SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 10KSB
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 31, 2001.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 000-25499
INFINITE TECHNOLOGY CORPORATION
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(Former Name)
FLEXXTECH CORPORATION
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(New Name)
(Name of Small Business Issuer in its Charter)
Nevada 88-0390360
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1501 W. Shady Grove Rd.
Grand Prairie, Texas 75050
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(Address of Principal Executive Offices) (Zip Code)
(972) 986-4425
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(Issuer's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock $0.001 Par Value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this Form 10-KSB or any amendment to this
Form 10-KSB. [ ]
The revenue of Flexxtech Corporation for the fiscal year ended December 31,
2001, was $5,716,009.
As of December 31, 2001, Flexxtech Corporation had a limited public
trading market for its common stock. The aggregate market value of the common
equity held by non-affiliates of Flexxtech Corporation on December 31, 2001, was
$6,760,397. Directors, Officers, advisors and ten percent or greater
stockholders are considered affiliates for purposes of this calculation but
should not necessarily be deemed affiliates for any other purpose.
The number of shares outstanding of Flexxtech Corporation's Common
Stock as of December 31, 2001, was 17,869,853.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [x]
TABLE OF CONTENTS
Page
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PART I
Item 1 Business....................................................... 3
Item 2 Description of Property........................................13
Item 3 Legal Proceedings..............................................14
Item 4 Submission of Matters to Vote of Security Holders..............14
PART II
Item 5 Market For Common Equity and Related Stockholder Matters.......14
Item 6 Management's Discussion and Analysis or Plan of Operation .....16
Item 7 Financial Statements...........................................28
Independent Auditors' Report..................................F-1
Balance Sheets................................................F-2
Statements of Operations......................................F-3
Statement of Changes in Stockholders' Equity..................F-4
Statements of Cash Flows......................................F-5
Notes to Financial Statements.................................F-6
Item 8 Changes and Disagreements with Accountants.....................29
Item 9 Directors, Executive Officers, Promoters and Control Persons...29
PART III
Item 10 Executive Compensation.........................................32
Item 11 Security Ownership of Certain Beneficial Owners and
Management.....................................................33
Item 12 Certain Relationships and Related Transactions.................34
Item 13 Exhibits and Reports on 8-K....................................34
2
PART I
ITEM 1. BUSINESS
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
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This Annual Report on Form 10-KSB contains forward-looking statements,
including (without limitation) statements concerning possible or assumed future
results of operations of Registrant and those preceded by, followed by or that
include the words "believes," "could," "expects," "anticipates," or similar
expressions. For those statements, Registrant claims 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 served by the companies; competition from others in the same markets and
other industry segments; the ability to enter, the timing of entry and the
profitability of entering new markets; greater than expected costs; and other
risks and uncertainties as may be detailed from time to time in Registrant's
public announcements and SEC filings.
OUR COMPANY
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HISTORY
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We were originally incorporated in the State of Nevada as Color
Strategies on March 24, 1998. On October 1, 1999, we created a wholly-owned
subsidiary named Infinite Technology Holding, Inc. We changed our name to
Infinite Technology Corporation on December 23, 1999. On May 4, 2000, we changed
our name from Infinite Technology Corporation to Flexxtech Corporation. On the
same date, May 4, 2000, the name of our wholly-owner subsidiary was changed from
Infinite Technology Holding Corporation to Flexxtech Holdings, Inc., which is
referred to in this report as "Flexxtech Holdings." Flexxtech Corporation is
sometimes referred to in this report as "our Company."
At the time we were named Color Strategies, our business purpose was
creating and presenting self-improvement and motivational seminars, which
utilized the concept of image and style enhancements. At the time that we
changed our name to Infinite Technology Corporation, and then to Flexxtech
Corporation, we also changed our business focus. 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 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, including financial resources. In July 2001,
we sold both Mardock, Inc. and OpiTV.com to focus our resources on NTCB and
other contract manufacturing and government related businesses involved in
Military, Aerospace, and Security. Our objective is to build long-term capital
appreciation for our shareholders.
OUTLINED BELOW ARE THE EVENTS THAT HAVE SHAPED OUR COMPANY FROM 2000 TO 2001.
(DETAILS OF THE EVENTS ARE PROVIDED THROUGHOUT THIS 10KSB.)
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MAY 16, 2000 - INFINITE TECHNOLOGY CORPORATION CHANGES NAME TO FLEXXTECH
CORPORATION TO REFLECT NEW BUSINESS STRATEGY (NEW TRADING
SYMBOL: OTC-FLXT)
We changed our name from Infinite Technology Corporation to
Flexxtech Corporation and changed its symbol to FLXT on the
OTC Pink Sheets.
MAY 22, 2000 - FLEXXTECH CORPORATION ANNOUNCES ACQUISITION OF MARDOCK, INC.
THROUGH SUBSIDIARY
We acquired Mardock Inc. through our wholly owned subsidiary,
Flexxtech Holdings, Inc. Mardock Inc. is a designer,
manufacturer and distributor of apparel and promotional
products to the corporate community. Our plan was to develop
the leading web site for corporate promotional products. Due
to financing constraints our plan was postponed. Mardock was
later sold in July 2001.
JUNE 8, 2000 - FLEXXTECH CORPORATION ANNOUNCES NEW BOARD OF DIRECTORS
The board of directors consists of Brian G. Kulhanjian, Howard
Frantom, Khanh Tran, David Pimentel, and Greg Mardock.
JULY 18, 2000 - FLEXXTECH CORPORATION ACQUIRES ADDITIONAL 125,000
SHARES OF ACCESSPOINT CORPORATION
We acquired an additional 125,000 shares of the common stock
of Accesspoint Corporation to bring our ownership to 225,000
shares. The Accesspoint shares were sold on December 15, 2000.
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AUGUST 2, 2000 - FLEXXTECH CORPORATION INKS LETTER OF INTENT TO ACQUIRE NORTH
TEXAS CIRCUIT BOARD COMPANY, INC.
Through Flexxtech Holdings, Inc. we executed a Letter of
Intent to acquire 60% of the common stock of Primavera
Corporation, the parent company of North Texas Circuit Board
Co. (NTCB). NTCB manufactures high quality, quick turn printed
circuit boards.
AUGUST 17, 2000 - FLEXXTECH CORPORATION COMPLETES ACQUISITION OF
NORTH TEXAS CIRCUIT BOARD COMPANY, INC.
We acquired 67% of Primavera Corporation in a stock and cash
transaction.
SEPTEMBER 5, 2000 - BOB EUBANKS, TELEVISION PERSONALITY, BECOMES SPOKESPERSON
FOR FLEXXTECH CORPORATION
Bob Eubanks and his partner, Larry Donizetti of Luminary
Ventures, both shareholders of Flexxtech have joined the
company's Board of Advisors. Utilizing Mr. Eubank's celebrity
status, the company is planning an aggressive marketing
campaign that will bring awareness to Flexxtech. Our
relationship with Bob Eubanks, Larry Donizetti and Luminary
Ventures was terminated in March 2001. A lawsuit was filed and
a settlement was reached on April 4, 2002.
SEPTEMBER 8, 2000 - FLEXXTECH CORPORATION ANNOUNCES APPOINTMENT OF
NEW OFFICERS AND DIRECTORS
Howard Frantom was appointed Chairman and CEO, Greg Mardock
was appointed President, Chris Beshlian was appointed
Secretary and Directory. Brian Kulhanjian resigned as
President to pursue other business avenues. Howard Frantom
passed away in December 2000 and Greg Mardock was appointed
Chairman and CEO.
SEPTEMBER 8, 2000 - FLEXXTECH CORP. ENTERS INTO LETTER OF INTENT TO
ACQUIRE B2B ONLINE AUCTION HOUSE UBID4IT Through Flexxtech
Holdings, Inc. we entered into a Letter of Intent to acquire
100% of Ubid4it.com and its parent company IBA Group, Inc.
Ubid4it.com is a business-to-business online wholesale auction
site used by computer and electronic dealers. After conducting
our due diligence, we concluded that it was not in the best
interest of the Company to make the acquisition.
SEPTEMBER 15, 2000 - FLEXXTECH ACQUIRES SET-TOP BOX COMPANY, OPITV.COM
Through Flexxtech Holdings, Inc., we acquired an 80% stake in
OpiTV.com. The acquisition consisted of a share exchange in
common stock between the two companies. OpiTV.com is an
I-commerce technology company that is engaged in the business
of marketing and distributing a Set-Top-Box (STB) device. In
July 2001, we sold OpiTV.com. With the change in the economy,
lack of financing to pursue the business plan, and limited
management resources, we sold the company to focus our
resources on North Texas Circuit Board Co.
