SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2004.
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number: 0-26059
COMET TECHNOLOGIES, INC.
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(Exact name of Registrant as specified in its Charter)
Nevada 87-0430322
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10 West 100 South, Suite 610, Salt Lake City, Utah 84101
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number including Area Code: (801) 532-7851
Securities Registered Under Section 12(b) of the Exchange Act: None.
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock,
Par Value $0.001
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934, during the past 12
months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues (consisting only of interest income) for its most
recent fiscal year. $350.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed on the basis of the last sale price on April 11, 2005,
of $0.20, was $638,928.
As of April 11, 2005, the Registrant had outstanding 3,598,000 shares of its
common stock.
Transitional Small Business Disclosure Format: Yes [_] No [X]
Documents incorporated by reference: None.
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION
PART I Page No.
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Item 1. Description of Business.......................................1
Item 2. Description of Property.......................................6
Item 3. Legal Proceedings.............................................6
Item 4. Submission of Matters to a Vote of Security Holders...........6
PART II
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Item 5. Market for Common Equity and Related Stockholder Matters......6
Item 6. Management's Discussion and Analysis or Plan of Operation ....7
Item 7. Financial Statements..........................................9
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure ..........................9
Item 8A. Controls and Procedures.......................................9
Item 8B. Other Information.............................................9
PART III
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Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act...10
Item 10. Executive Compensation.......................................11
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters...................13
Item 12. Certain Relationships and Related Transactions...............14
Item 13. Exhibits.....................................................15
Item 14. Principal Accountant Fees and Services.......................16
Signatures............................................................17
The information contained in this Form 10-KSB for the fiscal year ended
December 31, 2004, is as of the latest practicable date except for financial
information, which relates to the fiscal year.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Comet Technologies, Inc. (the "Company" or "Comet") is a "blank check"
company which has been seeking to locate a business enterprise which it may
acquire, merge or reorganize with, or become engaged in. The Company has been
inactive for several years, and until January, 2004, when it entered into an
agreement with Town House Land Limited, discussed below, had not located any
specific business enterprise for its involvement, nor had it entered into any
arrangement or agreements with respect thereto. Since the completion of the
Company's public offering in August 1986, the Company has reviewed and
evaluated numerous business ventures for possible acquisition or participation
by the Company. To date, the Company has not acquired any business venture or
engaged in any active operations.
The Company was inactive until January, 2004, when the Company entered
into a Stock Exchange Agreement (the "Exchange Agreement") with Town House
Land Limited ("Town House"), a company organized in the Hong Kong Special
Administrative Region in The People's Republic of China, and the shareholders
of Town House, providing for the acquisition of Town House in a reverse
acquisition.
On or about February 9, 2005, the Company sent notification to Town House
of its decision to terminate the Exchange Agreement between the Company, Town
House and the shareholders of Town House. This notification occurred after
approximately 14 months of efforts to complete this transaction. As reflected
in the Company's Current Report on Form 8-K, filed on or about February 14,
2005, which is incorporated herein by reference, the decision to terminate the
Exchange Agreement, and the reverse acquisition contemplated by the Exchange
Agreement, was a result of the determination by the board of directors that
Town House had undertaken actions and business efforts which were a material
deviation from the business of Town House as described in the Company's
preliminary information statement under Schedule 14C filed with the U.S.
Securities and Exchange Commission ("SEC"). The board of directors concluded
that this change would require an amendment to the Company's 14C Information
Statement and would cause substantial additional delays and costs to the
Company. Moreover, the board of directors concluded that the change in the
business of Town House was contrary to the best interests of the Company and
its shareholders. Town House acknowledged the Company's decision to
terminate the Exchange Agreement and transactions contemplated by the Exchange
Agreement.
As a result of this decision, the reverse acquisition contemplated by the
Exchange Agreement will not occur. Management will now begin efforts to
locate a suitable acquisition or merger candidate for the Company.
Unfortunately, the Company expended over one year approximately $24,000 in
legal and accounting funds pursuing this opportunity and preparing and filing
required information concerning the proposed transaction with the SEC. In
addition, the Company's officers and directors devoted substantial time to the
Company in connection with this transaction for which the Company has incurred
a payable on the Company's balance sheet of $57,795 as of December 31, 2004.
Comet is a public company whose securities are quoted on the over-the-
counter Bulletin Board under the symbol "CMEK."
To date, opportunities have been made available to the Company through
its officers and directors and through professional advisors including
securities broker-dealers and through members of the financial community. It
is anticipated that business opportunities will continue to be available
primarily from these sources.
To a large extent, a decision to participate in a specific business
opportunity may be made upon management's analysis regarding the quality of
the other firm's management and personnel, the asset base of such firm or
enterprise, the anticipated acceptability of new products or marketing
concepts, the merit of the firms business plan, and numerous other factors
which are difficult, if not impossible, to analyze through the application of
any objective criteria.
Since its inception, the Company has had no active business operations,
and has been seeking to acquire an interest in a business with long-term
growth potential. The Company currently has no commitment or arrangement to
participate in a business and cannot now predict what type of business it may
enter into or acquire. It is emphasized that the business objectives discussed
herein are extremely general and are not intended to be restrictive on the
discretion of the Company's management.
There are no plans or arrangements proposed or under consideration for
the issuance or sale of additional securities by the Company prior to the
identification of an acquisition candidate. Consequently, management
anticipates that it may be able to participate in only one potential business
venture, due primarily to the Company's limited capital. This lack of
diversification should be considered a substantial risk, because it will not
permit the Company to offset potential losses from one venture against gains
from another.
Selection of a Business
The Company anticipates that businesses for possible acquisition will be
referred by various sources, including its officers and directors,
professional advisors, securities broker-dealers, venture capitalists, members
of the financial community, and others who may present unsolicited proposals.
The Company will not engage in any general solicitation or advertising for a
business opportunity, and will rely on personal contacts of its officers and
directors and their affiliates, as well as indirect associations between them
and other business and professional people. By relying on "word of mouth,"
the Company may be limited in the number of potential acquisitions it can
identify. While it is not presently anticipated that the Company will engage
unaffiliated professional firms specializing in business acquisitions or
reorganizations, such firms may be retained if management deems it in the best
interest of the Company.
