SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
----------------------------------
FORM 10KSB/A2
----------------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2001.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 000-25499
FLEXXTECH CORPORATION
----------------------------------------------
(Name of Small Business Issuer in its Charter)
Nevada 88-0390360
------------------------------- ----------------------
(State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization) Identification Number)
1501 W. Shady Grove Rd.
Grand Prairie, Texas 75050
--------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(972) 986-4425
----------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock $0.001 Par Value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this Form 10-KSB or any amendment to
this Form 10-KSB. [x ]
The revenue of Flexxtech Corporation for the fiscal year ended December 31,
2001, was $0, as amended, and restated disclosing the loss from the
operations of North Texas Circuit Board Co., disposed of in August 2002.
As of December 31, 2001, Flexxtech Corporation had a limited public trading
market for its common stock. The aggregate market value of the common equity
held by non-affiliates of Flexxtech Corporation on December 31, 2001, was
$6,760,397. Directors, Officers, and ten percent or greater stockholders were
assumed to be affiliates for purposes of this calculation.
The number of shares outstanding of Flexxtech Corporation's Common Stock as of
December 31, 2001, was 17,869,853, and as of July 31, 2002, were 28,676,425.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [x]
TABLE OF CONTENTS
Page
PART I
Item 1 Business........................................................ 3
Item 2 Description of Property.........................................10
Item 3 Legal Proceedings...............................................10
Item 4 Submission of Matters to Vote of Security Holders...............10
PART II
Item 5 Market For Common Equity and Related Stockholder Matters........11
Item 6 Management's Discussion and Analysis or Plan of Operation ......13
Item 7 Financial Statements............................................18
Independent Auditors' Report........................................18
Balance Sheets......................................................19
Statements of Operations............................................20
Statement of Changes in Stockholders' Equity........................21
Statements of Cash Flows............................................22
Notes to Financial Statements.......................................23
Item 8 Changes and Disagreements with Accountants......................37
Item 9 Directors, Executive Officers, Promoters and Control Persons....37
PART III
Item 10 Executive Compensation..........................................40
Item 11 Security Ownership of Certain Beneficial Owners and
Management..........................................................42
Item 12 Certain Relationships and Related Transactions..................43
Item 13 Exhibits and Reports on 8-K.....................................43
2
PART I
ITEM 1. BUSINESS
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB may contain forward-looking
statements, including (without limitation) statements concerning possible or
assumed future results of operations of Registrant, and statements preceded by,
followed by or that include the words "believes," could," "expects,"
"anticipates," or similar expressions. You should understand that various events
could cause those results to differ materially from those expressed in such
forward-looking statements. These include materially adverse changes in economic
conditions in the markets served by the companies; competition from others in
the same markets and other industry segments; the ability to enter, the timing
of entry and the profitability of entering new markets; greater than expected
costs; and other risks and uncertainties as may be detailed from time to time in
Registrant's public announcements and SEC filings.
3
A. FLEXXTECH CORPORATION
------------------------
1. History
----------
Flexxtech Corporation (hereinafter "Flexxtech" or the "Company" or
"Registrant") was originally incorporated in the State of Nevada under the name,
"Color Strategies" on March 24, 1998. The Company changed its name to "Infinite
Technology Corporation" on December 23, 1999. On May 4, 2000, the Company
changed its name to "Flexxtech Corporation".
From March 1998 through December 1999, the Company operated under the
name "Color Strategies", and conducted a business of creating and presenting
self-improvement and motivational seminars which utilized the concept of image
and style enhancements.
New management took over responsibilities in April of 2000, changed the
corporate name to Flexxtech Corporation, and changed the business focus toward
the acquisition of one or more operating technology companies.
In May of 2000, Flexxtech acquired Mardock, Inc. ("Mardock"), a
designer, manufacturer and distributor of apparel and promotional products to
the corporate community.
In August of 2000, Flexxtech acquired a majority interest in North
Texas Circuit Board Co. (hereafter "NTCB", or "Circuit Board"). NTCB
manufactures high quality, quick turn printed circuit boards. Flexxtech made
this acquisition through the acquisition of 67% of the common stock of Primavera
Corporation, a parent company which owned 100% of the stock of NTCB, in exchange
for 195,000 shares of Flexxtech stock, valued at $325,000, plus a contribution
of $1,250,000 in cash to NTCB as additional working capital.
In September of 2000, Flexxtech acquired 80% of the outstanding stock
of OpiTV.com. OpiTV.com is an I-commerce technology company in the development
stage and without operations, with a business plan to market and distribute a
Set-Top-Box (STB) TV device.
In November of 2000, Flexxtech acquired an additional 13% of Primavera
Corporation, the parent company of NTCB. This increase in equity brought
Flexxtech's indirect ownership of NTCB from 67% to 80%.
In late 2000, management determined that the Company's capital and
management resources were spread too thin to properly address the capital needs
and the management needs of its three subsidiaries. As a result, management
determined to sell or close down both Mardock, Inc. and OpiTV.com, and
concentrate their efforts developing the business of NTCB.
In July of 2001, the Company sold all of its common stock ownership in
Mardock, Inc.
In July of 2001, the Company also sold all of its common stock
ownership in OpiTV.com.
At the beginning of April, 2000, the Company forward split its Common
Stock on a 2 for 1 basis, increasing Common Stock outstanding from 2,668,417
shares to 5,336,834 shares.
New management of Flexxtech which came in at the end of April, 2000,
reversed this split and further reduced shares outstanding by effecting a
reverse stock split on a 1 for 3 basis at the end of April 2000, thereby
reducing common stock outstanding from 5,336,834 shares to 1,778,978 shares.
4
In March of 2001, Flexxtech accomplished a 3 for 2 forward stock split,
increasing outstanding common stock of Flexxtech from 7,338,901 shares to
11,008,367 shares outstanding.
In each case, management was advised by legal counsel that these stock
splits could be accomplished by action of the Board of Directors and without a
shareholders' vote under Nevada law, and in each case no shareholder vote or
consent was solicited or obtained, and the action was accomplished solely by
action of the Board of Directors, and corporate filings to split the stock filed
with the Nevada Secretary of State.
In July 2001, Flexxtech acquired the additional 20% of Primavera's
Common Stock and thereby an additional 20% interest in NTCB, in consideration
for the issuance of 100,000 options to purchase common stock, issued to the four
minority shareholders who held 20% of Primavera Corp. The options are
exercisable $2.50 per share and expire on June 17, 2004.
At December 31, 2001, the Company's only operating subsidiary was NTCB.
As a result at December 31, 2001, Flexxtech operated as a holding Company,
owning 100% of the outstanding capital stock of NTCB, through its ownership of
100% of Primavera Corporation, NTCB's 100% owner parent. Flexxtech had no other
operations outside the activities of NTCB.
(B) North Texas Circuit Board Company
-------------------------------------
Our wholly-owned subsidiary, Primavera Corporation, sold 100% of the
shares of its wholly-owned subsidiary, North Texas Circuit Board Company (NTCB)
of Grand Prairie, Texas, to BC Electronics, Incorporated. All closing documents
were completed and the transaction was consummated on September 13, 2002.
NTCB was the only operating business of our Company. NTCB.
North Texas Circuit Board Company ("Circuit Board" or "NTCB") was
originally incorporated in Texas in March of 1979 and from inception has been in
the business of the manufacture of electronic circuit boards to spec for
military, government and commercial applications. Primavera acquired 100% of
NTCB from family interests in May of 2000. Flexxtech acquired 67% of Primavera
in August of 2000, 13% in November of 2000, and 20% in July of 2001, bringing
its total ownership to 100% of Primavera in July of 2001.
After our acquisition of NTCB, it continued to operate at a substantial
loss, despite reductions in employees and other cost cuts.
NTCB exhausted a $500,000 bank line and was forced to borrow in excess
of $1,700,000 in short term money from a private lender on terms which granted a
security interest in all of its assets to the private lender. The private lender
was BC Electronics, Incorporated.
By August 20, 2002, NTCB was in default on aggregate secured debt in
excess of $2,250,000, debt and BJ Electronics, Incorporated was threatening to
foreclose on all NTCB assets. Flexxtech management determined it could no longer
support this continuing loss, that Flexxtech and its subsidiaries did not have
the capital resources to forestall a foreclosure of NTCB assets, and that the
resources of Flexxtech were better expended in areas with better prospects for
business profit.
As a result, Flexxtech management entered into arms' length
negotiations with BC Electronics, Incorporated which resulted in the sale of all
of the NTCB stock to the creditor, in exchange for cancellation of the NTCB
debt.
As part of this negotiation, we were able to retain a 10% prospective
interest in future NTCB after tax profits over the next five years, if the
purchaser is able to successfully turn the NTCB business around and NTCB
realizes net after tax profits. However, any such distribution is to be reduced
by the costs of settlement of all accrued NTCB liabilities existing at June 19,
2002, which are incurred by the purchaser. We are uncertain as to whether this
continuing interest will have any significant value in the future.
The private lender turned purchaser, BC Electronics Incorporated, is a
Texas corporation which has no relationship to NTCB, Primavera Corporation,
Flexxtech or its or their officers, directors or principal shareholders.
5
ACQUISITION OF W3M, INC. (dba "Paradigm Cabling Systems")
---------------------------------------------------------
On October 1, 2001, the Company acquired 80% of the outstanding Common
Shares of W3M, Inc. (dba "Paradigm Cabling Systems"), a privately held
California corporation ("Paradigm"), in a stock for stock exchange. Pursuant to
the terms of the acquisition, 80% of the outstanding capital stock of Paradigm
was transferred to the Company on said date. In exchange, the Company agreed as
soon as practical to issue shares of a new Series A Convertible Preferred Stock
of Flexxtech Corporation (hereinafter the "Series A Preferred"), to the
exchanging shareholders of Paradigm as follows:
Name No. Of Shares of Series A Convertible Preferred
-----------------------------------------------------------------------
Michael Cummings 71.25 shares
Ashford Capital 71.25 shares
---------------
Total 142.50 shares
The Series A Preferred is to be convertible, in whole or in part at the
option of the holder, into shares of the Common Stock of Flexxtech. Each one
share of Series A Preferred is to be convertible into the number of shares of
Flexxtech Common Stock obtained by dividing $10,000 by 85% of the average of the
lowest three intra day bids for Flexxtech's Common Stock on the primary exchange
or public market in what Flexxtech's Common Stock is listed, over the ten
trading days immediately preceding the conversion date, and multiplying the
result by 120%. Fractional common shares on conversion are rounded to the
nearest whole share.
The Series A Preferred is to have a liquidation preference equal to
$15,000 per Series A share, after which each share will share on a pro rata
basis with the Common Stock, based upon the number of shares into which the
Series A Preferred would have been convertible on the date of liquidation,
distribution of assets, dissolution or winding up. The Series A Preferred is to
also have various other anti-dilution protections.
The Company at its sole discretion, has the option to redeem all or
part of the Series A Preferred at a redemption price equal to the greater of
$12,000 per share, or the market value of the Common Stock into which the Series
A Preferred is convertible on the date of redemption.
Because Flexxtech's Articles of Incorporation do not provide for
Preferred Stock, before the Series A Preferred can be authorized and issued, the
shareholders of Flexxtech, by majority in capital interest, must adopt
amendments to the company's Articles of Incorporation. In the event Flexxtech
has not obtained the necessary shareholder approvals amending its Articles to
create the class of Series A Preferred Stock, and is unable to issue the
required Series A Preferred shares and deliver the certificates evidencing said
shares to the Paradigm exchanging shareholders by the close of business at 5
p.m. Pacific Standard Time, on January 31, 2003, then in such event the Paradigm
exchanging shareholders' entitlement to Series A Preferred Shares converts
automatically and without further action on their part, into a right to
immediately receive in lieu of said Series A Preferred Stock, that number of
shares of Flexxtech Common Stock to which the Paradigm exchanging shareholders
would have been entitled had they been previously issued the Series A Preferred
Stock, and then elected on January 31, 2003 to have all of their Series A
Preferred Stock converted into Flexxtech's Common Stock in accord with the above
described Series A Preferred conversion provisions.
As part of the transaction, the Company agreed to use its best efforts
to arrange in the future for an infusion of $250,000 in additional capital,
either as debt or equity or some combination of both, to Paradigm, in order to
increase its working capital.
On September 16, 2002, Michael Cummings, the President and CEO of
Paradigm, and one of the two Paradigm shareholders exchanging shares, was
elected to fill one of the existing vacancies on the Board of Directors of
Flexxtech.
