentrations of credit risk consists principally of cash and trade
accounts receivable. The Company places its temporary cash investments in
reputable financial institutions. Concentration of credit risk with
respect to trade receivables is limited due to the large number of
customers comprising the Company's customer base and its dispersion across
different geographic areas. The Company routinely assesses the financial
strength of its customers. At September 30, 2003, the Company had one
customer which accounted for 24% of net accounts receivable.
Suppliers
Through September 30, 2003, approximately 15% of gross inventory purchases
were purchased from Lam Research Corp. The Company does not expect to have
any significant purchases of inventory from LAM in the near future.
See Accompanying Notes
15
DND TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenues
For the nine months ended September 30, 2003, the Company had two
customers, National Semi-Conductor and Texas Instruments, whose revenues
exceeded 10% of total revenues. The percentages were 17 % and 11%, not
necessarily in order of names.
Disclosure About Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments as
of September 30, 2003, as defined in FASB 107, does not differ materially
from the aggregate carrying values of its financial instruments recorded
in the accompanying consolidated balance sheet. The estimated fair value
amounts have been determined by the Company using available market
information and appropriate valuation methodologies. Considerable judgment
is required in interpreting market data to develop the estimates of fair
value, and accordingly, the estimates are not necessarily indicative of
the amounts that the Company could realize in a current market exchange.
Recent Accounting Pronouncements
In May 2003 the FASB issued SFAS 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer of debt or equity
classifies and measures certain financial instruments with characteristics
of both liabilities and equity. It requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset
in some circumstances). Many of those instruments were previously
classified as equity. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after
June 15, 2003.
NOTE 2 INVENTORIES
The inventories are comprised of the following:
Parts and materials $ 3,791,835
Work-in-process 179,517
Allowance for obsolescence (2,843,833)
-----------
$ 1,127,519
===========
The Company evaluated its inventories at September 30, 2003 based on sales
during 2003. In connection with this evaluation, the Company recorded a
provision for obsolescence totaling $2,296,128 in the quarter ended
September 30, 2003.
NOTE 3 LICENSE AGREEMENT AND PAYABLE
In November 2002, ASI entered into an asset purchase and licensing
agreement with Lam Research Corporation ("Lam"). Under the agreement, ASI
purchased approximately $1.6 million of inventory (see Note 7) from LAM
and entered into a licensing agreement requiring payments totaling
$5,376,000 (payable in 96 equal monthly installments of $56,000). ASI has
recorded the payable as a long-term liability after imputing interest at
6%.
See Accompanying Notes
16
DND TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 3 LICENSE AGREEMENT AND PAYABLE (CONTINUED)
Estimated amortization of the license agreement is as follows:
December 31, 2003 $ 436,293
December 31, 2004 523,551
December 31, 2005 523,551
December 31, 2006 523,551
December 31, 2007 and thereafter 2,181,461
----------
$4,188,407
==========
Future minimum payments under the agreement are as follows:
Total Principal
Payments Portion
---------- ----------
December 31, 2003 $ 560,000 $ 281,919
December 31, 2004 672,000 449,848
December 31, 2005 672,000 477,594
December 31, 2006 672,000 507,050
December 31, 2007 and thereafter 2,800,000 2,471,996
---------- ----------
$5,376,000 $4,188,407
========== ==========
The Company is currently in default on its payments to LAM.
NOTE 4 LINE OF CREDIT
ASI had a $1,000,000 revolving line of credit with Merrill Lynch Business
Financial Services, Inc. ("Merrill Lynch") which matured on April 1, 2002.
Interest accrued at Libor plus 2.75% (5.87% at September 30, 2003). The
note is secured by a first lien on the Company's accounts receivable and
inventories and has been personally guaranteed by the majority
shareholder.
The note contains numerous loan covenants for which ASI is not in
compliance. ASI has not received waivers on the covenants and is working
with Merrill Lynch to renegotiate the note and establish a repayment plan
for the loan.
See Accompanying Notes
17
DND TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 5 NOTES PAYABLE, OTHER
Term loan payable to Merrill Lynch Business Financial Services, Inc. for
$136,051 payable in sixty monthly installments of $4,167, including
interest at 5.87%.