Compensation to a finder or business acquisition firm may take various
forms, including one-time cash payments, payments based on a percentage of
revenues or product sales volume, payments involving issuance of securities
(including those of the Company), or any combination of these or other
compensation arrangements. Consequently, the Company is currently unable to
predict the cost of utilizing such services.
The Company will not restrict its search to any particular business,
industry, or geographical location, and management reserves the right to
evaluate and enter into any type of business in any location. The Company may
participate in a newly organized business venture or a more established
company entering a new phase of growth or in need of additional capital to
overcome existing financial problems. Participation in a new business venture
entails greater risks since in many instances management of such a venture
will not have proved its ability, the eventual market of such venture's
product or services will likely not be established, and the
2
profitability of the venture will be unproved and cannot be predicted
accurately. If the Company participates in a more established firm with
existing financial problems, it may be subjected to risk because the financial
resources of the Company may not be adequate to eliminate or reverse the
circumstances leading to such financial problems.
In seeking a business venture, the decision of management will not be
controlled by an attempt to take advantage of any anticipated or perceived
appeal of a specific industry, management group, product, or industry, but
will be based on the business objective of seeking long-term capital
appreciation in the real value of the Company. The Company will not acquire or
merge with a business or corporation in which the Company's officers,
directors, or promoters, or their affiliates or associates, have any direct or
indirect ownership interest.
The analysis of new businesses will be undertaken by or under the
supervision of the officers and directors. In analyzing prospective
businesses, management will consider, to the extent applicable, the available
technical, financial, and managerial resources; working capital and other
prospects for the future; the nature of present and expected competition; the
quality and experience of management services which may be available and the
depth of that management; the potential for further research, development, or
exploration; the potential for growth and expansion; the potential for profit;
the perceived public recognition or acceptance of products, services, or trade
or service marks; name identification; and other relevant factors.
The decision to participate in a specific business may be based on
management's analysis of the quality of the other firm's management and
personnel, the anticipated acceptability of new products or marketing
concepts, the merit of technological changes, and other factors which are
difficult, if not impossible, to analyze through any objective criteria. It is
anticipated that the results of operations of a specific firm may not
necessarily be indicative of the potential for the future because of the
requirement to substantially shift marketing approaches, expand significantly,
change product emphasis, change or substantially augment management, and other
factors.
The Company will analyze all available factors and make a determination
based on a composite of available facts, without reliance on any single
factor. The period within which the Company may participate in a business
cannot be predicted and will depend on circumstances beyond the Company's
control, including the availability of businesses, the time required for the
Company to complete its investigation and analysis of prospective businesses,
the time required to prepare appropriate documents and agreements providing
for the Company's participation, and other circumstances.
Acquisition of a Business
In implementing a structure for a particular business acquisition, the
Company may become a party to a merger, consolidation, or other reorganization
with another corporation or entity; joint venture; license; purchase and sale
of assets; or purchase and sale of stock, the exact nature of which cannot now
be predicted. Notwithstanding the above, the Company does not intend to
participate in a business through the purchase of minority stock positions. On
the consummation of a transaction, it is likely that the present management
and shareholders of the Company will not be in control of the Company. In
addition, a majority or all of the Company's directors may, as part of the
terms of the acquisition transaction, resign and be replaced by new directors
without a vote of the Company's shareholders.
3
In connection with the Company's acquisition of a business, the present
shareholders of the Company, including officers and directors, may, as a
negotiated element of the acquisition, sell a portion or all of the Company's
Common Stock held by them at a significant premium over their original
investment in the Company. As a result of such sales, affiliates of the
entity participating in the business reorganization with the Company would
acquire a higher percentage of equity ownership in the Company. Management
does not intend to actively negotiate for or otherwise require the purchase of
all or any portion of its stock as a condition to or in connection with any
proposed merger or acquisition. Although the Company's present shareholders
did not acquire their shares of Common Stock with a view towards any
subsequent sale in connection with a business reorganization, it is not
unusual for affiliates of the entity participating in the reorganization to
negotiate to purchase shares held by the present shareholders in order to
reduce the amount of shares held by persons no longer affiliated with the
Company and thereby reduce the potential adverse impact on the public market
in the Company's common stock that could result from substantial sales of such
shares after the business reorganization. Public investors will not receive
any portion of the premium that may be paid in the foregoing circumstances.
Furthermore, the Company's shareholders may not be afforded an opportunity to
approve or consent to any particular stock buy-out transaction.
In the event sales of shares by present shareholders of the Company,
including officers and directors, is a negotiated element of a future
acquisition, a conflict of interest may arise because directors will be
negotiating for the acquisition on behalf of the Company and for sale of their
shares for their own respective accounts. Where a business opportunity is well
suited for acquisition by the Company, but affiliates of the business
opportunity impose a condition that management sell their shares at a price
which is unacceptable to them, management may not sacrifice their financial
interest for the Company to complete the transaction. Where the business
opportunity is not well suited, but the price offered management for their
shares is high, Management will be tempted to effect the acquisition to
realize a substantial gain on their shares in the Company. Management has not
adopted any policy for resolving the foregoing potential conflicts, should
they arise, and does not intend to obtain an independent appraisal to
determine whether any price that may be offered for their shares is fair.
Stockholders must rely, instead, on the obligation of management to fulfill
its fiduciary duty under state law to act in the best interests of the Company
and its stockholders.
It is anticipated that any securities issued in any such reorganization
would be issued in reliance on exemptions from registration under applicable
federal and state securities laws. In some circumstances, however, as a
negotiated element of the transaction, the Company may agree to register such
securities either at the time the transaction is consummated, under certain
conditions, or at specified times thereafter. Although the terms of such
registration rights and the number of securities, if any, which may be
registered cannot be predicted, it may be expected that registration of
securities by the Company in these circumstances would entail substantial
expense to the Company. The issuance of substantial additional securities and
their potential sale into any trading market which may develop in the
Company's securities may have a depressive effect on such market.