As a result of this transaction, Flexxtech acquired Paradigm as an
80%-owned subsidiary. The remaining 20% of Paradigm's outstanding stock
continues to be held Greg Wilber, Mondo Marshall and Sandra Stewart, the
original Paradigm shareholders.
6
II. BUSINESS OF PARADIGM
------------------------
As a result of its acquisition of 80% of Paradigm, and its previous
sale on September 13, 2002 of its former wholly-owned subsidiary, North Texas
Circuit Board Corp., the sole business of the Company as of November 1, 2001,
became the business carried on by its 80%-owned subsidiary, Paradigm.
PRIOR HISTORY OF PARADIGM. Paradigm was incorporated in California in
May of 1998, under its current corporate name, W3M, Inc., to establish a
business of providing equipment, contract installation and technical consulting
in connection with the establishment of cable systems for larger industrial and
educational complexes.
CURRENT BUSINESS. Paradigm is a full service computer cabling,
networking and telecommunications integrator contractor, providing networks from
stem to stern in house, for larger, medium and smaller industrial, educational
and residential complexes. During the 9-1/2 months through October 14, 2002,
Paradigm booked in excess of $1,000,000 in sales of products and services.
A. PRODUCTS. The Company designs and installs voice, video/audio, and
data networks utilizing copper and fiber optic products for its customers. The
Company's services include:
Project management
Data communications services
Structured cabling design
Planning Installation and support services
Hardware maintenance/installation
Equipment installation and relocation services
Training
Electrical installations
Conduit design and installation
B. SERVICES. Paradigm's engineers design, install and service
Communication Infrastructure for Voice and Data; including Copper, Fiber and
Wireless Systems. The Company's staff has an aggregate of over 235 years of
telecommunications experience, and management prides itself on providing a
turn-key solution to meet the customer's technology needs.
Paradigm Cabling Systems' professional infrastructure services include:
Category 3, 5, 5e and 6 twisted pair cable installation
Single-mode/Multi-mode fiber optics installation RG6, 8, 58, 59, and 62
coaxial cable, and .500 series broadband coax installation
Networking equipment sales, service, and installation
Phone switch sales, service, and programming, and installation
Wireless LAN/WAN installation
Electrical installations
OSP trenching/backfill and conduit installations
Full service 24-hour Service Department
Technicians Certified for work with Asbestos and Lead, Firestop
Certified, Fiber Certified, Copper Solution certified.
C. ORGANIZATION - PARADIGM'S THREE DIVISIONS
Paradigm's services and products have been sub-divided into three
divisions:
Electrical Division:
--------------------
In-House Wiring
Main & Sub Panel Addition/Replacement
Additional Power Circuits (IG & Isolated)
Un-interruptable Power Systems (UPS)
Re-locatable Building Power Hookup
Construction Division:
----------------------
Conduit Distribution Systems Design & Installation (EMT, IMC,
RIGID, PVC)
Concrete Cutting, Coring & Replacement
Asphalt Cutting & Replacement
7
Voice Division:
---------------
Installation and Maintenance of Telephone Switching Equipment
Certified Technicians from Nortel Meridian, Lucent, Telrad,
Panasonic, Com-Dial, Mytel
Complete design and relocation service
Structured Cabling Design, Planning, Installation and
Maintenance Services
Network Analysis, Design, Troubleshooting, and Support
Project Management
System Integration & Hardware Maintenance
Equipment Installation and Relocation Services
Site Surveys and Construction Planning
Documentation/Auto CAD
Underground & Aerial Cable Installation
24 Hour/7Day-A-Week Support
D. CUSTOMERS. Paradigm's customers range from small organizations to
very large corporations, and are in a diversity of industries, from
manufacturing, retail and financial to education and government.
Complexes undertaken by Paradigm over the past four years have included
the following projects:
1. WARNER BROTHERS - Installation of 51 Category 6 stationers and (2)
6-strand multimode fiber optic cables to the 3rd and 4th floor IDF's.
(2002)
2. VERIZON - Authorized Structured Cabling Partner. (1999)
3. UPS - Installation of OSP fiber and Copper throughout campus.
Installation of 150 locations (600 Cables) in a 150,000 square foot
student recreation center. Work also includes installation of fiber
background to (7) IDF closets. (2001)
4. NEXTEL - Installation of 1,000 voice and data stations (4,000 Cables)
in two 40,000 square foot office buildings. Work included high count
OSP Fiber and copper cables. (2001)
5. UCLA - Designated Installation Contractor for UCLA Medical Center Voice
and Data Communications infrastructure. (2002)
6. UNIVERSITY OF CALIFORNIA, IRVINE - Installation of OSP fiber and Copper
throughout campus. Installation of 150 locations (600 Cables) in a
150,000 square foot student recreation center. Work also includes
installation of fiber and copper backbone able. (2000)
7. LUCENT TECHNOLOGIES - Installation of 1,000 voice and data stations
(4000 Cables) in an 180,000 square foot laser manufacturing facility.
Design and install MDF, splicing 1200 pair cable, and conduit
horizontal pathways. (2000)
8. PACIFIC SUNWEAR - Installation of (750) duplex category 6 voice and
Data Work Area Outlets, Optical Fiber riser and paging system in two
buildings totaling 320,000 square feet of clothing distribution and
office space. Build-out Pacific Sunwear Corporate Data Center.
Other customers over the past four years have included the following
companies:
Loma Linda University Intel
K-Love SBC
Kaiser Permanente Union Bank of California
Veterinary Pet Insurance Pacsun.com
City of Hope Wells Fargo Bank
As a total telecommunications services provider, Paradigm has network
systems integration and installation experience with Bay Networks, 3Com, and
Cisco Systems.
E. WARRANTIES. Paradigm typically guarantees its materials and
workmanship for 15 years. The Company also registers its installed systems with
the manufacturer and will extend the manufacturers' warranty for the customers
where applicable.
Paradigm is an authorized Commscope, Panduit, Leviton, Ortronics,
Nordx, General/Brand-Rex BICC Company, Siemon and Tyco/Amp Certified
Installations Company. This enables the Company to maintain manufacturers
extended performance and product warranties for its registered projects.
8
F. VENDORS. Paradigm utilizes a network of manufacturers and suppliers
throughout the world. Each supplier is monitored for quality, delivery
performance and cost through a well-established certification program. This
network has manufacturing and engineering capabilities to customize products for
specialized applications. Paradigm believes that the loss of any single source
of supply would not adversely affect its business.
G. COMPETITION. Paradigm competes with other technical service
companies, many of whom have more experience and are better capitalized.
Management believes it compares favorably to competitors because of Paradigm's
broad suite of high quality technical services, product quality and selection,
and its superior customer service.
H. EMPLOYEES. As of November 1, 2002, the Company had 18 full time
employees and no part time employees. None of the Company's employees belong to
a union.
I. PATENTS, COPYRIGHTS AND TRADEMARKS. Paradigm holds no copyrights,
patents or trademarks.
J. CAPITAL. Paradigm's capital is currently sufficient to maintain, but
not to expand its business. Flexxtech, as part of the transaction whereby it
acquired 80% of the outstanding stock of Paradigm, has committed to raise a
total of $250,000 in additional capital for Paradigm, through the private sale
of debt or equity, or perhaps a combination thereof. Whether Flexxtech will be
successful in raising this capital, or over what period and at what cost, is
uncertain at this time. As a result, the sources, availability and terms for
additional capital to expand Paradigm's business are unknown at this date, and
there is no assurance the Company will be able to obtain sufficient capital to
expand its business and further implement its business plan.
K. CAUTION REGARDING FORWARD-LOOKING STATEMENTS. Certain of the
statements contained in this Form 8-K Report are not historical facts, but are
"forward-looking statements". They can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should", "intends" or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that involve
risks and uncertainties. Such forward-looking information involves important
risks and uncertainties that could significantly affect otherwise expected
results in the future.
The Company does not promise to update forward-looking information to
reflect actual results or changes in assumptions or other factors that could
affect those statements. Persons reading this Form 8-K Report are cautioned that
such statements are only predictions and that actual events or results may
differ materially. In evaluating such statements, readers should specifically
consider all the various factors which could cause actual events or results or
differ materially from those anticipated by such forward-looking statements.
(c) OTHER PORTFOLIO INVESTMENTS
-------------------------------
Flexxtech Holdings also owns various smaller investments which have not
been listed because they represent in total less than five percent (5%) of
Flexxtech Holdings' total portfolio assets.
2 PRIMAVERA CORPORATION
-----------------------
On August 15, 2000 Flexxtech Holdings, Inc. acquired 67% of Primavera
Corporation, a Texas corporation, and the parent company and 100% owner of the
outstanding capital stock of North Texas Circuit Board Company.
Primavera Corporation was formed in Texas on April 26, 2000. The
company is currently a holding company, which operates solely through its
wholly-owned subsidiary, North Texas Circuit Board Company. Primavera was
organized to acquire NTCB, and did acquire 100% of NTCB in May of 2000 in
consideration for a loan of $250,000 to NTCB.
Flexxtech Holdings acquired 67% of Primavera Corporation in
consideration for $1,575,000, of which $325,000 was paid in the form of 195,000
shares of Flexxtech Common Stock which was issued to the shareholders of
Primavera, and $1,250,000 which was contributed in cash as additional working
capital to NTCB.
9
On October 31, 2000, Flexxtech's ownership was increased by 13% to 80%
of Primavera Corporation, as a result of renegotiation of the original purchase
agreement. No additional consideration was paid by Flexxtech for this increased
interest.
In July of 2001, the Company acquired the remaining twenty percent of
Primavera's Common Stock in exchange for execution of a release in favor of the
selling shareholders, thereby giving Flexxtech a 100% ownership in both
Primavera and its wholly-owned subsidiary, NTCB.
ITEM 2. DESCRIPTION OF PROPERTY
In January 2002, Flexxtech moved its headquarters to its subsidiary's
facility (NTCB) at 1501 W. Shady Grove Rd., Grand Prairie, Texas 75050.
Flexxtech also leases office space at 5777 W. Century Blvd., Suite 767, Los
Angeles, California 90045, under an office lease. Our monthly rent is $845 per
month. Other office facilities of similar type and terms are readily available
in Los Angeles.
NTCB leases approximately 25,000 square feet of office and factory
space in Grand Prairie, Texas, under a long term lease ending in April of 2001,
at a rental of $10,000 per month. In July of 2002, NTCB entered into a new lease
at a rent of $12,500 per month, extending through June of 2004. Facilities of
similar type and terms are readily available.
ITEM 3. LEGAL PROCEEDINGS
On April 26, 2001 a suit filed in Los Angeles Superior Court was
brought against the Company and certain officers and directors by Robert
Eubanks, Larry Donizette and Luminary Ventures, Inc. The complaint was for
breach of contract among other actions. Management rigorously defended itself,
and believed that a settlement would be reached. Management felt that the action
against the Company was not material to the business of the Company. On April
4th, 2002, a settlement was reached wherein the Company paid $8,000 in cash and
issued them 90,000 warrants to acquire 90,000 shares of Flexxtech Common Stock
at an exercise price of $1.60 per share exercisable through August of 2004.
At December 31, 2001, the Company did not have, nor was it involved in
any other litigation. NTCB, from time to time is involved in litigation in the
ordinary course of its business. All of such litigation has been immaterial to
date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Flexxtech's Common Stock is quoted on the Over-The-Counter Bulletin
Board (OTCBB). There are no outstanding options or warrants to purchase, or
securities convertible into our common equity other than , and . On June 12,
2001, we began trading on the OTCBB, under the symbol "FLXC". Prior to quotation
on the OTCBB , we traded on the Pink Sheets OTC Electronic Quotation Service.
The table below sets forth the high and low bid prices for our Common
Stock for each quarter within the last two fiscal years as reported by Prophet
Financial Systems. These over-the-counter market quotations may reflect
inter-dealer prices without retail mark-up, markdown or commission and may not
necessarily represent actual transactions.
Common Stock Bid
----------- ------------ --------- ---------
High Low
----------- ------------ --------- ---------
Fiscal 2000:
----------- ------------ --------- ---------
1st Quarter $0 $0
----------- ------------ --------- ---------
2nd Quarter $3.67 $3.67
----------- ------------ --------- ---------
3rd Quarter $4.83 $3.33
----------- ------------ --------- ---------
4th Quarter $7.33 $3.67
----------- ------------ --------- ---------
Fiscal 2001:
----------- ------------ --------- ---------
1st Quarter $8.00 $6.00
----------- ------------ --------- ---------
2nd Quarter $8.00 $2.00
----------- ------------ --------- ---------
3rd Quarter $4.50 $0.80
----------- ------------ --------- ---------
4th Quarter $1.25 $0.66
HOLDERS
As of December 31, 2001 Flexxtech had in the aggregate 932 shareholders
directly of record or in street name.