NOVEMBER 2, 2000 - FLEXXTECH INCREASES STAKE IN NORTH TEXAS CIRCUIT BOARD CO. TO
80%
We acquired an additional 13% of Primavera Corporation, the
parent company of NTCB. This increase in equity brings
Flexxtech's ownership from 67% to 80%.
DECEMBER 5, 2000 - FLEXXTECH SUBSIDIARY FORMS FLEXX CAPITAL PARTNERS, INC.
Flexxtech Holdings, Inc. formed a corporate finance and
advisory firm that will provide investment and merchant
banking services for emerging technology based companies.
Flexx Capital was sold in July 2001. The company has no
operations and was sold so that management can focus its
resources on North Texas Circuit Board Co.
MARCH 7, 2001 - FLEXXTECH SIGNS LETTER OF INTENT TO ACQUIRE
ELECTRONIC DRILLING CONTROL, INC.
We entered into a letter of Intent to acquire ninety percent
of Electronic Drilling Control, Inc. After conducting our due
diligence, we concluded that it was not in our best interest
to close the transaction.
MARCH 14, 2001 - FLEXXTECH ANNOUNCES 3 FOR 2 STOCK SPLIT AND STOCK REPURCHASE
PROGRAM
We conducted a 3 for 2 forward stock split. The effective date
was March 26, 2001. We also authorized a stock repurchase
program, where the company, from time-to-time, may purchase up
to 500,000 of its common stock. We did not purchase any of our
stock back in the open market.
MARCH 25, 2001 - FLEXXTECH GETS NEW TRADING SYMBOL - "FLXC" IN RESPONSE TO 3
FOR 2 STOCK SPLIT.
We were issued a new stock symbol from NASDAQ. The Company's
common stock will begin trading under the new symbol on March
27, 2001. Shareholders of record on March 26, 2001 will
receive 3 shares of common stock for every 2 that they own.
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JUNE 12, 2001 - FLEXXTECH BEGINS TRADING ON THE OTC BULLETIN BOARD. TRADING
SYMBOL: "FLXC"
Our common stock began trading on the Over-the-Counter
Bulletin Board (OTCBB) under the symbol "FLXC".
JULY 1, 2001 - The Company sold two of its subsidiaries to its previous
owners; Mardock, Inc. in exchange for 200,000 shares of its
common stock and OpiTV.com for 110,000 shares of its common
stock. We decided to concentrate our efforts 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. Our primary business
since July 2001 has been to focus our resources on NTCB and
other contract manufacturing and government related
businesses.
JULY 2, 2001 - FLEXXTECH ACQUIRES REMAINING 20% OF NORTH TEXAS CIRCUIT BOARD
CO. RESULTING IN 100% OWNERSHIP AS COMPANY TURNAROUND NEARS
COMPLETION
We acquired the remaining twenty percent (20%) of North Texas
Circuit Board Company (NTCB) through our wholly owned
subsidiary, Flexxtech Holdings, Inc.
AUGUST 24, 2001 - FLEXXTECH RECEIVES FIRST ROUND FINANCING AND $10
MILLION COMMITMENT FROM DUTCHESS PRIVATE EQUITY FUND
We received first round financing from placement Agent May
Davis Group, Inc. Through May Davis Group and Dutchess Private
Equity Fund, LP, we received $720,000 before fees and expenses
of the offering, on a 6% convertible debenture. $240,000 was
used for the acquisition of equipment for our subsidiary NTCB.
We also executed a $10 million equity line with Dutchess
Private Equity Fund. The equity line drawn down is contingent
on an effective registration statement. We recently withdrew
our registration statement registering shares for the equity
line. We have not drawn against the equity line.
DECEMBER 6, 2001 -FLEXXTECH CORPORATION TO ACQUIRE TS GROUP, LLC
We executed a letter of Intent to acquire up to 100% of T.S.
Group, LLC - the parent company of Technical Solutions Group,
Inc. ("TSG"). TSG manufactures a line of mine protected
specialty vehicles for the military and law enforcement
markets. We are currently working on closing this transaction
as soon as possible. Our closing of the transaction remains
contingent on finishing our due diligence and financing
requirements. Should we be unable to raise the necessary funds
for closing, the acquisition will not be completed.
BUSINESS
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Our primary business, since July 1, 2001 has been focused on developing,
operating, and investing in our wholly-owned subsidiary NTCB, along with
investigating in other investments in contract manufacturing and government
related businesses.
OUR PRINCIPAL ACQUISITION AND INVESTMENT STRATEGY
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Our prior investment strategy was based on seeking long-term capital
appreciation by investing, through our subsidiary, Flexxtech Holdings, Inc. The
primary focus in technology included the internal development and investment in
the following categories:
o Data Storage
o Internet Infrastructure
o Wireless Technologies
o Computer Software
o Computer Networking
o Financial Services
o Telecommunications
o Networks/Equipment and Services
o Semiconductor
o Circuit Board Manufacturing
o Equipment and Electronic Manufacturers and Services
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Our principal acquisition and investment strategy has changed
considerably due to our own research and economic and political events
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 seek 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:
(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 greater purchasing power to obtain improved vendor pricing.
o Keep and integrate only those superior managers.
MERGER & ACQUISITION TENETS
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o Build on our organizational skills 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.
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SPECIFIC INVESTMENT STRATEGY AND RISKS
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Our investment strategy and risks has changed considerably in 2001.
Although we leave our options open to invest, when capital becomes available, in
a variety of investments, our objective has changed to focus on government
contract manufacturing and in defense and military companies. Our plan also
allows us to invest in a variety of investments when our liquid assets were not
in use. These types of investments were not made in 2001, because we did not
have the liquid assets available. In the future, and in better economic periods,
we may invest with liquid assets in the following, although any investments in
these areas would represent less than five percent of the total assets of the
Company:
- Equity Securities
- Foreign Companies and Securities
- Mutual Funds and Hedge Funds
- Options
- Short-Term Trading
- Illiquid Investments
- Security Lending
- Borrowing and Reverse Repurchase Agreements
We are not an investment company.
WHAT TYPE OF COMPANIES DO WE STRIVE FOR?
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Large Potential Market. The market for the product or service must be
very large or have good prospects of becoming a very large market. The potential
to increase sales globally with additional products and services is enormous.
"First Mover" Advantage. Perhaps as in no other industry, being first
to deploy an advanced technology in a product or service often provides a
distinct advantage.
High Barriers to Entry. Combining an early head start with superior
technology produces barriers to entry that protect the "first movers" lead over
other potential challengers. The desires of users and developers to adopt a
standard are unique. The adoption process only further fortifies the leader and
increases barriers to entry.
Technology Edge. Superior technology is often the springboard of
success for a young company. The better the technological prowess of the firm
the more likely they are to build solutions that customers will embrace.
Seasoned Management Team. A history of accomplishment in the defense,
military, and government contracting field is one of our basic requirements when
it evaluates a company's management. Technical expertise, broad knowledge, a
sense of urgency and clear vision are a must if a team is going to succeed.
Extensive experience and deep industry contacts have enabled us to recognize
first-hand some of what we feel are among the most successful management teams
today.
MAJOR HOLDINGS IN OUR PORTFOLIO OF COMPANIES
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At December 31, 2001, 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 major holdings in the portfolio of our subsidiary,
Flexxtech Holdings, Inc. Various smaller investments are not listed because they
represent in total less than five percent (5%) of the total assets and
management may change them from time to time.
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MARDOCK, INC.
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Mardock, Inc. is a designer, manufacturer and distributor of apparel
and promotional products to the corporate community. Mardock was in the process
of developing an e-commerce site for corporate promotional products and planed
to create the premier corporate promotional products site on the Internet.
Prior to July 1, 2001 our subsidiary, Flexxtech Holdings, Inc., owned
100% of Mardock, Inc. Mardock, Inc. was sold back to its original owner in
exchange for 200,000 shares of common stock. We believed that Mardock, Inc. had
no growth prospects with the changing economy.
OPITV.COM
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OpiTV.com ("opiTV") is an I-commerce technology company engaged in the
business of manufacturing, marketing and distributing a set-top-box device (the
"Box"), targeted to a demographics based on a value-added experience. The Box is
a convergence device giving the consumer high-speed Internet access and enhanced
communications as well as full computing capabilities in their home or office.
Connecting to regular telephone lines, the Box can be used for personal
computing, Internet access, education, video conferencing, video games, as well
as entertainment.
