SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2001
Commission file number 000-25499
Flexxtech Corporation
-----------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 88-0390360
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State or other jurisdiction of (IRS Employer Identification
incorporation or organization Number)
5777 W. Century Boulevard, Suite 767,
Los Angeles, CA 90045
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(Address of principal executive offices) (Zip Code)
(310) 342-0794
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports) Yes [ ] No [X], and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of September 30, 2001, the issuer had outstanding 16,663,515 shares of
its Common Stock, $0.001 par value.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
(A) BALANCE SHEET
(B) STATEMENT OF OPERATIONS
(C) STATEMENT OF CASH FLOWS
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2001
(Unaudited)
ASSETS
Current Asset:
Cash and cash equivalents $ 173,692
Accounts receivable 739,041
Inventory 348,816
Prepaid expenses 130,838
Notes Receivable - related parties 14,000
Deposits & other current assets 11,583
---------------
Total Current Asset 1,417,970
---------------
Property & equipment, net 1,396,474
Goodwill on acquisition, net 420,188
---------------
TOTAL ASSETS $ 3,234,632
===============
LIABILITIES STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 1,357,185
Accrued expenses 242,859
Loans payable - Current 1,309,010
Loans payable related parties 1,323,261
---------------
Total Current Liabilities 4,232,315
Long-term Liabilities:
Convertible debt 220,000
STOCKHOLDERS' DEFICIT
Common stock, authorized 100,000,000 shares at
$.001 par value, issued and outstanding
16,663,515 shares 16,664
Additional Paid in Capital 6,493,209
Shares to be issued 42,700
Accumulated deficit (7,194,756)
Accumulated other comprehensive income:
Unrealized loss on securities available for sale (575,500)
---------------
Total Stockholders' Deficit (1,217,683)
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,234,632
===============
The accompanying notes are an integral part of these
consolidated financial statements.
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Sales $ 1,201,870 $ 3,483,421 $ 5,088,292 $ 3,591,917
Cost of sales 1,551,031 2,746,969 4,811,833 2,818,417
------------- ------------- ------------- -------------
Gross profit (349,161) 736,452 276,459 773,500
General and Administrative expenses 2,657,455 1,074,139 4,038,573 1,180,188
------------- ------------- ------------- -------------
Loss from operations (3,006,616) (337,687) (3,762,114) (406,688)
Other income (expenses)
Realized loss on sale of marketable
securities (23,750) - (75,708) -
Other income (expense) - (95,032) 8,078 (95,032)
Interest income 612 - 1,473 -
Interest expense (44,455) - (157,400) -
------------- ------------- ------------- -------------
Total other income (expenses) (67,593) (95,032) (223,557) (95,032)
------------- ------------- ------------- -------------
Net loss before income tax and
loss on discontinued segments
and extraordinary item (3,074,209) (432,719) (3,985,671) (501,720)
Provision (benefit) of Income tax 800 - 4,800 800
------------- ------------- ------------- -------------
Net Loss before loss on
disposal of segments and
extraordinary item (3,075,009) (432,719) (3,990,471) (502,520)
Disposal of segments net of income tax (542,134) - (542,134) -
------------- ------------- ------------- -------------
Net Loss before extraordinary item (3,617,143) (432,719) (4,532,605) (502,520)
Extraordinary item - Loss on settlement
of a note receivable (820,000) - (820,000) -
------------- ------------- ------------- -------------
Net loss (4,437,143) (432,719) (5,352,605) (502,520)
Other comprehensive loss:
Unrealized gain (loss) on
investments available for sale (21,130) 300,500 (169,130) 146,500
------------- ------------- ------------- -------------
Comprehensive Income (Loss) $ (4,458,273) $ (132,219) $ (5,521,735) $ (356,020)
============= ============= ============= =============
Basic loss per share $ (0.33) $ (0.09) $ (0.45) $ (0.16)
============= ============= ============= =============
Basic weighted average shares outstanding* 13,320,116 5,067,451 * 11,872,125 3,223,000
============= ============= ============= =============
Diluted loss per share $ (0.33) $ (0.09) $ (0.45) $ (0.16)
============= ============= ============= =============
Diluted weighted average
shares outstanding *13,496,366 5,067,451 * 11,931,520 3,223,000
============= ============= ============= =============
* The basic and diluted net loss per share has been restated to retroactively effect a 2:1
forward stock on April 14, 2000, a 1:3 reverse split on April 29, 2000 and a 3:2 forward
stock split at March 26, 2001.
The accompanying notes are an integral part of these consolidated financial statements.