While the actual terms of a transaction to which the Company may be a
party cannot be predicted, it may be expected that the parties to the business
transaction will find it desirable to structure the acquisition as a so-called
"tax-free" event under sections 351 or 368(a) of the Internal Revenue Code of
1986, (the "Code"). In order to obtain tax-free treatment under section 351
of the Code, it would be necessary for the owners of the acquired business to
own 80% or more of the voting stock of the surviving entity. In such event,
the shareholders of the Company would retain less than 20% of the issued and
outstanding shares of the surviving entity. Section 368(a)(1) of the Code
provides for tax-free treatment of certain business
4
reorganizations between corporate entities where one corporation is merged
with or acquires the securities or assets of another corporation. Generally,
the Company will be the acquiring corporation in such a business
reorganization, and the tax-free status of the transaction will not depend on
the issuance of any specific amount of the Company's voting securities. It is
not uncommon, however, that as a negotiated element of a transaction completed
in reliance on section 368, the acquiring corporation issue securities in such
an amount that the shareholders of the acquired corporation will hold 50% or
more of the voting stock of the surviving entity. Consequently, there is a
substantial possibility that the shareholders of the Company immediately prior
to the transaction would retain less than 50% of the issued and outstanding
shares of the surviving entity. Therefore, regardless of the form of the
business acquisition, it may be anticipated that stockholders immediately
prior to the transaction will experience a significant reduction in their
percentage of ownership in the Company.
Notwithstanding the fact that the Company is technically the acquiring
entity in the foregoing circumstances, generally accepted accounting
principles will ordinarily require that such transaction be accounted for as
if the Company had been acquired by the other entity owning the business and,
therefore, will not permit a write-up in the carrying value of the assets of
the other company.
The manner in which the Company participates in a business will depend on
the nature of the business, the respective needs and desires of the Company
and other parties, the management of the business, and the relative
negotiating strength of the Company
and such other management.
The Company will participate in a business only after the negotiation and
execution of appropriate written agreements. Although the terms of such
agreements cannot be predicted, generally such agreements will require
specific representations and warranties by all of the parties thereto, will
specify certain events of default, will detail the terms of closing and the
conditions which must be satisfied by each of the parties prior to such
closing, will outline the manner of bearing costs if the transaction is not
closed, will set forth remedies on default, and will include miscellaneous
other terms.
Operation of Business After Acquisition
The Company's operation following its acquisition of a business will be
dependent on the nature of the business and the interest acquired. The
Company is unable to predict whether the Company will be in control of the
business or whether present management will be in control of the Company
following the acquisition. It may be expected that the business will present
various risks, which cannot be predicted at the present time.
Governmental Regulation
It is impossible to predict the government regulation, if any, to which
the Company may be subject until it has acquired an interest in a business.
The use of assets and/or conduct of businesses that the Company may acquire
could subject it to environmental, public health and safety, land use, trade,
or other governmental regulations and state or local taxation. In selecting a
business in which to acquire an interest, management will endeavor to
ascertain, to the extent of the limited resources of the Company, the effects
of such government regulation on the prospective business of the Company. In
certain circumstances, however, such as the acquisition of an interest in a
new or start-up business activity, it may not be possible to predict with any
degree of accuracy the impact of government regulation. The inability to
ascertain the effect
5
of government regulation on a prospective business activity will make the
acquisition of an interest in such business a higher risk.
Competition
The Company will be involved in intense competition with other business
entities, many of which will have a competitive edge over the Company by
virtue of their stronger financial resources and prior experience in business.
There is no assurance that the Company will be successful in obtaining
suitable investments.
Employees
The Company is a development stage company and currently has no
employees. During the fiscal year, the officers were paid a total of $30,000
for time expended in connection with a possible business combination in 2003.
The officers accrued a total of $57,795 for time expended in connection with a
possible business combination in 2004.
Officers devote only such time to the affairs of the Company as they
deem appropriate. Management of the Company expects to use consultants,
attorneys, and accountants as necessary, and does not anticipate a need to
engage any full-time employees so long as it is seeking and evaluating
businesses. The need for employees and their availability will be addressed
in connection with a decision whether or not to acquire or participate in a
specific business industry.
ITEM 2. DESCRIPTION OF PROPERTY
The Company uses offices and related clerical services at 10 West 100
South, Suite 610, Salt Lake City, Utah 84101, provided by an officer and
director of the Company at a monthly rental rate of $200.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, and
to the best of its knowledge, no such proceedings by or against the Company
have been threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fiscal year
ended December 31, 2004.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Although quotations for the Company's common stock appear on the OTC
Bulletin Board, there is no established trading market for the common stock.
For the past two calendar years to the present, transactions in the common
stock can only be described as sporadic. Consequently, the Company is of the
opinion that any published prices cannot be attributed to a liquid and active
trading market and, therefore, are not indicative of any meaningful market
value.
6
The following table sets forth for the respective periods indicated the
prices of the Company's Common Stock in the over-the-counter market, as
reported and summarized by the OTC Bulletin Board. Such prices are based on
inter-dealer bid and asked prices, without markup, markdown, commissions, or
adjustments and may not represent actual transactions.
Calendar Quarter Ended High Bid ($) Low Bid ($)
March 31, 2003 0.0700 0.0700
June 30, 2003 0.0700 0.0700
September 30, 2003 0.0800 0.0700
December 31, 2003 0.1500 0.0800
March 31, 2004 0.3000 0.1500
June 30, 2004 0.2500 0.2400
September 30, 2004 0.2900 0.2000
December 31, 2004 0.2900 0.2100
As of April 11, 2005, the closing bid price for the Company's common
stock was $0.20. There are outstanding options to purchase 600,000 shares of
common stock at an exercise price of $0.1875, which expire in March 2009.
There is an outstanding warrant to purchase 50,000 shares of the Company's
common stock at an exercise price of $0.1875, which expires in March 2009.
All shares of common stock outstanding may be sold without restriction under
Rule 144(k) promulgated under the Securities Act of 1933, except 403,360
shares, which are held by officers and directors ("Control Shares"). Control
Shares may be sold subject to complying with all of the terms and conditions
of Rule 144, except the one-year holding period, which has been satisfied.
