SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amended Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2003
Commission file number 000-25499
NETWORK INSTALLATION CORPORATION
--------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 88-0390360
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State or other jurisdiction of (IRS Employer
Incorporation or organization Identification Number)
18 Technology Dr., Suite 140A
Irvine, CA 92618
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(Address of principal executive offices) (Zip Code)
(949) 753-7551
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of November 1, 2003, the Issuer had outstanding 12,616,330 shares of its
common stock, $0.001 par value.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES [ ] NO [X]
PART I - FINANCIAL INFORMATION
NETWORK INSTALLATION CORP.
(FORMERLY, FLEXXTECH CORPORATION)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2003
(UNAUDITED)
(RESTATED)
ASSETS
Current Asset:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 667
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 337,763
Notes receivable - related parties. . . . . . . . . . . . . . . . . . . 79,214
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . 2,289
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419,933
------------
Property and Equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,739
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TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 427,672
============
LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . $ 1,361,852
Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,730
Loans payable related parties . . . . . . . . . . . . . . . . . . . . . 47,500
Due to factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,929
Convertible debt - current. . . . . . . . . . . . . . . . . . . . . . . 663,860
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,340,871
------------
Long-term Liabilities:
Convertible debt net of debenture cost. . . . . . . . . . . . . . . . . 378,000
STOCKHOLDERS' DEFICIT
Common stock, authorized 100,000,000 shares at $.001 par
value, issued and outstanding 12,616,330 shares. . . . . . . . . . . . . 12,616
Additional paid in capital. . . . . . . . . . . . . . . . . . . . . . . . . . 2,252,587
Shares to be issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,900
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,573,302)
------------
Total Stockholders' Deficit . . . . . . . . . . . . . . . . . . . . . . . (2,291,199)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT. . . . . . . . . . . . . . . . . . . . . . $ 427,672
============
The accompanying notes are an integral part of these consolidated financial statements
NETWORK INSTALLATION CORP.
(FORMERLY, FLEXXTECH CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(RESTATED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
-------------------- ---------- ------------------- -----------
NET REVENUE. . . . . . . . . . . . . . . . . . . . . . $ 444,736 $ 760,450 $ 1,199,680 $ 813,543
COST OF REVENUE. . . . . . . . . . . . . . . . . . . . 358,131 439,631 916,244 479,617
-------------------- ---------- ------------------- -----------
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . 86,605 320,819 283,436 333,926
OPERATING EXPENSES . . . . . . . . . . . . . . . . . . 1,332,236 276,371 1,823,409 393,643
-------------------- ---------- ------------------- -----------
LOSS FROM OPERATIONS . . . . . . . . . . . . . . . . . (1,245,631) 44,448 (1,539,973) (59,717)
Other income (expense)
Loss on conversion of debenture. . . . . . . . . . (59,740) - (59,740) -
Interest expense . . . . . . . . . . . . . . . . . (1,214,793) (660) (1,216,981) (3,688)
-------------------- ---------- ------------------- -----------
Total other income (expense). . . . . . . . (1,274,533) (660) (1,276,721) (3,688)
-------------------- ---------- ------------------- -----------
LOSS BEFORE INCOME TAXES. . . . . . . . . . . . . . . (2,520,164) 43,788 (2,816,694) (63,405)
Provision of Income tax. . . . . . . . . . . . . . . . - - 800 800
-------------------- ---------- ------------------- -----------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . $ (2,520,164) $ 43,788 $ (2,817,494) $ (64,205)
==================== ========== =================== ===========
Basic and diluted loss per share . . . . . . . . . . . $ (0.23) $ 0.01 $ (0.30) $ (0.01)
==================== ========== =================== ===========
Basic and diluted weighted average shares outstanding. 11,127,512 7,382,000 9,320,787 7,382,000
==================== ========== =================== ===========
* The basic and diluted net loss per share has been restated to retroactively effect a 200:1 reverse stock split at
January 23, 2003
Weighted average number of shares used to compute basic and diluted loss per share is the same since
since the effect of dilutive securities is anti-dilutive.
The accompanying notes are an integral part of these consolidated financial statements
NETWORK INSTALLATION CORP.
(FORMERLY, FLEXXTECH CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
(RESTATED)
2,003 2,002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,817,494) (64,205)
Adjustments to reconcile net loss to cash provided by (used in)
operating activities
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . 2,523 1,679
Issuance of stocks for consulting services, compensation & interest . . . . . . . 2,089,250 -
Options granted for compensation. . . . . . . . . . . . . . . . . . . . . . . . . 6,987 -
Loss on settlement of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,740 -
(Increase) / decrease in current assets
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (337,763) (63,829)
Deposits & other current assets. . . . . . . . . . . . . . . . . . . . . . (969) (8,895)
Increase /(decrease) in current liabilities
Accrued expenses & accounts payable . . . . . . . . . . . . . . . . . . . . 537,229 48,467
----------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES FROM CONTINUED OPERATIONS. . . . . . . . . . . . . . . . . (460,497) (86,783)
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CASH FLOWS FROM INVESTING ACTIVITIES
Cash received in acquisition of subsidiary . . . . . . . . . . . . . . . . . 667 -
----------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES. . . . . . . . . . . . . . . . . . 667 -
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from factor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,929 -
Proceeds from notes receivable. . . . . . . . . . . . . . . . . . . . . . . . - 73,206
Proceeds from borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 336,150 -
Payments of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (98,901) -
----------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . 443,178 73,206
----------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . (16,652) (13,577)
CASH AND CASH EQUIVALENTS -BEGINNING. . . . . . . . . . . . . . . . . . . . . . . . . . 17,319 13,577
----------- --------
CASH AND CASH EQUIVALENTS -ENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . 667 -
=========== ========
The accompanying notes are an integral part of these consolidated financial statements
NETWORK INSTALLATION CORP. & SUBSIDIARY
(Formerly, Flexxtech Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(RESTATED)
1. BASIS OF PREPARATION:
The accompanying unaudited condensed interim financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for the presentation of interim financial information, but
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. The audited financial
statements for the two years ended December 31, 2002 and 2001 were filed on
April 23, 2003 with the Securities and Exchange Commission and is hereby
referenced. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Operating results for the nine-month
periods ended September 30, 2003 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2003.