Note payable for $200,000, bearing interest at 12%, is due in November
2003, requires monthly interest payments of $2,000 and is secured by a
second lien on the receivables and inventory. The note includes options to
purchase shares of the Company's common stock (200,000 shares @ $0.20 per
share and 200,000 shares at $1.00 per share).
Note payable to an individual for $69,414. The note is payable in
quarterly installments of $24,319 including interest at 10% and matures on
May 15, 2004. The note is secured by 947,000 shares of ASI stock held in
escrow.
Various unsecured demand notes due to an individual totaling $289,350,
with interest accruing at 7%.
NOTE 6 NOTES PAYABLE, RELATED PARTIES
Notes payable to related parties represents various loans from the
Company's CEO at an interest rate of 11%. The loans total $120,000 and are
due on demand.
NOTE 7 ACCOUNTS PAYABLE, LAM RESEARCH CORPORATION
The inventory purchase from LAM is due in equal monthly installments
beginning in July 2003.
The Company is currently in default on its payments to LAM.
NOTE 8 PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of $.0001 par value
preferred stock. The Board of Directors is authorized to establish the
series of preferred stock and all preference rights. No shares were issued
or outstanding at September 30, 2003.
See Accompanying Notes
18
DND TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 9 COMMITMENTS AND CONTINGENCIES
Real Estate Leases
The Company leases its Arizona and Texas facilities under operating leases
which expire in December 2004 and November 2008, respectively.
Future minimum lease payments on the real estate leases are as follows:
December 31, 2003 $ 305,775
December 31, 2004 366,585
December 31, 2005 117,144
December 31, 2006 119,626
December 2007 and Thereafter 234,041
----------
$1,143,171
==========
Litigation
Merrill Lynch has filed a lawsuit against the Company seeking repayment of
its line of credit and term loan. The Company has filed a countersuit
against Merrill Lynch. Should Merrill Lynch successfully foreclose on its
line of credit, the Company's available funds and ability to continue its
operations will be adversely affected.
The Company and a former employee have counter-claims against each other
arising from the employee's prior association with the Company.
NOTE 10 EMPLOYEE STOCK OPTIONS
On August 11, 2003, the Board of Directors and stockholders approved the
DND Technologies, Inc. Stock Option Plan, which permits the Board of
Directors to grant, for a ten year period, stock options. The Company has
reserved 5,000,000 shares of its common stock for issuance to the
directors, employees and consultants under the Plan. The Plan is
administered by the Board of Directors. The administrators have the
authority and discretion, subject to the provisions of the Plan, to select
persons to whom stock options will be granted, to designate the number of
shares to be covered by each option, to specify the type of consideration
to be paid, and to establish all other terms and conditions of each
option. Options granted under the Plan will not have a term that exceeds
ten years from date of grant.
See Accompanying Notes
19
DND TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 10 EMPLOYEE STOCK OPTIONS (CONTINUED)
The stock subject to the Plan and issuable upon exercise of options
granted under the Plan are shares of the corporation's common stock, $.001
par value, which may be either unissued or treasury shares.
The exercise price is no less than 100% of the fair market value of the
shares at the date of the grant of the options, as specified by the Board
of Directors.
Vesting terms of the options range from immediate to four years.
The Company has elected to account for stock-based compensation under APB
Opinion No. 25, under which no compensation expense has been recognized
for stock options granted to employees at fair market value.
A summary of the option activity for the nine months ended September 30,
2003, pursuant to the terms of the plan is as follows:
Shares Average
Under Exercise
Option Price
--------- ---------
Options outstanding at January 1, 2003 0 $ .00
Granted 4,999,226 .06
Exercised 0 .00
Cancelled and expired 0 .00
---------
Options outstanding at September 30, 2003 4,999,226
=========
3,004,226 shares are exercisable at September 30, 2003.