As an Intranet function, and because OpiTV owns the equipment, they can
inject commercials, ads, movie trailers, infomercials, notices, etc. based on
certain time periods, geographical locations and subscriber activity.
Prior to July 1, 2001, our subsidiary, Flexxtech Holdings, Inc., owned
82% of OpiTV.com. OpiTV.com was sold in exchange for 110,000 shares of common
stock of Flexxtech Corporation. OpiTV.com had no sales to date.
PRIMAVERA CORPORATION
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Primavera Corporation is the parent company of North Texas Circuit
Board Co., Inc. ("NTCB") (www.ntcb.com).
OBJECTIVES
NTCB's primary corporate objectives are:
o To be the leading provider of quick-turn, high-quality printed
circuit boards in the top-tier defense, aerospace, and
high-tech commercial electronics industries.
o To increase its customer base by further expanding its
manufacturing capacity, improving its technology and process
management systems.
o And lastly, one of the most important objectives is to keep a
knowledgeable management team at all times.
MISSION
NTCB is committed to the continuous improvement of all products and
services and is determined to remain the quality leader in the manufacture of
printed circuit boards. Commitment to the goals of continuous quality
improvement, customer-driven service, product quality, statistical process
control, and employee involvement is of the utmost priority. NTCB will provide
customers with the highest quality products and services in the most timely
manner on or before customer due date. Open communication with customers is
established in order to form a supplier-customer "team" relationship, which will
allow customers' needs and requirements to be met or exceeded. A system of
continuous process improvements is in place to facilitate meeting these needs.
NTCB provides a system of employee involvement, motivation, training,
empowerment, and team building to allow employee contribution in problem
solving.
COMPANY SUMMARY
Located in the heart of the technology rich Dallas/Fort Worth metroplex
area, NTCB specializes in quick-turn and high-tech production of sophisticated
printed circuit boards. Decades of experience providing product to high tech
commercial, defense and aerospace industries has created a company with
outstanding engineering capabilities and state-of-the-art equipment.
Key strengths:
o ISO 9002, UL 94V0, and Military MIL-PRF-55110 certified.
o Currently performing at 35% of production capacity.
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o Highly trained staff of 85 with an average employee tenure
with the company of 8 years.
o Provides circuit boards to companies in industries such as
medical, computer electronics, telecommunications, defense,
aerospace, and many more.
o Has received many Outstanding Performance Awards, including
Lockheed Martin, Rockwell International, Boeing, and Raytheon
within the last year.
COMPANY OWNERSHIP
North Texas Circuit Board, Inc. is a wholly owned subsidiary of
Primavera Corporation. Primavera is wholly owned subsidiary of Flexxtech
Holdings, Inc., and Flexxtech Holdings is a wholly owned subsidiary of the
Company. Flexxtech Corporation's investment objective is to build significant
shareholder value by acquiring, developing, operating, and investing primarily
in growth technology companies within the military, aerospace and government
sectors. All employees earned shares of stock in Flexxtech in December 2000 to
promote a sense of ownership and pride in the company.
COMPANY HISTORY
NTCB was founded in 1978 and is currently based out of Grand Prairie,
Texas. NTCB has supported the defense and aerospace industry for over 20 years.
NTCB historically manufactured 65% military and government product and due to
recent events this has risen to over 90%. The Company supports leading edge
military, aerospace and commercial markets supplying quick-turn prototypes
through high-tech production.
In late 1999, NTCB started to struggle financially due to a family
change of control of the company. This change, combined with a sluggish market,
resulted in the company operating in the red for the first time in its history.
This trend continued into 2000 and it was realized that, in order to keep the
company viable, dramatic changes would be necessary. In May of 2000, Primavera
acquired control of North Texas Circuit Board. In August of 2000, Flexxtech
acquired control of Primavera. This move brought much needed funding to NTCB.
Flexxtech has invested approximately $2.5 million into working capital and NTCB
has generated income of $700,000. These funds have advanced state of the art
equipment and allowed for process and equipment updates facilitating the
increased yields and on time performance. In addition, management changes began
with Linette Malloy being promoted to Vice President/General Manager. Over the
next 6 months all top management were replaced bringing new philosophies and
management concepts to NTCB. Current management runs as a close-knit team
bringing dramatic change in both financial and manufacturing systems. This has
resulted in some amazing achievements from May 2000 through December 2001:
o The bank debt of over $1.7 million is down to $345,000, an 80%
decrease.
o The payables of $2.4 million are down to $1 million, a 59%
decrease.
o The break even went from $1 million per month to less than
$520,000, a 48% reduction.
o On the manufacturing side, on time delivery went from 29% on
time to current levels of 96%.
o Internal part yields went from 77% to as high as 94%.
These striking changes are due to the concerted management team efforts
and methodical, results oriented systems implemented over the last 18 months.
Although great strides have been made, the turnaround for NTCB is not complete
and the company remains in need of much needed capital to fund its growth.
PRODUCTS
Printed circuit boards are manufactured from large sheets of laminated
material, or panels. Each panel is typically subdivided into multiple printed
circuit boards, each consisting of a pattern of electrical circuitry etched from
copper to provide an electrical connection between the components mounted to it.
Original equipment manufacturers (OEM) and electronic manufacturing services
(EMS) providers are primary purchasers of printed circuit boards.
Capabilities:
o 24 hour turn on prototype orders
o 40+ layers
o >10,000 holes in a 5x5 inch board
o .006 minimum drilled holes with .020 spacing at .002 true
position.
o Materials include GF, GH, GI, GM, BI, CE, Teflon, Duroid, CIC,
and GETEK
o Heavy copper up to 6 oz.
o Metal cores, copper and aluminum
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o Heatframe boards
o Surface mounts down to .010 pitch
o Blind and Buried vias
o 18:1 aspect ratio holes
o Deep well electrolytic and immersion gold
o Z axis milling
o Controlled impedance to +/- 5%
MARKET ANALYSIS SUMMARY
The market for our products is distinguished by rapidly evolving
technology. Recently, the trend in the electronic products industry has been to
increase the speed, complexity and performance of components while reducing
their size. We are confident that our technological capabilities will allow us
to address the growing needs of manufacturers who need to bring complicated
electronic products to market sooner.
Our printed circuit boards serve as the foundation of products such as
defense communications, weapons systems, satellite communications and hardened
computer systems, among other applications. Manufacturers of complex electronic
products in other high-growth markets, such as optical networking, digital
subscriber lines, wireless applications and storage area networks are also under
pressure to bring their products to market sooner. These markets are growing as
a result of technological change, demand for a wider variety of product
applications, and increasingly powerful electronic components. In addition, the
trend of our national defense is to rely more on electronic systems and an
increasing presence in space based systems opens up opportunities for high
growth applications.
We believe that the time-critical and highly complex nature of these
new and emerging markets will further increase the demand for rapid production
of complex printed circuit boards.
TARGET MARKET SEGMENT STRATEGY
The military industry is projecting heightened activity due to the
September 11th events and efforts to fight global terrorism. This opens up a
large market for new designs in weapons platforms and replenishment of depleted
arms during the Gulf War and building inventories for current and future usage.
With the military's commitment to its large buildup over the next 5 years, there
is a tremendous growth potential that NTCB is poised to take advantage of. In
spite of the predicted growth, NTCB is only projecting strong growth over the
next 2 years. A gradual tapering off of market share will occur after that
period due to our competitors recognizing the need for an adjustment in business
strategies that NTCB has already adopted.
In addition, NTCB has discovered areas in the commercial market that
our competitors are not supporting, resulting in an opportunity for a lucrative
profit potential supplying immersion gold quick-turn prototype product. Based on
our business plan and a $2.5 million infusion of capital that we are seeking,
NTCB expects close to 100% growth per year over the previous year for the next 2
years. This should result in profits of over $2.7 million based on revenues of
$12 million in fiscal year 2002 and profits of over $6.7 million based on
revenues of $20 million in fiscal year 2003. However, should we not be able to
secure our desired financing, NTCB will not achieve its projections and its
risks as a going concern is greatly jeopardized.
INDUSTRY ANALYSIS
The printed circuit board industry has undergone a great deal of change
in the last 12 months. The economic slowdown in the US commercial electronics
industry has caused many circuit board manufacturers to lay off personnel and in
several cases shut down facilities or whole businesses. NTCB has not had a staff
reduction and has actually shown steady improvement over this time period in
operating costs, debt reduction and manufacturing performance. This is due to a
business strategy that is based on targeting the military, defense and space
industries which are not subject to the fluctuations of the commercial
industries. In addition, NTCB has targeted the high tech, quick turn, prototype
and short run production market which has a much higher return then that of
commercial production markets. Recent changes in surface finish requirements
have opened up a largely unsupported market in the immersion soft gold process.