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001 & 2000
(Unaudited)
2001 2000
--------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (5,352,605) $ (502,520)
Adjustments to reconcile net loss to cash used in
operating activities
Depreciation and amortization 265,437 78,000
Amortization of goodwill 71,989 -
Issuance of stocks for consulting services & compensation 2,236,423 -
Loss on sale of marketable securities 75,708 -
Loss on settlement of note 820,000 -
Disposal of segment 542,134 -
(Increase)/decrease in current assets
Accounts receivable 445,173 (494,007)
Insurance receivable 247,490 -
Inventory 103,726 (105,974)
Prepaid expense (130,838) -
Deposits & other current assets 10,544 420
Increase/(decrease) in current liabilities
Accounts payable 136,460 (474,189)
Accrued expenses 158,729 (17,887)
Deferred Income Tax 10,559 10,559
Customers' deposit 2,306 3,437
--------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (356,765) (1,502,161)
--------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (Purchase) of marketable securities 98,443 -
Acquisition of property & equipment (78,278) (144,691)
--------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 20,165 (144,691)
--------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of common stock 170,136 892,030
Proceeds from shares to be issued 42,700 -
Proceeds from issuance of convertible debt 220,000 -
Repayment of notes receivable 13,880 -
Proceeds from borrowings 948,168 976,007
Payments of loans (1,404,457) -
--------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (9,573) 1,868,037
--------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (346,173) 221,185
CASH AND CASH EQUIVALENTS -BEGINNING 519,865 2,869
--------------- -------------
CASH AND CASH EQUIVALENTS -ENDING $ 173,692 $ 224,054
=============== =============
The accompanying notes are an integral part of these consolidated financial statements.
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTE TO UNAUDITED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
1. Organization:
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.
Prior to March 31, 2000, the Company was in the development stage whereby all
the activities were devoted to obtaining financing for the acquisitions of
businesses. Since April 2000, the Company is in operation through its
subsidiaries.
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 the
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.
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 financial statements include the accounts of Flexxtech
Corporation (the "Parent"), and its 100% owned subsidiaries, Flexxtech
Holdings, Inc., Primavera Corporation and its wholly owned subsidiary North
Texas Circuit Board Co., Inc. (a Texas corporation) and). All significant
intercompany accounts and transactions have been eliminated in consolidation.
3. Basis of Preparation:
The accompanying unaudited condensed interim financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for the presentation of interim financial information, but
do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. The audited
financial statements for the two years ended December 31, 2000 was filed on
May 14, 2001 with the Securities and Exchange Commission and is hereby
referenced. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for
the nine-month period ended September 30, 2001 are not necessarily indicative
of the results that may be expected for the year ended December 31, 2001.
4. Recent Pronouncements:
In January 2001, the Financial Accounting Standards Board Emerging Issues Task
Force issued EITF 00-27 effective for convertible debt instruments issued
after November 16, 2000. This pronouncement requires the use of the intrinsic
value method for recognition of the detachable and imbedded equity features
included with indebtedness, and requires amortization of the amount associated
with the convertibility feature over the life of the debt instrument rather
than the period for which the instrument first becomes convertible. Management
is in the process of evaluating the requirements of EITF 00-27, but does not
expect this pronouncement will materially impact the Company's financial
position or results of operations.
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 expects 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.
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.
5.Stockholder's Equity
Stock Split:
On December 22 1999, 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 affected
a 2-for-1 forward stock split of its common stock. On April 29, 2000, the
Company affected a reverse stock split of 1:3. On March 26, 2001 the Company
affected a 3:2 forward stock split.
Common Stock:
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.
During six-month period ending June 30, 2001, the Company issued 135,907
shares of common stock for cash amounting $132,716, 82,078 shares for services
amounting $154,413 and 20,000 shares for compensation amounting $91,800.
During three-month period ending September 30, 2001, the Company issued 40,996
shares of common stock for cash amounting $37,420, 451,250 shares for services
amounting $704,210 and 6,429,333 shares for consulting services to a related
party for $1,286,000.
During the quarter ended September 30, 2001, the Company cancelled 1,550,000
shares of common stock it has in its treasury
Convertible debt:
The company issued debentures amounting $220,000, carrying an interest rate of
6% per annum, due in August 2003. The holder is entitled to, at any time or
from time to time, convert the conversion amount in to 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.
6. Segment Information
In computing income from operations by industry segment, un-allocable general
and administrative expenses have been excluded from each segments' pre-tax
operating earnings before interest expense and have been included in general
corporate and other operations.
