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 June 30, 2002
Commission file number 000-25499
Flexxtech Corporation
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(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)
1501 W. Shady Grove Rd.
Grand Prairie, TX 75050
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(Address of principal executive offices) (Zip Code)
(972) 986-2381
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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 June 30, 2002, the issuer had outstanding 28,266,425 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
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FLEXXTECH CORPORATION
CONSOLIDATED BALANCE SHEET
JUNE 30, 2002
(UNAUDITED)
ASSETS
Current Asset:
Cash and cash equivalents $ 72,444
Accounts receivable 522,831
Inventory 782,239
Prepaid expenses 32,328
Loan to related party 129,300
Deposits & other current assets 1,576
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Total Current Asset 1,540,718
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Property & equipment, net 1,358,611
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TOTAL ASSETS $ 2,899,329
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LIABILITIES STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 1,399,892
Accrued expenses 241,510
Loans payable - Current 1,471,257
Loans payable- Related parties 2,079,046
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Total Current Liabilities 5,191,705
Long-term Liabilities:
Convertible debt 820,000
STOCKHOLDERS' DEFICIT
Common stock, authorized 100,000,000 shares at $.001 par
value, issued and outstanding 28,266,425 shares 26,774
Additional paid in capital 9,332,754
Shares to be issued 14,750
Accumulated deficit (11,911,154)
Accumulated other comprehensive income:
Unrealized loss on securities available for sale (575,500)
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Total Stockholders' Deficit (3,112,376)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,899,329
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The accompanying notes are an integral part of these
consolidated financial statements
3
FLEXXTECH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
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Net revenue $ 771,618 $ 1,633,947 $ 1,698,298 $ 3,612,414
Cost of revenue 966,424 1,415,238 2,016,578 3,122,658
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GROSS PROFIT/(LOSS) (194,806) 218,709 (318,280) 489,756
General and Administrative expenses 976,132 788,055 1,919,457 1,227,247
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LOSS FROM OPERATIONS (1,170,938) (569,346) (2,237,737) (737,491)
Other income (expenses)
Realized loss on sale of marketable securities -- -- -- (51,958)
Litigation settlement (41,743) -- (41,743) --
Other income (expense) -- 7,786 -- 8,939
Interest expense (124,372) (49,426) (180,553) (110,223)
------------- ------------- ------------- -------------
Total other income (expenses) (166,115) (41,640) (222,296) (153,242)
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LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES & EXTRAORDINARY ITEM (1,337,053) (610,986) (2,460,033) (890,733)
Provision of Income tax -- 800 1,600 2,400
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LOSS FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM (1,337,053) (611,786) (2,461,633) (893,133)
DISCONTINUED OPERATIONS:
Loss from operations of discontinued subsidiary
(Less applicable income taxes of $800) -- (111) -- (22,329)
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NET LOSS BEFORE EXTRAORDINARY ITEM (1,337,053) (611,897) (2,461,633) (915,462)
EXTRAORDINARY ITEM - LOSS ON SETTLEMENT OF DEBTS (172,444) -- (172,444) --
------------- ------------- ------------- -------------
NET LOSS (1,509,497) (611,897) (2,634,077) (915,462)
OTHER COMPREHENSIVE LOSS:
Unrealized loss on investments available for sale -- (32,870) -- (148,000)
------------- ------------- ------------- -------------
COMPREHENSIVE LOSS $ (1,509,497) $ (644,767) $ (2,634,077) $ (1,063,462)
============= ============= ============= =============
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Basic and diluted loss per share $ (0.06) $ (0.06) $ (0.11) $ (0.10)
============= ============= ============= =============
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Basic and diluted weighted average shares outstanding 24,734,250 11,224,816 23,229,141 11,136,129
============= ============= ============= =============
* 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
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FLEXXTECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
(Unaudited)
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(2,634,077) $ (915,462)
Adjustments to reconcile net loss to cash used in
operating activities
Depreciation and amortization 149,594 205,437
Amortization of goodwill -- 62,839
Issuance of stocks for consulting services & compensation 687,419 246,213
Issuance of stock for settlement of debt 426,514 --