DIVIDENDS
The payment of dividends is within the discretion of our Board of
Directors. We currently intend to retain all earnings, if any, in the
foreseeable future for use in the development of our business. We have not paid
dividends since our inception. It is not anticipated that any dividends will be
paid in the foreseeable future and there can be no assurance that dividends can
or will ever be paid. The payment of dividends is contingent upon future
earnings, if any, our financial condition and capital requirements, general
business conditions and other factors.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
None.
11
RECENT SALES OF UNREGISTERED SECURITIES
During the past two years, the Company has sold the following securities in
transactions exempt from registration under the Securities Act of 1933.
Title & Nature & Underwriting Exemption
Amount of Principal Amount of Discounts & Relied
Date Securities Underwriters Consideration Commissions Upon
-------------------------------------------------------------------------------------
06/2000 13,600 None 5% 10% Reg. D
06/2000 22,400 None 5% 10% Reg. D
06/2000 2,000 None 5% 10% Reg. S
07/09/2000 253,852 None 5% 10% Reg. D
07-09/2000 61,480 None 5% 10% Reg. S
10-12/2000 639,119 None 5% 10% Reg. D
10-12/2000 141,412 None 5% 10% Reg. S
01-03/2001 38,400 None 5% 10% Reg.D
01-03/2001 17,567 None 5% 10% Reg. S
04-06/2001 83,833 None 5% 10% Reg. D
04-06/2001 10,250 None 5% 10% Reg. S
07-09/2001 31,996 None 5% 10% Reg. D
07-09/2001 6,676 None 5% 10% Reg. D
In the 12 months ended December 31, 2001 and pursuant to Bregulation D or
Regulation S we sold:
Amount of Securities Price Gross Proceeds
318,164 $ .21 $ 66,814
152,901 $ .20 $ 30,580
7,333 $ .30 $ 2,200
130,000 $ .35 $ 45,500
3,667 $ .55 $ 2,017
42,306 $ .65 $ 27,499
8,670 $ .75 $ 6,502
105,820 $1.00 $105,820
15,180 $1.67 $ 25,350
3,000 $1.75 $ 5,250
10,333 $3.00 $ 31,000
--------- ------ ---------
Total 691,554 $312,282
========= =========
We also received $30,150 in subscription for 69,689 shares of common stock yet
to be issued.
12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The discussion and financial statements contained herein are for the
months and year ended December 31, 2001 and December 31, 2000. The following
discussion regarding the financial statements of the Company should be read in
conjunction with the financial statements of the Company included herewith.
1. OVERVIEW
(a) Flexxtech changed its business focus in 2001. Flexxtech's
focus was previously based on operating its three wholly or
partially owned subsidiaries through May of 2001. In June
2001, management decided to concentrate management efforts and
Flexxtech's resources on Flexxtech's wholly-owned subsidiary,
North Texas Circuit Board, Co. ("NTCB"). Management further
decided to divest itself from its two other operating
companies, Mardock, Inc. and OpiTV.com, that in management's
view, were not performing. As a result, in July 2001,
Flexxtech sold both Mardock, Inc. and OpiTV.com. As a
subsequent event, on August 20, 2002, we sold North Texas
Circuit Board. We have restated our Statement of Operations by
disclosing the loss from the operations of NTCB, as a separate
line item in the Statement of Operations.
Summary of Disposal of NTCB
---------------------------
On August 20, 2002, the Company sold North Texas Circuit Board. North
Texas Circuit Board (NTCB), a Texas Company which was 100% owned by
Primavera, a 100% owned subsidiary of Flexxtech Holdings, Inc. The
Company owns 100% ownership of Flexxtech Holdings, Inc. NTCB
manufactures printed circuit boards. Per the Share-purchase agreement
between the Company and the purchaser (P), the following facts are
related to the transaction:
NTCB executed certain promissory notes payable to a bank in Texas. The
notes were secured by the assets and 100% of the outstanding shares of
NTCB. In June 2002, the Company signed an agreement with a non-related
party to borrow money on various promissory notes, payable in sixty
days after the signing of the notes and bearing an interest rate of 7%
per annum. The Notes were secured by the properties of NTCB. Total
outstanding amount on such promissory notes amounted to $576,000 at
June 30, 2002. Subsequent to June 30, 2002, NTCB borrowed additional
amount on promissory notes amounting $1,122,188. In July 2002, "P"
purchased all the right, title and interest of bank in the bank notes
amounting $557,672. "P" also acquired security interest held by bank as
collateral. At the date of the agreement, total sum of $2,255,860 was
owed to "P" by NTCB. Since NTCB was in default in the payments of its
obligations, "P" exercised its option under the notes and the security
agreements. At the Closing of the transaction, Primavera sold all of
the duly issued fully paid capital stock of NTCB in consideration of
the amount equal to outstanding debt to "P". It was also, agreed
between the parties that "P" will pay 10% of the after tax profit of
NTCB to the Company for a period of five years subsequent to the
consummation of the transaction. As further consideration to "P", the
Company and its subsidiaries released "P" from all debts and
obligations otherwise owed by NTCB to the Company. The disposal of NTCB
resulted in a net gain of $327,012 to the Company as follows:
Value of the NTCB at disposal: (in 000)
Assets $2,806
Liabilities 3,133
Consideration received --
--------
Gain on disposal $ 327
========
13
Following is the results of the NTCB operations included in the loss
from discontinued operations for all periods presented:
YEAR ENDED DECEMBER 31,
2001 2000
(Dollars in thousands)
Revenue $ 5,716 $ 4,071
Expenses:
Costs of revenue 4,954 3,750
Operating expenses 2,521 1,124
---------- ----------
Total expenses 7,475 4,874
---------- ----------
Loss from operations of discontinued
operations $ (1,759) $ (803)
========== ==========
(b) At the beginning of April, 2000, the Company forward split its
Common Stock on a 2 for 1 basis, increasing Common Stock
outstanding from 2,668,417 shares to 5,336,834 shares.
New management of Flexxtech effected a reverse stock split on
a 1 for 3 basis at the end of April 2000, thereby reducing
common stock outstanding from 5,336,834 shares to 1,778,978
shares.
In March of 2001, Flexxtech accomplished a further 3 for 2
forward stock split, increasing outstanding common stock of
Flexxtech from 7,338,901 shares to 11,008,367 shares
outstanding.
In each case, management was advised by legal counsel that
these stock splits could be accomplished by action of the
Board of Directors and without a shareholders' vote under
Nevada law, and in each case no shareholder vote or consent
was solicited or obtained, and the action was accomplished
solely by action of the Board of Directors and corporate
filings to split the stock filed with the Nevada Secretary of
State.
(c) ADDITIONAL CAPITAL RAISED. In the 12 months ended December 31,
2001 the Company raised a total of debt capital and
convertible debt capital of $2,258,236 comprised of certain
shareholders and non-shareholders loaning the Company
$1,388,236 and convertible debt of $150,000 and $720,000.
The notes of $1,388,236 are due on demand and bear interest of
10% per annum. The $150,000 of convertible debt is payable
$50,000 in August 2004 and $100,000 in April of 2004, and
bears interest at 10% per annum.
The $720,000 received are convertible debentures received from
a private offering the Company commenced in August 2001. The
debentures carry an interest rate of 6% per annum and are due
in August 2003.
The holders of the $150,000 in convertible debt and the
$720,000 in convertible debt are entitled to, at any time or
from time to time, convert 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 closing bid price per share (as reported by Bloomberg, LP)
on the closing date, or (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.
14
2. YEAR ENDED DECEMBER 31, 2001 VERSUS YEAR ENDED DECEMBER 31, 2000, AS AMENDED
(a) Results of Operations
The Company had loss from operation of $9,281,124 in 2001 as compared
to $901,067 in 2000. This loss included general and administration costs of
$7,093,656 and $822,222 for the years ended December 31, 2001 and 2000,
respectively. The increase is due to issuance of 7,005,321 shares for consulting
services and compensation valued at $6,318,168. The Company incurred a net loss
of $12,392,858 for the year ended December 31, 2001 as compared to a net loss of
$1,814,953 for the year ended December 31, 2000. $ 3,111,734 of the loss came
from came from discontinued operations in 2001 as compared to $901,067 in 2000..
ADJUSTMENTS AT SEPTEMBER 30, 2001:
----------------------------------
Subsequent to the issuance of the Company's consolidated financial
statements for the nine-month period ended September 30, 2001, the Company
determined that certain transactions and presentation in the financial
statements had not been accounted properly in the Company's financial
statements. The Company's 2001 financial statements have been restated to
correct errors as follows:
(1) The failure to record the debenture conversion provision
of $55,000 in the three-month period ended September 30, 2001.
(2) Incorrect recording of stock issued for consulting
services. The Company had issued certain shares during nine-month
period ending September 30, 2001 and recorded at an anticipated fair
value. The Company is now adjusting to record such shares at the
average cash price of shares issued in the period ended September 30,
2001.
During the nine-month period September 30, 2001, the Company issued
7,005,321 shares of common stock for consulting services and compensation
amounting $6,318,168. Included in the shares issued for services were 6,429,333
shares issued to a related party for consulting services of $ 5,851,000.
ADJUSTMENTS AT DECEMBER 31, 2001
--------------------------------
The Company also recorded the debenture conversion provision of
$125,000 in the three month period ended December 31, 2001.
The Company had recorded the decline in market value as a temporary
loss in the statements of Operations for the year ended December 31, 2001. The
Company now believes the decline in market value was other than temporary.
Accordingly, a loss of $575,500 has been recognized as the realized loss in the
Statements of Operations for the year ended December 31, 2001. In deciding the
whether the loss was other than temporary, the Company considered the length of
time and the extent to whether the market value has been less than cost, the
financial condition of the issuer, change in market value of the security
subsequent to the year end but prior to issuance of the financial statements:
The Company failed to record general and administrative expenses of
$10,550.
The Company has restated its Statements of Operations by disclosing the
loss from the operations of NTCB, disposed in 2002, as a separate line item in
the Statement of Operations.
15
The effect of the correction of all the errors is as follows:
Year ended
December 31, 2001
-----------------
AS PREVIOUSLY AS
REPORTED RESTATED
-------- --------
STATEMENT OF SHAREHOLDERS' DEFICIT
Accumulated deficit: $ (9,277,077) $ (14,235,009)
Additional paid-in capital $ 7,388,776 $ 11,771,208
STATEMENT OF OPERATIONS (excluding NTCB operations):
Miscellaneous general and
administrative expenses $ -- $ 10,550
Interest expense $ 123,447 $ 303,447
Consulting expense $ 2,126,286 $ 6,318,168
Realized loss on marketable
securities $ -- $ 575,500
Net loss $ (7,434,926) $ (12,392,858)
Basic and diluted loss per share $ (0.56) $ (0.93)
The net loss also includes interest expense of $303,447 for the year
ended December 31, 2001 verses $50,197 for 2000. Total Other Income (expenses)
were $(2,185,868) and $(77,245) (including write off of goodwill of $420,188 for
2001) for the years ended December 31, 2001 and 2000, respectively. The other
loss included a loss of $820,000 on settlement of note receivable in 2001. The
note was exchanged for 450,000 shares of the company's common stock. Although
the common stock was trading at levels of $2 per share on the date of the
tranaction, the value of the block trade given the liquidity of the stock for
the company was valued at $80,000,
The Company incurred general, administrative and selling expenses of
$7,093,656 for the year ended December 31, 2001 as compared to $822,222 for the
year ended December 31, 2000. General, Administrative and Selling Expenses had a
one time significant increase of $6,318,168 for consulting services paid in
shares of common stock.
We had a Comprehensive Loss of $12,392,858 for the year-end December
31, 2001 as compared to a Comprehensive Loss of $2,181,323 for the year-end
December 31, 2000. The Comprehensive Loss includes the Discontinued Operations
loss of $3,111,734.
We have restated our Statement of Operations by disclosing the loss
from the operations of NTCB, disposed in August 2002, separately. Therefore
total revenues for the year ended December 31, 2001 and 2000 were $0.
Total cost of goods sold for the year December 31, 2001 and 2000 were $
0.