The Company reportable business segments are strategic business units that
offer distinctive products and services that are marketed through different
channels. They are managed separately because of their unique technology,
marketing, and distribution requirements. The Company is a holding company and
through July 1, 2001, it was comprised 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. The products are sold through its distribution center in Irving, Texas
utilizing outside sales people. Deliveries are made primarily throughout the
United States. Mardock is a designer, manufacturer, and distributor of apparel
and promotional products to the corporate community.
Following is a summary of segmented information for the three months and nine
months ended September 30, 2001:
NTCB Mardock
------------------------- -------------------------
3 Months 9 Months 3 Months 9 Months
------------ ------------ ------------ ------------
Sales $ 1,202,000 $ 4,814,000 $ - $ 274,000
Operating gain/(loss) (649,700) (993,900) - (14,439)
Total Assets 3,029,000 3,029,000 - 247,428
Capital Expenditure - 78,566 - -
Depreciation and amortization 60,000 190,000 - 11,667
Substantially all of the Company's operations are domestic. The Company's
foreign operations are not material to the Company's results of operations.
7. Going Concern
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principle, which contemplate continuation of the
Company as a going concern. However, the Company has accumulated deficit of
$7,194,756 including net losses of $5,352,605 and $4,437,143 for the
nine-month and three-month period ended September 30, 2001, 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 September 30, 2001, towards (i) obtaining
additional equity financing (ii) controlling of salaries and general and
administrative expenses (iii) management of accounts payable and (iv)
evaluation of its distribution and marketing methods.
8. Contingency
In April 2001, a suit was brought against the Company and certain of its
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.
9.Disposal of subsidiaries and investment
On July 1st, 2001, the Company disposed off two of its subsidiaries, Mardock,
Inc. in exchange for 200,000 shares of its common stock and OpiTV.com for
110,000 shares of its common stock. Mardock, Inc. was established in 1986 and
is 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 is an I-Commerce technology company that
is engaged in the business of marketing and distributing a Set-Top-Box (STB)
device on a rental or acquisition basis. The STB is a convergence device,
giving the consumer high-speed Internet access and enhanced communications as
well as full computing capabilities in their home or office. Through June 30,
2001, OpiTV.com has not generated any revenue. The disposal of subsidiaries
resulted in net loss of 542,134.
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 exchange resulted in a loss to the
Company of $820,000, which has been reflected as an extraordinary loss in the
financial statements.
10. Supplemental disclosure of cash flows
The Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95.
The cash flow statements do not include following non-cash investing and
financing activities:
(1) During the year, the Company disposed off two subsidiaries in exchange of
310,000 shares of common stock of the Company, resulting in a loss of
$542,134. The cash flow statements do not include disposal of following
assets and liabilities of the disposed companies:
Current assets $ 148,718
Non-current assets $ 101,074
Current liabilities $ 296,933
(2) During the nine month period ended September 30, 2001, the Company issued
6,982,661 shares of common stock to various parties for compensation,
consulting, and other services amounting $2,236,423.
(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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Report on Form 10-QSB contains forward-looking statements, including
(without limitation) statements concerning possible or assumed future results
of operations and those preceded by, followed by or that include the words
"believes," "could," "expects," "anticipates," or similar expressions. For
those statements, we assert the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. You should understand that various events could cause
those results to differ materially from those expressed in such
forward-looking statements: materially adverse changes in economic conditions
in the markets that we and our subsidiaries serve; competition from others in
the markets and industry segments occupied by us and our subsidiaries; the
ability to enter, the timing of entry and the profitability of entering new
markets; greater than expected costs or difficulties related to the
integration of the businesses acquired by our subsidiaries; and other risks
and uncertainties as may be detailed from time to time in our public
announcements and SEC filings.
The discussion and financial statements contained herein are for the
three months ended September 30, 2001 and September 30, 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.
Overview:
The Company, through its wholly owned subsidiary, Flexxtech Holdings,
Inc., is engaged in the business of acquiring, developing, operating, and
investing in growth companies in technology. The Company's objective is to
build long-term capital appreciation for its shareholders primarily through
the acquisition of technology companies. The primary focus in technology will
includes the acquisition, investment, and internal development in areas of
Military, Aerospace and Security. The Company continues to focus on companies
which management believes are undervalued and/or potential turn-around
situations that can be exploited and that synergistically fit the Company's
current business relationships. The Company's focus of investment and
acquisition is also guided by the economic conditions within a particular
segment of technology. The major thrust of the Company currently is its
acquisition of circuit board and electronic component companies servicing the
government sector. Since the September 11, 2001 terrorist attacks the Company
has seen a resurgence of business at its subsidiary, North Texas Circuit Board
Co.