Information regarding stock options outstanding as of September 30, 2003
is as follows:
Price $ .06
Weighted average exercise price $ .06
Weighted average remaining contractual life 9 years, 8 months
Options exercised
Price range 0
Shares 0
Weighted average exercise price 0
See Accompanying Notes
20
DND TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 10 EMPLOYEE STOCK OPTIONS (CONTINUED)
For purposes of proforma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's proforma information follows:
Net (loss)
As reported $ (2,248,563)
Proforma $ (2,251,439)
(Loss) per share attributable to common stock
Basic and diluted
As reported $ (.10)
Proforma $ (.10)
NOTE 11 MANAGEMENT PLANS
Management's plans to eliminate the going concern situation include, but
are not limited to, negotiating a long-term payment plan for the Merrill
Lynch line of credit, increase revenue by continuing to expand the legacy
product lines, and obtain additional equity or debt financing from
investors.
NOTE 12 SUBSEQUENT EVENT
In November 2003, the Company entered into an agreement with Axcelis
Technologies, Inc. acquiring an exclusive license to all future
manufacturing, sales, service, and parts support for certain dry strip
semi-conductor manufacturing equipment marketed under the trade names
"System One" and "System Ten". The agreement provides for the payment of
18% of net revenues (from these sales) per quarter until a $2,750,000
license fee has been paid and a royalty on related sales ranging from 10%
to 2% through December 31, 2010.
See Accompanying Notes
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. In consultation with our Board of Directors and Audit
Committee, we have identified eight accounting policies that we believe are key
to an understanding of our financial statements. These are important accounting
policies that require management's most difficult, subjective judgments.
1. Going Concern
These financial statements are presented on the basis that the Company is
a going concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. The Company has incurred significant operating losses for the
years ended December 31, 2002 and 2001 and for the quarter ended September 30,
2003 has negative working capital and a stockholders' deficit and is in default
on its Merrill Lynch line of credit, a $200,000 bridge loan and its license
agreement with Lam. These factors raise uncertainty as to the Company's ability
to continue as a going concern.
Management's plans to eliminate the going concern situation include, but
are not limited to, the following:
1 - Negotiate a long-term payment plan for the Merrill Lynch line of
credit.
2 - Obtain additional equity or debt financing from investors.
3 - Increase revenue by capturing greater market share through
aggressive sales efforts in a recovering market economy.
4 - Expand the ASI product base by obtaining rights to other legacy
products, thereby increasing revenue.
2. Revenue Recognition
Product sales - The Company recognizes revenue from product sales when the
goods are shipped and title passes to its customers.
Service income - The Company recognizes revenue from service income when
services are performed and completed.
3. Accounts Receivable
Accounts receivable are reported at the customers' outstanding balances
less any allowance for doubtful accounts. Interest is not accrued on overdue
balances. The Company's subsidiary, Aspect Semiquip International, Inc. ("ASI"),
does require advance payments on certain orders of its larger systems.
4. Allowance for Doubtful Accounts
The allowance for doubtful accounts on accounts receivable is charged to
income in amounts sufficient to maintain the allowance for uncollectible
accounts at a level management believes is adequate to cover any probable
losses. Management determines the adequacy of the allowance based on historical
write-off percentages and information collected from individual customers.
Accounts receivable are charged off against the allowance when collectibility is
determined to be permanently impaired (bankruptcy, lack of contact, account
balance over one year old, etc.).
22
5. Inventory
Inventory is valued at the lower of cost (determined by the first-in,
first-out method) or market. Cost includes raw materials, freight, labor and
manufacturing overhead.
6. Income Taxes
Provisions for income taxes are based on taxes payable or refundable for
the current year and deferred taxes on temporary differences between the amount
of taxable income and pretax financial income and between the tax basis of
assets and liabilities and their reported amounts in the financial statements.
Deferred tax assets and liabilities are included in the financial statements at
currently enacted income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or settled as
prescribed in FASB Statement No. 109, "Accounting for Income Taxes." As changes
in tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
7. Property and Equipment
Depreciation is provided for by the accelerated and straight-line methods
over the following estimated useful lives:
Office furniture, fixtures and equipment 5-7 Years
Leasehold improvements Term of Lease
Machinery and equipment 7 Years
Laboratory tools 7 Years
Vehicles 5 Years
8. Warranty Reserve
ASI provides a reserve on its Chiller and Auto Etch systems to cover
anticipated repairs or replacement. The Company provides a warranty on its
systems ranging from 90 days to six months from date of sale.
