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 March 31, 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 March 31, 2002, the issuer had outstanding 21,292,272 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
1
FLEXXTECH CORPORATION
CONSOLIDATED BALANCE SHEET
MARCH 31, 2002
(UNAUDITED)
ASSETS
Current Asset:
Cash and cash equivalents $ 129,393
Accounts receivable 603,564
Inventory 423,308
Prepaid expenses 43,329
Deposits & other current assets 16,578
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Total Current Asset 1,216,172
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Property & equipment, net 1,434,003
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TOTAL ASSETS $ 2,650,175
=============
LIABILITIES STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 1,381,017
Accrued expenses 329,718
Loans payable - Current 1,069,976
Loans payable related parties 1,980,824
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Total Current Liabilities 4,761,535
Long-term Liabilities:
Convertible debt 870,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, authorized 100,000,000 shares at $.001 par
value, issued and outstanding 21,292,272 shares 19,800
Additional paid in capital 7,934,962
Shares to be issued 41,035
Accumulated deficit (10,401,657)
Accumulated other comprehensive income:
Unrealized loss on securities available for sale (575,500)
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Total Stockholders' Deficit (2,981,360)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,650,175
=============
The accompanying notes are an integral part of these consolidated financial
statements.
2
FLEXXTECH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
2002 2001
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Net revenue $ 926,680 $ 1,978,467
Cost of revenue 1,050,154 1,707,420
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GROSS PROFIT/(LOSS) (123,474) 271,047
General and Administrative expenses 943,325 439,192
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LOSS FROM OPERATIONS (1,066,799) (168,145)
Other income (expenses)
Realized loss on sale of marketable securities - (51,958)
Other income (expense) - 1,153
Interest expense (56,181) (60,797)
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Total other income (expenses) (56,181) (111,602)
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Net loss before income tax and loss on
discontinued segments (1,122,980) (279,747)
Provision of Income tax 1,600 1,600
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NET LOSS BEFORE LOSS ON DISPOSAL OF SEGMENTS (1,124,580) (281,347)
DISCONTINUED OPERATIONS:
Loss from operations of discontinued subsidiary
(Net of applicable income tax) - (22,218)
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- (22,218)
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NET LOSS (1,124,580) (303,565)
OTHER COMPREHENSIVE LOSS:
Unrealized loss on investments available for sale - (115,130)
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COMPREHENSIVE LOSS $ (1,124,580) $ (418,695)
============= =============
Basic and diluted loss per share $ (0.05) $ (0.03)
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Basic and diluted weighted average shares outstanding 21,707,309 10,996,457
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
3
FLEXXTECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(1,124,580) $ (303,565)
Adjustments to reconcile net loss to cash used in
operating activities
Depreciation and amortization 74,202 107,030
Amortization of goodwill - 31,420
Issuance of stocks for consulting services & compensation 205,400 -
Loss on sale of marketable securities - 51,958
(Increase) / decrease in current assets
Accounts receivable (22,187) (136,003)
Inventory 101,574 (29,483)
Prepaid expense (30,049) -
Deposits & other current assets (14,996) (8,175)
Increase /(decrease) in current liabilities
Accounts payable (57,198) 180,383
Accrued expenses 93,272 37,174
Customers' deposit - 1,923
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NET CASH USED IN OPERATING ACTIVITIES (774,562) (67,338)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of marketable securities - 98,443
Acquisition of property & equipment - (43,749)
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NET CASH PROVIDED BY INVESTING ACTIVITIES - 54,694
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of common stock 343,358 66,057
Proceeds from shares to be issued 10,885 -
Repayment of notes receivable 19,000 111,017
Proceeds from borrowings 213,500 -
Payments of loans (53,572) (524,653)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 533,171 (347,579)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (241,391) (360,223)
CASH AND CASH EQUIVALENTS -BEGINNING 370,784 519,865
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CASH AND CASH EQUIVALENTS -ENDING $ 129,393 $ 159,642
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
4
FLEXXTECH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SEGMENTS
The Company was organized on March 24, 1998, under the laws of the State of
Nevada, as Color Strategies. On December 20, 1999, the Company changed its name
to Infinite Technology Corporation. The Company changed its name to Flexxtech
Corporation in April 2000.