(b) Liquidity and Capital Resources
-----------------------------------
As of December 31, 2001, the Company had cash and cash equivalents of
$370,784 as compared to cash and cash equivalents of $ 519,865 as of December
31, 2000. At December 31, 2000, the Company had a working capital of $691,261 as
compared to a working capital deficiency (total current liabilities in excess of
current assets) of ($3,045,428) as of December 31, 2001. Net cash used in
operating activities was $ 1,019,128 for year ended December 31, 2001 and $
1,102,458 for the year ended December 31, 2000. Net cash from financing
activities was $ 1,057,575 for year ended December 31, 2001, as compared to $
1,991,768 for the year ended December 31, 2000.
The principal use of cash for the year ended December 31, 2001 was to
payment of loans of $1,510,012. The Company raised a total of $ 1,255,583 from
the issuance of common stock, net of stock issuance costs, loan from a private
lender and the issuance of convertible debentures during the year ended December
31, 2001, and this was used to fund the net loss from operations.
Net cash used in investing activities was $187,528, compared with net
cash used in investing activities was $372,314 for the year ended December 31,
2001 and 2000, respectively.
16
We have privately sold shares of common stock of the Company
periodically pursuant to Regulation D, Rule 506, as amended, and Regulation S,
as amended. In the twelve months ended December 31, 2001, the Company sold
797,374 shares for cash in the amount of $346,233 and the Company received
subscription of $30,150 for 69,689 shares of common stock to be issued. The
Company issued 6,985,321 shares of common stock for consulting services, which
included 6,880,583 shares of common stock for consulting services and
promotional services, which resulted in no proceeds. Of the 6,880,583 shares,
5,909,333 were issued to VLK Capital Corp., already a large shareholder in the
Company. VLK subsequently disposed on 783,333 shares to Greg Mardock, an officer
and director of the Company and disposed of 2,646,000 to Edward Fearon and
500.000 to Raymond Craig. The Company recorded value of shares issued to related
party based upon market value of such large chunk of stock at one time and its
restriction clause. The Company issued 20,000 shares of common stock for
compensation amounting $91,800. The Company exchanged 27,273 shares of common
stock for debt amounting $13,636. The exchange resulted in no gain or loses to
the Company.
The Company issued 600,000 shares of common stock to Sierra Nevada
Advisors, as collateral against a loan of $195,573. The Company has not recorded
any value of such shares since the shares are issued as collateral and are
returnable once the loan amount is fully paid.
17
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included herewith: our audited
financial statements for the year ended December 31, 2000, and our audited
financial statements for the year ended December 31, 2001.
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Flexxtech Corporation
We have audited the accompanying consolidated balance sheet of Flexxtech
Corporation, a Nevada Corporation and subsidiaries (the "Company") as of
December 31, 2001 and the related consolidated statements of operations,
stockholders' deficit and cash flows for the years ended December 31, 2001 and
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Flexxtech
Corporation and subsidiaries as of December 31, 2001 and the results of its
operations and its cash flows for the years ended December 31, 2001 and 2000 in
conformity with accounting principles generally accepted in the United States of
America.
The Company's consolidated financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. The Company has accumulated deficit of $14,235,009 including net
losses of $12,392,858 and $1,814,953 for the years ended December 31, 2001 and
2000, respectively. The Company has a shareholders deficit of $2,416,423 on
December 31, 2001. These factors as discussed in Note 4 to the consolidated
financial statements, raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 4. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 18, the 2001 financial statements have been restated.
/s/ Kabani & Company, Inc.
KABANI & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Fountain Valley, California
March 14, 2002 except for note 19, as to which the date is November 14, 2002.
18
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2001
(Restated)
ASSETS
Current Asset:
Cash and cash equivalents $ 370,784
Accounts receivable, net 581,377
Inventory 524,882
Prepaid expenses 13,280
Notes receivable - related parties 19,000
Deposits & other current assets 1,582
-------------
Total Current Asset 1,510,905
-------------
Property & equipment, net 1,508,205
-------------
TOTAL ASSETS $ 3,019,110
=============
LIABILITIES STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 1,438,215
Accrued expenses 236,446
Loans payable - current 1,123,548
Loans payable related parties 1,758,124
-------------
Total Current Liabilities 4,556,333
Long-term Liabilities:
Convertible debt 879,200
STOCKHOLDERS' DEFICIT
Common stock, authorized 100,000,000 shares at $.001 par
value, issued and outstanding 17,869,853 shares 17,228
Additional paid in capital 11,771,208
Shares to be issued 30,150
Accumulated deficit (14,235,009)
-------------
Total Stockholders' Deficit (2,416,423)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,019,110
=============
The accompanying notes are an integral part of these consolidated
financial statements.
19
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 & 2000
(Restated)
2001 2000
------------- -------------
Sales $ -- $ --
Cost of sales -- --
------------- -------------
Gross profit -- --
General and Administrative expenses 7,093,656 822,222
------------- -------------
Loss from operations (7,093,656) (822,222)
Other income (expenses)
Impairment of goodwill (420,188) --
Realized loss on sale of marketable securities (75,708) (53,398)
Permanent loss on decline of value of marketable securities (575,500) --
Other income (expense) 7,500 --
Loss on settlement of note receivable (820,000) --
Interest income 1,475 26,350
Interest expense (303,447) (50,197)
------------- -------------
Total other income (expenses) (2,185,868) (77,245)
------------- -------------
Loss from continuing operations before
income taxes (9,279,524) (899,467)
Provision of Income tax 1,600 1,600
------------- -------------
Loss from continuing operations (9,281,124) (901,067)
Discontinued operations:
Loss from operations of subsidiary disposed in 2001
(Less applicable income taxes of $1600) (note 14) (34,492) (111,166)
Loss from operations of subsidiary disposed in 2002, net (note 19) (1,759,171) (802,720)
Loss on disposal of subsidiary in 2001, net (note 14) (1,318,071) --
------------- -------------
(3,111,734) (913,886)
------------- -------------
Net loss # (12,392,858) # (1,814,953)
Other comprehensive loss:
Unrealized loss on investments available for sale -- (366,370)
------------- -------------
Comprehensive Loss $(12,392,858 $ (2,181,323)
============= =============
Basic and diluted loss per share from continuing operations $ (0.70) $ (0.15)
------------- -------------
Basic and diluted loss per share from discontinued operations $ (0.23) $ (0.16)
------------- -------------
Basic and diluted loss per share $ (0.93) $ (0.31)
============= =============
------------- -------------
Basic and diluted weighted average shares outstanding * 13,388,738 5,814,635
============= =============
* The basic and diluted net loss per share has been restated to
retroactively effect a 2:1 forward stock split on April 14, 2000, a 1:3
reverse split on April 29, 2000 and a 3:2 forward stock split at March
26, 2001.
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.
20
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 2001 & 2000
(Restated)
Common Stock
------------------------------------------
Additional Shares Other Total
Number of paid-in to be Accumulated Comprehensive Stockholders'
Shares Amount capital issued Deficit Income(loss) Equity
------------- ------------- ------------- ----------- ------------- ------------- -------------
Balance, January 1, 2000 2,668,417 2,669 $ 24,068 $ -- $ (27,198) $ -- $ (461)
Issuance of Common stock
for consulting services 100,672 100 385,572 -- -- -- 385,672
Issuance of Common stock
for acquisition of subsidiaries 1,245,000 1,245 1,548,755 -- -- -- 1,550,000
Issuance of Common stock
against debt settlement 90,000 90 59,910 -- -- -- 60,000
Issuance of Common stock for
acquisition of marketable
Securities 4,950,000 4,950 1,420,050 -- -- -- 1,425,000
Issuance of Common stock
against a note receivable 750,000 750 1,249,250 -- -- -- 1,250,000
Issuance of shares for cash 1,170,797 1,171 1,690,068 -- -- -- 1,691,239
Unrealizable loss on
marketable securities -- -- -- -- -- (366,370) (366,370)
Net Loss for year ended
December 31, 2000 -- -- -- -- (1,814,953) -- (1,814,953)
------------- ------------- ------------- ----------- ------------- ------------- -------------
Balance, December 31, 2000 10,974,885 10,975 6,377,673 -- (1,842,151) (366,370) 4,180,127
Issuance of Common stock for
consulting services 6,985,321 6,970 6,291,598 -- -- -- 6,298,568
Issuance of Common stock
against debt settlement 27,273 27 13,609 -- -- -- 13,636
Issuance of Common stock to
employees for compensation 20,000 20 19,580 -- -- -- 19,600
Issuance of shares for cash 797,374 770 345,463 -- -- -- 346,233
Cancellation of common stock
acquired through disposal
of subsidiaries and other
assets (note 12) (1,535,000) (1,535) (1,456,715) -- -- -- (1,458,250)
Issuance of shares as
collateral for a loan 600,000 -- -- -- -- -- --
Subscription received for
69,689 shares to be issued -- -- -- 30,150 -- -- 30,150
Beneficial conversion
feature of debentures -- -- 180,000 -- -- -- 180,000
Unrealizable loss on
marketable securities -- -- -- -- -- (209,130) (209,130)
Permanent loss on decline of
value of marketable securities -- -- -- -- -- 575,500 575,500
Net Loss for year ended
December 31, 2001 -- -- -- -- (12,392,858) -- (12,392,858)
------------- ------------- ------------- ----------- ------------- ------------- -------------
Balance, December 31, 2001 17,869,853 17,228 $ 11,771,208 $ 30,150 $(14,235,009) -- $ (2,416,423)
============= ============= ============= =========== ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
21
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 & 2000
(Restated)
2001 2000
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(12,392,858) $ (1,814,953)
Adjustments to reconcile net loss to cash used in
operating activities
Depreciation and amortization 309,556 144,437
Amortization of goodwill 119,357 56,745
Impairment of goodwill 420,188 --
Issuance of stocks for consulting services & compensation 6,318,168 385,672
Loss on sale of marketable securities 75,708 53,398
Permanent loss on decline of value of marketable securities 575,500
Beneficial conversion feature of debentures 180,000
Loss on settlement of note receivable 820,000 --
Discontinued operations in 2001 1,352,563 --
(Increase) / decrease in current assets
Accounts receivable 602,837 454,473
Insurance receivable 247,490 (247,490)
Inventory (72,340) 383,639
Prepaid expense (13,280) --
Deposits & other current assets 20,545 (9,035)
Increase /(decrease) in current liabilities
Accounts payable 217,490 (260,853)
Accrued expenses 187,083 (244,515)
Deferred Income Tax 10,559 --
Customers' deposit 2,306 (3,976)
------------- -------------
NET CASH USED IN OPERATING ACTIVITIES FROM
CONTINUED OPERATIONS (1,019,128) (1,102,458)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities -- (202,671)
Sale of marketable securities 197,456 48,485
Acquisition of property & equipment (384,984) (218,128)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (187,528) (372,314)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of common stock 346,233 1,691,239
Proceeds from shares to be issued 30,150 --
Proceeds from issuance of convertible debt 879,200 --
Payments on notes receivable -- (152,524)
Repayment of notes receivable 8,880 --
Proceeds from borrowings 1,303,124 453,053
Payments of loans (1,510,012) --
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,057,575 1,991,768
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (149,081) 516,996
CASH AND CASH EQUIVALENTS -BEGINNING 519,865 2,869
------------- -------------
CASH AND CASH EQUIVALENTS -ENDING $ 370,784 $ 519,865
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
22
1. DESCRIPTION OF BUSINESS AND SEGMENTS
The Company was organized on March 24, 1998, under the laws of the
State of Nevada, as Color Strategies. On December 20, 1999, the Company changed
its name to Infinite Technology Corporation. The Company changed its name to
Flexxtech Corporation in April 2000.
Primavera Corporation (PC) was incorporated in the state of Texas on
April 26, 2000. Pursuant to an acquisition agreement, dated May 11, 2000, PC
acquired one hundred percent (100%) of the common shares outstanding of North
Texas Circuit Board, Inc. (NTCB). NTCB was incorporated in 1978 in the state of
Texas. NTCB manufactures printed circuit boards. The products are sold through
its distribution center in Irving, Texas utilizing outside sales people.
Deliveries are made primarily throughout the United States. In September 2002,
the Company sold North Texas Circuit Board.
Flexxtech Holdings, Inc., a Nevada Corporation, was formed on October
1, 1999. Flexxtech Holdings, Inc. owns majority shares ownership of Primavera,
the parent company of North Texas Circuit Board, Inc.
2. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Flexxtech Corporation (the "Parent"), and its 100% owned subsidiary,
Flexxtech Holdings, Inc., collectively referred to as the "Company". Flexxtech
Holdings, Inc.'s has a 100% owned subsidiary, Primavera Corporation (a Texas
corporation). All significant inter-company accounts and transactions have been
eliminated in consolidation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with a maturity of three
months or less from the date of purchase that are readily convertible into cash
to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
In determining the allowance to be maintained, the management evaluates
many factors including industry and historical loss experience. The allowance
for doubtful accounts is maintained at an amount management deems adequate to
cover estimated losses. The allowance for doubtful accounts at December 31, 2001
was $25,303 for trade receivables.