RECAPITALIZATION
On May 23, 2003, Flexxtech Corporation (Flex) and Network Installation
Corporation (NIC) closed a purchase agreement whereby Flex acquired 100% of the
issued and outstanding common stock of Network Installation Corporation (NIC).
The purchase price consisted of $50,000 cash, 7,382,000 shares of the Company's
common stock and five year option to purchase an additional 618,000 shares of
the Company stock if NIC's total revenue exceeds $450,000 for the period
beginning on June 1, 2003 and ending August 31, 2003. The option is exercisable
at a price equal to the closing bid price of the stock on August 31, 2003.
Pursuant to the terms of the share exchange agreement, control of the combined
companies passed to the former shareholders of NIC. This type of share exchange
has been treated as a capital transaction accompanied by recapitalization of NIC
in substance, rather than a business combination, and is deemed a "reverse
acquisition" for accounting purposes since the former owners of NIC controlled
majority of the total common shares outstanding immediately following the
acquisition. No pro forma financial statements are being presented as Flex had
no significant operations or asset prior to the acquisition.
All significant intercompany accounts and transactions have been eliminated in
consolidation. The historical results for the period ended September 30, 2003
include the accounts of Flex (from the acquisition date) and Network
Installation Corporation for the nine month period ended September 30, 2003,
while the historical results for the periods ended September 30, 2002 include
only Network Installation Corporation.
BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS No. 128), "Earnings per share". SFAS No. 128
superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per
share for all periods presented has been restated to reflect the adoption of
SFAS No. 128. Basic net loss per share is based upon the weighted average number
of common shares outstanding. Diluted net loss per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
DESCRIPTION OF BUSINESS
Flex was organized on March 24, 1998, under the laws of the State of Nevada, as
Color Strategies. On December 20, 1999, Flex changed its name to Infinite
Technology Corporation. Flex changed its name to Flexxtech Corporation in April
2000.
A certificate of amendment was filed on July 10, 2003 to change the Company's
name from Flexxtech Corporation to Network Installation Corp.
NIC was incorporated on July 18, 1997, under the laws of the State of
California. The Company is a full service computer cabling, networking and
telecommunications integrator contractor, providing networks from stem to stem
in house. The Company participated in the worldwide network infrastructure
market to end users, structured cabling market and the telephony services.
REVENUE RECOGNITION
The Company's revenue recognition policies are in compliance with all applicable
accounting regulations, including American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 81-1, Accounting for Performance
of Construction-Type and Certain Production-Type Contracts. Revenues from
installations, cabling and networking contacts are recognized when the contracts
are completed (Completed-Contract Method). The completed-contract method is used
because the contracts are short-term in duration or the Company is unable to
make reasonably dependable estimates of the costs of the contracts.
Under the Completed-Contract Method, revenues and expenses are recognized when
services have been performed and the projects have been completed. For projects,
which have been completed but not yet billed to customers, revenue is recognized
based on management's estimates of the amounts to be realized. When such
projects are billed, any differences between the initial estimates and the
actual amounts billed are recorded as increases or decreases to revenue.
Expenses are recognized in the period in which the corresponding liability is
incurred. Because of short duration of the contracts, the Company did not have
any work in progress as of September 30, 2003.
The Company's revenue recognition policy for sale of network products is in
compliance with Staff accounting bulletin (SAB) 101. Revenue from the sale of
network products is recognized when a formal arrangement exists, the price is
fixed or determinable, the delivery is completed and collectibility is
reasonably assured. Generally, the Company extends credit to its customers and
does not require collateral. The Company performs ongoing credit evaluations of
its customers and historic credit losses have been within management's
expectations.
ISSUANCE OF SHARES FOR SERVICE
The Company accounts for the issuance of equity instruments to acquire goods and
services based on the fair value of the goods and services or the fair value of
the equity instrument at the time of issuance, whichever is more reliably
measurable.
RECLASSIFICATIONS
For comparative purposes, prior years' consolidated financial statements have
been reclassified to conform with report classifications of the current year.
2. RECENT PRONOUCEMENTS
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based
Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used, on reported
results. The Statement is effective for the Companies' interim reporting period
ending January 31, 2003. The adoption of SFAS 148 does not have a material
effect on the earnings or financial position of the Company.
On April 30 2003, the FASB issued FASB Statement No. 149 (FAS 149), Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. FAS 149 amends
and clarifies the accounting guidance on (1) derivative instruments (including
certain derivative instruments embedded in other contracts) and (2) hedging
activities that fall within the scope of FASB Statement No. 133 (FAS 133),
Accounting for Derivative Instruments and Hedging Activities. FAS 149 also
amends certain other existing pronouncements, which will result in more
consistent reporting of contracts that are derivatives in their entirety or that
contain embedded derivatives that warrant separate accounting. FAS 149 is
effective (1) for contracts entered into or modified after June 30, 2003, with
certain exceptions, and (2) for hedging relationships designated after June 30,
2003. The guidance is to be applied prospectively. The adoption of SFAS No. 149
does not have a material impact on the Company's financial position or results
of operations or cash flows.