Plan of Operation:
The Company is a holding company through its wholly owned subsidiary,
Flexxtech Holdings, Inc., that includes 100% in Primavera Corporation, the
parent company of North Texas Circuit Board Co. and the primary asset of the
Company. The Company's main thrust is the acquisition or "roll-up" of
companies within the circuit board and government contracting business which
have history of profitability and business synergies. In its endeavor the
Company also seeks out acquisitions that are in a turnaround situation and
that can be exploited. The turnaround candidates, for the most part, have been
historically profitable and would represent significant future value to the
Company.
ROLL-UP STRATEGY
-----------------
In addition to the circuit board roll-up plan the Company will seek out
additional industries where efficiencies through consolidation will greatly
benefit the Company. The thrust will be to:
. Acquire "islands of excellence" in attractive, complementary markets.
. Efficiently acquire and integrate new companies while preserving
their entrepreneurial spirit.
. Use the greater purchasing power to obtain improved vendor deals.
. Keep and integrate only those superior managers.
MERGER & ACQUISITION TENETS
----------------------------
. Build on the Company's organizational skill in performing
acquisitions; develop systems for managing the process from lead
evaluation, negotiation, contracting, and post-closing integration.
. Pay reasonable multiples with extra incentives to ensure seller
commitment.
. Exercise complete due diligence to ensure smooth integration of
personnel and operations.
. Achieve rapid returns on investment by implementing the Company's
best practices in the acquired operation.
. Reduce overhead by vacating unneeded premises.
. Centralize any duplicated support functions into the Headquarter
location.
In April 2000 the Company changed the direction and business plan of the
Company to its current model. Before April 2000 the Company virtually had no
meaningful business. New Officers and Directors were approved and appointed by
the shareholders to guide the Company and its new business plan.
On June 26, 2000 the Company commenced a private placement offering
pursuant to Regulation D, Rule 506, as amended and Regulation S, as amended.
The Company continues to raise funds through stock and debt offerings to
finance its operations, complete the turn-around of North Texas Circuit Board
Co., and for acquisitions. Through September 30, 2001, the Company had
16,663,515 shares of common stock outstanding.
While there is no assurance the Company will be successful in raising
additional capital, the Company is actively seeking public and private equity
financing to assure that it will be capable of financing the continuation of
business.
Any additional capital raised above and beyond what the Company needs as
its monthly expenditure would be used in increasing marketing and sales
efforts and future investments and acquisitions. Should the Company fail to
raise additional funding, it will be forced to curtail its growth, both
through internal development and through investments and acquisitions. As only
a holding company to date, the company does not generate its own revenues, but
relies on additional financing to pay its operation expenses. The Company is
currently developing a plan to provide a variety of consulting services to
technology companies to include business and marketing plan development,
merchant and investment banking services and general business consulting. The
Company hopes to attract clients for these new services in the fourth quarter
of this year, therefore not relying on additional financing to support its
role as a holding company.
(a) Results of Operations
The Company has generated consolidated revenues of $1,201,870 for the
quarter ended September 30, 2001 as compared to $3,483,421 for the quarter
ended September 30, 2000. All of the revenues are attributed from the
Company's subsidiary, North Texas Circuit Board Company (NTCB).
Lost Sales and Revenue Factors
* Material Inventory Levels Inadequate
- NTCB is a quick turn environment with typical lead times as low as
24 hours.
- Material delivery lead times range from 2 days to 8 weeks.
- Average estimated business lost due to not having material on hand
is $100,000 per month.
- Excess shipping expenses are incurred due to shipping small orders
of laminates instead of weekly or bi- weekly stock replenishing.
- Material deliveries impact actual manufacturing days available,
which can cause increased overtime to make the due dates.
- Material deliveries cause late shipments, which in some cases
requires partial premium refunds to customers.
Solution: Build inventory levels to offset delivery times and reduce
order frequency.
* Drill Capability and throughput
- Some jobs reviewed would take up to 4 days to drill.
- Lost business due to current equipment capabilities. Technologies
are going to small holes with tight spacing, which the current
drill equipment cannot do.
- Average estimated business lost due to throughput capabilities of
current equipment is $30,000 per month. Up to 15% of all lost
orders.
Solution: Purchase updated drill equipment to increase throughput and
technical capabilities. (Subsequent to September 30, 2001 the drill
was purchased for $215,000)
* No in House Immersion Gold Process
- Lost business due to no Immersion Gold process at NTCB is $500,000
from a recent contract and $20,000 in orders pulled from work.
Solution: Install Immersion Gold process.
* Subcontracting of Electrical Testing
- Data preparation, tooling and testing of products by subcontractor
is $32,000 per month.