Loss on sale of marketable securities -- 51,958
Loss on settlement of debt 172,444 --
(Increase) / decrease in current assets
Accounts receivable 58,546 79,110
Inventory (257,357) (150,760)
Prepaid expense (19,048) --
Deposits & other current assets 6 234,699
Increase /(decrease) in current liabilities
Accounts payable (38,323) 50,115
Accrued expenses 5,064 109,649
Customers' deposit and other current liabilities -- 12,865
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NET CASH USED IN OPERATING ACTIVITIES (1,449,218) (13,337)
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CASH FLOWS FROM INVESTING ACTIVITIES
Sale of marketable securities -- 98,443
Acquisition of property & equipment -- (78,566)
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NET CASH PROVIDED BY INVESTING ACTIVITIES -- 19,877
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of common stock 824,191 132,716
Proceeds from shares to be issued -- 49,300
(Payments) repayment of notes receivable (110,300) 123,120
Proceeds from borrowings 496,187 705,363
Payments of loans (59,200) (1,274,401)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,150,878 (263,902)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (298,340) (257,362)
CASH AND CASH EQUIVALENTS -BEGINNING 370,784 519,865
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CASH AND CASH EQUIVALENTS -ENDING $ 72,444 $ 262,503
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The accompanying notes are an integral part of these consolidated financial statements
5
FLEXXTECH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION:
The accompanying unaudited condensed interim financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for the presentation of interim financial information, but
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. The audited financial
statements for the two years ended December 31, 2001 and 2000 was filed on April
16, 2002 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 three-month and
six-month periods ended June 30, 2002 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2002.
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.
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.
COST OF GOODS SOLD
For the period ended June 30, 2002, the Company recorded $172,781 of its wages
and salaries as general & administrative expenses instead of cost of goods sold,
since during the first quarter of 2002, the Company had allocated the time
related to these wages and salaries of its work force on improvement of process
and procedures, manufacturing improvements, waste treatment project and training
of the labor force. For the period ended June 30, 2001, all such wages and
salaries were recorded as cost of goods sold.
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
6
methods to periodically evaluate goodwill for impairment. Intangible assets with
a determinable useful life will continue to be amortized over that period. This
statement became effective from January 1, 2002.
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.
The adoption of above pronouncements, did not 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. The Company does not anticipate that
adoption of SFAS 145 will have a material effect on our earnings or financial
position.
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. This statement will not have a material impact on
the Company's financial statements.
2. 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.
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 130,000
shares of Flexxtech stock, valued at $325,000, plus a contribution of $1,250,000
in cash to NTCB as additional working capital.
In 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
7
of 100,000 options to purchase common stock, issued to the four shareholders
representing 20% of Primavera Corp. The options are exercisable $2.50 per share
and expire on June 17, 2004.
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.
3. 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 100% owned subsidiary, Primavera Corporation, wholly owns North Texas
Circuit Board Co., Inc. (a Texas corporation). All significant inter-company
accounts and transactions have been eliminated in consolidation.
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
$11,911,154 including a net loss of $2,634,077 for the period ended June 30,
2002. 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 June 30, 2002, 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 5,810,964 shares for cash in the amount of
$824,191 during the period ended June 30, 2002. The company also issued
convertible debentures amounting $720,000 in the year ended December 31, 2001,
due in August 2003 and issued convertible promissory notes of $100,000 due on
April 1, 2004. The Company also disposed off three of its non-profitable
subsidiaries, Mardock, Inc., OpiTV, Inc. and Flexxtech Capital Partners, during
the year 2001. The Company also settled debts amounting $254,070 by issuing
1,216,284 shares of common stock valued at $426,514.