On May 15, 2003, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 150 (FAS 150), Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. FAS 150 changes the accounting
for certain financial instruments that, under previous guidance, could be
classified as equity or "mezzanine" equity, by now requiring those instruments
to be classified as liabilities (or assets in some circumstances) in the
statement of financial position. Further, FAS 150 requires disclosure regarding
the terms of those instruments and settlement alternatives. FAS 150 affects an
entity's classification of the following freestanding instruments: a)
Mandatorily redeemable instruments b) Financial instruments to repurchase an
entity's own equity instruments c) Financial instruments embodying obligations
that the issuer must or could choose to settle by issuing a variable number of
its shares or other equity instruments based solely on (i) a fixed monetary
amount known at inception or (ii) something other than changes in its own equity
instruments d) FAS 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety. The guidance in FAS 150 is
generally effective for all financial instruments entered into or modified after
May 31, 2003, and is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. For private companies, mandatorily
redeemable financial instruments are subject to the provisions of FAS 150 for
the fiscal period beginning after December 15, 2003. The adoption of SFAS No.
150 does not have a material impact on the Company's financial position or
results of operations or cash flows.
3. GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of the
Company as a going concern. However, the Company has accumulated deficit of
$4,573,302 including a net loss of $2,817,494 for the nine month period ended
September 30, 2003. The continuing losses have adversely affected the liquidity
of the Company. The Company faces continuing significant business risks,
including but not limited to, its ability to maintain vendor and supplier
relationships by making timely payments when due.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to raise additional capital, obtain
financing and to succeed in its future operations. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. Management devoted considerable effort
during the period ended September 30, 2003, towards obtaining additional equity
financing through various private placements and evaluation of its distribution
and marketing methods.
4. NOTES RECEIVABLE/PAYABLE - RELATED
Notes receivable from related parties
The Company has a receivable from a company related by common officer amounting
$80,534 as of September 30, 2003. The amount is unsecured, due on demand and non
interest bearing.
Notes payable to related parties
The Company has $3,500 payable based on the purchase agreement of the subsidiary
and $44,000 loan payable to the major shareholder and officer of the Company.
The loan amounts are unsecured, due on demand and non interest bearing.
5. LOAN PAYABLE
The Company has an unsecured note payable of $47,500, guaranteed by the officer
and shareholder of the Company, bearing an interest rate of 8.75%. The note was
payable through a revolving line of credit, which commenced on November 6,
2001, the date of the note, and was to be expired in three years following the
note date. The Company was to pay a total of 36 payments of interest only on the
disbursed balance beginning one month from the note date and every month
thereafter. The term period was to commence upon the termination of the
revolving line of credit period. During the term period, the Company was to pay
principal and interest payments in equal installment sufficient to fully
amortize the principal balance outstanding, beginning one month from the
commencement of the term period. All remaining principal and accrued interest
was due and payable 7 years from the date of the note.
As a result of acquisition of the Company by Flex, the Company was in default on
this note, since the note prohibited a change of ownership over 25% of the
Company's common stock outstanding. The entire principal amount became due upon
default and the revolving line of credit is no longer available to the Company.
The Company is in the process of making payment arrangement with the financing
institution. The amount outstanding at September 30, 2003, amounted to $39,949.
The Company has notes payable to unrelated parties amounting $21,781. These
notes are due on demand, bear interest rate of 6% per annum and unsecured.
6. DUE TO FACTOR
On February 27, 2003, the Company entered into a factoring and security
agreement to sell, transfer and assign certain accounts receivable to Orange
Commercial Credit (OCC). OCC may on its sole discretion purchase any specific
account. All accounts sold are with recourse on seller. All of the Company's
property including accounts receivable, inventories, equipment and promissory
notes are collateral under this agreement. OCC will advance 80% of the face
amount of each account. The difference between the face amount of each purchased
account and advance on the purchased account shall be reserve and will be
released after deductions of discount and charge backs on the 15th and the last
day of each month. OCC charges 1% of gross face value of purchased receivable
for finance charge and 1% for administrative fees with minimum charge of $750 on
each settlement date. As of September 30, 2003, the Company factored
receivables of approximately $129,929. In connection with the factoring
agreement, the Company included fees of $10,752 in the period ended September
30, 2003.
On September 17, 2003, the Company entered a factoring agreement with a related
entity for $76,000 face amount. This amount is payable in 30 days and certain
receivables were assigned and delivered. In the event that on the maturity date,
any amounts on the note remain, the holder can exercise its right the face
amount by $10,000 per month that the Note remains unpaid.
7. INCOME TAXES
The Company filed its tax returns through 2002 as an S corporation. The Company
accounts for income taxes under Statement of Financial Accounting Standards No.
109 (SFAS 109). Under SFAS 109, deferred income taxes are reported using the
liability method. Deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities 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.
Through September 30, 2003, the Company incurred net operating losses for tax
purposes of approximately $2,800,000. The net operating loss carryforwards may
be used to reduce taxable income through the year 2023. The availability of the
Company's net operating loss carryforwards are subject to limitation if there is
a 50% or more positive change in the ownership of the Company's stock. The
provision for income taxes consists of the state minimum tax imposed on
corporations.
8. STOCKHOLDERS' EQUITY
During period ended September 30, 2003, the Company issued stocks at various
times, as described per the following. The stocks were valued at the average
fair market value of the freely trading shares of the Company as quoted on OTCBB
on the date of issuance.
STOCK SPLIT
On January 23, 2003, Flex announced a 1 for 200 reverse stock split of its
common stock. All fractional shares are rounded up and the authorized shares
remain the same. The financial statements have been retroactively restated for
the effects of stock splits.