- Average estimated business lost due to excess test cost by
subcontractor is $50,000 per month and is up to 30% of all lost
orders.
- Subcontracting electrical test typically adds 1 day to delivery
time causing loss of business on quick turn jobs.
- No control of Quality of Service of subcontract facilities causing
defective product to reach customers.
Solution: Purchase ET Programming software, single spindle drill for
fixtures and flying probe tester to bring all test capabilities in
house.
* In Process Inspection
- Inadequate automated optical inspection equipment.
- Lost business due to current equipment capabilities. Technologies
are going to fine lines with tight spacing, which the current AOI
equipment cannot do.
- Average estimated scrap lost due to capabilities of current
equipment is $100,000 per month.
Solution: Purchase updated AOI equipment to increase throughput and
technical capabilities. The AOI has been purchased for $240,000 and is
operating.
NTCB has invested heavily in its future by making capital improvement to the
facility, equipment and processes that have had a dramatic impact on the
performance of the business. The operating costs have been reduced by
approximately 33 percent. Approximately one year ago, at the acquisition of
NTCB, NTCB needed to sell more than $900,000 per month in products and
services to break-even. The current break-even level is approximately $600,000
per month. The dramatic drop in operating cost coupled with internal yields
and quality at a historic high level for the business, positions NTCB to
return to profitability anticipated in the fourth quarter of this year. During
the three months ended September 30, 2001, NTCB has made improvements in the
following categories:
Financial:
- Established approval system for purchases.
- Established tighter inventory controls.
- Restructured work shifts to control overtime.
- Reduced costs of raw material and supplies.
Manufacturing:
- Streamlined processes by analyzing workflows and efficient product
movement.
- Quality Engineers utilized to target root causes of defects and
inefficient processes to reduce scrap by 40%.
- Realigned the flow of product through the shop and the focus of each
shift to increase productivity by 30% and increased on time delivery by
50% over the last 12 months.
New Management Team:
- Top Management totally replaced with a tight knit goal oriented group
with a common agenda.
- All Management works of the same philosophies.
- The Company is oriented around Customer Service, excellent product on
time with exemplary customer support.
- Implemented motivational programs to increase employee satisfaction and
reduce turnover.
With the current changes implemented and the additional processes identified
earlier we estimate that we can have a steady growth over the next 12 months
and are anticipating to return to profitability for the three months ending
December 31, 2001.
The Company anticipates an increase in generating revenues in the future.
Currently, the Company's cash needs include, but are at no means limited to,
rent, salaries and wages, cash raising expenses and to fund operation of its
subsidiaries, and for future acquisitions.
On July 1st, 2001, the Company disposed off two of its subsidiaries, Mardock,
Inc. in exchange for 200,000 shares of its common stock and OpiTV.com for
110,000 shares of its common stock. Mardock, Inc. was established in 1986 and
is 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 is an I-Commerce technology company that
is engaged in the business of marketing and distributing a Set-Top-Box (STB)
device on a rental or acquisition basis. The STB is a convergence device,
giving the consumer high-speed Internet access and enhanced communications as
well as full computing capabilities in their home or office. Through June 30,
2001, OpiTV.com has not generated any revenue. The disposal of subsidiaries
resulted in net loss of 542,134.
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 exchange resulted in a loss to the
Company of $820,000, which has been reflected as an extraordinary loss in the
financial statements.
On July 1st, 2001 the Company sold 100,000 shares of Easyriders, Inc. to a
shareholder for 25,000 shares common stock of Flexxtech.
In the three months ending September 30, 2001 the Company raised a total of
debt capital and convertible debt capital of $861,625 comprised of certain
shareholders and non-shareholders loaning the Company $641,625 and convertible
debt of $35,000 and $220,000. The notes of $641,625, are due on demand and
bear interest of 10% per annum. The $35,000 is due in August 2004 and bears
interest at 10% per annum. The $220,000 received are convertible debentures
received from a $300,000 minimum and $500,000 maximum offering the Company
commenced in August 2001. Subsequent to September 30, 2001 the Company has
received a total of $330,000 from the convertible debenture offering. The
$220,000 of debentures carry an interest rate of 6% per annum and are due in
August 2003. The holder is entitled to, at any time or from time to time,
convert the conversion amount in to 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
Placement Agent Agreement, Stock Purchase Agreement, Debenture Agreements and
other offering agreements are attached to this filing as exhibits).