Primavera Corporation (PC) was incorporated in the state of Texas on April 26,
2000. Pursuant to an acquisition agreement, dated May 11, 2000, PC acquired one
hundred percent (100%) of the common shares outstanding of North Texas Circuit
Board, Inc. (NTCB). NTCB was incorporated in 1978 in the state of Texas. NTCB
manufactures printed circuit boards. The products are sold through its
distribution center in Irving, Texas utilizing outside sales people. Deliveries
are made primarily throughout the United States.
Flexxtech Holdings, Inc., a Nevada Corporation, was formed on October 1, 1999.
Flexxtech Holdings, Inc. owns majority shares ownership of Primavera, the parent
company of North Texas Circuit Board, Inc.
2. PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of
Flexxtech Corporation (the "Parent"), and its 100% owned subsidiary, Flexxtech
Holdings, Inc., collectively referred to as the "Company". Flexxtech Holdings,
Inc.'s 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.
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, 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 period
ended March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
GOODWILL
The Company continuously monitors its goodwill to determine whether any
impairment of this asset has occurred. In making such determination with respect
to goodwill, the Company evaluates the performance, on an undiscounted cash flow
basis, of the underlying assets or group of assets that gave rise to this
amount. Goodwill had been amortized on the straight-line basis over 15 years. On
5
FLEXXTECH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, the Company re-evaluated value of each acquisition based upon
performance and future cash flow. The Company estimated the total value of
goodwill as of December 31, 2001 at zero since NTCB has been incurring losses
through December 31, 2001 and did not have goodwill value associated with it.
The Company wrote off goodwill balance of $420,188 on December 31, 2001.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of financial accounting standard No. 107, Disclosures about fair value
of financial instruments, requires that the Company disclose estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
COMPREHENSIVE INCOME
Statement of financial accounting standards No. 130, Reporting comprehensive
income (SFAS No. 130), establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity, except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in
financial statements that are displayed with the same prominence as other
financial statements. Accumulated other comprehensive income as reported in the
accompanying consolidated balance sheet represents unrealized loss on available
for sale securities.
REPORTING SEGMENTS
Statement of financial accounting standards No. 131, Disclosures about segments
of an enterprise and related information (SFAS No. 131), which superceded
statement of financial accounting standards No. 14, Financial reporting for
segments of a business enterprise, establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
6
FLEXXTECH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
deciding how to allocate resources and in assessing performances. The Company
allocates resources and assesses the performance of its sales activities as one
segment.
RISKS AND UNCERTAINTIES
In the normal course of business, the Company is subject to certain risks and
uncertainties. The Company provides its product on unsecured credit to most of
its customers, the majority of which are in the defense industry. Consequently,
the Company's ability to collect the amounts due from customers is affected by
the economic fluctuations in that industry.
COST OF GOODS SOLD
For the period ended March 31, 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 March 31, 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
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.
7
FLEXXTECH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
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
$10,401,657 including a net loss of $1,124,580 for the period ended March 31,
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 March 31, 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 2,135,749 shares for cash in the amount of
$343,358 during the period ended March 31, 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 $50,000 due on
March 1, 2004 and $100,000 due on April 1, 2004. The Company also disposed off
three of its non-profitable subsidiaries during the year 2001.
5. INCOME TAXES
No provision was made for Federal income tax since the Company has significant
net operating loss carryforwards. Through March 31, 2002, the Company incurred
net operating losses for tax purposes of approximately $10,400,000. 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
limitation if there is a 50% or more positive change in the ownership of the
Company's stock. The provision for income taxes consists of the state minimum
tax imposed on corporations.