5. INCOME TAXES
No provision was made for Federal income tax since the Company has significant
net operating loss carryforwards. Through June 30, 2002, the Company incurred
net operating losses for tax purposes of approximately $11,900,000. The net
operating loss carryforwards may be used to reduce taxable income through the
year 2017. Net operating loss for carryforwards for the State of California are
generally available to reduce taxable income through the year 2007. The
availability of the Company's net operating loss carryforwards are subject to
8
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
June 30, 2002 comprised of depreciation and amortization and net operating loss
carry forward. The gross deferred tax asset balance as of December 31, 2001 was
approximately $4,720,000. A 100% valuation allowance has been established
against the deferred tax assets, as the utilization of the loss carryforwards
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:
June 30, June 30,
2002 2001
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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 -- --
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6. 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 three month period ended March 31, 2002, the Company sold 2,135,749
shares for cash in the amount of $343,358. Through June 30, 2002, the Company
has received subscription of $14,750 for 31,000 shares of common stock to be
issued. The Company issued 226,670 shares of common stock for consulting
services amounting $113,000 to related parties. The Company issued 210,000
shares of common stock for compensation amounting $92,400.
During the three month period ended March 31, 2002, the Company issued 850,000
shares of common stock to a related party, related by common major shareholders,
as a collateral against a debt of $283,700. The Company has not recorded any
value for such shares since the shares are issued as collateral and are
returnable.
During the second quarter ended June 30, 2002, the Company sold 3,675,215 shares
for cash in the amount of $480,833. The Company issued 2,082,654 shares of
common stock for consulting services amounting $$482,019. The Company also
settled debts amounting $254,070 by issuing 1,216,284 shares of common stock
valued at $426,514, thereby recording an extraordinary loss on settlement of
$172,444. Included in debt settled was an amount due to a related party of
$200,000. The Company issued 1,000,000 shares of common stock to the related
party in exchange of debt. The shares were valued at the market rate prevailing
at the time of issuance of shares for $380,900.
CONVERTIBLE DEBENTURES:
In the year ended December 31, 2001, the company issued debentures amounting
$720,000, carrying an interest rate of 6% per annum, due in August 2003. The
holders are entitled to, at any time or from time to time, convert the
conversion amount into shares of common stock of the Company, par value $.001
9
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.
CONVERTIBLE PROMISSORY NOTES PAYABLE
In the year ended December 31, 2001, 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 note of $59,200 was settled by
issuance of 216,284 shares of common stock. The holder of $100,000 promissory
notes is entitled to convert the conversion amount into shares of common stock
of the Company, par value $.001, at any time, per share at a conversion price
for each share of common stock equal $7.00 per share of common stock. The note
is secured and collateralized by shares of common stock of the Company at one
share per every five dollars ($5.00) of the principal.
STOCK OPTION PLAN
The Company 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 June 30, 2002.
7. 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 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. Management does not
believe implication of this litigation will have any other material impact on
the Company's financial statements.
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 believe it is a frivolous suit and settlement will not have
a material impact on the Company's financial statements.
8. COMMITMENT
Lease - NTCB leases 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 shall have 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.
9. 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 $-0- and interest of $26,500 during the six
month period ended June 30, 2002. The Company paid income taxes of $-0- and
interest of $74,088 during the six month period ended June 30, 2001.
10
The statement of cash flows does not include effect of non-cash transaction of
issuance of shares (note 6) for consulting services and compensation.
10. NOTES PAYABLE
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 are secured by
the properties of North Texas Circuit Boards in Texas, a 100% owned subsidiary
of Primavera Corporation, which is owned by the Company. Total outstanding
amount on such promissory notes amounted to $576,000 at June 30, 2002.
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 June 30, 2002 and June 30, 2001. 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:
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.