The Company plans on growing its revenues through the acquisition of various
technology companies in various markets and increasing its products and
services in part through acquisition of existing technology businesses. The
Company will continue to seek capital for acquisitions and in the internal
development of those companies acquired. The Company will seek capital
through private investors and institutional investors. In the event the
Company does not attract such capital and is unable to generate revenues
sufficient to support its expenses, then the Company will be required to
curtail its operations, sell existing investments, and slow down its plan for
expansion. The Company, however, is taking all necessary action to limit its
overhead and cut expenses at its operating subsidiaries. Because of the
current slow down in the economy, the Company's acquisition plans and
expansion plans have slowed. Further, the slow down in financing and the lack
of capital have also slowed the acquisition plans of the Company. The Company
feels that the current economic conditions benefit the Company in it choice of
acquisitions.
For the Three Months and Nine Months Ended September 30, 2001 as Compared to
the Three Months and Nine Months Ended September 30, 2000:
Revenues.
We had revenues of $1,201,870 and $5,088.292 for the three months and
nine months ended September 30, 2001 as compared to $3,483,421 and $3,591,917
for the three months and nine months ended September 30, 2000. The decrease in
revenue for the three months ended September 30, 2001 was the result of the
sale of Mardock, Inc. on July 1, 2001 and the capital shortage resulting in
inventory material shortage at North Texas Circuit Board Company (NTCB).
Cost of Sales.
We incurred Cost of Sales of $1,551,031 and $4,811,833 for the three
months and nine months ended September 30, 2001 as compared to $2,746,969 and
$2,818,417 for the three months and nine months ended September 30, 2000. The
decrease in Cost of Sales is the result of the sale of Mardock, Inc., a
decrease in revenues at NTCB and the improvements in manufacturing and
processes. The operating cost has been reduced by approximately 33 percent at
NTCB.
General, Administrative and Selling Expenses.
We incurred costs of $2,657,455 and $4,038,573 for the three months and
nine months ended September 30, 2001 as compared to $1,074,139 and $1,180,188
for the three months and nine months ended September 30, 2000. Operating
expenses were a one time significant increase of $1,990,210 for consulting
services paid in shares of common stock at the parent company, Flexxtech
Corporation and $649,700 from the subsidiary, North Texas Circuit Board. Much
of the increase at NTCB in the three-month period was due to the increase in
improvements to the facility and the processes that will allow us to return to
profitable operations in the fourth quarter of 2001.
Net loss before income taxes.
We had a loss before taxes of $3,074,209 and $3,985,671 for the three
months and nine months ended September 30, 2001 as compared to a loss of
$432,719 and $501,720 for the three months and nine months ended September 30,
2000. $1,990,210 of the loss came from the issuance of common stock for
consulting services.
Net loss.
We had a net loss of $4,437,143 and $5,352,605 for the three months and
nine months ended September 30, 2001 as compared to a net loss of $432,719 and
$502,520 for the three months and nine months ended September 30, 2000. The
net loss was mostly due to $1,990,210 from the issuance of common stock for
services, $542,134 from the disposal of segments (Mardock, Inc. and
Opitv.com), $820,000 from an Extraordinary Item loss on settlement of a note
receivable, and an operating loss of $649,700 from NTCB.
Unrealized Loss on Investments.
We had an unrealized loss on marketable investments available for sale of
$21,130 and $169,130 for the three months and nine months ended September 30,
2001as compared to a gain of $300,500 for the three months and $146,000 for
the nine months ended September 30, 2000. The unrealized loss is contributed
to the fluctuating market value of the securities the Company's subsidiary,
Flexxtech Holdings, Inc. owns, at the end of the quarter. The securities owned
are marked to market on the last day of the trading month for the period
ended. On July 1, 2001, the Accesspoint Corporation investment and Easyrider,
Inc. investment were sold in an exchanged for shares of the Company's common
stock with a shareholder.
Extraordinary Item Loss.
We also had an Extraordinary Item loss on a settlement of a note receivable of
$820,000 for the three months and nine months ended September 30, 2001. The
note was sold in exchange for 450,000 shares of the Company's common stock.
Comprehensive Loss.
We had a Comprehensive Loss of $4,458,273 and $5,521,735 for the three
months and nine months ended September 30, 2001 as compared to a Comprehensive
Loss of $132,219 and $356,020 for the three months and nine months ended
September 30, 2000. The Comprehensive Loss includes the unrealized loss on
marketable investments available for sale of $21,130, the Extraordinary Item
loss of $820,000, Disposal of segments loss of $542,134, and the net loss
after taxes of $3,074,209.