COMMON STOCK:
During period ended September 30, 2003, the Company issued common stock as
follows:
The Company issued 7,382,000 shares of common stock for acquisition of Network
Installation Corporation (NIC) on May 23, 2003 (note 1)
The Company issued 400,000 shares of common stock to directors for directors'
fees amounting $610,800.
The Company issued 275,000 shares of common stock to consultants for consulting
services amounting $278,750.
The Company issued 65,923 shares of common stock valued at $158,641 for
conversion of debenture amount of $98,901. The difference of the value of the
stock issued and debenture amount of $59,740 was charged as a loss on
conversion.
The Company issued 1,550,000 shares to the major shareholder per debenture
agreement. $1,199,700 interest was recorded in the financial statement for these
shares.
CONVERTIBLE DEBENTURES:
In the year ended December 31, 2001, the company issued debentures amounting
$720,000, carrying an interest rate of 6% per annum, due in August 2003. The
holders are entitled to, at any time or from time to time, convert the
conversion amount into shares of common stock of the Company, par value $.001
per share at a conversion price for each share of common stock equal to the
lower of (a) 120% of the losing bid price per share (as reported by Bloomberg,
LP) on the closing date, and (b) 80% of the lowest closing bid price per share
(as reported by Bloomberg, LP) of the Company's common stock for the five
trading days immediately preceding the date of conversion. The Company recorded,
in accordance with EITF 00-27 and 98-5, a beneficial conversion feature on the
issuance of the convertible debentures amounting $180,000 reflected in the
interest expense in the financial statement. As of September 30, 2003, the
outstanding balance of the debentures amounted to $563,860 out of which, $38,524
pertains to major shareholder.
On April 7, 2003, in connection with the recession agreement (note 12), the
Company issued convertible debentures of $140,000 to various parties. The
Company has recorded the debentures as recession cost in the financial
statements at December 31, 2002. The Holder of the debentures is entitled to
convert the face amount of this Debenture, plus accrued interest, anytime
following the Restricted Period, at the lesser of (i) 75% of the lowest closing
bid price during the fifteen (15) trading days prior to the Conversion Date or
(ii) 100% of the average of the closing bid prices for the twenty (20) trading
days immediately preceding the Closing Date ("Fixed Conversion Price"), each
being referred to as the "Conversion Price". No fractional shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded up or down, as the case may be, to the nearest
whole share. The Debentures shall pay six percent (6%) cumulative interest, in
cash or in shares of common stock, par value $.001 per share, of the Company
("Common Stock"), at the Company's option, at the time of each conversion. The
debentures are payable on April 8, 2008.
On April 7, 2003, the company issued debentures amounting $105,000 to a major
shareholder and a related party to a major shareholder, carrying an interest
rate of 6% per annum, due in April 2008. The face amount of this Debenture may
be converted, in whole or in art, any time following the Closing Date. Holder is
entitled to convert the face amount of this Debenture, plus accrued interest,
anytime following the Closing Date, at the lesser of (i) 75% of the lowest
closing bid price during the fifteen (15) trading days prior to the Conversion
Date or (ii) 100% of the average of the closing bid prices for the twenty (20)
trading days immediately preceding the Closing Date ("Fixed Conversion Price"),
each being referred to as the "Conversion Price". No fractional shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded up or down, as the case may be, to the nearest
whole share.
The restriction period for the conversion of the debentures issued in April is
for one year period. The company has recorded a beneficial conversion feature
expense amounting $53,000 as interest expense in the financial statements for
the period ended June 30, 2003.
In connection with issuance of debentures, the Company issued 250,000 shares of
common stock to an unrelated party and 800,000 shares of common stock to a
related party. The shares issued to the unrelated party were recorded as
debenture issuance cost up-to the amount of debenture amounting $25,000. The
debentures have been presented net of debentures issuance cost in the financial
statements. The shares issued to the related party have been recorded as deemed
dividend amounting $120,000. The valuation of shares was based upon average fair
market value of the freely trading shares of the Company as quoted on OTCBB on
the date of issuance.
The Company has recorded, in accordance with EITF 00-27 and 98-5, a beneficial
conversion feature on the issuance of the convertible debentures in the nine
month period ended September 30, 2003, an amount of $134,000, reflected in the
financial statement as interest expense.
During the period ended September 30, 2003, the Company issued $158,000
debentures to a related party. These debentures carry an interest rate of 6% per
annum, due in July to September 2008. The face amount of these Debentures may be
converted, in whole or in part, any time following the Closing Date. Holder is
entitled to convert the face amount of this Debenture, plus accrued interest,
anytime following the Closing Date, at the lesser of (i) 75% of the lowest
closing bid price during the fifteen (15) trading days prior to the Conversion
Date or (ii) 100% of the average of the closing bid prices for the twenty (20)
trading days immediately preceding the Closing Date ("Fixed Conversion Price"),
each being referred to as the "Conversion Price". No fractional shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded up or down, as the case may be, to the nearest
whole share.
The Company issued 1,550,000 shares to the major shareholder per debenture
agreement. Per the agreement, the Company was required to issue one hundred
thousand (100,000) shares of its common stock to holder, for each ten thousand
dollars ($10,000) invested. The Company recorded stock issued amounting
$1,199,700 as interest expense in the accompanying financial statements.
CONVERTIBLE PROMISSORY NOTES PAYABLE
In the year ended December 31, 2001, the Company issued convertible promissory
notes of $100,000 due on April 1, 2004, carrying an interest rate of 10% per
annum. The holder of $100,000 promissory notes is entitled to convert the
conversion amount into shares of common stock of the Company, par value $.001,
at any time, per share at a conversion price for each share of common stock
equal $7.00 per share of common stock. The note is secured and collateralized by
shares of common stock of the Company at one share per every five dollars
($5.00) of the principal.