Since its inception, no dividends have been paid on the Company's common
stock. The Company intends to retain any earnings for use in its business
activities, so it is not expected that any dividends on the common stock will
be declared and paid in the foreseeable future.
At April 11, 2005, there were approximately 97 holders of record of the
Company's Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING INFORMATION AND CAUTIONARY STATEMENTS
When used in this report on Form 10-KSB, the words "may," "will,"
"expect," "anticipate," "continue," "estimate," "project," "intend," and
similar expressions are intended to identify forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934 regarding events, conditions, and
financial trends that may affect the Company's future plans of operations,
business strategy, operating results, and financial position. Persons
reviewing this report are cautioned that any forward-looking statements are
not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from those
included within the forward-looking statements as a result of various factors.
Such factors are discussed under the headings "Item 1. Description of
Business," and "Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations," and also include general economic
factors and conditions that may directly or indirectly impact the Company's
financial condition or results of operations.
7
PLAN OF OPERATION
The Company had no revenue from continuing operations for the years ended
December 31, 2004 and 2003. The Company's plan is to seek a business venture
in which to participate. The selection of a business opportunity in which to
participate is complex and extremely risky and will be made by management in
the exercise of its business judgment. There is no assurance that the Company
will be able to identify and acquire any business opportunity that will
ultimately prove to be beneficial to the Company and its shareholders.
The Company anticipates that businesses for possible acquisition will be
referred by various sources, including its officers and directors,
professional advisors, securities broker-dealers, venture capitalists, members
of the financial community, and others who may present unsolicited proposals.
The Company will not engage in any general solicitation or advertising for a
business opportunity, and will rely on personal contacts of its officers and
directors and their affiliates, as well as indirect associations between them
and other business and professional people. By relying on "word of mouth", the
Company may be limited in the number of potential acquisitions it can
identify. While it is not presently anticipated that the Company will engage
unaffiliated professional firms specializing in business acquisitions or
reorganizations, such firms may be retained if management deems it in the best
interest of the Company.
Compensation to a finder or business acquisition firm may take various
forms, including one-time cash payments, payments based on a percentage of
revenues or product sales volume, payments involving issuance of securities
(including those of the Company), or any combination of these or other
compensation arrangements. Consequently, the Company is currently unable to
predict the cost of utilizing such services.
The activities of the Company are subject to several significant risks
that arise primarily as a result of the fact that the Company has no specific
business and may acquire or participate in a business opportunity based on the
decision of management which will, in all probability, act without the
consent, vote, or approval of the Company's shareholders. A description of
the manner in which the Company will pursue the search for and participation
in a business venture is described under "Item 1. Business," above.
Although the Company has no operations, it does incur expenses in
connection with complying with reporting requirements under the Securities
Exchange Act of 1934. General and administrative expenses for the years ended
December 31, 2004 and 2003, consisted of general corporate administration,
officer compensation, legal and professional expenses, and accounting and
auditing costs. In the last quarter of 2003, and the entirety of 2004, the
Company incurred significant legal, accounting and other expenses in
connection with the proposed business combination with Town House. Total
general and administrative expenses were $94,101, and $41,415 for 2004 and
2003, respectively. The increase in expenses in 2004 was due to expenses
incurred relating to the proposed transaction between the Company and Town
House which has been terminated. (See Item 1. Description of Business).
The Company had no interest expense in 2004 or 2003. Interest income
resulted from the investment of funds in short-term, liquid cash equivalents.
Interest income was $350 in 2004 and $1,326 in 2003.
As a result of the foregoing factors, the Company realized a net loss of
$91,593 in 2004, as compared to a net loss of $40,089 in 2003.
8
At December 31, 2004, the Company had working capital of $30,004.
Working capital consisted of cash and cash equivalents less current
liabilities. Management believes that the Company has sufficient cash and
short-term investments to meet the anticipated needs of the Company's
operations through at least the next 12 months. However, there can be no
assurances to that effect, as the Company has no significant revenues and the
Company's need for capital may change dramatically if it acquires an interest
in a business opportunity during that period. The Company's current operating
plan is to handle the administrative and reporting requirements of a public
company and search for potential businesses, products, technologies and
companies for acquisition. At present, the Company has no understandings,
commitments or agreements with respect to the acquisition of any business
venture, and there can be no assurance that the Company will identify a
business venture suitable for acquisition in the future. Further, there can be
no assurance that the Company would be successful in consummating any
acquisition on favorable terms, if at all, or that it will be able to
profitably manage the business venture it acquires.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by this Item 7 begin on Page 18 with
the Index to the Financial Statements and are located following the signature
page. All information that has been omitted is either inapplicable or not
required.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There are no reportable changes in or disagreements with accountants.
ITEM 8A. CONTROLS AND PROCEDURES
With the participation of management, the Company's chief executive
officer and chief financial officer evaluated the Company's disclosure
controls and procedures on December 31, 2004. Based on this evaluation, the
chief executive officer and the chief financial officer concluded that the
disclosure controls and procedures are effective in connection with the
Company's filing of its annual report on Form 10-KSB for the year ended
December 31, 2004.
During the fourth quarter of the year ended December 31, 2004, there were
no significant changes in the Company's internal controls or in other factors
that could significantly affect these controls, and no significant
deficiencies or material weaknesses of internal controls that would require
corrective action were identified during that period.
9
ITEM 8B. OTHER INFORMATION
During the fiscal year ended December 31, 2004, the Company filed no
reports on Form 8-K. However, on February 14, 2005, the Company filed a
Current Report on Form 8-K, reporting the termination of the Exchange
Agreement among the Company, Town House, and the shareholders of Town House.
(See Item 1. Description of Business).
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND OFFICERS
Current Management of the Company
The following table sets forth the names, ages, and positions with the
Company for each of the directors and officers of the Company.
Name Age Positions* Since
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Richard B. Stuart 71 President and Director 1986
Jack M. Gertino 66 Secretary, Treasurer and Director 1986
* In August, 2003, Philip C. Gugel, Vice President and a director, passed
away. Mr. Gugel has not been replaced.