NTCB is currently in the process of implementing this process and already has
product commitments from key customers.
10
SALES AND MARKETING
NTCB's focus on a targeted segment of the printed circuit board
industry has resulted in a market focus that few other facilities have targeted.
There are about 5 key printed circuit board fabricators in the country who
target segments of the industry. We feel that none of these can offer the
complete package of quick turn high tech prototype, certifications, engineering
support and process capabilities that NTCB brings to the table. Additionally,
with the completed funding, NTCB will be stronger financially than any of our
competitors which will allow a position of strength when dealing with both
customers and suppliers.
NTCB is a make to order facility. Customers submit request for quotes
for their custom product and NTCB returns a quote or bid. Our target market is
focused on short lead times to as low as 24 hours which requires commitment to
meeting tight delivery schedules. The product we manufacture is typically
installed in high reliability, mission critical applications so quality and
reliability are paramount. With a 24 hour operation and a well trained, stable
work force, NTCB is continuously exceeds these stringent industry requirements.
MARKETING STRATEGY
For the next year, we continue to focus marketing efforts on a growing
presence in the high-end, quick turn military market to find our specialty
customer. Our work with sales reps has been promising in the past. We hope to
create new relationships with additional sales reps selling directly to larger
corporations.
SALES STRATEGY
Our strategy focuses first on maintaining the identity with the
high-end buyer who appreciates the best available quality, but is also very
demanding regarding delivery and technology. We've been able to find these
customers using a combination of customer referrals and direct sales to
customers.
MANAGEMENT SUMMARY
NTCB has a very strong management team with an average of greater than
18 years of experience in the printed circuit board manufacturing industry. We
believe this brings an unprecedented depth of knowledge to the table across
manufacturing, engineering and sales. The team works as a close-knit unit with
common goals and objectives, which continuously breeds success on all endeavors
undertaken.
PERSONNEL PLAN
Based on available financing, NTCB will add about 40 people over the
next 12 months to achieve the sales forcasted. By staffing a weekend shift this
will allow 24 hour a day, 7 days a week manufacturing to fully utilize NTCB's
capacity. Additional personnel will be added over the following 18 months as
required by workloads.
THE MARKET
----------
COMPARABLE COMPANIES AND COMPETITION
------------------------------------
The printed circuit board industry is characterized by strong
competition. NTCB competes favorably on the following competitive factors:
o Ability to offer quick-turn capabilities
o Ability to offer one-stop manufacturing capabilities
o Capability and flexibility to produce customized complex
products
o Consistently high-quality product
o Greater financial and manufacturing resources that can be
devoted to the development, production and sale of our
products
o More established and broader sales and marketing channels
o Outstanding customer service
11
We believe our continuous evaluation and early adoption of new or
revised manufacturing and production technologies also gives us a competitive
advantage. These advanced manufacturing and production technologies are
increasingly replacing and making obsolete older technologies that do not
provide the same benefits. Our success will depend in large part on whether we
are able to maintain and enhance our manufacturing capabilities as new
manufacturing and production technologies gain market share. NTCB's competitors
may temporarily enjoy advantages such as:
o Greater name recognition
o Manufacturing facilities that are located in countries with
lower production costs
o More manufacturing facilities worldwide, some of which are
closer in proximity to our customers.
The most notable national competitors in this niche of the industry
are:
o Multek - Irvine, CA
o Dynamic Details - Anaheim, CA
o Tyco Printed Circuit Group - Stafford Springs, CT
o Hadco Corpo - Salem, NH
Regional competition consists of over 9 printed circuit board
manufacturers of various characteristics. They range from $1 million to $80
million. They include:
o W-Tek, Inc.
o JM Circuits
o Multilayer Technology
o Multiplate Circuits
o Lone Star Circuits
o Network Circuits, Inco
o Electroplate
o DDIC
o Eagle Circuits
PRINTED CIRCUIT BOARD MARKET
----------------------------
The market for our products is distinguished by rapidly evolving
technology. Recently, the trend in the electronic products industry has been to
increase the speed, complexity and performance of components while reducing
their size. We are confident that our technological capabilities will allow us
to address the growing needs of manufacturers who need to bring complicated
electronic products to market sooner.
Our printed circuit boards serve as the foundation of products such as
defense communications, weapons systems, satellite communications and hardened
computer systems, among other applications. Manufacturers of complex electronic
products in other high-growth markets, such as optical networking, digital
subscriber lines, wireless applications and storage area networks are also under
pressure to bring their products to market sooner. These markets are growing as
a result of technological change, demand for a wider variety of product
applications, and increasingly powerful electronic components. In addition, the
trend of our national defense is to rely more on electronic systems and an
increasing presence in space based systems opens up opportunities for high
growth applications. We believe that the time-critical and highly complex nature
of these new and emerging markets will further increase the demand for rapid
production of complex printed circuit boards.
We perceive numerous trends for the printed circuit board manufacturing
industry. These include:
INCREASING COMPLEXITY OF ELECTRONIC PRODUCTS
Technological advancements in printed circuit boards are driven by the
increasing complexity of electronic products. OEMs are constantly designing more
complex and higher performance electronic products, which require printed
circuit boards that can accommodate higher speeds and component densities.
12
DECREASED RELIANCE OF OEMS ON MULTIPLE PRINTED CIRCUIT BOARD
MANUFACTURERS
OEMs have traditionally relied on multiple printed circuit board
manufacturers to provide different services as an electronic product moves
through its life cycle. The transaction costs of using numerous printed circuit
board manufacturers are unnecessary especially when there are companies like
NTCB who presents an opportunity for one-stop manufacturing capabilities. OEMs,
like any other company, will try to produce at or closest to its profit
maximization point while taking into consideration long term factors such as
economies of scope.
SHORTER ELECTRONIC PRODUCT LIFE CYCLES
Technological advancement is also a huge factor in shortening the life
cycles of complex electronic products and reducing the period during which
products are profitable. Simple logic, a shorter period for making products
profitable means a demand for a shorter production period. NTCB's capability of
providing compressed product life cycles brings a practical and cost effective
solution to the situation.
CONSOLIDATION OF INDEPENDENT PRINTED CIRCUIT BOARD MANUFACTURERS
In the past, a consolidation of independent printed circuit board
manufacturers was considered a weakness, as they were few in number. However,
this trend is no longer an exception, but a normal practice, the weakness has
now turned into strength. More companies are seeking the advantages of
consolidation. With shorter life cycles and increasing complexities of
electronic products, more independent printed circuit board manufacturers are
searching for assistance as they realize that they are becoming less competitive
in the industry.
What separates NTCB from the others is that whereas several of these
printed circuit board manufacturers have recently merged with or been acquired
by EMS providers who are less willing to make purchases of printed circuit
boards from their vertically integrated competitors, NTCB's relationship with
Flexxtech Corporation vastly increases NTCB's capabilities and customer base.
The consolidation began what is to be a series of strategic acquisitions that
would compliment the production capabilities and diversify our customer base and
end-markets. Technological advancements in printed circuit boards are driven by
the increasing complexity of electronic products. OEMs are constantly designing
more complex and higher performance electronic products, which require printed
circuit boards that can accommodate higher speeds and component densities.
RESEARCH AND DEVELOPMENT ACTIVITIES IN THE PAST TWO YEARS
---------------------------------------------------------
Flexxtech Corporation has been in business only since March of 1998 and
we have only conducted material business since April 2000. We have spent no
money on research and development.
TOTAL NUMBER OF EMPLOYEES
-------------------------
We have 3 employees as of this date including Greg Mardock who is also
our President, Treasurer and a Director. At the subsidiary level of NTCB, we
have approximately 85 employees. We have no plans to hire any additional
employees during the next twelve months unless we receive additional financing
for NTCB to pursue our business plan.
ITEM 2. DESCRIPTION OF PROPERTY
In January 2002, we moved our headquarters to our subsidiary facility
(NTCB) at 1501 W. Shady Grove Rd., Grand Prairie, Texas 75050. We lease an
office space at 5777 W. Century Blvd., Suite 767, Los Angeles, CA 90045. Our
subsidiary, Flexxtech Holdings, Inc., also shares the same space. Our monthly
rent is approximately $845. Mardock, Inc., leased approximately 5,000 square
feet of office space in McMinnville, Oregon. The monthly rent of Mardock, Inc.
was $2,600 through June 2001. We have no further obligation for rent on Mardock,
Inc.. North Texas Circuit Board Co. leases approximately 25,000 square feet of
office and factory space in Grand Prairie, Texas. We pay $10,000 per month for
the NTCB facility. The rent is scheduled to increase in May 2002 to $12,500 per
month. Prior to July 1, 2001, OpiTV.com conducted its operations at the Los
Angeles office. Neither we, nor our majority owned subsidiaries own any real
property.