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We continue to raise money for our operations and those of NTCB. Funds
are being raised on private placements pursuant to Regulation D, Rule 506, as
amended and Regulation S, as amended. During the three month period ended June
30, 2002, the Company sold 3,523,563 shares for cash in the amount of
$469,988.61. Through June 30, 2002, the Company has received subscription of
132,700 shares of common stock, which was issued but has not yet received the
cash of $14,400. The Company issued 800,200 shares of common stock for
consulting services amounting $326,582 to related parties. The Company issued
82,500 shares of common stock for as part of settlement payment for litigation
suit previously mentioned. The Company issued 189,474 shares of common stock to
National Financial Communications Corp for outstanding invoices totaling
$72,000, and 1,010,480 shares of common stock to Pollet, Richardson & Patel for
outstanding invoices for legal services totaling $50,244. In the three months
ending June 30, 2002, the Company issued 1,000,000 shares to Western Cottonwood
Corporation in lieu of interest payments of $200,000 for Notes.
During the three month period ended June 30, 2002, the Company converted a note
for $50,000 previously held by an investor. Stock was converted at 25 cents per
share and with an interest rate of 10%. Investor received a total of 216,284
shares amounting to $54,071.00.
While there is no assurance that we will be successful in raising
additional capital, we are actively seeking private equity financing to assure
that we will be capable of financing the continuation of our business. Any
additional capital raised above and beyond what we need as our monthly
expenditure would be used in increasing marketing and sales efforts and future
investments and acquisitions. Should we fail to raise additional funding, we
will be forced to curtail our growth, both through internal development and
through investments and acquisitions. As only a holding company to date, we do
not generate our own revenues, but we rely on additional financing to pay our
operating expenses.
THREE MONTHS ENDED JUNE 30, 2002 AS COMPARED TO THREE MONTHS ENDED JUNE 30,
2001
Results of Operations
---------------------
We have generated consolidated revenues of $771,618 for the three
months ended June 30, 2002 as compared to $1,633,947 for the three months ended
June 30, 2001. We have generated consolidated revenues of $1,698,298 for the six
months ended June 30, 2002 as compared to $3,612,414 for the six months ended
June 30, 2001. Currently, our cash needs include, but are at no means limited
to, rent, salaries and wages, cash raising expenses and to fund operation of our
subsidiary, and for future acquisitions. All of our revenues are attributed from
the Company's subsidiary, North Texas Circuit Board Company (NTCB). If we are
unable to continue to raise additional funds in the immediate future to fund
North Texas Circuit Board, it is unlikely that NTCB will remain as a going
concern.
Net Revenues
------------
We had net revenues of $771,618 for the quarter ended June 30, 2002 as
compared to $1,633,947 for the quarter ended June 30, 2001.Are net revenues for
six months ended June 30, 2002 were $1,698,298 as compared to $3,612,414 for the
six months ended June 30, 2001.
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Cost of Revenue
---------------
We incurred Cost of Revenue of $966,424 for the quarter ended June 30,
2002 as compared to $1,415,2398 for the quarter ended June 30, 2001. We incurred
Cost of Revenue of $2,016,578 for the six months ended June 30, 2002 as compared
to $ 3,122,658 for the six months ended June 30, 2001.
General, Administrative and Selling Expenses
--------------------------------------------
We incurred costs of $976,132 for the quarter ended June 30, 2002 as
compared to $788,055 for the quarter ended June 30, 2001. We incurred costs of
$1,919,457 for the six months ended June 30, 2002 as compared to $1,227,247 for
the six months ended June 30, 2001.
Net loss before income taxes and loss on discontinued segments
--------------------------------------------------------------
We had a loss before taxes and discontinued segments of $1,170,938 for
the quarter ended June 30, 2002 as compared to a loss of $569,346 for the
quarter ended June 30, 2001. We had a loss before taxes and discontinued
segments of $2,237,737 for the six months ended June 30, 2002 as compared to a
loss of $737,491 for the six months ended June 30, 2001. Much of the loss came
from the issuance of common stock for services.