All executive officers are elected by the Board and hold office until the
next Annual Meeting of stockholders or until their successors are duly elected
and qualified.
The following is information on the business experience of each director
and officer.
Richard B. Stuart earned his BA at New York University in 1955 and
masters and doctoral degrees at Columbia University in 1960 and 1965,
respectively. He currently holds the following positions: President,
Behavior Change Systems (Ann Arbor, MI), a firm offering business consulting
and program development services; Program Director, Respecialization in
Clinical Psychology, The Fielding Graduate Institute (Santa Barbara, CA);
Clinical Professor Emeritus, Department of Psychiatry, University of
Washington (Seattle, WA). Dr. Stuart also provides psychological services
through a private practice in Seattle, WA. From 1972 to 1983, he was
Psychological Director of Weight Watchers International and President of its
subsidiary, One-To-One Weight Control Clinics. Dr. Stuart has also been a
consultant to companies involved in businesses ranging from wholesale
groceries to auto parts production and human services. Dr. Stuart was an
officer and director of Domino Investments (Salt Lake City, UT).
Jack M. Gertino has been a private investor and business consultant in
Salt Lake City, Utah, for the past ten years. For the past ten years, he has
also been engaged in the private development of, and investment in, commercial
and residential real estate in Utah, Arizona and New Mexico. He currently
provides consulting services for financial institutions. Mr. Gertino has been
involved in private and public financings over the past twenty years. From
February 1992 to the present, he has served as a director of Red Horse
Entertainment Corporation, a publicly held shell corporation seeking a
business acquisition.
Audit Committee Financial Expert
Because we have had minimal operations, we do not have an audit committee
serving at this time. Accordingly, we do not have an audit committee
financial expert serving on an audit committee or any other committee of the
Board.
10
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and persons who own more than ten percent of a
registered class of our equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of our common stock. The Company believes all forms required to be
filed under Section 16 of the Exchange Act have been filed timely.
Code of Ethics
Due to the fact that we have minimal operations, we have not adopted a
code of ethics for our principal executive and financial officers. Our
management intends to promote honest and ethical conduct, full and fair
disclosure in our reports to the SEC, and compliance with applicable
governmental laws and regulations.
Other Shell Company Activities
Mr. Gertino is currently a director of Red Horse Entertainment
Corporation, a publicly held shell corporations seeking a business
acquisition. The possibility exists that one or more of the officers and
directors of the Company could become officers and/or directors of other shell
companies in the future, although they have no intention of doing so at the
present time. Certain conflicts of interest are inherent in the participation
of the Company's officers and directors as management in other shell
companies, which may be difficult, if not impossible, to resolve in all cases
in the best interests of the Company. Failure by management to conduct the
Company's business in its best interests may result in liability of management
of the Company to the shareholders.
ITEM 10. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following sets forth the compensation of Comet's executive officers
for the three fiscal years ended December 31, 2004.
------------------------------------------------------------------------------
Fiscal
Name and Year
Principal Ended All Other ($)
Position December 31 Salary($) Bonus($) Options(#) Compensation
-------------------- ------------- --------- -------- ---------- ------------
Richard B. Stuart 2004 0 0 0 (4) 19,265 (1)
President and Chief 2003 0 0 0 10,000 (2)
Executive Officer 2002 0 0 0 5,000 (3)
-------------------- ------------- --------- -------- ---------- ------------
Jack M. Gertino
Secretary/Treasurer 2004 0 0 0 (4) 38,530 (1)
and Chief Financial 2003 0 0 0 20,000 (2)
Officer 2002 0 0 0 10,000 (3)
------------------------------------------------------------------------------
(1) The Company recorded compensation expense for Richard B. Stuart and Jack
M. Gertino, computed on an hourly basis, in the amounts indicated, for their
efforts in reviewing the business opportunity with Town House for a possible
business combination during the fiscal year 2004, participating in meetings
and conference calls in connection with such opportunity, assisting in the
negotiation and preparation of agreements and in the preparation of disclosure
documents, and undertaking related activities.
11
(2) The Company recorded compensation expense for Richard B. Stuart and Jack
M. Gertino, computed on an hourly basis, in the amounts indicated, for their
efforts in reviewing the business opportunity with Town House for a possible
business combination during the fiscal year 2003, participating in meetings
and conference calls in connection with such opportunity, and undertaking
related activities.
(3) The Company recorded compensation expense for Richard B. Stuart and Jack
M. Gertino, computed on an hourly basis, in the amounts indicated, for their
efforts in reviewing a specific business opportunity for a possible business
combination during the fiscal year, participating in meetings and conference
calls in connection with such opportunity, and undertaking related activities.
This possible transaction was terminated in October, 2002.
(4) On March 11, 1999, the Company granted to Richard B. Stuart, Phillip C.
Gugel and Jack M. Gertino options to purchase 200,000 shares of common stock
each at an exercise price of $0.1875, which was the average of the bid and
asked prices for the common stock on that date. The options are vested and
expire in March 2009. The options were issued to compensate these persons for
their services to the Company over the past 13 years, for which they had
received no other compensation. The options of Mr. Gugel have now passed on
to his estate.
The Company has no agreement or understanding, express or implied, with
any officer, director, or principal stockholder, or their affiliates or
associates, regarding employment with the Company or compensation for
services. The Company has no plan, agreement, or understanding, express or
implied, with any officer, director, or principal stockholder, or their
affiliates or associates, regarding the issuance to such persons of any shares
of the Company's authorized and unissued common stock. There is no
understanding between the Company and any of its present stockholders
regarding the sale of a portion or all of the common stock currently held by
them in connection with any future participation by the Company in a business.
There are no other plans, understandings, or arrangements whereby any of
the Company's officers, directors, or principal stockholders, or any of their
affiliates or associates, would receive funds, stock, or other assets in
connection with the Company's participation in a business. No advances have
been made or contemplated by the Company to any of its officers, directors, or
principal stockholders, or any of their affiliates or associates.