Results of Operations
Through its wholly owned subsidiary, Aspect Semiquip International, Inc.
("ASI"), DND Technologies, Inc. ("DND" or the "Company") provides new
proprietary capital equipment, remanufactured process equipment and
subassemblies, consumables and spare parts, and a variety of engineering
services to the semiconductor industry for use in the production of microchip
technology.
Selected Financial Information.
Three Month Period Ended
--------------------------
9/30/2003 9/30/2002
--------- ---------
(Unaudited) (Unaudited)
Statement of Operations Data
Total revenue $ 2,882,287 $ 1,582,813
Operating income $(2,139,566) $ (123,893)
Net income (loss) per share $ (0.10) $ (0.00)
23
Nine Month Period Ended
--------------------------
9/30/2003 9/30/2002
--------- ---------
(Unaudited) (Unaudited)
Statement of Operations Data
Total revenue $ 7,038,926 $ 4,121,808
Operating income (loss) $(1,970,454) $ (335,925)
Net income (loss) per share $ (0.10) $ (0.02)
Balance Sheet Data
Total assets $ 6,859,101 $ 3,375,719
Total liabilities $10,016,786 $ 3,152,429
Stockholders' equity (deficit) $(3,157,685) $ 223,290
Results of Operations.
Three month period ended September 30, 2003, compared to three month period
ended September 30, 2002.
Revenues. Revenues significantly increased approximately 75% to $2,762,924
for the three month period ended September 30, 2003 from $1,582,813 for the
three month period ended September 30, 2002. This increase is primarily due to
an increase in system sales and additional sales of products relating to our
agreement with Lam Research Corp. ("Lam"), which allows us to purchase inventory
from Lam.
Cost of Sales - Recurring Operations. The cost of sales for recurring
operations increased to $1,790,132 ( 62% of revenues) in the three month period
ended September 30, 2003 from $984,409 (62% of revenues) for the three month
period ended September 30, 2002. This dollar increase is primarily due to
purchases of more inventory in the three months ended September 30, 2003.
Cost of Sales - Write-off of Slow Moving and Obsolete Inventory. The cost
of sales-write-off of slow moving and obsolete inventory is the result of
management's decision to write off $ 2,296,128 of slow moving and obsolete
inventory in the three months ended September 30, 2003.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately 10% to $776,481 (28% of
revenues) in the three months ended September 30, 2003 from $709,095 (45% of
revenues) for the three months ended September 30, 2002. This increase in
expense was primarily due to legal, consulting, and audit fees related to our
filings with the SEC beginning in 2003.
Net Loss. DND had a net loss of $2,215,254 for the three months ended
September 30, 2003, compared to net loss of $144,712 for the three months ended
September 30, 2002. The increased net loss was caused primarily by the write-off
of slow-moving and obsolete inventory. However, this write-off was somewhat
offset by increased gross profit from the revenue increase.
Nine month period ended September 30, 2003, compared to nine month period ended
September 30, 2002.
Revenues. Revenues significantly increased approximately 71% to $7,038,925
for the nine month period ended September 30, 2003 from $4,121,808 for the nine
month period ended September 30, 2002. This increase is primarily due to an
increase in system sales and additional sales of products relating to our
agreement with Lam.
24
Cost of Sales - Recurring Operations. The cost of sales for recurring
operations increased to $4,533,527 (64 % of revenues) in the nine month period
ended September 30, 2003 from $2,484,768 (60% of revenues) for the nine month
period ended September 30, 2002. This increase of 4% in the cost of sales
percentage is primarily the result of a large system sale in the second quarter
which required significant unexpected set-up and servicing costs which resulted
in a negative margin. The Company does not anticipate incurring such costs on
future system sales.
Cost of Sales - Write-off of Slow Moving and Obsolete Inventory. The cost
of sales- write-off of slow moving and obsolete inventory is the result of
management's decision to write-off $2,296,128 of slow moving and obsolete
inventory in the nine months ended September 30, 2003.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately 14% to $2,175,689 (31% of
revenues) in the nine months ended September 30, 2003 from $1,913,539 (46% of
revenues) for the nine months ended September 30, 2002. The increase in dollars
was primarily due to the amortization of the agreement with Lam.