Liquidity and Capital Resources
The Company's business plan was restructured in April 2000 to its now
current plan. The Company must continue to raise capital to fulfill its plan
of acquiring technology companies and assisting in the development of those
companies internally. If the Company is unable to raise any additional capital
its operations will be curtailed and it may have to liquidate its current
investments for operating capital. As of September 30, 2001, the Company had
total Current Assets of $1,417,970 and Current Liabilities of $4,232,315.
Cash and cash equivalents were $173,692. Stockholder's Deficit was $1,217,683.
In its acquisition of North Texas Circuit Board, Management feels that it has
made necessary cost cutting efforts to reduce the debt and increase
productivity of the Company. In its turn-around effort, management feels
additional capital will be needed to complete a full turnaround, but that the
Company has made significant strides toward a successful turnaround.
Management feels that other operations of the Company are financially sound at
this time and that no outside forces, including inflation has had a
significant impact on its operations. The Company will continue to raise
capital for acquisitions and the internal development of its subsidiaries.
Subsidiaries
Flexxtech Holdings, Inc. is a wholly owned subsidiary of Company. On
April 26, 2000, Flexxtech Holdings acquired 100% of the outstanding common
stock of Mardock, Inc., an Oregon Corporation. On July 1, 2001, Flexxtech
Holdings sold Mardock, Inc. to Mardock.com in exchange for 200,000 shares of
the Company's common stock. Mardock was sold so the Company could focus its
resources on North Texas Circuit Board Co. and other acquisitions that would
add greater value to the Company.
On August 15, 2000 the Company, through its wholly owned subsidiary
Flexxtech Holdings, Inc. acquired Primavera Corporation, the parent company of
North Texas Circuit Board Company. All terms of the Primavera acquisition have
been satisfied. On June 17, 2001 the Company acquired the remaining 20% of
Primavera Corporation for 100,000 options to purchase common stock, issued to
the four shareholders representing 20% of Primavera Corp. The options are
excersizable $2.50 per share and expire on June 17, 2004.
NTCB has invested heavily in its future in the three months ended June
30, 2001. NTCB has made significant capital improvements to the facility,
equipment, and processes that have had a dramatic impact on the performance of
the business. The operating costs have been reduced by one-third while the
internal yields and quality are now at a historic high level for the business.
NTCB has significantly lowered its loans outstanding and continues to improve
its debt situation.
Primavera Corporation was formed in Texas on April 26, 2000. The Company
is a holding company, which operates primarily through its wholly owned
subsidiary, North Texas Circuit Board Company ("NTCB"), which was formed in
1978 in the state of Texas. NTCB manufacturers printed circuit boards on a
quick-turn basis and has recently invested heavily in its future toward
production levels. On May 11, 2000, Primavera acquired 100% of the common
stock of NTCB.
On September 15, 2000 the Company, through its wholly owned subsidiary
Flexxtech Holdings, Inc., acquired 80% of OpiTv.com in exchange for 100,000
shares of newly issued common stock of the Company at $6.25 per share. On July
1, 2001we sold Opitv.com to Mardock.com, a shareholder of the Company, in
exchange for 50,000 shares of the Company's common stock. The Opitv.com plan
was not implemented due to the passing of Howard Frantom, the Chairman and CEO
in December 2000 and due to the lack of capital required to implement the
plan. 40,000 shares of common stock issued to John Alkire were retired to
Flexxtech treasury upon his resignation.
OpiTV has no revenues to date and no operating expenses for the three
months ended June 30, 2001.
PART II - OTHER INFORMATION
Item 1. 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 Donizetti and Luminary Venture, Inc. The complaint is for breach of
contract among other actions. The Company has denied all claims and is
considering filing a counter suit for breach of contract and for filing a
frivolous suit among other claims. Management will rigorously defend itself.
Management also believes that a settlement will be reached. Management also
feels that this action is not material to the business of the Company.
Robert Eubanks, President of Luminary Venture, Inc., was retained by the
Company to provide public relations and promotional services. Robert Eubanks,
under the agreement, was to act as Company spokesman. The agreement called for
Luminary to receive stock and options in the company and a monthly cash
retainer.
The Company is not aware of any other legal action or pending legal action at
this time.
Item 2. Changes in Securities
We have sold shares of common stock of the Company periodically pursuant to
Regulation D, Rule 506, as amended, and Regulation S, as amended. In the three
months ended September 30, 2001, pursuant to Regulation D, we sold 25,320
shares at $1.00 per share for proceeds of $25,320 and 6,676 shares (yet to be
issued) at $0.75 per share for proceeds of $5,000. We also issued 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 of 783,333 shares to Greg Mardock, and officer and director of the
Company and disposed of 2,646,000 to Edward Fearon and 500,000 to Raymond
Craig. In the three months ended September 30, 2001, pursuant to Regulation
S, we sold 7,333 shares at $.30 per share for proceeds of $2,200.