There is no policy that prevents management from adopting a plan or
agreement in the future that would provide for cash or stock based
compensation for services rendered to the Company.
On acquisition of a business, it is possible that current management will
resign and be replaced by persons associated with the business acquired,
particularly if the Company participates in a business by effecting a stock
exchange, merger, or consolidation. In the event that any member of current
management remains after effecting a business acquisition, that member's time
commitment and compensation will likely be adjusted based on the nature and
location of such business and the services required, which cannot now be
foreseen.
12
The following table sets forth certain information with respect to
unexercised options held by the executive officers as of December 31, 2004.
Number of Securities Value of Unexercised
Name and Principal Underlying Unexercised Options In-the-Money Options at
Position at December 31, 2004(#) December 31, 2004($)(1)
-------------------- ------------------------------ -------------------------
Exerciseable/Unexerciseable Exerciseable/Unexerciseable
--------------------------- --------------------------
Richard B. Stuart
President 200,000/ -0- -0-/-0-
Philip C. Gugel (2)
Vice President 200,000/ -0- -0-/-0-
Jack M. Gertino
Secretary and Treasurer 200,000/ -0- -0-/-0-
(1) This value is determined on the basis of the difference between the
average of the high bid and asked prices on December 31, 2004, of the
securities underlying the options, and the exercise price.
(2) Mr. Gugel passed away in 2003; however, his options are held in trust by
his estate.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth as of April 11, 2005, the number and
percentage of the 3,598,000 outstanding shares of common stock which,
according to the information supplied to the Company, were beneficially owned
by (i) each person who is currently a director of the Company, (ii) each
executive officer, (iii) all current directors and executive officers of the
Company as a group and (iv) each person who, to the knowledge of the Company,
is the beneficial owner of more than 5% of the outstanding common stock.
Except as otherwise indicated, the persons named in the table have sole voting
and dispositive power with respect to all shares beneficially owned, subject
to community property laws where applicable.
13
Percent of
Name and Address Common Shares Options (1) Class
---------------------------------- ------------- ---------- -----------
Richard B. Stuart (2)(4)
PO Box 236
Edmonds, Washington 98020 207,680(2) 200,000 10.73(3)
Estate of Philip C. Gugel (5)
10 West 100 South, Suite 610
Salt Lake City, Utah 84101 0 200,000 5.27(3)
Jack M. Gertino (4)
10 West 100 South, Suite 610
Salt Lake City, Utah 84101 195,680 200,000 10.42(3)
The Harker Group Limited Partnership
1717 Monte Carlo Drive
Salt Lake City, UT 84121 415,550 0 11.55
All Executive Officers and
Directors as a Group (2 persons) 403,360 400,000 20.09(3)
(1) These figures represent options that are vested or will vest within 10
years from the date as of which information is presented in the table.
(2) This ownership is held of record by Pershing, LLC ("Pershing"), a limited
liability company of which Richard B. Stuart is the owner. Pershing has
recently effected transfer of the shares back to Dr. Stuart.
(3) These figures represent the percentage of ownership of the named
individuals assuming each of them alone has exercised his or her options, and
percentage ownership of all officers and directors of a group assuming all
such purchase rights held by such individuals are exercised.
(4) Messrs. Stuart and Gertino are officers and directors of the Company.
(5) Options held by the estate of Philip Gugel, who passed away in 2003.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no proposed transactions and no transactions during the past
two years to which the Company was a party and in which any officer, director,
or principal shareholder, or their affiliates or associates, was also a party.
A shareholder of the Company, James C. Lewis, has provided legal services
in connection with the Town House transaction, and will be compensated at his
normal rates for such services.
ITEM 13. EXHIBITS
(a) Exhibits. Copies of the following documents are included as
exhibits to this report pursuant to Item 601 of Regulation S-B.
3.1 Articles of Incorporation, as amended (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form 10-SB,
as filed with the Securities and Exchange Commission on May 13,
1999).
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form 10-SB, as filed with
the Securities and Exchange Commission on May 13, 1999).
10.1 Option granted to Richard B. Stuart dated March 11, 1999
(incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form 10-SB, as filed with the Securities
and Exchange Commission on May 13, 1999).
10.2 Option granted to Philip C. Gugel dated March 11, 1999
(incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form 10-SB, as filed with the Securities
and Exchange Commission on May 13, 1999).
10.3 Option granted to Jack M. Gertino dated March 11, 1999
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form 10-SB, as filed with the Securities
and Exchange Commission on May 13, 1999).
10.4 Warrant granted to Mark E. Lehman dated March 11, 1999
(incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form 10-SB, as filed with the Securities
and Exchange Commission on May 13, 1999).
31.1* Certification of Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Principal Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1* Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Filed as exhibits to this annual report on Form 10-KSB.
15
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees billed by our principal accounting firm, for fees
billed for fiscal years ended December 31, 2004 and 2003 are as follows:
Audit Fee
---------
The aggregate fees billed for each of the last two fiscal years for
professional services rendered by HJ & Associates, LLC, the Company's
principal accountant, for the audit of the Company's annual financial
statement and review of financial statements included in the Company's 10-QSB
reports and services normally provided by the accountant in connection with
statutory and regulatory filings or engagements were $3,410 for fiscal year
2004 and $3,663 for fiscal year 2003.
Audit-Related Fees
------------------
The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are reasonably
related to the performance of the audit or review of the Company's financial
statements that are not reported above were $0 for fiscal year ended 2004 and
$0 for fiscal year ended 2003.
Tax Fees
--------
The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax compliance,
tax advice, and tax planning were $0 for fiscal year 2004 and $0 for fiscal
year 2003.
All Other Fees
--------------
The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than the
services reported above were $0 for fiscal year 2004 and $0 for fiscal year
ended 2003.
The Company does not currently have an audit committee. As a result our
board of directors performs the duties of an audit committee. The Company's
board of directors will evaluate and approve in advance, the scope and cost of
the engagement of an auditor before the auditor renders audit and non-audit
services. We do not rely on pre-approval policies and procedures.
16
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
COMET TECHNOLOGIES, INC.