INVENTORY
Inventory is valued at the lower of cost or market value. Cost is
determined using the first-in, first-out method. Inventory at December 31, 2001
consisted of:
Raw materials $ 276,858
Work-in-process 224,545
Gold Tank 23,479
--------------
$ 524,882
==============
23
MARKETABLE SECURITIES
The Company's securities are classified as available-for-sale and, as
such, are carried at fair value. All of the securities comprised of shares of
common stock of investee. Securities classified as available-for-sale may be
sold in response to changes in interest rates, liquidity needs, and for other
purposes. The Company does not currently have any held-to-maturity or trading
securities.
Unrealized holding gains and losses for available-for-sale securities
are excluded from earnings and reported as a separate component of stockholder's
equity. Realized gains and losses for securities classified as
available-for-sale are reported in earnings based upon the adjusted cost of the
specific security sold. On December 31, 2001, the Company determined that the
investment in marketable securities was at zero value based upon the fair value
of the marketable securities on December 31, 2001. The Company determined the
decline in value of the marketable securities was permanent and therefore,
recorded realized loss on marketable securities amounting $575,500. Total
accumulated unrealized loss on marketable securities amounted to $366,370 at
December 31, 2000.
PROPERTY & EQUIPMENT
Property and equipment is carried at cost. Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives of the assets ranging from three to five years. Expenditures for
maintenance and repairs are charged to expense as incurred.
GOODWILL
The Company continuously monitors its goodwill to determine whether any
impairment of this asset has occurred. In making such determination with respect
to goodwill, the Company evaluates the performance, on an undiscounted cash flow
basis, of the underlying assets or group of assets that gave rise to this
amount. Goodwill was being amortized on the straight-line basis over 15 years.
As of December 31, 2001, goodwill was $420,188 after amortization of $119,357
for the year ended December 31, 2001.
On December 31, 2001, the Company re-evaluated value of each
acquisition based upon performance and future cash flow. The Company estimated
the total value of goodwill at December 31, 2001 at zero since NTCB was having
losses through December 31, 2001 and did not have goodwill value associated with
it. The Company wrote off entire net goodwill of $420,188 on December 31, 2001.
The write off of goodwill has been shown as a separate line item in the
Statements of Operations.
REVENUE RECOGNITION
The Company's revenue recognition policies are in compliance with Staff
accounting bulletin (SAB) 101. All of the Company's revenue is from sale of
Circuit Boards by NTCB. Revenue is recognized upon shipment, provided that
evidence of an arrangement exists, title and risk of loss have passed to the
customer, fees are fixed or determinable and collection of the related
receivable is reasonably assured. Revenue is recorded net of estimated product
returns, which is based upon the Company's return policy, sales agreements,
management estimates of potential future product returns related to current
period revenue, current economic trends, changes in customer composition and
historical experience. The Company accrues for warranty costs, sales returns,
and other allowances based on its experience. 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. The Company provides a provision for bad debts
based on its evaluation of receivables.
ADVERTISING
The Company expenses advertising costs as incurred.
24
INCOME TAXES
Deferred income tax assets and liabilities are computed annually for
differences between the financial statements and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted laws and rates applicable to the periods in which the
differences are expected to affect taxable income (loss). Valuation allowance is
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
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.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 prescribes accounting and reporting
standards for all stock-based compensation plans, including employee stock
options, restricted stock, employee stock purchase plans and stock appreciation
rights. SFAS No. 123 requires compensation expense to be recorded (i) using the
new fair value method or (ii) using the existing accounting rules prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for stock issued to
employees" (APB 25) and related interpretations with pro forma disclosure of
what net income and earnings per share would have been had the Company adopted
the new fair value method. The company uses the intrinsic value method
prescribed by APB25 and has opted for the disclosure provisions of SFAS No.123.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of financial accounting standard No. 107, Disclosures about
fair value of financial instruments, requires that the Company disclose
estimated fair values of financial instruments. The carrying amounts reported in
the statements of financial position for current assets and current liabilities
qualifying as financial instruments are a reasonable estimate of fair value.
COMPREHENSIVE INCOME
Statement of financial accounting standards No. 130, Reporting
comprehensive income (SFAS No. 130), establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity, except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in financial statements that are displayed with the same
prominence as other financial statements. Accumulated other comprehensive income
as reported in the accompanying consolidated balance sheet represents unrealized
loss on available for sale securities.
25
REPORTING SEGMENTS
Statement of financial accounting standards No. 131, Disclosures about
segments of an enterprise and related information (SFAS No. 131), which
superceded statement of financial accounting standards No. 14, Financial
reporting for segments of a business enterprise, establishes standards for the
way that public enterprises report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performances. The Company allocates resources and assesses the performance of
its sales activities as one segment.
RISKS AND UNCERTAINTIES
In the normal course of business, the Company is subject to certain
risks and uncertainties. The Company provides its product on unsecured credit to
most of its customers, the majority of which are in the defense industry.
Consequently, the Company's ability to collect the amounts due from customers is
affected by the economic fluctuations in that industry.
RECLASSIFICATIONS
For comparative purposes, prior years' consolidated financial
statements have been reclassified to conform with report classifications of the
current year.
RECENT PRONOUNCEMENTS
On July 20, 2001, the FASB issued SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These
statements make significant changes to the accounting for business combinations,
goodwill, and intangible assets.
SFAS No. 141 establishes new standards for accounting and reporting
requirements for business combinations and will require that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001. Use of the pooling-of-interests method will be prohibited. This statement
is effective for business combinations completed after June 30, 2001.
SFAS No. 142 establishes new standards for goodwill acquired in a
business combination and eliminates amortization of goodwill and instead sets
forth methods to periodically evaluate goodwill for impairment. Intangible
assets with a determinable useful life will continue to be amortized over that
period. This statement becomes effective January 1, 2002.
Management is in the process of evaluating the requirements of SFAS No.
141 and 142 and does not expect these pronouncements will materially impact the
Company's financial position or results of operations.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations". SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This Statement is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," was issued in August 2001. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001, and addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement
supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," for the disposal of
a segment of a business.
26
Management is in the process of evaluating the requirements of SFAS No.
143 and 144 but does not expect these pronouncements will materially impact the
Company's financial position or results of operations.
In May 2002, the Board issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections ("SFAS 145"). SFAS 145 rescinds the automatic treatment of gains or
losses from extinguishments of debt as extraordinary unless they meet the
criteria for extraordinary items as outlined in APB Opinion No. 30, Reporting
the Results of Operations, Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. SFAS 145 also requires sale-leaseback accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions and makes various technical corrections to existing pronouncements.
The provisions of SFAS 145 related to the rescission of FASB Statement 4 are
effective for fiscal years beginning after May 15, 2002, with early adoption
encouraged. All other provisions of SFAS 145 are effective for transactions
occurring after May 15, 2002, with early adoption encouraged.
In June 2002, the FASB issued SFAS No. 146 " Accounting for Costs
Associated with exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3 a
liability for an exit cost as defined, was recognized at the date of an entity's
commitment to an exit plan.
The Company does not anticipate that adoption of SFAS No 145 and 146
will have a material effect on its earnings or financial position.
4. 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
$ 14,235,009 including net losses of $12,392,858 and $1,814,953 for the years
ended December 31, 2001 and 2000, respectively. 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 December 31, 2001, towards (i) obtaining
additional equity financing through various private placements (ii) reduction of
salaries and general and administrative expenses (iii) disposal of some of the
non-profitable subsidiaries and (iv) evaluation of its distribution and
marketing methods.
In that regard, the Company sold 797,374 shares for cash in the amount
of $346,233 and the Company received subscription of $30,150 for 69,689 shares
of common stock to be issued during the year ended December 31, 2001. The
company also issued convertible debentures amounting $720,000, due in August
2003 and issued convertible promissory notes of $59,200 due on March 1, 2004 and
$100,000 due on April 1, 2004 (note 12). The Company also disposed off three of
its non-profitable subsidiaries during the year 2001 (note 14) and another
subsidiary in 2002 (note 19).
27
5. NOTES RECEIVABLE - RELATED PARTY
As of December 31, 2001, the Company has notes receivable from an
officer of the Company, totaling $19,000. The notes bear interest rate of 10%
per year, are unsecured and due on demand. Interest income from Note receivable
from related parties, for the year ended December 31, 2001 and 2000, amounted to
$1,000 and 26,350, respectively.
6. INVESTMENTS IN STOCK AVAILABLE FOR SALE
Following is a summary of investment securities classified as available
for sale as on December 31, 2001:
Cost Basis Fair Value Gross loss
---------- ---------- ----------
Marketable equity
securities-Common stock $ 575,500 $ -- $ 575,500
The Company has recorded the decline in market value as other than
temporary. Accordingly, a loss of $575,500 has been recognized as the realized
loss in the Statements of Operations for the year ended December 31, 2001. In
deciding the whether the loss was other than temporary, the Company considered
the length of time and the extent to whether the market value has been less than
cost, the financial condition of the issuer, change in market value of the
security subsequent to the year end but prior to issuance of the financial
statements.
7. PROPERTY AND EQUIPMENT
Property and equipment comprised of following on December 31, 2001:
Machinery and equipment $ 2,484,020
Furniture & fixtures 121,030
Computer software 149,731
Transportation equipment 69,530
------------
2,824,311
Less Accumulated Depreciation (1,316,106)
------------
$ 1,508,205
============
8. LOANS PAYABLE
The loans payable comprised of following as of December 31, 2001:
Lender Terms Amount
------ ----- ------
Note Payable Due on demand unpaid balance plus interest at $ 316,130
Comerica Bank lower of Maximum rate defined as interest rate
is subject to changes under various conditions
maximum nonuserous rate of interest or prime
rate plus 2%. The note and other debtness to the
bank are secured by assets of NTCB.
Revolving Line of Receivable line of credit, payable on demand, 460,952
credit Comerica unpaid balance plus interest at lower of Maximum
Bank rate defined as maximum nonuserous rate of
interest or prime rate plus 2%. The interest
rate is subject to changes under various
conditions. The note and other debtness to the
bank are secured by assets of the Company. The
note is personally guaranteed by the president
of NTCB.
Note Payable Note Payable to an affiliated company related 63,975
BECO M-A, L.P through common officers at Primavera. Due on
demand, unsecured and bears an interest rate of
9% per year. Total interest during the year
amounted to $5,400.
28
Notes payable to Due by July 2001, bear interest rates ranging 282,491
Vendors at NTCB from 8% to 12% and secured by the assets of
NTCB.
Convertible Due in 2003, secured by common stock of the 720,000
debentures Company and bear interest rates of 6% per annum
(see note 12)
Convertible Due in 2004, secured by common stock of the 159,200
promissory notes Company and bear interest rates of 10% per annum
(see note 12)
Notes payable to The notes are payable to related party through
related parties common major shareholders and officer of the
Company, due on demand, bear interest rate
ranging from 10% to 18% per year and secured by
the assets of the Company. Interest paid during
the year amounted to $88,344. 1,758,124
------------
Total debt 3,760,872
Less: total current 2,881,672
------------
Total-long term $ 879,200
============
The current portion of long-term debt has been reflected in the balance
sheet on December 31, 2001, as follows:
Loans payable - current $ 1,123,548
Loans payable related parties - current 1,758,124
------------
$ 2,881,672
============
The current maturity of notes payable, including capital lease
obligations, is as follows:
Year Ended December 31.
-----------------------
2001 $ 2,881,672
2002 --
2003 720,000
2004 159,200
---------------
TOTAL $ 3,760,872
===============
9. LITIGATION
In April 2001, a suit was brought against the Company and certain
officers and directors for alleged breach of contract. The Company has denied
all the claims and believes it is a frivolous suit. The management of the
Company plans to rigorously defend the Company. Management does not believe
implication of this litigation will have any material impact on the Company's
financial statements. Subsequent to the year ended December 31, 2001, the
Company settled the litigation by agreeing to pay the plaintiffs a sum of
$8,000, 82,500 shares of restricted common stock and 90,000 options to purchase
common stock of the Company at $1.66 per share, with an expiration date of
January 1, 2004.
In June 2002, a suit was brought against the Company for alleged breach
of contract. The suit was brought by a Note Holder for the return of principal
and interest of $100,000 plus 10% interest. The loan was made on April 11, 2001.