8
FLEXXTECH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Temporary differences that give rise to deferred tax assets and liabilities at
March 31, 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 $4,160,000. 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:
March 31, March 31,
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 - -
====== ======
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 March 31, 2002, the Company
has received subscription of $41,035 for 86,435 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.
CONVERTIBLE DEBENTURES:
In the year ended December 31, 2001, the company issued debentures amounting
$720,000, carrying an interest rate of 6% per annum, due in August 2003. The
holders are entitled to, at any time or from time to time, convert the
conversion amount into shares of common stock of the Company, par value $.001
per share at a conversion price for each share of common stock equal to the
lower of (a) 120% of the losing bid price per share (as reported by Bloomberg,
LP) on the closing date, and (b) 80% of the lowest closing bid price per share
(as reported by Bloomberg, LP) of the Company's common stock for the five
trading days immediately preceding the date of conversion.
9
FLEXXTECH CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 holder of $50,000 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 $4.66 per share of common stock. The notes are
secured and collateralized by shares of common stock of the Company at one share
per every three dollars and twenty-five cents ($3.35) of the principal. The
holder of $100,000 promissory notes is entitled to convert the conversion amount
into shares of common stock of the Company, par value $.001, at any time, per
share at a conversion price for each share of common stock equal $7.00 per share
of common stock. The notes are secured and collateralized by shares of common
stock of the Company at one share per every five dollars ($5.00) of the
principal.
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 March 31, 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.
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 $15,100 during the three
month period ended March 31, 2002. The Company paid income taxes of $-0- and
interest of $41,720 during the three month period ended March 31, 2001.
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
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 March 31, 2002 and March 31, 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:
We changed our business focus in 2001. Our focus was based on, and
engaged in the business of developing, operating and investing in technology
growth companies, through our wholly-owned subsidiary, Flexxtech Holdings. In
June 2001, we decided to concentrate our efforts and our resources on our
wholly-owned subsidiary North Texas Circuit Board, Co. ("NTCB") and divest from
other investments that we were engaged in, that in our view, were not performing
due to needed resources that were not available. In July 2001, we sold both
Mardock, Inc. and OpiTV.com to focus our resources on NTCB and the acquisition
of other contract manufacturing and government related businesses. Our objective
is to build long-term capital appreciation for our shareholders.
GENERAL PLAN OF OPERATION
-------------------------
Our principal acquisition and investment strategy has changed
considerably due to our own research and to economic and political events that
have occurred throughout the year of 2001. Because of limited capital, we have
focused our resources, since July 2001, on our wholly-owned subsidiary NTCB. We
are working on returning NTCB to profitability. We believe that our strategy
also promotes opportunities for investment in undervalued situations and
synergistic business relationships among the companies in which we have
investments.
Our acquisition or investment candidates are characterized by being
both profitable, and potentially profitable businesses. Companies with explosive
growth potential, but limited by a lack of capital and industry contacts,
including turnarounds, will greatly benefit from a carefully timed acquisition
by Flexxtech Holdings, Inc. We concentrate on companies that our own research
suggests have potential for gaining the dominant role in their markets and for
producing extraordinary price appreciation over time.
There is no limit on the market capitalization of the companies that
our subsidiary, Flexxtech Holdings, Inc., may acquire or invest in, or in the
length of operating history for the companies. Our subsidiary may invest without
limit in private as well as public companies, initial public offerings, private
placements, bridge financing, debt securities, foreign securities and purchase
and sell options. Our subsidiary may also margin up to 100% of its marginable
securities.