Date: April 12, 2005 By: /s/ Richard B. Stuart
-------------------------------------
Richard B. Stuart, President and CEO
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: April 12, 2005 /s/ Richard B. Stuart
--------------------------------------
Richard B. Stuart
President, CEO and Director
(Principal Executive Officer)
Date: April 12, 2005 /s/ Jack M. Gertino
----------------------------------------
Jack M. Gertino
Secretary, CFO and Director
(Principal Accounting Officer)
17
CONTENTS
Report of Independent Registered Public Accounting Firm....................19
Balance Sheet..............................................................20
Statements of Operations...................................................21
Statements of Stockholders' Equity.........................................22
Statements of Cash Flows...................................................24
Notes to the Financial Statements..........................................25
18
Report of Independent Registered Public Accounting Firm
Board of Directors
Comet Technologies, Inc.
(A Development Stage Company)
Salt Lake City, Utah
We have audited the accompanying balance sheet of Comet Technologies, Inc. (a
development stage company) as of December 31, 2004 and the related statements
of operations, stockholders' equity, and cash flows for the years ended
December 31, 2004 and 2003 and from inception on February 7, 1986 through
December 31, 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Comet Technologies, Inc. (a
development stage company) as of December 31, 2004, and the results of its
operations and its cash flows for the years ended December 31, 2004 and 2003
and from inception on February 7, 1986 through December 31, 2004, in
conformity with U.S. generally accepted accounting principles.
/s/ HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
March 28, 2005
19
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Balance Sheet
ASSETS
------
December 31,
2004
-------------
CURRENT ASSETS
Cash and cash equivalents $ 90,864
-------------
Total Current Assets 90,864
-------------
TOTAL ASSETS $ 90,864
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Account payable $ 3,065
Payable - related parties 57,795
-------------
Total Current Liabilities 60,860
-------------
TOTAL LIABILITIES 60,860
-------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 5,000,000
shares authorized; none issued or outstanding -
Common stock, $0.001 par value, 20,000,000
shares authorized; 3,598,000 issued and
outstanding 3,598
Capital in excess of par value 238,561
Deficit accumulated during the development stage (212,155)
-------------
Total Stockholders' Equity 30,004
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 90,864
=============
The accompanying notes are an integral part of these financial statements.
20
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Operations
From
Inception on
February 7,
For the Years Ended 1986 through
December 31, December 31,
2004 2003 2004
------------- ------------- -------------
REVENUES $ - $ - $ -
------------- ------------- -------------
EXPENSES
General and administrative 94,101 41,415 360,617
------------- ------------- -------------
Total Expenses 94,101 41,415 360,617
------------- ------------- -------------
LOSS FROM OPERATIONS (94,101) (41,415) (360,617)
------------- ------------- -------------
OTHER INCOME
Dividend income - - 5,493
Interest income 350 1,326 147,461
Reimbursement of fees 2,158 - 2,158
Unrealized loss from
marketable securities - - (6,650)
------------- ------------- -------------
Total Other Income 2,508 1,326 148,462
------------- ------------- -------------
NET LOSS $ (91,593) $ (40,089) $ (212,155)
============= ============= =============
BASIC LOSS PER SHARE $ (0.03) $ (0.01)
============= =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 3,598,000 3,598,000
============= =============
The accompanying notes are an integral part of these financial statements.
21
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
From Inception on February 7, 1986 through December 31, 2004
Deficit
Accumulated
Common Stock Capital in During
------------------------- Excess of Development
Shares Amount Par Value Stage
------------- ----------- ----------- -------------
Balance at Inception on
February 7, 1986 - $ - $ - $ -
Issuance of 1,098,000
shares of common stock
to officers, directors
and other individuals
for $0.023 per share on
February 7, 1986 1,098,000 1,098 23,902 -
Public offering of the
Company's common stock
(Note 2) 2,500,000 2,500 247,500 -
Deferred offering costs
offset against capital
in excess of par value - - (32,841) -
Net loss from inception on
February 7, 1986 through
December 31, 1997 - - - (41,568)
------------- ----------- ----------- -------------
Balance, December 31, 1997 3,598,000 3,598 238,561 (41,568)
Net loss for the year
ended December 31, 1998 - - - (1,761)
------------- ----------- ----------- -------------
Balance, December 31, 1998 3,598,000 3,598 238,561 (43,329)
Net income for the year
ended December 31, 1999 - - - 145
------------- ----------- ----------- -------------
Balance, December 31, 1999 3,598,000 3,598 238,561 (43,184)
Net loss for the year
ended December 31, 2000 - - - (1,803)
------------- ----------- ----------- -------------
Balance, December 31, 2000 3,598,000 3,598 238,561 (44,987)
Net loss for the year
ended December 31, 2001 - - - (7,412)
------------- ----------- ----------- -------------
Balance, December 31, 2001 3,598,000 3,598 238,561 (52,399)
Net loss for the year
ended December 31, 2002 - - - (28,074)
------------- ----------- ----------- -------------
Balance, December 31, 2002 3,598,000 $ 3,598 $ 238,561 $ (80,473)
------------- ----------- ----------- -------------
The accompanying notes are an integral part of these financial statements.
22
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (continued)
From Inception on February 7, 1986 through December 31, 2004
Deficit
Accumulated
Common Stock Capital in During
------------------------- Excess of Development
Shares Amount Par Value Stage
------------- ----------- ----------- -------------
Balance, December 31, 2002 3,598,000 $ 3,598 $ 238,561 $ (80,473)
Net loss for the year ended
December 31, 2003 - - - (40,089)
------------- ----------- ----------- -------------
Balance, December 31, 2003 3,598,000 3,598 238,561 (120,562)
Net loss for the year ended
December 31, 2004 - - - (91,593)
------------- ----------- ----------- -------------
Balance, December 31, 2004 3,598,000 $ 3,598 $ 238,561 $ (212,155)
============= =========== =========== =============
The accompanying notes are an integral part of these financial statements.