13
ITEM 3. LEGAL PROCEEDINGS
On April 26, 2001 a suit filed in Los Angeles Superior Court was
brought against the Company and certain officers and directors by Robert
Eubanks, Larry Donizette and Luminary Ventures, Inc. The complaint was for
breach of contract among other actions. Management rigorously defended itself,
and believed that a settlement would be reached. Management felt that the action
against the Company was not material to the business of the Company. On April
4th, 2002, a settlement was reached.
The Company does not have, nor is involved in any litigation as of
present. NTCB, from time to time is involved in customary litigation, all of
which has been immaterial to date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
------------------
We do not have a substantial public trading market for our Common
Stock. Our Common Stock is quoted on the Over-The-Counter Bulletin Board
(OTCBB). There is no assurance that a substantial trading market for our common
stock will ever develop. There are no outstanding options, warrants to purchase,
or securities convertible into our common equity. On June 12, 2001, we began
trading on the OTCBB.
On October 7, 1998 we submitted a Form 211 to the NASD Regulation
pursuant to Rule 15c2-11. The Form 211 was accepted by the NASD Regulation on
May 26, 1999. On March 5, 1999, we filed a Form 10-SB12G for the registration of
our outstanding common stock. We filed a Form 10-SB12/A on May 14, 1999.
Our Common Stock was approved for quotation on the OTC Bulletin Board
under the symbol "FLXC" on June 12, 2001. Prior to quotation on the OTCBB , we
traded on the Pink Sheets OTC Electronic Quotation Service. Our common stock was
not quoted, listed or traded on any organized market system. The holders of our
Common Stock are entitled to one vote per share. The Common Stock holders do not
have preemptive rights to purchase, subscribe for, or otherwise acquire any
shares of Common Stock.
The table below sets forth the high and low bid prices for our Common
Stock for each quarter within the last two fiscal years as reported by Prophet
Financial Systems. These over-the-counter market quotations may reflect
inter-dealer prices without retail mark-up, markdown or commission and may not
necessarily represent actual transactions.
Common Stock Bid
----------- ------------ --------- ---------
High Low
----------- ------------ --------- ---------
Fiscal 2000:
----------- ------------ --------- ---------
1st Quarter $0 $0
----------- ------------ --------- ---------
2nd Quarter $3.67 $3.67
----------- ------------ --------- ---------
3rd Quarter $4.83 $3.33
----------- ------------ --------- ---------
4th Quarter $7.33 $3.67
----------- ------------ --------- ---------
14
Fiscal 2001:
----------- ------------ --------- ---------
1st Quarter $8.00 $6.00
----------- ------------ --------- ---------
2nd Quarter $8.00 $2.00
----------- ------------ --------- ---------
3rd Quarter $4.50 $0.80
----------- ------------ --------- ---------
4th Quarter $1.25 $0.66
----------- ------------ --------- ---------
HOLDERS
-------
As of December 31, 2001 we estimate that we had approximately 932
shareholders directly of record and in street name.
Our stock has had a market price of less than $5.00 per share in recent
times. The SEC has adopted regulations, which generally define "penny stock" to
be any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price less than $5.00 per share, subject to certain
exceptions. Accordingly, our common stock may become subject to rules that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a
disclosure schedule prepared by the SEC relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell our common stock and may affect
the ability of investors to sell our common stock in the public market.
DIVIDENDS
---------
The payment of dividends is within the discretion of our Board of
Directors. We currently intend to retain all earnings, if any, in the
foreseeable future for use in the development of our business. We have not paid
dividends since our inception. It is not anticipated that any dividends will be
paid in the foreseeable future and there can be no assurance that dividends can
or will ever be paid. The payment of dividends is contingent upon future
earnings, if any, our financial condition and capital requirements, general
business conditions and other factors.
SALES OF UNREGISTERED SECURITIES
--------------------------------
We have conducted various offerings of our common stock pursuant to
Regulation D, Rule 506, as amended and Regulation S, as amended, over the 12
months ended December 31, 2001. In the 12 months ended December 31, 2001 and
pursuant to Regulations D and/or S, we sold:
318,164 shares of common stock at $0.21 per share for proceeds of
$64,487.25
152,901 shares of common stock at $0.20 per share or proceeds of
$30,350.75
7,333 shares of common stock at $0.30 per share for proceeds of $2,200,
130,000 shares of common stock at $0.35 per share for proceeds of
$45,500,
3,667 shares of common stock at $0.55 per share for proceeds of
$2,000.00,
42,306 shares of common stock at $0.65 per share for proceeds of
$27,825.00,
8,670 shares of common stock at $0.75 per share for proceeds of
$6,500.00,
105,820 shares of common stock at $1.00 per share or proceeds of
$105,820, (3000+25320+77500)
15,180 shares of common stock at $1.67 per share or proceeds of
$25,300,
3,000 shares of common stock at $1.75 per share or proceeds of $5,250,
and
10,333 shares of common stock at $3.00 per share or proceeds of $31,000
15
During the year ended December 31, 2001, the Company sold 797,374
shares for cash in the amount of $346,233 and the Company received subscription
of $30,150 for 69,689 shares of common stock to be issued. The Company issued
6,985,321 shares of common stock for consulting services amounting $2,023,936,
including 6,429,333 restricted shares for consulting services to a related party
for $1,286,000. The Company recorded value of shares issued to related party
based upon market value of such a large chunk of stock at one time and its
restriction clause. The Company issued 20,000 shares of common stock for
compensation amounting $91,800. The Company exchanged 27,273 shares of common
stock for debt amounting $13,636. The exchange resulted in no gain or loses to
the Company.
The Company issued 600,000 shares of common stock to a related common
shareholder, as collateral against a loan of $195,573. The Company has not
recorded any value for such shares since the shares are issued as collateral and
are returnable once the loan amount is fully paid.
The net proceeds are to be used for two main purposes: (1) to fund the
operations of NTCB; and (2) to acquire and invest in other companies that we
believe add value to our shareholders.
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.
We are conducting the Offerings as a self underwritings. Shares are
available only through us. We are making the Offerings on a best efforts basis.
This means that we have not established any minimum amount of proceeds that must
be generated. Accordingly, investors who subscribe for Shares in the earlier
stages will assume a substantially greater risk than investors who subscribe for
Shares later.
Even if we sell all of the Shares covered, 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 Offerings will be
sufficient to cover the financial requirements for our growth.
We have arbitrarily set the price of the Shares in the Offerings. 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 Offerings may involve immediate and
substantial dilution.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements based
upon current expectations that involve risks and uncertainties. When used in
this Form 10-KSB/A, the words "intend," "anticipate," "believe," "estimate,"
"plan" and "expect" and similar expressions are included to identify
forward-looking statements. The Company's actual results and the timing of
certain events could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in this discussion and elsewhere in this Form 10-KSB. We do not intend to
update these forward-looking statements.
The discussion and financial statements contained herein are for the
months and year ended December 31, 2001 and December 31, 2000. The following
discussion regarding the financial statements of the Company should be read in
conjunction with the financial statements of the Company included herewith.
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
16
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.
The following events helped shape our Company in 2001:
On March 7, 2001, we entered into a letter of Intent to acquire ninety
percent of Electronic Drilling Control, Inc. After completing our due diligence
and evaluating our options, we decided to not complete the transaction.
On March 14, 2001 we conducted a 3 for 2 forward stock split. The
effective date was March 26, 2001. We also authorized a stock repurchase
program, where the company, from time-to-time, may purchase up to 500,000 of its
common stock. We did not purchase any of our stock back in the open market.
On March 25, 2001 we were issued a new trading symbol "FLXC."
On June 12, 2001 our common stock began trading on the Over-the-Counter
Bulletin Board (OTCBB) under the symbol "FLXC".
On July 1, 2001 the Company sold two of its subsidiaries to its
previous owners; Mardock, Inc. in exchange for 200,000 shares of its common
stock and OpiTV.com for 110,000 shares of its common stock. We decided to
concentrate our efforts 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. Our primary business since July 2001, has been to focus our resources
on NTCB and other contract manufacturing and government related businesses.