STOCK OPTION PLAN
The Company accounts for stock options under SFAS No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, which contains a fair
value-based method for valuing stock-based compensation that entities may use,
which measures compensation cost at the grant date based on the fair value of
the award. Compensation is then recognized over the service period, which is
usually the vesting period. Alternatively, SFAS No. 123 permits entities to
continue accounting for employee stock options and similar equity instruments
under Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued
to Employees." Entities that continue to account for stock options using APB
Opinion 25 are required to make pro forma disclosures of net income and earnings
per share, as if the fair value-based method of accounting defined in SFAS No.
123 had been applied.
The Company accounts for its stock option plan under the recognition and
measurement principles of APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations. Stock-based employee compensation costs
are not reflected in net income, as all options granted under the plan had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share for the nine month period ended September 30, 2003, if the
Company had applied the fair value recognition provisions of SFAS No. 123, to
stock-based employee compensation (no options were issued in the period ended
September 30, 2002) as follows ($ in thousands, except per share amounts) :
Net loss - as reported $(2,817)
Stock-Based employee compensation
expense included in reported net
income, net of tax (7)
Total stock-based employee
compensation expense determined
under fair-value-based method for all
rewards, net of tax (10)
-------------
Pro forma net loss $(2,834)
=============
Loss per share:
Basic, as reported 0.30
Diluted, as reported 0.30
Basic, pro forma 0.31
Diluted, pro forma 0.31
The assumptions used in calculating the fair value of options granted using the
Black-Scholes option- pricing model are as follows:
Risk-free interest rate 3.0%
Expected life of the options 2 years
Expected volatility 100%
9. LITIGATION
In the year ended December 31, 2002, a suit was brought against the Company in
the Superior Court of the State of California, County of San Francisco, alleging
that the Company made false written and oral representations to induce the
plaintiff to invest in the company and that such investment occurred despite the
plaintiff's request that the funds be held in a brokerage account maintained by
a related entity. A co-defendant in the case also filed a cross-complaint in
the action alleging theories of recovery against the Company and several other
defendants and alleging fraud, breach of contract, misrepresentation,
conversion and securities fraud against the Company. On November 21, 2003, the
Company reached a settlement with the plaintiffs for $160,000, of which the
Company had already made a good faith payment of $20,000. The remaining payment
will be made in installments through April 2004. The Company has accrued for
the litigation liability in the accompanying financial statements.
On April 25, 2003 the Superior Court of the State of California, County
of Orange, entered a judgment in the amount of $46,120 against the Company
in favor of a vendor of the Company's former subsidiary, North Texas Circuit
Board, or NTCB. In addition, on August 20, 2002 the Company sold NTCB to a
third party. Pursuant to terms of the share purchase agreement, this third
party assumed all liabilities of NTCB. The Company plan to vigorously
oppose the action. The Company plans to file for vacate the judgment for lack of
personal service.
On April 29, 2003, an investor brought a suit against the Company in the
Superior Court of the State of California, County of Los Angeles, alleging
breach of contract pursuant to a settlement agreement executed between the
Company and the investor dated November 20, 2002. The suit alleges that
the Company are delinquent in its repayment of a $20,000 promissory note, of
which $5,000 has been repaid to date. The Company plan to vigorously oppose the
claims.
The Company may be involved in litigation, negotiation and settlement matters
that may occur in the day-to-day operations of the Company and its subsidiary.
Management does not believe implication of these litigations will have any other
material impact on the Company's financial statements.
10. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95.
The Company paid $-0- for income taxes and interest during the nine month period
ended September 30, 2003. The Company paid income taxes of $-0- and interest of
$26,500 during the nine month period ended September 30, 2002.
The statement of cash flows does not include effect of non-cash transaction of
issuance of shares (note 8).
11. RESTATEMENT
Subsequent to the issuance of the Company's financial statements for the period
ended September 30, 2003, the Company determined that a certain transaction and
presentation in the financial statements had not been accounted properly in the
Company's financial statements. The Company's 2003 financial statements have
been restated to correct errors as follows:
(1) The acquisition of the Company by Flex was recorded under straight purchase
method instead of under the reverse acquisition method.
The Company has restated its financial statements for the period ended September
30, 2003. The effect of the correction of all the errors is as follows:
AS PREVIOUSLY AS
Period ended September 30, 2003 REPORTED RESTATED
------------------------------- ------------------ ---------------
BALANCE SHEET:
Goodwill $ 1,745,840 $ -
TOTAL ASSETS $ 2,174,832 $ 427,672
STATEMENT OF SHAREHOLDERS' DEFICIT
Accumulated deficit: $ (20,636,241) $ (4,573,302)
Additional paid in capital $ 20,066,110 2,252,587
Total stockholders' deficit $ (540,615) $ (2,291,199)
STATEMENT OF OPERATIONS:
Net revenues $ 641,307 $ 1,199,680
Gross profit $ 138,111 $ 283,436
Operating expenses $ 1,634,005 $ 1,823,409
Operating Loss $ 1,495,894 $ 1,539,973
Net loss $ 2,931,660 $ 2,817,494
Basic and diluted net loss per share $ (0.53) $ (0.30)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Report on Form 10-QSB contains forward-looking statements, including,
without limitation, statements concerning our possible or assumed future results
of operations. These statements are preceded by, followed by or include the
words "believes," "could," "expects," "intends" "anticipates," or similar
expressions. Our actual results could differ materially from those anticipated
in the forward-looking statements for many reasons including: our ability to
continue as a going concern, adverse economic changes affecting markets we
serve; competition in our markets and industry segments; our timing and the
profitability of entering new markets; greater than expected costs, customer
acceptance of wireless networks or difficulties related to our integration of
the businesses we may acquire and other risks and uncertainties as may be
detailed from time to time in our public announcements and SEC filings. Although
we believe the expectations reflected in the forward-looking statements are
reasonable, they relate only to events as of the date on which the statements
are made, and our future results, levels of activity, performance or
achievements may not meet these expectations. We do not intend to update any of
the forward-looking statements after the date of this document to conform these
statements to actual results or to changes in our expectations, except as
required by law.