Research & Development. Research and development costs decreased $15,390
to $44,036 in the nine months ended September 30, 2003. The decrease is due to a
reduction in product development expense on the Crystal project. No significant
research and development costs are anticipated in the near future.
Net Loss. DND had a net loss of $2,248,563 for the nine months ended
September 30, 2003, compared to a net loss of $395,455 for the nine months ended
September 30, 2002. The increase in the net loss was caused primarily by the
write-off of slow-moving and obsolete inventory, additional interest expense and
amortization expense related to the Lam license agreement, offset by an increase
in gross profit due to the increased revenue.
CAPITAL AND SOURCES OF LIQUIDITY
Our liquidity was negatively impacted by the decline in sales revenues we
experienced during the year ended December 31, 2002. We attribute last year's
decline in revenues primarily to the general decline in the economy of the
United States, which we believe has driven down discretionary spending by
consumers. As a result, consumers are purchasing fewer products in the computer
and semiconductor industries.
Although our revenues have increased during the first three quarters of
FY2003, our cash flow remains tight. Our operating income has shown improvement
in this quarter but is still considered insufficient to meet our current
obligations. To date, we have financed our operations with cash from our
operating activities, a bank line of credit and a bridge loan for $200,000. The
bridge loan for $200,000 was made by Jean Charles Cartier in October of 2002,
with a twelve-month term and at an interest rate of 1% per month. Mr. Cartier
also received warrants to acquire 200,000 shares at $0.20 per share and 200,000
shares at $1.00 per share.
Our bank line of credit with Merrill Lynch Business Financial Services,
Inc. matured on April 1, 2002. Interest accrued at Libor plus 2.75% with an
effective rate of 6.13% at December 31, 2002. The note is secured by a first
lien on certain assets which amounted to approximately $5,000,000 at September
30, 2003 and has been personally guaranteed by the majority shareholder. The
note contains numerous loan covenants that we are not in compliance with. As of
the date of this report, we have not received waivers on the covenants and are
working with Merrill Lynch to renegotiate the note and establish a repayment
plan for the loan. The balance on the line of credit and a term loan, including
accrued interest, at September 30, 2003 was $1,136,742. Merrill Lynch filed a
lawsuit against us in connection with our default on the line of credit in
December of 2002. Should Merrill Lynch successfully foreclose on its line of
credit, Merrill Lynch could take all of our assets and we would be forced to
cease operations. The Company, on April 7, 2003, as part of its answer, filed a
counterclaim against Merrill Lynch, alleging breach of the covenant of good
faith and fair dealing in connection with loan agreements, interference with
contract, and interference with business relations, and is continuing its
negotiations with Merrill Lynch as of the date of this filing.
The Company and Lam are mutually in default under the Lam license
agreement. We are in the process of negotiating a resolution for the default,
and management believes that Lam and the Company
25
will reach an agreement to resolve the defaults, without damages payable by the
Company, but there can be no assurance that this will occur. Management's view
is that Lam's sole remedy under the license agreement is to recover under its
purchase money security interest in the inventory we have purchased from Lam,
but Lam may choose to bring additional claims against us, and a court could give
Lam remedies not provided for in our agreement.
We are in default on our $200,000 bridge loan due to an individual. We are
in the process of negotiating more favorable terms of repayment, but there can
be no assurance that we will succeed.
On May 2, 2003, Scott Magoon, a former shareholder and employee of Aspect
Semiquip International, Inc., a subsidiary of the Registrant, filed a complaint
in the Dallas County, Texas court, naming DND Technologies, Inc., Aspect
Semiquip International, Inc., Semiquip, Inc. and Doug N. Dixon as defendants.
The complaint alleges that the defendants defrauded Mr. Magoon and requests,
among other forms of relief, that the court divest the Registrant of its wholly
owned subsidiary, Semiquip, Inc. The action has since been removed to federal
district court. If Mr. Magoon is successful in his claim, it is possible the
Company could lose its Texas operations, which would adversely affect our
operations as the Company's Texas operations account for approximately 33% of
the Company's total operations.