On July 2, 2001 we acquired the remaining 20% of our subsidiary, North
Texas Circuit Board Co., ("NTCB").
On August 24, 2001 we received first round financing from placement
against May Davis Group, Inc. Through May Davis Group and Dutchess Private
Equity Fund, LP, we received $720,000 before fees and expenses of the offering,
on a 6% convertible debenture. $240,000 was used for the acquisition of the
equipment for our subsidiary NTCB. We also executed a $10 million equity line
with Dutchess Private Equity Fund. The equity line drawn down is contingent on
an effective registration statement. We recently withdrew our registration
statement registering shares for the equity line. We have not drawn against the
equity line.
On December 6, 2001 we executed a letter of Intent to acquire T.S.
Group, LLC - the parent company of Technical Solutions Group, Inc. ("TSG"). TSG
manufactures a line of mine protected specialty vehicles for the military and
law enforcement markets. We are currently working on closing this transaction as
soon as possible. The closing is contingent on completing our due diligence and
raising the needed funds to close the transaction. If we are unable to raise the
desired funds in a timely manner, we risk not closing the transaction.
GENERAL PLAN OF OPERATION
-------------------------
Our prior investment strategy was based on seeking long-term capital
appreciation by investing, through our subsidiary, Flexxtech Holdings, Inc. The
primary focus in technology included the internal development and investment in
the following categories:
o Data Storage
o Internet Infrastructure
o Wireless Technologies
o Computer Software
o Computer Networking
o Financial Services
o Telecommunications
o Networks/Equipment and Services
o Semiconductor
o Circuit Board Manufacturing
o Equipment and Electronic Manufacturers and Services
17
Our principal acquisition and investment strategy has changed
considerably due to our own research and to economic and political events that
have occured 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:
(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 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.
18
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 year ended December 31, 2001, the Company sold 797,374 shares for
cash in the amount of $346,233 and the Company received subscription of $30,150
for 69,689 shares of common stock to be issued. The Company issued 6,985,321
shares of common stock for consulting services amounting $2,023,936, including
6,429,333 restricted shares for consulting services to a related party for
$1,286,000. The Company recorded value of shares issued to related party based
upon market value of such a large chunk of stock at one time and its restriction
clause. The Company issued 20,000 shares of common stock for compensation
amounting $91,800. The Company exchanged 27,273 shares of common stock for debt
amounting $13,636. The exchange resulted in no gain or loses to the Company.
The Company issued 600,000 shares of common stock to a related common
shareholder, as collateral against a loan of $195,573. The Company has not
recorded any value for such shares since the shares are issued as collateral and
are returnable once the loan amount is fully paid.
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.
YEAR ENDED DECEMBER 31, 2001 AS COMPARED TO YEAR MONTHS ENDED DECEMBER 31, 2000
Results of Operations
---------------------
We have generated consolidated revenues of $5,716,009 for the year
ended December 31, 2001 as compared to $4,071,040 for the year ended December
31, 2000. We anticipate an increase in generating revenues in the future.
Currently, our cash needs include, but are at no means limited to, rent,
salaries and wages, cash raising expenses and to fund operation of its
subsidiaries, and for future acquisitions. Nearly all of our revenues are
attributed from the Company's subsidiary, North Texas Circuit Board Company
(NTCB).
Lost Sales and Revenue Factors
------------------------------
* Material Inventory Levels Inadequate
- NTCB is a quick turn environment with typical lead times as
low as 24 hours.
- Material delivery lead times range from 2 days to 8 weeks.
- Average estimated business lost due to not having material on
hand is $100,000 per month.
- Excess shipping expenses are incurred due to shipping small
orders of laminates instead of weekly or bi-weekly stock
replenishing.
- Material deliveries impact actual manufacturing days
available, which can cause increased overtime to make the due
dates.
- Material deliveries cause late shipments, which in some cases
requires partial premium refunds to customers.
Solution: Build inventory levels to offset delivery times and reduce
order frequency.
* Drill Capability and throughput
- Some jobs reviewed would take up to 4 days to drill.
- Lost business due to current equipment capabilities.
Technologies are going to small holes with tight spacing,
which the current drill equipment cannot do.
- Average estimated business lost due to throughput capabilities
of current equipment is $30,000 per month. Up to 15% of all
lost orders.
19
Solution: Purchase updated drill equipment to increase throughput and
technical capabilities. (Subsequent to September 30, 2001 the drill was
purchased for $215,000)
* No in House Immersion Gold Process
- Lost business due to no Immersion Gold process at NTCB is
$500,000 from a recent contract and $20,000 in orders pulled
from work.
Solution: Install Immersion Gold process.
* Subcontracting of Electrical Testing
- Data preparation, tooling and testing of products by
subcontractor is $32,000 per month.
- Average estimated business lost due to excess test cost by
subcontractor is $50,000 per month and is up to 30% of all
lost orders.
- Subcontracting electrical test typically adds 1 day to
delivery time causing loss of business on quick turn jobs.
- No control of Quality of Service of subcontract facilities
causing defective product to reach customers.
Solution: Purchase ET Programming software, single spindle drill for
fixtures and flying probe tester to bring all test capabilities in house.
* In Process Inspection
- Inadequate automated optical inspection equipment.
- Lost business due to current equipment capabilities.
Technologies are going to fine lines with tight spacing, which
the current AOI equipment cannot do.
- Average estimated scrap lost due to capabilities of current
equipment is $100,000 per month.
Solution: Purchase updated AOI equipment to increase throughput and
technical capabilities. The AOI has been purchased for $240,000 and is
operating.
NTCB has invested heavily in its future by making capital improvement to the
facility, equipment and processes that have had a dramatic impact on the
performance of the business. The operating costs have been reduced by
approximately 33 percent. Approximately one year ago, at the acquisition of
NTCB, NTCB needed to sell more than $900,000 per month in products and services
to break-even. The current break-even level is approximately $520,000 per month.
We have had a dramatic drop in operating cost coupled with internal yields and
quality at a historic high level.. During the year ended December 31, 2001, NTCB
has made improvements in the following categories:
Financial:
- Established approval system for purchases.
- Established tighter inventory controls.
- Restructured work shifts to control overtime.
- Reduced costs of raw material and supplies.
Manufacturing:
- Streamlined processes by analyzing workflows and efficient
product movement.
- Quality Engineers utilized to target root causes of defects
and inefficient processes to reduce scrap by 40%.
- Realigned the flow of product through the shop and the focus
of each shift to increase productivity by 30% and increased on
time delivery by 50% over the last 12 months.
New Management Team:
- Top Management totally replaced with a tight knit goal
oriented group with a common agenda.
- All Management works of the same philosophies.
- The Company is oriented around Customer Service, excellent
product on time with exemplary customer support.
- Implemented motivational programs to increase employee
satisfaction and reduce turnover.
20
On July 1st, 2001, the Company disposed off two of its subsidiaries,
Mardock, Inc. in exchange for 200,000 shares of its common stock and OpiTV.com
for 110,000 shares of its common stock. Mardock, Inc. was established in 1986
and is a designer, manufacturer, and distributor of apparel and promotional
products to the corporate community. OpiTV.com, a Nevada Corporation, was formed
on October 12, 1999. OpiTV.com is an I-Commerce technology company that is
engaged in the business of marketing and distributing a Set-Top-Box (STB) device
on a rental or acquisition basis. The STB is a convergence device, giving the
consumer high-speed Internet access and enhanced communications as well as full
computing capabilities in their home or office. Through June 30, 2001, OpiTV.com
has not generated any revenue. The disposal of subsidiaries resulted in net loss
of 542,134.
On July 1st, 2001, the Company exchanged a promissory note receivable
it was holding for $900,000 from the major shareholder of the Company, for
450,000 shares of the Company's common stock. The exchange resulted in a loss to
the Company of $820,000, which has been reflected as an extraordinary loss in
the financial statements.
On July 1st, 2001 the Company sold 100,000 shares of Easyriders, Inc.
to a shareholder for 25,000 shares common stock of Flexxtech.