23
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Cash Flows
From
Inception on
For the Years Ended February 7,
December 31, 1986 through
--------------------------- December 31,
2004 2003 2004
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from operations $ (91,593) $ (40,089) $ (212,155)
Adjustments to reconcile net income
(loss) to net cash (used) provided
by operating activities:
Amortization - - 301
Change in operating assets and liabilities:
Increase in taxes payable - - 300
Increase (decrease) in accounts payable 30,860 15,000 60,559
------------- ------------- -------------
Net Cash (Used) by Operating Activities (60,733) (25,089) (150,995)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES - - -
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Organizational costs - - (300)
Net stock offering proceeds - - 242,159
------------- ------------- -------------
Net Cash Provided by Financing Activities - - 241,859
------------- ------------- -------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (60,733) (25,089) 90,864
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 151,597 176,686 -
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 90,864 $ 151,597 $ 90,864
============= ============= =============
CASH PAID FOR:
Taxes $ - $ - $ -
Interest $ - $ - $ -
The accompanying notes are an integral part of these financial statements.
24
COMET TECHNOLOGIES, INC.
A Development Stage Company)
Notes to the Financial Statements
December 31, 2004 and 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The financial statements presented are those of Comet Technologies, Inc. (the
Company). The Company was incorporated in the State of Nevada on February 7,
1986. The Company was incorporated for the purpose of providing a vehicle
which could be used to raise capital and seek business opportunities believed
to hold a potential for profit. The Company has not presently identified a
specific business area or direction that it will follow. Therefore, no
principal operations have yet begun.
b. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has adopted a calendar year end.
c. Basic Loss Per Share
The computation of basic loss per share of common stock is based on the
weighted average number of shares issued and outstanding during the period of
the financial statements as follows:
December 31,
---------------------------
2004 2003
------------- -------------
Numerator - loss $ (91,593) $ (40,089)
Denominator - weighted average number of
shares outstanding 3,598,000 3,598,000
------------- -------------
Loss per share $ (0.03) $ (0.01)
============= =============
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
e. Provision for Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax assets are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
25
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2004 and 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Provision for Taxes (Continued)
Net deferred tax assets consist of the following components as of December 31,
2004 and 2003:
2004 2003
------------- -------------
Deferred tax assets:
NOL Carryover $ 51,860 $ 26,142
Accrued Expenses 23,735 -
------------- -------------
Deferred tax liabilities: - -
Valuation allowance (75,595) (26,142)
------------- -------------
Net deferred tax asset $ - $ -
============= =============
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal and state income tax rates of 39% to pretax income
from continuing operations for the years ended December 31, 2003 and 2002 due
to the following:
2004 2003
------------- --------------
Book income $ (35,720) $ (9,785)
Meals & Entertainment - -
Other (39) (39)
Accrued Compensation - 5,850
Valuation allowance 35,759 3,974
------------- --------------
$ - $ -
============= ==============
At December 31, 2004, the Company had net operating loss carryforwards of
approximately $130,000 that may be offset against future taxable income from
the year 2004 through 2024. No tax benefit has been reported in the December
31, 2004 consolidated financial statements since the potential tax benefit is
offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net
operating loss carryforwards may be limited as to use in future years.
26
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2004 and 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period.
NOTE 2 - PUBLIC OFFERING OF UNITS
In July of 1986, the Company completed a public offering of 2,500,000 shares
of its previously authorized but unissued common stock to the public. An
offering price of $0.10 per share was arbitrarily determined by the Company.
Offering costs totaled $32,841 and were offset against capital in excess of
par value. The net proceeds to the Company from the offering were $217,159,
which equals $250,000 minus offering costs of $32,841.
NOTE 3 - PREFERRED STOCK
None of the Company's authorized 5,000,000 shares of preferred stock is issued
and outstanding and the Company currently has no plans to issue any preferred
stock. The Company's board of directors has authority, without action by the
shareholders, to issue all or any portion of the authorized but unissued
preferred stock in one or more series and to determine the voting rights,
preferences as to dividends and liquidation, conversion rights and other
rights of such series. The preferred stock, if and when issued, may carry
rights superior to those of the common stock.
NOTE 4 - NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the year ended December 31, 2004, the Company adopted the following
accounting pronouncements which had no impact on the financial statements or
results of operations:
. SFAS No. 123(R), Share Based Payment-an amendment to SFAS No. 123,
Accounting for Stock-Based Compensation;
. SFAS No. 151, Inventory Costs-an amendment of ARB No. 43, Chapter 4;
. SFAS No. 152, Accounting for Real Estate Time-Sharing Transactions-an
amendment of FASB Statements No. 66 and 67; and
. SFAS No. 153, Exchanges of Nonmonetary Assets-an amendment of APB
Opinion No. 29.
27
COMET TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2004 and 2003
NOTE 5 - SUBSEQUENT EVENT
On January 19, 2003 the Company entered into a Stock Exchange Agreement ("the
Agreement") by and among the Company, Town House Land Limited, a company
organized in Hong Kong Special Administrative Region in The People's Republic
of China ("Town House"); and the shareholders of Town House (the "Town House
Shareholders"). Town House owns all of the registered capital of Wuhan
Pacific Industry Development Company Limited ("Wuhan"), a wholly-owned foreign
enterprise organized in Hubei Province in The People's Republic of China
("PRC").
On or about February 9, 2005, the Company sent notification to Town House of
its decision to terminate the Agreement between the Company, Town House and
the shareholders of Town House. As a result of this decision, the reverse
acquisition contemplated by the Agreement will not occur. Management will now
begin efforts to locate a suitable acquisition or merger candidate for the
Company.
The decision to terminate the Agreement, and the reverse acquisition and
related transactions contemplated by the Agreement, was a result of the
determination by the board of directors that Town House had recently
undertaken actions and business efforts which were a material deviation from
the business of Town House as described in the Company's preliminary
information statement under Schedule 14C filed with the U.S. Securities and
Exchange Commission. The board of directors concluded that this change would
require an amendment to the Company's 14C Information Statement and would
cause substantial additional delays and costs to the Company. Moreover, the
board of directors concluded that the change in the business of Town House was
contrary to the best interests of the Company and its shareholders.
28