In the three months ended September 30, 2001, we sold a total of 31,996
shares pursuant to the exemptions afforded by Regulation D resulting in gross
proceeds of $30,320. In the three months ended September 30, 2001, we sold a
total of 6,676 shares pursuant to the provisions of Regulation S resulting in
gross proceeds of $2,200. $3,400 received where shares have not been issued.
We utilized the services of finders in placing the Offerings. We did not
utilize the services of brokers or underwriters. The Offerings was
self-underwritten. The Offering expenses were approximately 15% of the gross
Offering proceeds. The balance of the Offering expenses were related to
general sales expenses, including, but not limited to, due diligence,
accounting and legal expenses.
In August 2001 we commenced a convertible debenture offering. The
placement agent was May Davis Group. May Davis Group received 200,000 pursuant
to Regulation D as a fee. The May Davis Agreements are included in this filing
as exhibits.
The debentures and shares are being offered to persons who are
"accredited investors," as defined under Rule 506 of Regulation D of the
Securities Act of 1933 as amended (the "Act"). An additional thirty-five (35)
non-accredited investors may participate in the Offering. Accredited investors
must have a net worth or joint net worth with their spouse of $1,000,000.00 or
more, or have individual income in excess of $200,000.00 (or $300,000.00 joint
income with a spouse) in each of the two most recent years and who reasonably
expects an income of $200,000.00 (or $300,000.00 joint income with a spouse)
in the current year.
With exception to the May Davis convertible debenture agreements, we are
conducting the Offering as a self-underwriting. Shares in the Offering are
available only through us. We are making the Offering on a best efforts basis.
This means that we have not established any minimum amount of proceeds that
must be generated in the Offering. Accordingly, investors who subscribe for
Shares in the earlier stages of the Offering will assume a substantially
greater risk than investors who subscribe for Shares later in the Offering.
Even if we sell all of the Shares covered by the Offering and raise
maximum proceeds, such proceeds may be insufficient to implement our business
investment plan. There is no guarantee that the funds generated by the
Offering will be sufficient to cover the financial requirements for our
growth.
We have arbitrarily set the price of the Shares in the Offering. The
price of the Shares is based upon the amount of capital that we desire to
raise and the percentage of our outstanding capital stock that we are willing
to sell at this point in our development. We have established the price of the
Shares and the value of our company without an independent appraisal. The
price has no relationship to book value per share, current earnings or other
generally accepted measurements of value. The Offering may involve immediate
and substantial dilution.
On June 27, 2001 a resolution was adopted by the Directors of Flexxtech
Holdings, Inc. to focus on its circuit board roll-up, and in particular focus
on the North Texas Circuit Board turnaround and divest itself from all other
business and issues that do not synergistically fit with the circuit board
operations and roll-up. On July 1, 2001 the following transactions occured.
Flexxtech Holdings disposed of its interest in OpiTV.com to Mardock, Inc. for
50,000 shares of common stock of the Company and 40,000 shares held by a
principal was retired. Mardock Inc. was disposed to Mardock.com for 200,000
shares of common stock of the Company. Pursuant to the Promissory Note from
VLK Capital, the Company agreed to exchange the note for 450,000 shares of
common stock of the Company. Flexx Capital Partners, Inc., a wholly owned
subsidiary, was sold to a shareholder for $1.00. Flexx Capital had no revenue
or income to date. 100,000 shares of Easyriders held in the name of Flexxtech
Holdings, was exchanged for 25,000 shares of common stock of the Company with
a shareholder of the Company.
Item 3. Subsequent Events
Not Applicable
Item 4. Defaults Upon Senior Securities
Not Applicable.
Item 5. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 6. Other Information.
Not Applicable.
Item 7. Exhibits and Reports on Form 8-K.
(a) Exhibits filed with this Report
Exhibit No. Description
------------ -----------
10.1 Placement Agent Agreement - May Davis Group
10.2 Securities Purchase Agreement, Form of Debenture
10.3 Registration Rights Agreement - Convertible Debenture
10.4 Escrow Agreement
10.5 Equity Line of Credit - Dutchess Equity Fund
10.6 Registration Rights Agreement - Equity Line of Credit -
Dutchess
10.7 Registration Rights Agreement - Warrants Shares and
Restricted Shares
(b) Reports on Form 8-K
Not Applicable
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLEXXTECH CORPORATION
(Registrant)
Date: November 19, 2001 By: /s/ Greg Mardock
--------------------
Greg Mardock
President