In the 12 months ended December 31, 2001 the Company raised a total of
debt capital and convertible debt capital of $2,258,236 comprised of certain
shareholders and non-shareholders loaning the Company $1,388,236 and convertible
debt of $150,000 and $720,000. The notes of $1,388,236 are due on demand and
bear interest of 10% per annum. $50,000 is due in August 2004 and bears interest
at 10% per annum. $100,000 is due April 1, 2004. The $720,000 received are
convertible debentures received from our offering the Company commenced in
August 2001. The debentures carry an interest rate of 6% per annum and are due
in August 2003. The holder is entitled to, at any time or from time to time,
convert the conversion amount in to shares of common stock of the Company, par
value $.001 per share at a conversion price for each share of common stock equal
to the lower of (a) 120% of the losing bid price per share (as reported by
Bloomberg, LP) on the closing date, and (b) 80% of the lowest closing bid price
per share (as reported by Bloomberg, LP) of the Company's common stock for the
five trading days immediately preceding the date of conversion. (The Placement
Agent Agreement, Stock Purchase Agreement, Debenture Agreements and other
offering agreements are included in the Form 10-QSB, September 2001 and
additional agreements are attached to this filing as exhibits).
The Company plans on growing its revenues through the acquisition of
various technology companies in various markets and increasing its products and
services in part through acquisition of existing technology businesses. The
Company will continue to seek capital for acquisitions and in the internal
development of those companies acquired. The Company will seek capital through
private investors and institutional investors. In the event the Company does not
attract such capital and is unable to generate revenues sufficient to support
its expenses, then the Company will be required to curtail its operations, sell
existing investments, and slow down its plan for expansion. The Company,
however, is taking all necessary action to limit its overhead and cut expenses
at its operating subsidiaries. Because of the current slow down in the economy,
the Company's acquisition plans and expansion plans have slowed. Further, the
slow down in financing and the lack of capital have also slowed the acquisition
plans of the Company.
Revenues
--------
We had revenues of $5,716,009 for the year ended December 31, 2001 as
compared to $4,071,040 for the year ended December 31, 2000.
Cost of Sales
-------------
We incurred Cost of Sales of $4,953,525 for the year ended December 31,
2001 as compared to $3,749,920 for the year ended December 31, 2000. The
percentage in Cost of Sales decreased based on our reduction in labor overhead
as a result of new capital equipment and efficiency changes that were made
throughout the year.
General, Administrative and Selling Expenses
--------------------------------------------
We incurred costs of $5,274,360 for the year ended December 31, 2001 as
compared to $1,811,650 for the year ended December 31, 2000. Operating expenses
were a one time significant increase of $2,023,936 for consulting services paid
in shares of common stock at the parent company, Flexxtech Corporation and
$649,700 and $91,800 from the subsidiary, North Texas Circuit Board. Much of the
increase at NTCB in the year period was due to the increase in improvements to
the facility and the processes.
21
Net loss before income taxes
----------------------------
We had a loss before taxes of $5,260,763 for the year ended December
31, 2001 as compared to a loss of $1,702,187 for the year ended December 31,
2000. $2,023,936 of the loss came from the issuance of common stock for
consulting services.
Unrealized loss on investments
------------------------------
We have an unrealized loss on investments available for sale of
$209,130 for the twelve months ending December 31, 2001. The unrealized loss is
contributed to the fluctuating market value of the securities that our
subsidiary, Flexxtech Holdings, Inc., owned at the closing of the period. The
securities owned are marked to market on the last day of the trading month for
the period ended. On July 1, 2001, the Accesspoint Corporation investment and
Easyrider, Inc. investment were sold in an exchanged for shares of the Company's
common stock with a shareholder.
Extraordinary Item Loss.
------------------------
We also had an Extraordinary Item loss on a settlement of a note
receivable of $820,000 for the year end December 31, 2001. The note was sold in
exchange for 450,000 shares of the Company's common stock.
Net loss
--------
We had a net loss of $7,434,926 for the year ended December 31, 2001 as
compared to a net loss of $1,814,953 for the year ended December 31, 2000.
Comprehensive Loss.
-------------------
We had a Comprehensive Loss of $7,644,056 for the year-end December 31,
2001 as compared to a Comprehensive Loss of $2,070,157 for the year-end December
31, 2000. The Comprehensive Loss includes the unrealized loss on marketable
investments available for sale of $209,130, the Extraordinary Item loss of
$820,000, Disposal of segments loss of $1,352,563, and the net loss after taxes
of $5,262,363.
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 twelve months ended December 31, 2001, the Company sold 797,374 shares for
cash in the amount of $346,233 and the Company received subscription of $30,150
for 69,689 shares of common stock to be issued. The Company issued 6,985,321
shares of common stock for consulting services, which included 6,880,583 shares
of common stock for consulting services and promotional services, which resulted
in no proceeds. Of the 6,880,583 shares, 5,909,333 were issued to VLK Capital
Corp., already a large shareholder in the Company. VLK subsequently disposed on
783,333 shares to Greg Mardock, an officer and director of the Company and
disposed of 2,646,000 to Edward Fearon and 500.000 to Raymond Craig. The Company
recorded value of shares issued to related party based upon market value of such
large chunk of stock at one time and its restriction clause. The Company issued
20,000 shares of common stock for compensation amounting $91,800. The Company
exchanged 27,273 shares of common stock for debt amounting $13,636. The exchange
resulted in no gain or loses to the Company.
The Company issued 600,000 shares of common stock to a related common
shareholder, as collateral against a loan of $195,573. The Company has not
recorded any value of such shares since the shares are issued as collateral and
are returnable once the loan amount is fully paid.
22
Liquidity and Capital Resources
-------------------------------
The Company's business plan was restructured in April 2000 to its now
current plan. The Company must continue to raise capital to fulfill its plan of
acquiring technology companies and assisting in the development of those
companies internally. If the Company is unable to raise any additional capital
its operations will be curtailed and it may have to liquidate its current
investments for operating capital. As of December 31, 2001, the Company had
total Current Assets of $1,510,905 and Current Liabilities of $4,556,333. Cash
and cash equivalents were $370,784. Stockholder's Deficit was $2,416,423. In its
acquisition of North Texas Circuit Board, Management feels that it has made
necessary cost cutting efforts to reduce the debt and increase productivity of
the Company. In its turn-around effort, management feels additional capital will
be needed to complete a full turnaround, but that the Company has made
significant strides toward a successful turnaround. The Company will continue to
raise capital for acquisitions and the internal development of its subsidiaries.
Subsidiaries
------------
Flexxtech Holdings, Inc. is a wholly-owned subsidiary of our Company.
At December 31, 2001, 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.
MARDOCK, INC.
-------------
Mardock, Inc. is a designer, manufacturer and distributor of apparel
and promotional products to the corporate community. Mardock was in the process
of developing an e-commerce site for corporate promotional products and planed
to create the premier corporate promotional products site on the Internet.
Prior to July 1, 2001 our subsidiary, Flexxtech Holdings, Inc., owned
100% of Mardock, Inc. Mardock, Inc. was sold back to its original owner in
exchange for 200,000 shares of common stock. We believed that Mardock, Inc. had
no growth prospects with the changing economy.
OPITV.COM
---------
OpiTV.com ("opiTV") is an I-commerce technology company engaged in the
business of manufacturing, marketing and distributing a set-top-box device (the
"Box"), targeted to a demographics based on a value-added experience. The Box is
a convergence device giving the consumer high-speed Internet access and enhanced
communications as well as full computing capabilities in their home or office.
Connecting to regular telephone lines, the Box can be used for personal
computing, Internet access, education, video conferencing, video games, as well
as entertainment.
As an Intranet function, and because OpiTV owns the equipment, they can
inject commercials, ads, movie trailers, infomercials, notices, etc. based on
certain time periods, geographical locations and subscriber activity.
Prior to July 1, 2001, our subsidiary, Flexxtech Holdings, Inc., owned
82% of OpiTV.com. OpiTV.com was sold back to its original owner in exchange for
110,000 shares of common stock. OpiTV.com had no sales to date.
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
23
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.
On September 15, 2000 we, through our wholly-owned subsidiary Flexxtech
Holdings, Inc., acquired 80% or 7,578,000 of the shares of common stock of
OpiTV.com from two principle shareholders of OpiTv.com in exchange for 100,000
shares of our common stock valued for purposes of the transaction at $6.25 per
share. Howard Frantom the Chairman, President and CEO of OpiTV.com and our
Company passed away in December 2000. Greg Mardock, President and Director of
Company was elected Chairman, President and CEO. Out of the 100,000 shares to be
issued, 60,000 shares of Common stock which were to be issued to Howard Frantom
have not been issued pursuant to default. The acquisition resulted in goodwill
of $625,000. Prior to the acquisition, Flexxtech Holdings, Inc. owned 180,000
shares of common stock of OpiTV.com. The total holdings in OpiTV.com is 82%. The
acquisition resulted in goodwill of $805,000.
OpiTV.com, a Nevada Corporation, was formed on October 12, 1999. OpiTV
is an I-Commerce technology company that is engaged in the development of a
Set-Top-Box (STB) device on a rental or acquisition basis. The STB is a
convergence device, giving the consumer high-speed Internet access and enhanced
communications as well as full computing capabilities in their home or office.