The Company has not responded to the suit and is in negotiation with the Note
Holder. The Company believes it is a frivolous suit. However, should a
settlement not be reached, and the plaintiff is awarded a judgment, the judgment
may have an adverse material impact on the Company and its financial statements.
29
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. INCOME TAXES
No provision was made for Federal income tax since the Company has
significant net operating loss carryforwards. Through December 31, 2001, the
Company incurred net operating losses for tax purposes of approximately
$12,300,000. The net operating loss carryforwards may be used to reduce taxable
income through the year 2016. Net operating loss for carryforwards for the State
of California are generally available to reduce taxable income through the year
2006. 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.
Temporary differences which give rise to deferred tax assets and
liabilities at December 31, 2001 comprised of depreciation and amortization and
net operating loss carry forward. The gross deferred tax asset balance as of
December 31, 2001 was approximately $ 4,920,000. A 100% valuation allowance has
been established against the deferred tax assets, as the utilization of the loss
carrytforwards cannot reasonably be assured.
The following is a reconciliation of the provision for income taxes at
the U.S. federal income tax rate to the income taxes reflected in the
Consolidated Statements of Operations:
December 31, December 31,
2001 2000
------------ ------------
Tax expense (credit) at statutory
rate-federal (34)% (34)%
State tax expense net of federal tax (6) (6)
Permanent differences 1 1
Changes in valuation allowance (39) (39)
------------ ------------
Tax expense at actual rate -- --
============ ============
11. COMMITMENT
Lease - NTCB leased its office and business facilities in Grand
Prairie, Texas under a lease agreement for two years beginning May 2000 for
$10,000 per month, with an option to renew the lease for three additional years
at a rental rate of $12,500 per month. The Company had an option to purchase the
property for $690,000 during the initial two-year rental term and for $750,000
during the 3-year renewal period. The Company disposed off NTCB in 2002 (note
19).
12. STOCKHOLDERS' EQUITY
STOCK SPLIT
On December 29, 2000, the Board of Directors of the Company declared a
13.09322865 to 1 forward stock split of the Company's common stock. The
stockholders approved an increase in the authorized number of shares of common
stock from 26 million to 100 million. On April 14, 2000, the Company effected a
2-for-1 forward stock split of its common stock. On April 29, 2000, the Company
effected a reverse stock split of 1:3 and on March 26, 2001, the Company
effected a 3:2 forward stock split. The financial statements have been
retroactively restated for the effects of stock splits.
COMMON STOCK:
During the year ended December 31, 2001, 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:
30
Effective March 30, 2001, the Board of directors approved to cancel
750,000 shares of common stock issued to a related party, related through common
share holder, in exchange of various notes receivable. The notes were receivable
from a Corporation totaling $1,250,000. The notes, carried interest ranging from
8% to 12% per year, were secured and due on demand. The company returned the
notes to the related party. There was no gain or loss on the return of note as
the Company received the whole consideration paid within short period of time.
During the year, the Company disposed of two subsidiaries in exchange
of 310,000 shares of common stock of the Company valued at $62,000. The Company
exchanged a note receivable from a related party amounting $900,000 for 450,000
shares of the Company's common stock valued at $80,000, resulting in a loss of
$820,000. The Company sold marketable securities to a related party for 25,000
shares of the Company's common stock valued at $66,250.
During the year, the Company cancelled 1,535,000 shares of common stock
it had in its treasury.
During the year ended December 31, 2001, the Company exchanged 27,273
shares of common stock for debt amounting $13,636. The exchange resulted in no
gain or loses to the Company.
During six-month period ending June 30, 2001, the Company issued
135,907 shares of common stock for cash amounting $132,716, 156,820 shares for
services amounting $ 153,683 and 20,000 shares for compensation amounting $
19,600. During the quarter ended September 30, 2001, the Company issued 40,996
shares of common stock for cash amounting $37,420 and 6,828,501 shares for
services for $ 6,144,885 including 6,429,333 shares for consulting services to a
related party for $ 5,851,000.
During the three-month period ending December 31, 2001, the Company
issued 620,471 shares of common stock for cash amounting $176,097. The Company
issued 600,000 shares of common stock to a related party, related by common
major shareholders, as a collateral against the loan of $195,573. The Company
has not recorded any value for such shares since the shares are issued as
collateral and are returnable once the loan amount is fully paid.
CONVERTIBLE DEBENTURES:
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.
The beneficial conversion feature represents the difference between the fair
value of the shares and the discounted conversion price multiplied by the number
of shares.
CONVERTIBLE PROMISSORY NOTES PAYABLE
The Company issued convertible promissory notes of $59,200 due on March
1, 2004 and $100,000 due on April 1, 2004, carrying an interest rate of 10% per
annum. The holder of $59,200 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
$4.66 per share of common stock. The notes are secured and collateralized by
shares of common stock of the Company at one share per every three dollars and
twenty-five cents ($3.35) of the principal. 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 notes
are secured and collateralized by shares of common stock of the Company at one
share per every five dollars ($5.00) of the principal.
31
STOCK OPTION PLAN
The Company has adopted a Stock option plan for the granting of options
to employees, consultants and other providers of goods and services to the
Company. The Company has set aside 1,000,000 shares of common stock under the
plan. No option has been granted under the plan through December 31, 2001.
13. 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 income taxes of $932 and interest of $133,680 during
the year ended December 31, 2001. The Company paid income taxes of $3,614 and
interest of $126,361 during the year ended December 31, 2000.
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The cash flow statements do not include following non-cash investing
and financing activities:
(1) During the year, the Company disposed of two subsidiaries in
exchange of 310,000 shares of common stock of the Company,
resulting in a loss of $1,318,071. The cash flow statements do
not include disposal of following assets and liabilities of
the disposed companies:
Current assets $ 97,662
Non-current assets $ 101,074
Current liabilities $ 273,781
(2) The Company issued 6,985,321 shares of common stock for
consulting services amounting $2,023,936, including 6,429,333
restricted shares for consulting services to a related party
for $1,286,000.
(3) The Company exchanged a note receivable from a related party
for 450,000 shares of the Company's common stock valued at
$80,000, resulting in a loss of $820,000.
(4) On July 1st, 2001 the Company sold 100,000 shares of
Easyriders, Inc. to a shareholder for 25,000 shares common
stock of Flexxtech resulting in a realized loss of $23,750.
14. DISPOSAL OF SUBSIDIARIES AND INVESTMENTS
DISPOSAL IN THE PERIOD ENDED SEPTEMBER 30, 2001:
On July 1st, 2001, the Company sold two of its subsidiaries to its
previous owners. Mardock, Inc. in exchange for 200,000 shares of its common
stock and OpiTV.com for 110,000 shares of its common stock (including return of
60,000 shares by an officer of OpiTV). Mardock, Inc. was established in 1986 and
was a designer, manufacturer, and distributor of apparel and promotional
products to the corporate community. OpiTV.com, a Nevada Corporation, was formed
on October 12, 1999. OpiTV.com was an I-Commerce technology company. Through
June 30, 2001, OpiTV.com has not generated any revenue. The valuation of the
310,000 shares of common stock at $62,000 was based upon estimated fair value of
the shares. The Company also, disposed off its subsidiary, Flexx Capital
Partners (FCP). FCP, a Nevada Corporation, was formed on December 1, 2000. FCP
did not have any operations during the years ended December 31, 2001 and 2000.
The subsidiary was acquired for $5,000 and disposed off for zero amounts. The
disposal of subsidiaries resulted in net loss of $1,318,071. Following is the
summary of the transactions ((Dollars in thousands):
32
Mardock OpiTV Total
------- ----- -----
Investment $600 $850 $1,450
Value of the Companies at disposal:
Assets 196 2 198
Liabilities (250) (23) (273)
Consideration received (40) (22) (62)
Loss on disposal $(506) $(807) (1,313)
Loss on disposal of Flexx
Capital Partners (5)
Total loss on disposal of subsidiaries $(1,318)
Following is the results of the Subsidiaries disposed off in 2001:
MARDOCK:
PERIOD ENDED PERIOD ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
(Dollars in thousands) (Dollars in thousands)
Revenue $ 285 $ 455
Expenses:
Costs of revenue 166 309
Operating expenses 146 202
--------- ---------
Total expenses 312 511
--------- ---------
Loss from discontinued
operations $ (27) $ (56)
========= =========
OPITV:
PERIOD ENDED PERIOD ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
(Dollars in thousands) (Dollars in thousands)
Revenue $ -- $ --
Expenses:
Costs of revenue -- --
Operating expenses 7 (55)
--------- ---------
Total expenses 7 (55)
--------- ---------
Loss from discontinued
operations $ (7) $ (55)
========= =========
TOTAL LOSS FROM OPERATIONS OF SUBSIDIARIES
DISPOSED OFF IN 2001 $ (34) $ (111)
========= =========
Flexx Capital Partners did not have any operation since its inception.
On July 1st, 2001, the Company exchanged a promissory note receivable
it was holding for $900,000 from the major shareholder of the Company, for
450,000 shares of the Company's common stock. The valuation of shares at $80,000
was based on estimated fair value. The Company recorded the shares at its fair
value. The exchange resulted in a loss to the Company of $820,000, which has
been reflected as an extraordinary loss in the financial statements.
15. SEGMENT INFORMATION
The Company was a holding company (through a subsidiary) of two
operating subsidiaries: North Texas Circuit Board, Inc. (a 100% subsidiary of
Primavera, Inc.) and Mardock, Inc. North Texas Circuit Board, Inc. (NTCB)
manufactures printed circuit boards. NTCB products are sold through its facility
in Grand Prairie, Texas utilizing outside sales people. Deliveries are made
primarily throughout the United States. Mardock was a designer, manufacturer,
and distributor of apparel and promotional products to the corporate community.
Substantially all of the Company's operations are domestic. The Company's
foreign operations are not material to the Company's results of operations. The
Company disposed off its subsidiary Mardock, Inc. in 2001 and NTCB in 2002. For
the years ended December 31, 2001 and 2000, the Company only operated in one
segment, therefore no segment information has been presented.
33
16. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit
risk consist principally of trade accounts receivable and temporary cash
investments. The Company grants credit to customers throughout the country. The
Company performs credit checks on all new customers, and generally requires no
collateral from its customers.
17. BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share for the year ended December 31,
2001 and 2000 were determined by dividing net loss for the periods by the
weighted average number of both basic and diluted shares of common stock and
common stock equivalents outstanding. Weighted average number of shares used to
compute basic and diluted loss per share is the same since the effect of
dilutive securities is antidilutive.
18. PRIOR PERIOD ADJUSTMENTS
ADJUSTMENTS AT SEPTEMBER 30, 2001:
----------------------------------
Subsequent to the issuance of the Company's consolidated financial
statements for the nine-month period ended September 30, 2001, the Company
determined that certain transactions and presentation in the financial
statements had not been accounted properly in the Company's financial
statements. The Company's 2001 financial statements have been restated to
correct errors as follows:
(1) The failure to record the debenture conversion provision
of $55,000 in the three-month period ended September 30, 2001.
(2) Incorrect recording of stock issued for consulting
services. The Company had issued certain shares during nine-month
period ending September 30, 2001 and recorded at an anticipated fair
value. The Company is now adjusting to record such shares at the
average cash price of shares issued in the period ended September 30,
2001.
During the nine-month period September 30, 2001, the Company issued
7,005,321 shares of common stock for consulting services and compensation
amounting $6,318,168. Included in the shares issued for services were 6,429,333
shares issued to a related party for consulting services of $ 5,851,000.
ADJUSTMENTS AT DECEMBER 31, 2001:
---------------------------------
The Company also recorded the debenture conversion provision of
$125,000 in the three month period ended December 31, 2001.
The Company had recorded the decline in market value as a temporary
loss in the statements of Operations for the year ended December 31, 2001. The
Company now believes the decline in market value was other than temporary.
Accordingly, a loss of $575,500 has been recognized as the realized loss in the
Statements of Operations for the year ended December 31, 2001. In deciding the
whether the loss was other than temporary, the Company considered the length of
time and the extent to whether the market value has been less than cost, the
financial condition of the issuer, change in market value of the security
subsequent to the year end but prior to issuance of the financial statements:
The Company failed to record general and administrative expenses of
$10,550.
The Company has restated its Statements of Operations by disclosing the
loss from the operations of NTCB, disposed in 2002 (note 19), as a separate line
item in the Statement of Operations.