In seeking new business opportunities our management, and that of our
subsidiary, Flexxtech Holdings, Inc., may consider:
11
(1) the potential for growth and profitability, indicated by new
technology anticipated market expansion or new products:
(2) its perception of how any particular business opportunity will be
received by the investment community and by the company's stockholders;
(3) the extent to which the business opportunity can be advanced;
(4) capital requirements and anticipated availability of funds;
(5) competitive position as compared to other companies of similar size
and experience within the industry segment as well as within the industry as a
whole;
(6) strength and diversity of existing management or new management
that are scheduled to be recruited in connection with the new business prospect;
We have initiated a program with special interest in the acquisition of
printed circuit board companies. We have called this program a circuit board
plan or a circuit board roll-up plan, although the term roll-up is used in a
plain meaning non-securities, non-technical sense.
In addition to the circuit board plan, we intend to seek, through our
subsidiary, Flexxtech Holdings, Inc., additional industries where efficiencies
through consolidation will greatly benefit the Company. The thrust will be to:
o Acquire "islands of excellence" in attractive, complementary
markets.
o Efficiently acquire and integrate new companies while
preserving their entrepreneurial spirit.
o Use the greater purchasing power to obtain improved vendor
deals.
o Keep and integrate only those superior managers.
MERGER & ACQUISITION TENETS
---------------------------
o Build on our organizational skill in performing acquisitions;
develop systems for managing the process from lead evaluation,
negotiation, contracting, and post-closing integration.
o Pay reasonable multiples with extra incentives to ensure
seller commitment.
o Exercise complete due diligence to ensure smooth integration
of personnel and operations.
o Achieve rapid returns on investment by implementing the best
practices in the acquired operation.
o Reduce overhead by vacating unneeded premises.
o Centralize any duplicated support functions into the
headquarters location.
In June 2001 we changed the direction and business plan of our Company
to its current model.
We continue to raise money for our operations and those of NTCB and our
acquisition candidate, T.S. Group. Funds are being raised on private placements
pursuant to Regulation D, Rule 506, as amended and Regulation S, as amended.
During the quarter ended March 31, 2002, the Company sold 2,135,749 shares for
cash in the amount of $343,358. The Company issued 3,119 shares for money
received in 2001. As of March 31, 2002, the Company received subscription of
$41,035for 86,435 shares of common stock to be issued. The Company issued
226,670 shares of common stock for consulting services amounting $113,000. The
Company issued 210,000 shares of common stock to North Texas Circuit Board on a
no-interest loan at a value of $92,400. The Company also issued convertible
debentures amounting to $720,000 in the year ended December 31, 2001, due in
August 2003 and issued convertible promissory notes of $50,000 due on March 1,
2004 and $100,000 due on April 1, 2004. The Company also disposed off three of
its non-profitable subsidiaries during the year 2001.
The Company issued 850,000 shares of common stock as collateral against
a loan of $283,700. The Company has not recorded any value for such shares since
the shares are issued as collateral and are returnable once the loan amount is
fully paid.
12
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 MARCH 31, 2002 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
2001
Results of Operations
---------------------
We have generated consolidated revenues of $926,680 for the three
months ended March 31, 2002 as compared to $1,978,467 for the three months ended
March 31, 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 $926,680 for the quarter ended March 31, 2002 as
compared to $1,978,467 for the quarter ended March 31, 2001.
Cost of Revenue
---------------
We incurred Cost of Revenue of $1,050,154 for the quarter ended March
31, 2002 as compared to $1,707,420 for the quarter ended March 31, 2001.
General, Administrative and Selling Expenses
--------------------------------------------
We incurred costs of $943,325 for the quarter ended March 31, 2002 as
compared to $439,192 for the quarter ended March 31, 2001.
Net loss before income taxes and loss on discontinued segments
--------------------------------------------------------------
We had a loss before taxes and discontinued segments of $1,122,980 for
the quarter ended March 31, 2002 as compared to a loss of $279,747 for the
quarter ended March 31, 2001. $113,000 of the loss came from the issuance of
common stock for consulting services.
Unrealized loss on investments available for sale
-------------------------------------------------
We did not have an unrealized loss on investments available for sale
for the three months ending March 31, 2002.