Net loss
--------
We had a net loss of $1,509,497 for the quarter ended June 30, 2002 as
compared to a net loss of $611,897 for the quarter ended June 30, 2001. We had a
loss before taxes and discontinued segments of $2,634,077 for the six months
ended June 30, 2002 as compared to a loss of $915,462 for the six months ended
June 30, 2001.
Comprehensive Loss.
-------------------
We had a Comprehensive Loss of $1,509,497 for the quarter-end June 30,
2002 as compared to a Comprehensive Loss of $644,767 for the quarter-end June
30, 2001. We had a Comprehensive Loss of $2,634,077 for the six months ended
June 30, 2002 as compared to a Comprehensive Loss of $1,063,462 for the six
months ended June 30, 2001.
Basic and diluted loss per share
--------------------------------
Our basic and diluted loss per share for the three month period ended
June 30, 2002 was $.06 as compared to $.06 for the three month period ended
June 30, 2001. Our basic and diluted loss per share for the six month period
ended June 30, 2002 was $.11 as compared to $.10 for the three month period
ended June 30, 2001.
13
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. In 2002, 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 and settlement will not have
a material impact on the Company's financial statements.
During day-to-day operations, the Company may be involved in litigation
matters that are immaterial from time to time.
Change 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 June 30, 2002, pursuant to Regulation D, we sold 21,167
shares at $0.15 per share for proceeds of $3,175. We sold 20,000 shares at $0.20
for a net amount of $4,000. We also issued 132,700 shares at $0.11 for a total
of $14,400 for which we have yet to collect such money. We issued 667 shares at
$0.75 for shares paid for prior to December 31, 2001. We also issued 18,825
shares at $0.65 for shares paid for in the 1st Qtr. 2002.
Pursuant to Regulation D, in exchange for Public Relations and consulting
services, the Company issued 250,000 shares at $0.44, 100 shares at $0.41, and
450,000 shares at $0.39. No actual cash was received for these shares. 1,199,954
shares were issued in the three months ending June 30, 2002 in exchange for
$322,244 of outstanding invoices of which 189,474 shares were issued to National
Financial Communications for invoices amounting to $72,000 for Public Relations,
and 1,010,480 shares were issued to Pollet, Richardson & Patel for invoices
amounting to $50,244 for legal services. 1,000,000 shares were issued in lieu of
Interest Payments on Notes of $200,000, and 82,500 shares were issued to satisfy
the settlement agreement of the litigation mentioned above. During the 3 months
ending June 30, 2002, a previously held $50,000 Note was converted into 216,284
shares, pursuant to Regulation D.
In the three months ended June 30, 2002, pursuant to Regulation S, we sold
1,149,062 shares at 0.0982 cents per share for proceeds of $112,813.61 and
2,333,334 shares at $0.15 for proceeds of $350,000. In exchange for Public
Relations and consulting services, the Company issued 100,100 shares at $0.41,
No actual cash was received for these shares.
In the three months ended June 30, 2002, we sold a total of 41,167
shares pursuant to the exemptions afforded by Regulation D resulting in gross
proceeds of $7,175. In the three months ended June 30, 2002, we sold a total of
3,482,396 shares pursuant to the provisions of Regulation S resulting in gross
proceeds of $462,813.61. $14,400 has yet to be received for 132,700 shares
already issued during the three months ended June 30, 2002.
14
We utilized the services of finders in placing the Offering. We did not utilize
the services of brokers or underwriters. The Offering was self-underwritten. The
Offering expenses were approximately $70,498.29 or %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.
The 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.
The Offering is being conducted by us as a self underwriting. Shares in
the Offering are available only through us. We have the option to extend the
Offering up to an additional three months. 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.