The discussion and financial statements contained herein are for the three and
nine month periods ended September 30, 2003 and September 30, 2002. The
following discussion should be read in conjunction with our financial statements
and the notes thereto included herewith.
OVERVIEW:
THREE MONTHS AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2003 AS COMPARED TO
THREE MONTHS AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2002 (restated for
disposal of subsidiaries)
RESULTS OF OPERATIONS
-----------------------
We generated consolidated revenues of $444,736 and $1,199,688 for the three and
nine months ended September 30, 2003 as compared to $760,450 and $813,543 for
the three months and nine months ended September 30, 2002. The decrease in
revenues for this quarter when compared to the same quarter last year is due to
the structure of some K-12 contracts, which were required by the client to be
invoiced by September 30, 2002. We received fewer K-12 contracts for the period
ended September 30, 2003 vs. the same period in 2002 due to budget cuts from the
state of California in 2003. We also experienced an increase in higher education
contracts during the period ended September 30, 2003 vs. same period 2002 due to
an increase in target marketing to this sector. Our year to date revenues are
higher than the same period a year ago due to an increase in the total amount of
new contracts received. Currently, our cash needs include, but are not limited
to, legal and accounting services, and future acquisitions
NET REVENUES
-------------
We generated net revenues of $444,736 and $1,199,688 for the three and nine
months ended September 30, 2003 as compared to $760,450 and $813,543 for the
three months and nine months ended September 30, 2002. The decrease in revenues
for this quarter when compared to the same quarter last year is due to the
structure of some K-12 contracts, which were required by the client to be
invoiced by September 30, 2002. We received fewer K-12 contracts for the period
ended September 30, 2003 vs. the same period in 2002 due to budget cuts from the
state of California in 2003. We also experienced an increase in higher education
contracts during the period ended September 30, 2003 vs. same period 2002 due to
an increase in target marketing to this sector. Our year to date revenues are
higher than the same period a year ago due to an increase in the total amount of
new contracts received. All of our revenue in the current period is from Network
Installation Corp. Our operations from the subsidiaries disposed off in 2002
have been separately classified in the Statements of Operations.
COST OF REVENUE
-----------------
We incurred Cost of Revenue of $358,131 and $916,244 for the three and nine
month period ended September 30, 2003 as compared to $ $439,631 and $479,617 for
the three and nine month period ended September 30, 2002. Our Cost of Revenue
decreased for the 3 months ended September 30, 2003 when compared to the same
period in 2002, due to a decrease in Revenues for the three month period ended
September 30, 2003. Our Cost Of Revenue for the nine month period ended
September 30, 2003 increased when compared to the same period in 2002, due to
increased Revenue for the nine month period ended September 30, 2003.
GENERAL, ADMINISTRATIVE AND SELLING EXPENSES
------------------------------------------------
We incurred costs of $1,332,236 and $1,823,409 for the three and nine month
ended September 30, 2003 as compared to $276,371 and $393,643 for the three
month and nine month periods ended September 30, 2002, respectively. General,
Administrative and Selling Expenses in the current period increased primarily
because we issued shares of common stock amounting $687,419 as consulting fees
in the current period as compared to issuance of common shares amounting to
$121,950 in the prior period. We issued 675,000 shares for directors' fees and
consulting fees in the period ended September 30, 2002.
Net loss before income taxes and loss on discontinued segments
-----------------------------------------------------------------------
We had a loss before taxes of ($2,520,164) and ($2,816,694) for the three and
nine month periods ended September 30, 2003, as compared to a profit of $43,788
for the three month period ended September 30, 2002 and a loss of ($63,405) for
the nine month period ended September 30, 2002. The increase in net loss before
income taxes is due to the factors described above.
Net loss
---------
We had a loss of ($2,520,164) and ($2,817,494) for the three and nine month
periods ended September 30, 2003, as compared to a profit of $43,788 for the
three month period ended September 30, 2002 and a loss of ($64,205) for the nine
month period ended September 30, 2002. The decrease increase in net loss is due
to the factors described above.
Basic and diluted loss per share
-------------------------------------
Our basic and diluted loss per share for the quarter ended September 30, 2003
was ($0.23) as compared to net income per share of $0.01 for the quarter ended
September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
As of September 30, 2003, our Current Assets were $419,993 and Current
Liabilities were $2,340,871. Cash and cash equivalents were $667. Our
Stockholder's Deficit at September 30, 2003 was ($2,291,733).
We had a net usage of cash due to operating activities in September 30, 2003 and
2002 of $460,497 and $86,783 respectively. We had net cash provided by financing
activities of $443,178 and $73,206 for the nine month period ended September 30,
2003 and 2002, respectively. We had $336,150 from borrowings in the period ended
September 30, 2003 as compared to $0 in the corresponding period last year. We
had a net usage of cash due to operating activities for the years ended December
31, 2002 and 2001 of $43,584 and ($28,163) respectively. We had net cash
provided by financing activities of ($34,142) and $50,000 for the years ended
December 31, 2002 and 2001, respectively. We had $0 from borrowings in the year
ended December 31, 2002 as compared to $50,000 in the corresponding period in
2001.
Our obligations include:
- a $3,500 payable based on the purchase agreement of our subsidiary; - $44,000
in loans from a major shareholder and officer. The amount is unsecured, due on
demand and non interest bearing.