34
The effect of the correction of all the errors is as follows:
AS PREVIOUSLY AS
Year ended December 31, 2001 REPORTED RESTATED
-------------- --------------
STATEMENT OF SHAREHOLDERS' DEFICIT
Accumulated deficit: $ (9,277,077) $ (14,235,009)
Additional paid-in capital $ 7,388,776 $ 11,771,208
STATEMENT OF OPERATIONS (excluding NTCB operations):
Miscellaneous general and
administrative expenses $ -- $ 10,550
Interest expense $ 123,447 $ 303,447
Consulting expense $ 2,126,286 $ 6,318,168
Realized loss on marketable
securities $ -- $ 575,500
Net loss $ (7,434,926) $ (12,392,858)
Basic and diluted loss per share $ (0.56) $ (0.93)
19. SUBSEQUENT EVENT
FILING AND WITHDRAWAL OF REGISTRATION STATEMENT:
The Company, under the Securities Act of 1933, as amended, filed
Registration Statement on Form SB-2 with the U.S. Securities & Exchange
Commission (SEC) on January 14, 2002 for common stock amounting $23,828,571
(based on the offering of 31,771,428 common shares at $0.75). On March 8, 2002,
the Company applied to withdraw the Registration Statement on Form SB-2 This
application for withdrawal was made on the grounds that the Company concluded
the revisions requested by SEC as indicated in the comment letter dated February
15, 2002 were both material and extensive, and warranted a material redrafting
of the prospectus in its entirety. The Company further advised SEC that no
shares of common stock sought to be registered pursuant to the Registration
Statement have been offered or sold.
DISPOSAL OF A SEGMENT IN THE PERIOD ENDED SEPTEMBER 30, 2002:
On September 2002, the Company sold North Texas Circuit Board. North
Texas Circuit Board (NTCB), a Texas Company which was 100% owned by Primavera, a
100% owned subsidiary of Flexxtech Holdings, Inc. The Company owns 100%
ownership of Flexxtech Holdings, Inc. NTCB manufactures printed circuit boards.
Per the Share-purchase agreement between the Company and the purchaser (P), the
following facts are related to the transaction:
NTCB executed certain promissory notes payable to a bank in Texas. The
notes were secured by the assets and 100% of the outstanding shares of NTCB. In
June 2002, the Company signed an agreement with a non-related party to borrow
money on various promissory notes, payable in sixty days after the signing of
the notes and bearing an interest rate of 7% per annum. The Notes were secured
by the properties of NTCB. Total outstanding amount on such promissory notes
amounted to $576,000 at June 30, 2002. Subsequent to June 30, 2002, NTCB
borrowed additional amount on promissory notes amounting $1,122,188. In July
2002, "P" purchased all the right, title and interest of bank in the bank notes
amounting $557,672. "P" also acquired security interest held by bank as
collateral. At the date of the agreement, total sum of $2,255,860 was owed to
"P" by NTCB. Since NTCB was in default in the payments of its obligations, "P"
exercised its option under the notes and the security agreements. At the Closing
of the transaction, Primavera sold all of the duly issued fully paid capital
stock of NTCB in consideration of the amount equal to outstanding debt to "P".
It was also, agreed between the parties that "P" will pay 10% of the after tax
profit of NTCB to the Company for a period of five years subsequent to the
consummation of the transaction. As further consideration to "P", the Company
and its subsidiaries released "P" from all debts and obligations otherwise owed
by NTCB to the Company. The disposal of NTCB resulted in a net gain of $327,012
to the Company as follows:
35
Value of the NTCB at disposal: (in 000)
Assets $2,806
Liabilities 3,133
Consideration received --
--------
Gain on disposal $ 327
========
Following is the results of the NTCB operations included in the loss
from discontinued operations for all periods presented:
YEAR ENDED DECEMBER 31,
2001 2000
(Dollars in thousands)
----------- -----------
Revenue $ 5,716 $ 4,071
Expenses:
Costs of revenue 4,954 3,750
Operating expenses 2,521 1,124
----------- -----------
Total expenses 7,475 4,874
----------- -----------
Loss from operations of discontinued
operations $ (1,759) $ (803)
=========== ===========
ISSUANCE OF STOCK:
a) On October 7, 2002, 10,272,144 shares of common stock were issued in
the name of Delaware Charter Guarantee and Trust, FBO Greg Mardock, the
president of the Company, in exchange for a Promissory Note of $45,500 principal
amount and interest of $5,860.72.
b) On October 8, 2002, Edward R. Fearon, former President of Primavera
and Escamilla Capital Corporation, a related entity, received 1,250,000 and
1,750,000 shares respectively. These shares were issued in exchange for notes
issued by Primavera Corporation to BECO M-A, L.P. and BECO Joint Venture No. 1
amounting $76,595.
c) On October 31, 2002, $2,000,000 in debt owed by the Company to
Western Cottonwood Corporation, a related entity, was agreed to be converted to
200 shares of Series A Preferred Stock of the Company.
d) On November 5, 2002 Western Cottonwood Corp was issued 15,000,000
shares of common stock in exchange for $75,000 in Promissory Notes.
e) On October 1, 2002, the Company acquired 80% of the outstanding
Common Shares of W3M, Inc. (dba "Paradigm Cabling Systems"), a privately held
California corporation ("Paradigm"), in a stock for stock exchange. Pursuant to
the terms of the acquisition, 80% of the outstanding capital stock of Paradigm
was transferred to the Company on said date. In exchange, the Company agreed as
soon as practical to issue 142.5 shares of a new Series A Convertible Preferred
Stock of Flexxtech Corporation (hereinafter the "Series A Preferred"), to the
exchanging shareholders of Paradigm.
Paradigm was incorporated in California in May of 1998, under its
current corporate name, W3M, Inc. Paradigm is a full service computer cabling,
networking and telecommunications integrator contractor, providing networks from
stem to stern in house, for larger, medium and smaller industrial, educational
and residential complexes.
The Series A Preferred is to be convertible, in whole or in part at the
option of the holder, into shares of the Common Stock of the Company. Each one
share of Series A Preferred is to be convertible into the number of shares of
the Company's Common Stock obtained by dividing $10,000 by 85% of the average of
the lowest three intra day bids for the Company's Common Stock on the primary
exchange or public market in what the Company's Common Stock is listed, over the
ten trading days immediately preceding the conversion date, and multiplying the
36
result by 120%. Fractional common shares on conversion are rounded to the
nearest whole share. The Series A Preferred is to have a liquidation preference
equal to $15,000 per Series A share, after which each share will share on a pro
rata basis with the Common Stock, based upon the number of shares into which the
Series A Preferred would have been convertible on the date of liquidation,
distribution of assets, dissolution or winding up. The Series A Preferred is to
also have various other anti-dilution protections.
The Company at its sole discretion, has the option to redeem all or
part of the Series A Preferred at a redemption price equal to the greater of
$12,000 per share, or the market value of the Common Stock into which the Series
A Preferred is convertible on the date of redemption.
Because the Company's Articles of Incorporation do not provide for
Preferred Stock, before the Series A Preferred can be authorized and issued, the
shareholders of the Company, by majority in capital interest, must adopt
amendments to the company's Articles of Incorporation. In the event the Company
has not obtained the necessary shareholder approvals amending its Articles to
create the class of Series A Preferred Stock, and is unable to issue the
required Series A Preferred shares and deliver the certificates evidencing said
shares to the Paradigm exchanging shareholders by the close of business at 5
p.m. Pacific Standard Time, on January 31, 2003, then in such event the Paradigm
exchanging shareholders' entitlement to Series A Preferred Shares converts
automatically and without further action on their part, into a right to
immediately receive in lieu of said Series A Preferred Stock, that number of
shares of the Company's Common Stock to which the Paradigm exchanging
shareholders would have been entitled had they been previously issued the Series
A Preferred Stock, and then elected on January 31, 2003 to have all of their
Series A Preferred Stock converted into the Company's Common Stock in accord
with the above described Series A Preferred conversion provisions.
As part of the transaction, the Company agreed to use its best efforts
to arrange in the future for an infusion of $250,000 in additional capital,
either as debt or equity or some combination of both, to Paradigm, in order to
increase its working capital.
In connection with the acquisition of Paradigm, one of the four
existing vacancies on the Board of Directors of the Company was filled by the
appointment on September 16, 2002, of the President of Paradigm to the Board of
Directors of the Company to fill one of the existing Board vacancies.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with our independent
accountants.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OFFICERS AND
DIRECTORS
The names and ages of all of our directors and executive officers at
December 31, 2001, along with their respective positions, term of office and
period such position(s) was held, is as follows:
Name Age Position Held & Since (1)
---- --- -------------------------
Greg Mardock (1) 46 President, Chief Executive Officer and a
Director.
Chris H. Beshlian 33 Secretary, Treasurer and Director.
Khanh Tran 36 Director.
David Pimentel 31 Director
Edward Fearon 56 Chairman, CEO and Director of NTCB (2)
CEO and Director of Primavera Corporation
Linette Malloy 36 President and Director of NTCB
Hector Escamilla Jr. 45 CFO and Director of NTCB and President
and Director of Primavera Corporation (2)
37
(1) Each of the above individuals will serve in their respective capacities
until the next annual meeting of the shareholders or until a successor is duly
qualified and elected.
(2) North Texas Circuit Board is a wholly-owned subsidiary of Primavera
Corporation. Primavera Corporation is a wholly-owned subsidiary of Flexxtech
Holdings, Inc., a wholly-owned subsidiary of the Company.
BIOGRAPHICAL INFORMATION ON OFFICERS AND DIRECTORS
GREG MARDOCK, age 46, currently serves as President and CEO and has
served as a Director of our Company since April 2000. Mr. Mardock also serves as
the President and CEO of Mardock, Inc., a subsidiary of Flexxtech Holdings, Inc.
Mardock, Inc. designs, manufactures, and distributes corporate promotional
products. Mardock is developing its e-commerce site to become the premier
corporate promotional company on the Internet. Mr. Mardock is also a Partner in
Oregon.com, a state-wide portal providing information on the State of Oregon,
and in Oregon Interactive, an e-commerce site designer and developer. He further
serves as the President of Sterling Golf, Inc., a golf equipment distributor.
From 1976 to 1986, Mr. Mardock served as Founder and President of Sports
Graphics, Inc. and has designed and produced products for Nike's Sports Apparel
Program, Speedo Swimwear, Guess Athletic, K Swiss Footwear, and Panasonic, among
others.
CHRIS H. BESHLIAN, ESQ., age 33, currently serves as Secretary and
Director of our Company. Mr. Beshlian is a practicing attorney in corporate law
with offices in Los Angeles, California. From March 1998 to January 2000, Mr.
Beshlian served as Secretary and Director of Pacific Sports Holdings, Inc., a
publicly traded sports equipment and apparel holding company. Mr. Beshlian holds
a law degree from Southwestern University School of Law and a BA degree in
Economics from the University of California, Los Angeles.
KHANH TRAN, age 36, has served as a Director of our Company since April
2000. Since 1994, Mr. Tran has served as Chairman, President, CEO and founder of
Chameleon Technology, Inc., a fiber channel design and development company,
which was acquired by Applied Micro Circuits (NASDAQ: AMCC) in March 2000. Mr.
Tran has lead design teams at Motorola, Boeing, Atmel, Applied Materials,
Rockwell, LSI Logic and Western Digital. Mr. Tran has also served as
VicePresident of Design Engineering with California ASIC Technical Services,
Inc. from May 1992 to November 1994. From 1988 to 1992, Mr. Tran served as a
Design Manager for Lasarray Corporation. Mr. Tran holds a BS degree in
Electrical Engineering from the University of California, Irvine and an MBA from
California State University, Fullerton.
DAVID PIMENTEL, age 31, has served as a Director of our Company since
April 2000. Mr. Pimentel currently serves as the Chief Information Officer for
Absolute Internet Marketing, Inc. where his responsibilities include the design,
installation and maintenance of networking infrastructure for multi-million
dollar projects. From 1998 to 2000, Mr. Pimentel served as the Chief Information
Officer, Secretary and Co-Founder of ivenue.com, a developer of a complete
electronic commerce suite for management of online stores utilizing a web
browsers. From June 1997 to January 1999 Mr. Pimentel served as the Chief
Information Officer and Partner of Top Level Design, Inc. Mr. Pimentel served as
a network manager and systems analyst for the University of Southern California
from 1994 through 1998 and also served as a PC/LAN Analyst for the Walt Disney
Company from 1995 through 1997. Mr. Pimentel studied Computer Science at the
University of Southern California.