Liquidity and Capital Resources
-------------------------------
The Company must continue to raise capital to fulfill its plan of
acquiring 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 June 30, 2002, the Company had total
Current Assets of $1,540,718 and Current Liabilities of $5,191,705 Cash and cash
equivalents were $72,444. Stockholder's Deficit was $3,112,376. In its
acquisition of North Texas Circuit Board, Management continues to make 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. The Company will continue to raise capital
for North Texas Circuit Board and its acquisitions. Should the company be unable
to raise immediate funding for North Texas Circuit Board it is unlikely the
company will continue as a going concern.
15
Subsidiaries
------------
Flexxtech Holdings, Inc. is a wholly-owned subsidiary of our Company.
At June, 2002, the only major holding for Flexxtech was Primavera Corporation,
the parent company of North Texas circuit Board.
Listed below are the subsidiaries of Flexxtech Holdings, Inc. Various
smaller investments are not listed because they represent in total less than
five percent (5%) of the total portfolio assets and management may change them
from time to time.
PRIMAVERA CORPORATION
---------------------
On August 15, 2000 we, through our wholly-owned subsidiary Flexxtech
Holdings, Inc. acquired 67% of Primavera Corporation, the parent company of
North Texas Circuit Board Company. Flexxtech Holdings was issued 203 newly
issued shares of Primavera Corporation in consideration of $1,575,000. On
October 31, 2000, the ownership was increased to 80% of Primavera Corporation.
The consideration was payable in cash in the amount of $1,250,000 by
installments through January 15, 2001 and in the form of 130,000 shares of our
common stock valued for purposes of the transaction at $2.50 per share. As of
December 31, 2001, the 130,000 shares were issued to Primavera shareholders. We
have delivered $1,250,000 to Primavera and North Texas Circuit Board for working
capital. All terms of the Primavera acquisition have been satisfied.
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. On May 11, 2000, Primavera acquired 100% of the common stock of NTCB.
Plans to Raise Capital
----------------------
We currently need to raise additional capital to stay in business.
Proceeds from any such capital raising transactions for general corporate
purposes, including working capital. Should we not raise capital, most likely
our subsidiary, North Texas Circuit Board Co. will go out of business or will
have to be sold.
Substantial Indebtedness
------------------------
We have a substantial amount of indebtedness. As a result of our level
of debt and the terms of our debt instruments:
o our vulnerability to adverse general economic conditions is
heightened;
o we will be required to dedicate a substantial portion of our
cash flow from operations to repayment of debt, limiting the
availability of cash for other purposes;
o we are and will continue to be limited by financial and other
restrictive covenants in our ability to borrow additional
funds, consummate asset sales, enter into transactions with
affiliates or conduct mergers and acquisitions;
o our flexibility in planning for, or reacting to, changes in
its business and industry will be limited; o we are sensitive
16
to fluctuations in interest rates because some of our debt
obligations are subject to variable interest rates; and
o our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired.
Our ability to pay principal and interest on our indebtedness and to
satisfy our other debt obligations will depend upon our future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, some of which are beyond our control. If
we are unable to service our indebtedness, we will be forced to take actions
such as reducing or delaying capital expenditures, selling assets, restructuring
or refinancing our indebtedness, or seeking additional equity capital. There is
no assurance that we can effect any of these remedies on satisfactory terms, or
at all.
Item 3. Subsequent Events
On May 21, 2002 the Company entered into a Stock Purchase Agreement
with Sonic Jet Performance, Inc. whereas the Company would purchase 5,000,000
shares of common stock of Sonic Jet for $600,000 on a Convertible Promissory
Note and a warrant to purchase 5,000,000 shares of Sonic Jet at $.125 per share.
On August 15, 2002 the Company and Sonic Jet agreed to rescind the transaction
because it was determined that it is unlikely that the parties will be able to
fulfill their respective commitments pursuant to the terms and conditions of the
Agreement. No shares of Sonic Jet were issued to the Company and the Convertible
Note was returned.
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
None
(b) Reports on Form 8-K
Not Applicable
17
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: August 19, 2002 By: /s/ Greg Mardock
--------------------
Greg Mardock
President
18