Should Merrill Lynch, Lam or Cartier successfully foreclose on their
security interests, as provided in their agreements with the Company, or should
any of these three parties obtain judgments against us in court, we could lose
part or all of our assets, the Company could be forced to cease operations and
our stock could become worthless. In addition, should Mr. Magoon obtain a
judgment in his lawsuit which divests us of our Texas operations, our operations
would be reduced significantly and we anticipate that revenues would
significantly decline. It is management's view that the lawsuit with Mr. Magoon
has no merit.
In November 2003, the Company entered into an agreement with Axcelis
Technologies, Inc. and acquired an exclusive license on all future
manufacturing, sales, service and parts support for certain dry strip
semiconductor manufacturing equipment marketed under the trade names "System
One" and "System Ten". The agreement provides for the payment of 18% of net
revenues from these sales by the Company per quarter until $2,750,000 (the
license fee) has been paid and the payment of a royalty on related sales ranging
from 2% to 10% through December 31, 2010.
For the nine months ended September 30, 2003, two customers, National
Semi-Conductor and Texas Instruments accounted for at least 10% of our revenues.
We have no relationship with either customer beyond the normal relationship
between a customer and its supplier. If we lost both of these major customers,
our revenues would be reduced by approximately $500,000 per year if we were
unable to find customers to replace these orders.
Our future cash requirements and the adequacy of available funds will
depend on many factors, including the pace at which we expand our business
generally, and our inventory in particular, the general state of the economy,
which impacts the amount of money that may be spent for technology related
purchases and our ability to negotiate a repayment plan for our line of credit
with Merrill Lynch Business Financial Services, Inc. and a settlement of the
Merrill Lynch lawsuit.
Because of our tight cash flow, it is likely that during the next 12 month
period we will seek financing from one or more sources such as capital
investment firms or private fund managers. Preparations are underway to present
a corporate profile and backgrounder to this end, followed by an aggressive
search for funding. We do not have any plans in place to obtain financing.
Additional financing may not be available on acceptable terms, or at all.
Net cash (used) by operating activities for the nine months ended
September 30, 2003 was $192,267 compared to $486,984 (used) by operating
activities for the nine months ended September 30, 2002. The $294,717 change was
primarily due to an increase in our revenues and gross margin. Our gross margin,
before the non-cash provision for slow-moving and obsolete inventories,
increased from approximately $1.6 million in the nine months ended September 30,
2002 to $2.5 million for 2003. Increased inventories and receivables associated
with our increased revenues resulted in the net cash used in 2003.
Our investing activities for the nine months ended September 30, 2003 used
$4,227 as compared to $26,382 used in the nine months ended September 30, 2003.
Cash was used in each period for the purchases of property and equipment.
Our financing activities for the nine months ended September 30, 2003
provided cash of $198,788 compared to $156,407 for the nine months ended
September 30, 2002. Financing activities in the nine months ended September 30,
2003 consisted of proceeds from (and principal payments on) long-term debt.
Financing activities in the nine months ended September 30, 2002 consisted of
borrowings from the line of credit and principal payments of long-term debt.
At September 30, 2003, stockholders' deficit was $3,157,685, as compared
to a stockholders' deficit of $1,069,122 at December 31, 2002. The $2,088,563
change in stockholders' deficit was accounted for as follows:
Increase in stockholders' equity
Issuance of common stock for accounts payable $ 160,000
Decreases in stockholders' equity
Net loss (2,248,563)
-----------
Net Change $ 2,088,563
===========
26
The Company currently has no material commitments for capital
expenditures.
The Company has $4,539,251 and $3,767,085 of debt payments due within the
next year and next two to five years, respectively.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The Company's Form 10-KSB, any Form 10-QSB or any Form 8-K of the Company or any
other written or oral statements made by or on behalf of the Company may contain
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. The words "believe,"
"expect," "anticipate," "intends," "estimate," "forecast," "project," and
similar expressions identify forward-looking statements. All statements other
than statements of historical fact are statements that could be deemed
forward-looking statements, including any statements of the plans, strategies
and objectives of management for future operations; any statements concerning
proposed new products, services, developments or industry rankings; any
statements regarding future economic conditions or performance; any statements
of belief; and any statements of assumptions underlying any of the foregoing.