EDWARD FEARON, age 56 currently serves as the CEO and Director of the
Company's subsidiary, Primavera Corporation and Chairman and CEO of North Texas
Circuit Board Company. Mr. Fearon, a physicist, filed his first United States
patent application in 1966 and for a period of more than thirty years has been
engaged in the research, development and invention of devices in the Electronics
Article Surveillance and other industries. He holds many United States and
foreign patents. Mr. Fearon is regarded as one of the founders of the Electronic
Article Surveillance field. His patents in the EAS field were licensed to 3M and
Sensormatic and are for surveillance of books, audio and videotapes, clothing
38
and other merchandise. In 1966, Mr. Fearon served with ElectroChemical
Laboratories in Tulsa, Oklahoma where he was Vice President of R & D. Their
principal business related to the Oil Industry and Defense. In 1969 Mr. Fearon
joined Standard Engineering & Manufacturing Co. (SEMCO) as Vice President of
R&D. Their principal business was Electronic Article Surveillance. In 1971, Mr.
Fearon founded and served as President of SD&E, Inc. dba Systems Development &
Engineering. The principal business of SD&E related to the Oil Industry, EAS and
Defense. He managed SD&E until 1986. In 1973, he became the managing partner of
Martin Wholesale, Inc. (MWI). MWI was a national distributor for Sony,
Panasonic, Sharp, Hitachi and other commercial lines. In 1988 Mr. Fearon served
as Chairman of the Board and Chief Executive Officer of EAS Technologies, Inc.,
a public company, and served as director of Canyon Creek National Bank (CCNB)
and a member of the CCNB loan and discount committee. Mr. Fearon founded
Computer Crossroads of America, Inc., (CCA) in 1979. He was President and
majority shareholder from 1979-1995. CCA was a designer, integrator and
manufacturer of defense related computer equipment. Mr. Fearon founded Critical
Solutions International, Inc. (CSI) in 1999 and serves CSI as Chairman of the
Board and Chief Executive Officer. CSI is a defense contractor with a
concentration in countermine technologies.
LINETTE MALLOY, age 36 serves as President and Director of NTCB. In
June 2001 Ms. Malloy was appointed as President of NTCB. During the past two and
half years with NTCB, Ms. Malloy at various stages served as Vice President /
General Manager, Quality Manager, and Engineering Manager. From 1984 to 1998,
Ms. Malloy served as General Manager of Mania Testerion Texas. Mania Testerion
manufactures electrical test equipment and provides electrical test services for
the printed circuit board manufacturing industry.
HECTOR ESCAMILLA JR., age 45 is Chief Financial Officer and Director of
North Texas Circuit Board Co., and President and Director of Primavera
Corporation. Mr. Escamilla attended Southern Methodist University and graduated
summa cum laude with a Bachelors of Business Administration degree in 1977. He
became a Certified Public Accountant in 1980. Mr. Escamilla began his career in
1977 as a Staff Accountant in the Dallas office of Price Waterhouse & Co., a
large international accounting firm, and was promoted to Senior Accountant in
1980. He left PW in January, 1981 to become Controller/Tax Manager for a company
owned by the Lay family of Dallas and eventually became the Chief Financial
Officer for various Lay family entities. His responsibilities included all
aspects of financial management, tax planning and compliance, as well as
negotiation of business and investment transactions in the U.S. and Mexico. In
1991, he formed Escamilla Capital Group to provide business, financial and tax
consulting services to individuals, trusts and closely held companies doing
business in the U.S. and Mexico. Mr. Escamilla is very active in civic affairs
in Dallas. He currently serves on the Board of Directors of the Dallas Museum of
Art (where he chairs the Budget and Finance Committee), Children's Health
Services of Texas, and YMCA of Metropolitan Dallas. Texas Governor George W.
Bush recently appointed Mr. Escamilla to serve on the Board of Directors of the
Trinity River Authority of Texas. Mr. Escamilla served on the Board of Directors
of the Greater Dallas Hispanic Chamber of Commerce from 1989 through 1996, and
was elected Chairman of the Board for the 93/94 year. Mr. Escamilla is fluent in
Spanish and English.
Our Company does not presently maintain key man life insurance coverage
with respect to any of its officers, directors, or key employees; however, we
intend to investigate the addition of key man life insurance in the future.
There is no assurance we will be able to obtain it.
FAMILY RELATIONSHIPS
There are no family relationships among our directors and/or executive
officers.
INVOLVEMENT IN OTHER PUBLIC COMPANIES
None of our directors are involved in other public companies that would
be described as "reporting" companies.
39
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Except as indicated herein, to the knowledge of our management, during
the past five years, no present or former director, executive officer, or person
nominated to become a director or executive officer of our Company:
(1) Filed a petition under federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer appointed by
a court for the business or property of such person, or any partnership in which
he was a general partner at or within two years before the time of such filing,
or any corporation or business association of which he was an executive officer
at or within two years before the time of such filing;
(2) Was convicted in a criminal proceeding or named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offences);
(3) Was the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him or her from or otherwise limiting
his/her involvement in any type of business, securities or banking activities;
(4) Was found by a court of competent jurisdiction in a civil action,
by the Securities and Exchange Commission or the Commodity Futures Trading
Commission, to have violated any federal or state securities law, and the
judgment in such civil action or finding by the Securities and Exchange
Commission has not been subsequently reversed, suspended, or vacated.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely on the review of Form 3's furnished to us, to the best
knowledge of our management, each of our officers/directors and 10% shareholders
has filed their Initial Statement of Beneficial Ownership on Form 3, although
the same were filed on a delinquent basis.
PART III
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information as to compensation
received by our Chief Executive Officer who is also a director of our Company
and our President and Secretary, as of December 31, 2001.
40
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
--------------------- ----------------------
Securities
Name and Annual Restricted Underlying LTIP All
Principal Compensation Award(s) Options/ Payouts Compensation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)
-------- ---- --------- -------- --- --- ------- --- ---
Greg Mardock(1) 2001 12,000 -0- -0- -0-(1) -0- -0- -0-
CEO, Director
Chris H. Beshlian 2001 -0- -0- -0- -0- -0- -0- -0-
Secretary, Treasurer
and a Director
Khan Tran 2001 -0- -0- -0- -0- -0- -0- -0-
Director
David Pimentel 2001 -0- -0- -0- -0- -0- -0- -0-
Director
Linette Malloy(2) 2001 85,000 -0- -0- -2,000- -0- -0- -0-
President (NTCB)
Edward Fearon 2001 30,000 -0- -0- -0-(1) -0- -0- -0-
CEO (NTCB)
Hector Escamilla, Jr. 2001 -0- -0- -0- -0- -0- -0- -0-
CEO (Primavera)
----------------------------------------------------------------------------------------------------------------
(1) Mr. Mardock received compensation from Mardock, Inc., a subsidiary of our
wholly-owned subsidiary, Flexxtech Holdings, Inc. VLK Capital Corp. was issued
5,909,333 shares of common stock for managerial services valued at $.902 per
share, as amended for the 18 month period from January 2001 through June 2002.
VLK subsequently issued 783,333 shares to Greg Mardock and 2,646,000 shares to
Edward Fearon..
(2) Linette Malloy received compensation from North Texas Circuit Board Co., a
wholly-owned subsidiary of Primavera Corp., a wholly-owned subsidiary of
Flexxtech Holdings, Inc., a wholly-owned subsidiary of the Company. (3) Edward
Fearon received compensation from North Texas Circuit Board Co of $30,000.
OPTIONS/SAR GRANTS
There were no stock options or stock appreciation rights granted to any
executive officer since its inception through present date.
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR VALUE TABLE
Not applicable.
LONG TERM INCENTIVE PLANS
There are no long-term incentive plans in effect and therefore no
awards have been given to any executive officer in the past year.
COMPENSATION OF DIRECTORS
We pay no fees to members of our Board of Directors for the performance
of their duties as directors. The Board of Directors also serves as an Audit
Committee. We have not established other separate committees of the Board of
Directors.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
We have no employment contracts in effect with any of the members of our
Board of Directors or our executive officers nor are there any agreements or
understandings with such persons regarding termination of employment or
change-in-control arrangements.
41
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2001, the amount and
nature of beneficial ownership of each person known to a beneficial owner of
more than five percent of the issued and outstanding shares of our Company. The
following information is based on 17,869,853 shares issued and outstanding as of
December 31, 2001.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
(1) (2)
Name and Amount and
Address of Nature of (3)
Title of Beneficial Beneficial Percent of
Class Owner Owner Class
----- ----- ----- -----
Common VLK Capital Corp. (1) 6,025,000 33.72%
3620 NW Westside Road
McMinnville, OR 97128
Common Gregport Land and Investment (2) 650,000 3.64%
3620 NW Westside Road
McMinnville, OR 97128
Common Greg Mardock (1) (2) 783,333 4.38%
3620 NW Westside Road
McMinnville, OR 97128
Common Edward Fearon 2,729,250 15.27%
14908 Havenshire Place
Dallas, TX 75250
-------------------
(1) Greg Mardock is a shareholder, officer and director of VLK Capital Corp.
(2) Greg Mardock is a shareholder, officer and director of Gregport Land and
Investment. The shares are owned by Gregport Land and Investment.
The following table sets forth the amount and nature of beneficial
ownership of each of the executive officers and directors of our Company. The
information below is based on 17,869,853 shares issued and outstanding as of
December 31, 2001.
SECURITY OWNERSHIP OF MANAGEMENT
Title of Name and Amount and Percent of
Class Address of Nature of Class
Beneficial Beneficial
Owner Owner
Common Edward Fearon 2,729,250 15.27%
14908 Havenshire Place
Dallas, TX 75250
Common Greg Mardock (1) 7,458,333 41.74%
3620 NW Westside Road
McMinnville, OR 97128
Common Hector Escamilla Jr. 63,750 < 1%
5956 Sherry Lane, Suite 1616
Dallas, TX 75225
Common Linette Malloy 10,000 < 1%
1501 W. Shady Grove
Grand Prairie, TX 75050
--------------------------------------------------------------------------------
Officers & Directors as a group 10,261,333 shares 57.42%
--------------------------------------------------------------------------------
Greg Mardock is a shareholder, officer and director of Gregport Land
and Investment and VLK Capital Corp. The shares are owned by Gregport Land and
Investment and VLK Capital Corp.
42
CHANGES IN CONTROL
We have no arrangements at this time, which might result in a change in
control of our Company. However future acquisitions may result in the issuance
of additional shares of our stock, which may result in a change of control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) On July 9, 2001, the Company canceled and returned a promissory note
receivable it was holding for $900,000 payable by VLK Capital, a major
shareholder of the Company, in exchange for VLK Capital's return to the
Company and its cancellation and return to treasury of 450,000 shares
of the Company's common stock. At the time of the transaction the
common stock was trading near $2 per share with an illiquid market. The
exchange resulted in a loss to the Company of $820,000, which has been
reflected as an extraordinary loss in the financial statements.
(b) On July 1, 2001 the Company sold 100,000 shares of Easyriders, Inc. to
Sierra Nevada Advisers, Inc., a shareholder of Flexxtech, in
consideration for the return to the Company and its cancellation and
return to treasury of 25,000 shares of the common stock of Flexxtech.
(c) In July of 2001 Flexxtech Holdings, Inc., sold Mardock, Inc. back to
its original owner Greg Mardock, the CEO and a Director of Flexxtech,
in exchange for his agreement to assume the liabilities of Mardock Inc.
and the transfer by Greg Mardock to Flexxtech of 200,000 shares of
Flexxtech Common Stock, which was valued at $3.00 per share and retired
as treasury stock. Mardock, Inc. subsequently ceased operations and
went out of business.
(d) In July of 2001, Flexxtech Holdings, Inc., sold its 82% ownership
interest in OpiTV.com. to Mardock, Flexxtech's CEO and a Director, in
exchange for Greg Mardock's agreement to assume the liabilities of
OpiTV and the transfer by Greg Mardock to Flexxtech of 110,000 shares
of Flexxtech's Common Stock, which was retired as treasury stock.
OpiTV.com was a start-up company with no sales or operations. OpiTV.com
had a negative net worth.
ITEM 13. EXHIBITS AND REPORTS ON 8-K
(a) Exhibits
None will be filed with this report.
43
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report be signed on its behalf by the undersigned, thereunto duly
authorized.
Registrant:
FLEXXTECH CORPORATION
By: /s/ Greg Mardock
--------------------------
Greg Mardock
President and Chairman of
the Board of Directors
Date: December 30, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Capacity in Which Signed Date
--------- ------------------------ ----
/s/ Greg Mardock President and Chief Executive December 30, 2002
-------------------- Officer and a Director
Greg Mardock
44