- We defaulted on a note that prohibited certain acquisitions when we acquired
our subsidiary. We are in the process of making payments with a financing
institution. The amount outstanding at September 30, 2003, amounted to $39,949.
- We have notes payable to unrelated parties amounting to $21,781. These notes
are due on demand, bear interest rate of 6% per annum and are unsecured.
On February 27, 2003, our subsidiary entered into a factoring and security
agreement to sell, transfer and assign certain accounts receivable to Orange
Commercial Credit, or OCC. OCC may at its sole discretion purchase any specific
account. All accounts sold are with recourse on seller. All of the property of
our subsidiary including accounts receivable, inventories, equipment and
promissory notes are collateral under this agreement. Any assets held at the
Corporate level are not collateral under this agreement, however as of February
9, 2004, the amount of assets at the Corporate level is not material. OCC will
advance 80% of the face amount of each account. The difference between the face
amount of each purchased account and advance on the purchased account shall be
reserve and will be released after deductions of discount and charge backs on
the 15th and the last day of each month. OCC charges 1% of gross face value of
purchased receivable for finance charge and 1% for administrative fees with
minimum charge of $750 on each settlement date. As of September 30, 2003, we
factored receivables of approximately $129,929. In connection with the factoring
agreement, we included fees of $10,752 in the period ended September 30, 2003.
On September 17, 2003, our subsidiary entered a factoring agreement with a
related entity for $76,000 face amount. This amount is payable in 30 days and
certain receivables were assigned and delivered. In the event that on the
maturity date, any amounts on the note remain, the holder can exercise its right
to increase the face amount by $10,000 per month that the Note remains unpaid.
In the year ended December 31, 2001, we issued debentures amounting to $720,000,
carrying an interest rate of 6% per annum, due in August 2003. The term of the
debentures were subsequently extended to August 2008. Pursuant to the terms of
the debentures, interest is payable on the date of conversion. The holders are
entitled to, at any time or from time to time, convert the conversion amount
into shares of our common stock at a conversion price for each share of common
stock equal to the lower of (a) 120% of the losing bid price per share on the
closing date, and (b) 80% of the lowest closing bid price per share of our
common stock for the five trading days immediately preceding the date of
conversion. As of December 31, 2003, the outstanding balance of the debentures
amounted to $443,501.
On April 7, 2003, we issued convertible debentures of $140,000 to eFund Capital
and Ashford Capital LLC. The holders of the debentures are entitled to convert
the face amount of this debentures, plus accrued interest at the lesser of (i)
75% of the lowest closing bid price during the 15 trading days prior to the
conversion date or (ii) 100% of the average of the closing bid prices for the 20
trading days immediately preceding the closing date. The convertible debentures
shall pay 6% cumulative interest, in cash or in shares of common stock, at our
option, at the time of each conversion. The debentures are payable on April 8,
2008. The convertible debentures are convertible into shares of our common
stock.
On April 7, 2003, we issued debentures amounting to $105,000 to Dutchess Private
Equities Fund, LP carrying an interest rate of 6% per annum, due in April 2008.
The face amount of this debenture may be converted, in whole or in part, any
time. Pursuant to the terms of the debentures, interest is payable on the date
of conversion. The holders are entitled to convert the face amount of the
debenture, plus accrued interest, anytime at the lesser of (i) 75% of the lowest
closing bid price during the 15 trading days prior to the Conversion Date or
(ii) 100% of the average of the closing bid prices for the 20 trading days
immediately preceding the Closing Date. The convertible debentures are
convertible into shares of our common stock.
During the period ended September 30, 2003, we issued $158,000 debentures to
Dutchess Private Equities Fund, LP. These debentures carry an interest rate of
6% per annum, due in July to September 2008. The face amount of these debentures
may be converted, in whole or in part, any time following the closing date.
Pursuant to the terms of the debentures, interest is payable on the date of
conversion. The holder is entitled to convert the face amount of this debenture,
plus accrued interest, anytime, at the lesser of (i) 75% of the lowest closing
bid price during the 15 trading days prior to the Conversion Date or (ii) 100%
of the average of the closing bid prices for the 20 trading days immediately
preceding the Closing Date. The convertible debentures are convertible into
shares of our common stock.
Convertible promissory notes payable
In the year ended December 31, 2001, we issued convertible promissory notes of
$100,000 due on April 1, 2004, carrying an interest rate of 10% per annum. The
holder of $100,000 promissory notes is entitled to convert the conversion amount
into shares of common stock of the Company, par value $.001, at any time, per
share at a conversion price for each share of common stock equal $7.00 per share
of common stock. The note is secured and collateralized by shares of common
stock of the Company at one share per every five dollars of the principal. As of
September 30, 2003, the outstanding value of this note is $75,000.
We have signed an Investment Agreement with Preston Capital for $2,500,000 in an
Equity Line arrangement. The Investment Agreement allows us to "put" to Preston
Capital at least $10,000, but no more than $100,000. The purchase price for our
common stock identified in the Put Notice shall be equal to 95% of the average
of four lowest posted bid prices of our common stock during the five days after
we deliver the put notice to Preston Capital. We can initiate a new put after we
close on the prior put. We can not drawdown under the Equity Line arrangement
until we have an effective registration statement. As of March 22, 2004, we do
not have an effective registration statement.