Such "forward-looking statements" are subject to risks and uncertainties set
forth from time to time in the Company's SEC reports and are generally set forth
below and particularly discussed in the Company's Form 10-KSB for the year ended
December 31, 2002.
Readers are cautioned not to place undue reliance on such forward-looking
statements as they speak only of the Company's views as of the date the
statement was made. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
Risk Factors
You should consider the following discussion of risks as well as other
information regarding our operations. The risks and uncertainties described
below are not the only ones. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations.
o We are in default on our $1 million line of credit with Merrill
Lynch Business Financial Services and our creditor could foreclose
on our business at any time.
o We are in default on our license agreement with Lam Research Corp.,
and Lam could seek to foreclose on its purchase money security
interest under the agreement at any time.
o We depend on Douglas Dixon, our CEO, and Dennis Key, our CFO and
President of Aspect SemiQuip, and their relationships within the
semiconductor industry. Their loss would seriously disrupt our
operations.
o Demand for our products is subject to cyclical downturns in the
semiconductor industry and our ability to keep pace with rapidly
changing technology.
o Our independent accountants have expressed doubt about our ability
to continue as a going concern, which may hinder our ability to
obtain future financing.
o We are subject to the risks associated with the intensely
competitive and capital-intensive nature of the semiconductor
industry.
o We are exposed to the risks of operating a global business.
o We are exposed to risks associated with a highly concentrated
customer base, with one customer accounting for approximately 20% of
sales.
27
o We are subject to risks of non-compliance with environmental and
safety regulations.
o We are exposed to risks associated with our acquisition strategy.
o Our ability to raise additional financing is uncertain.
o Our operations are not diversified and we will not have the benefit
of reducing our financial risks by relying on other revenues.
o There is a limited market for our common stock.
o Our common stock is subject to penny stock regulation.
ITEM 3. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the design and operation of our disclosure controls
and procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), within 90 days of the filing date of this report. Based on that
evaluation, our principal executive officer and our principal financial officer
concluded that the design and operation of our disclosure controls and
procedures were effective to ensure that information required to be included in
our Securities and Exchange Commission reports is recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms.
(b) In addition, there were no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to
the Evaluation Date, including any corrective actions with regard to significant
deficiencies and material weaknesses.
28
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In connection with the Company's previously disclosed lawsuit, Merrill
Lynch Business Financial Services, Inc. v. Aspect SemiQuip International, et
al., the Company is providing a status update. The Company, on April 7, 2003, as
part of its answer, filed a counterclaim against Merrill Lynch, alleging breach
of the covenant of good faith and fair dealing in connection with the loan
agreements, interference with contract, and interference with business
relations, and is continuing its negotiations with Merrill Lynch as of the date
of this filing.
On May 2, 2003, Scott Magoon, a former shareholder and employee of Aspect
Semiquip International, Inc., a subsidiary of the Registrant, filed a complaint
in the Dallas County, Texas court, naming DND Technologies, Inc., Aspect
Semiquip International, Inc., Semiquip, Inc. and Doug N. Dixon as defendants.
The complaint alleges that the defendants defrauded Mr. Magoon and requests,
among other forms of relief, that the court divest the Registrant of its wholly
owned subsidiary, Semiquip, Inc. The action has since been removed to federal
district court. If Mr. Magoon is successful in his claim, it is possible the
Company could lose its Texas operations, which would adversely affect our
operations as the Company's Texas operations account for approximately 33% of
the Company's total operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal
Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal
Financial Officer
32 Section 1350 Certifications
(b) Reports on Form 8-K:
During the third quarter of 2003, the Company did not file any
current reports on Form 8-K.
29
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.
Dated: November 18, 2003
DND TECHNOLOGIES, INC., a Nevada corporation
By: /s/ Douglas N. Dixon
---------------------------------------------
Douglas N. Dixon, CEO and Director
30