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Net loss
--------
We had a net loss of $1,124,580 for the quarter ended March 31, 2002 as
compared to a net loss of $303,565 for the quarter ended March 31, 2001.
Comprehensive Loss.
-------------------
We had a Comprehensive Loss of $1,124,580 for the quarter-end March 31,
2002 as compared to a Comprehensive Loss of $418,695 for the quarter-end March
31, 2000.
Basic and diluted loss per share
--------------------------------
Our basic and diluted loss per share for the three month period ended
March 31, 2002 was $.05 as compared to $.03 for the three month period ended
March 31, 2001.
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.
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 March 31, 2002, pursuant to Regulation D, we sold 232,000
shares at $0.25 per share for proceeds of $58,000. We sold 3,115 shares for a
net amount of $980. We also sold 18,285 shares at $0.65 for which shares are yet
to be issued. In the three months ended March 31, 2002, pursuant to Regulation
S, we sold 1,400,634 shares at 13.17 cents per share for proceeds of $184,378.12
and 500,000 shares at $0.20 for proceeds of $100,000.
In the three months ended March 31, 2002, we sold a total of 250,285
shares pursuant to the exemptions afforded by Regulation D resulting in gross
proceeds of $69,885. Of the 250,285 shares, 18,285 shares have yet to be issued
for total amount of $11,885. In the three months ended March 31, 2002, we sold a
total of 1,900,634 shares pursuant to the provisions of Regulation S resulting
in gross proceeds of $284,378.12. 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
$53,139.47 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.
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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.
During the quarter ended March 31, 2002, the Company issued 226,670
shares of common stock for consulting services amounting $113,000. The Company
issued 210,000 shares of common stock to North Texas Circuit Board on a
no-interest loan at a value of $92,400.
The Company issued 850,000 shares of common stock as collateral against
a loan of $283,700. The Company has not recorded any value for such shares since
the shares are issued as collateral and are returnable once the loan amount is
fully paid.
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 March 31, 2002, the Company had total
Current Assets of $1,216,172 and Current Liabilities of $4,761,535. Cash and
cash equivalents were $129,393. Stockholder's Deficit was $2,981,360. 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.
Subsidiaries
------------
Flexxtech Holdings, Inc. is a wholly-owned subsidiary of our Company.
At March, 2002, the only major holding for Flexxtech was Primavera Corporation,
the parent company of North Texas circuit Board. Mardock, Inc. and OpiTV.com
were sold in July 2001. OpiTV had no sales to date and Mardock, Inc. had no
growth prospects with the changing economy.
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 issues 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 plan to raise additional capital during at least the first
two quarters of the fiscal year ending December 31, 2002. We expect to use the
proceeds from any such capital raising transactions for general corporate
purposes, including working capital. A portion of the proceeds may also be used
for the acquisition of businesses and technologies that are anticipated to be
complementary to our existing business. If we do not successfully address the
need to raise capital, our ability to continue to conduct business would be
seriously harmed.
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;
16
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
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
The Company, under the Securities Act of 1933, as amended, filed
Registration Statement on Form SB-2 with the U.S. Securities & Exchange
Commission (SEC) on January 14, 2002 for common stock amounting $23,828,571
(based on the offering of 31,771,428 common shares at $0.75). On March 8, 2002,
the Company applied to withdraw the Registration Statement on Form SB-2 This
application for withdrawal was made on the grounds that the Company concluded
the revisions requested by SEC as indicated in the comment letter dated February
15, 2002 were both material and extensive, and warranted a material redrafting
of the prospectus in its entirety. The Company further advised SEC that no
shares of common stock sought to be registered pursuant to the Registration
Statement have been offered or sold.
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
(b) Reports on Form 8-K
Not Applicable
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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: May 21, 2002 By: /s/ Greg Mardock
--------------------
Greg Mardock
President
18