ITEM 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Interim Chief Financial Officer evaluated the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this Quarterly Report on Form 10-QSB. Based on this
evaluation, the Chief Executive Officer and Interim Chief Financial Officer
concluded that our disclosure controls and procedures are effective to ensure
that information we are required to disclose in reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
There was no change in our internal control over financial reporting that
occurred during the fourth fiscal quarter of the fiscal year covered by this
Annual Report on Form 10-KSB that materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
PART II
ITEM 1. LITIGATION
In the year ended December 31, 2002, a suit was brought against us in the
Superior Court of the State of California, County of San Francisco, by Martin
Mast an individual alleging that we made false written and oral representations
to induce the plaintiff to invest in our company and that such investment
occurred despite the plaintiff's request that the funds be held in a brokerage
account maintained by a related entity. A co-defendant Aslam Shaw an individual
in the case also filed a cross-complaint in the action alleging theories of
recovery against us and several other defendants and alleging fraud, breach of
contract, misrepresentation, conversion and securities fraud against us. On
November 21, 2003, we reached a settlement with the plaintiffs for $160,000. We
are making payments in installments through April 2004. To date $45,000 has been
paid. We had accrued $300,000 in the accompanying financial statements against
any possible outcome.
On April 25, 2003 the Superior Court of the State of California, County of
Orange, entered a judgment in the amount of $46,120 against us in favor of
Insulectro Corp. a vendor of our former subsidiary, North Texas Circuit Board,
or NTCB. We believe that we were never issued proper service of process for the
complaint. In addition, on August 20, 2002 we sold NTCB to BC Electronics Inc.
Pursuant to terms of the share purchase agreement, BC Electronics assumes all
liabilities of NTCB. We plan to vigorously oppose the action and request that
the judgment be vacated for lack of personal service. Although we are the
guarantor on the loan, NTCB is the principal debtor and (i) we will bring action
against NTCB to seek relief or (ii) because partial payment was made by NTCB, it
could affect the legal status of the guarantee, which we believe may absolve us
of liability.
On April 29, 2003, Arman Moheban an individual brought a suit against us in the
Superior Court of the State of California, County of Los Angeles, alleging
breach of contract pursuant to a settlement agreement dated November 20, 2002.
The suit alleges that we are delinquent in our repayment of a $20,000 promissory
note, of which $5,000 has been repaid to date. We plan to vigorously oppose the
claim.
Other than the litigation disclosed above, we are not aware of threatened or
existing litigation that could have an adverse material impact on our financial
statements.
ITEM 2: CHANGES IN SECURITIES
(a) Not Applicable.
(b) Not Applicable.
(c)
We issued 7,382,000 shares of common stock valued at $1,107,300 on May 10th,
2003 for acquisition of our subsidiary, Network Installation Corporation.
On April 7, 2003, we issued 800,000 shares of common stock to a major
shareholder as inducement for debentures amounting to $80,000. The shares were
valued at $120,000.
On April 7, 2003, we issued 250,000 shares of common stock to an unrelated party
as an inducement for debentures amounting to $25,000. The shares were recorded
as debenture issuance cost up to the amount of debenture of $25,000.
We issued 700,000 shares of common stock to a major shareholder for consulting
services amounting to $105,000 on June 11th, 2003.
On April 8, 2003, we issued convertible debenture of $140,000 to Dutchess
Private Equities Fund, LP. The debentures convert into common stock at the
lesser of (i) 75% of the lowest closing bid price during the fifteen trading
days prior to the Conversion Date or (ii) 100% of the average of the closing bid
prices for the twenty trading days immediately preceding the Closing Date of the
Transaction.
We issued 690,000 shares of common stock as a part of restructuring on April 9,
2003 to former management as per the transaction disclosed on Form 8-K filed
April 23, 2003.
We issued 275,000 shares of common stock to a major shareholder for consulting
services amounting to $278,750.
We issued 65,923 shares of common stock valued at $158,641 for conversion of
debentures in the amount of $98,901.
We issued 1,550,000 shares to a major shareholder pursuant to a debenture
agreement. $1,199,700 interest was recorded in the financial statements for
these shares.
The securities issued in the foregoing transactions were offered and sold in
reliance upon exemptions from the Securities Act of 1033 ("Securities Act")
registration requirements set forth in Sections 3(b) and 4(2) of the Securities
Act, and any regulations promulgated thereunder, relating to sales by an issuer
not involving any public offering. No underwriters were involved in the
foregoing sales of securities.
(d) Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NOT APPLICABLE.
ITEM 5. OTHER INFORMATION.
NOT APPLICABLE
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Description
4.1 Certificate of Amendment to the Certificate of Incorporation of Flexxtech
Corporation.
10.1 Reseller Agreement between Vivato, Inc. and the Company dated August 14,
2002 as previously filed in filed as Exhibit 10.1 to the Company's Form
10-QSB dated November 13, 2003 and incorporated herein by reference.
10.2 Motorola Reseller Agreement between Motorola, Inc. and the Company dated
August 18, 2003 as previously filed in filed as Exhibit 10.2 to the
Company's Form 10-QSB dated November 13, 2003 and incorporated herein by
reference.
10.3 Short Term Rental Agreement between Vidcon Solutions Group, Inc. and the
Company dated February 5, 2003 as previously filed in filed as Exhibit 10.3
to the Company's Form 10-QSB dated November 13, 2003 and incorporated
herein by reference.
31.1 Section 302 Certification of the Chief Executive Officer.
31.1 Section 302 Certification of the Interim Chief Financial Officer.
32.2 Section 906 Certification of the Chief Executive Officer.
32.2 Section 906 Certification of the Interim Chief Financial Officer.
(b) Reports on Form 8-K
The Company filed a Form 8-K/A on September 9, 2003 that included Financial
Statements and Pro Forma Financial Information.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NETWORK INSTALLATION CORPORATION
(Registrant)
Date: March 22, 2004 By: /s/ Michael Cummings
--------------------------------
Michael Cummings
President & Chief Executive Officer
By: /s/ Michael Novielli
---------------------------------
Michael Novielli
Interim Chief Financial Officer