OpiTV plans on distributing the STB in January 2001 and is currently finalizing
manufacturing arrangements. Sales will be made through agent's distributors and
sub-licenses. OpiTV has no revenues to date and operating expenses of
approximately $20,000 per month, consisting mostly of wages, rent and sales
expenses. Opitv.com had no revenues in the year 2000.
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.
Risk Factors
------------
Substantial Indebtedness
We have a substantial amount of indebtedness. As of December 31, 2001,
our total debt was approximately $5,435,533 million for the Company. 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 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.
24
Business Cycles of the End Markets We Serve
The end markets into which we sell printed circuit boards and
electronic manufacturing services (including communications and networking
equipment; computers and peripherals; medical, automotive, industrial and test
equipment; and aerospace equipment) have their own business cycles. Some of
these cycles show predictability from year to year. However, other cycles, are
unpredictable in commencement, depth and duration. The communications industry
entered into a significant downturn in late 2000, which continues as of this
date. This has had a negative impact on our revenues and operating performance
for the year ended December 31, 2001.
Technological Change and Process Development
The market for our products and services is characterized by rapidly
changing technology and continuing process development. The future success of
our business will depend in large part upon our ability to maintain and enhance
our technological capabilities, to develop and market products and services that
meet changing customer needs, and to successfully anticipate or respond to
technological changes on a cost-effective and timely basis. Research and
development expenses are expected to increase as manufacturers make demands for
products and services requiring more advanced technology on a quicker turnaround
basis. We are more leveraged than some of our principal competitors, and
therefore may not be able to respond to technological changes as quickly as
these competitors.
In addition, the electronics manufacturing services industry could in
the future encounter competition from new or revised technologies that render
existing technology less competitive or obsolete or that reduce the demand for
our services. We cannot assure you that we will effectively respond to the
technological requirements of the changing market. To the extent we determine
that new technologies and equipment are required to remain competitive, the
development, acquisition and implementation of such technologies and equipment
may require us to make significant capital investments. We cannot assure you
that we will be able to obtain capital for these purposes in the future or that
any investments in new technologies will result in commercially viable
technological processes.
Dependence on a Core Group of Significant Customers
Although we have a large number of customers, net sales to our largest
customer accounted for approximately 8.4% of our net sales in 2001. Net sales to
our ten largest customers accounted for approximately 53.3% of our net sales
during the same period. We may depend upon a core group of customers for a
material percentage of our net sales in the future. Substantially all of our
sales are made on the basis of purchase orders rather than long-term agreements.
We cannot assure you that significant customers will order services from us in
the future or that they will not reduce or delay the amount of services ordered.
Any reduction or delay in orders could negatively impact our revenues. In
addition, we generate significant accounts receivable in connection with
providing services to our customers. If one or more of our significant customers
were to become insolvent or otherwise were unable to pay us for the services
provided, our results of operations would be adversely affected.
Variability of Orders
Our operating results fluctuate because we sell on a purchase-order
basis rather than pursuant to long-term contracts and we expect these
fluctuations to continue in the future. We are therefore sensitive to
variability in demand by our customers. Because we time our expenditures in
anticipation of future sales, our operating results may be less than we estimate
if the timing and volume of customer orders do not match our expectations.
Furthermore, we may not be able to capture all potential revenue in a given
period if our customers' demand for quick-turnaround services exceeds our
capacity during that period. Because of these factors, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
our future performance. Because a significant portion of our operating expenses
is fixed, even a small revenue shortfall can have a disproportionate effect on
our operating results. It is possible that, in future periods, our results may
be below the expectations of public market analysts and investors.
Competition
The printed circuit board industry is highly fragmented and
characterized by intense competition. We principally compete with independent
and captive manufacturers of complex quick-turn and longer-lead printed circuit
boards. Our principal competitors include other independent small private
25
companies and integrated subsidiaries of more broadly based volume producers
that also manufacture multilayer printed circuit boards and other electronic
assemblies. Some of our principal competitors are less highly leveraged than us
and may have greater financial and operating flexibility.
Competition in the complex quick-turn and longer-lead printed circuit
board industry has increased due to the consolidation trend in the industry,
which results in potentially better-capitalized and more effective competitors.
Our basic technology is generally not subject to significant proprietary
protection, and companies with significant resources or international operations
may enter the market. Increased competition could result in price reductions,
reduced margins or loss of market share, any of which could materially adversely
affect our business, financial condition and results of operations.
Dependence on Acquisition Strategy
As part of our business strategy, we expect that we will continue to
grow by pursuing acquisitions of other companies, assets or product lines that
complement or expand our existing business. Competition for attractive companies
in our industry is substantial. We cannot assure you that we will be able to
identify suitable acquisition candidates or to finance and complete transactions
that we select. In addition, existing credit facilities restrict our ability to
acquire the assets or business of other companies. The attention of our
management may be diverted, and operations may be otherwise disrupted.
Intellectual Property
Our success depends in part on proprietary technology and manufacturing
techniques. Currently, we do not rely on patent protection to safeguard these
proprietary techniques but rely primarily on trade secret protection. Litigation
may be necessary to protect our technology and determine the validity and scope
of the proprietary rights of competitors. Intellectual property litigation could
result in substantial costs and diversion of our management and other resources.
If any infringement claim is asserted against us, we may seek to obtain a
license of the other party's intellectual property rights. We cannot assure you
that a license would be available on reasonable terms or at all.
Environmental Matters
Our operations are regulated under a number of federal, state, local
and foreign environmental and safety laws and regulations that govern, among
other things, the discharge of hazardous materials into the air and water, as
well as the handling, storage and disposal of such materials. These laws and
regulations include the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act, and the Comprehensive Environmental Response,
Compensation and Liability Act, as well as analogous state and foreign laws.
Compliance with these environmental laws is a major consideration for us because
we use in our manufacturing process materials classified as hazardous such as
ammoniacal etching solutions, copper and nickel. In addition, because we are a
generator of hazardous wastes, we may be subject to potential financial
liability for costs associated with an investigation and any remediation of
sites at which we have arranged for the disposal of hazardous wastes if such
sites become contaminated. Even if we fully comply with applicable environmental
laws and are not directly at fault for the contamination, we may still be
liable. The wastes we generate include spent ammoniacal etching solutions,
solder stripping solutions and hydrochloric acid solution containing palladium;
waste water which contains heavy metals, acids, cleaners and conditioners; and
filter cake from equipment used for on-site waste treatment. Violations of
environmental laws could subject us to revocation of its effluent discharge
permits. Any such revocations could require us to cease or limit production at
our facility.
Dependence on Key Management
We depend on the services of our senior executives. We cannot assure
that we will be able to retain them and other executive officers and key
personnel or attract additional qualified management in the future. Our business
also depends on our ability to continue to recruit, train and retain skilled
employees, particularly engineering and sales personnel, due to our focus on the
technologically advanced and time-critical segment of the electronics
manufacturing services industry. In addition, our ability to successfully
integrate acquired companies depends in part on our ability to retain key
management and existing employees at the time of the acquisition.
26
Charter Documents and State Law Provisions
Provisions in our charter and bylaws may have the effect of delaying or
preventing a change of control or changes in our management that stockholders
consider favorable or beneficial. If a change of control or change in management
is delayed or prevented, the market price of our common stock could suffer.
Development Stage Companies
Many of our future acquisitions and investments will be development
stage companies that have no significant operating history. Consequently,
investment in our company carries a higher degree of risk than an investment in
a company that has an operating history in its primary business activity. We
are, through our acquisitions and investments, subject to all the risks inherent
in the establishment and expansion of a new business enterprise, including
problems of entering new markets, marketing of an innovative service, hiring and
training personnel, acquiring reliable computer systems and software, and
implementing operational controls. In general, startup businesses are subject to
risks and/or levels of risk that are often greater than those encountered by
companies with established operations and relationships. Startups often require
significant capital from sources other than operations. The management and
employees of startup businesses shoulder the burdens of the business operations
and a workload associated with company growth and capitalization that is
disproportionately greater than that for an established business. Any or all of
the foregoing can have a material, adverse effect on our business, financial
condition, and our operating results.
No Assurance of Future Profitability
There is no assurance that we will be able to attain profitability.
Profitability, if any, will depend in part upon our ability to successfully
acquire and invest profitably. Our future profitability will be affected by all
the risk factors listed in this report.
Need for Additional Capital.
We require working capital, for operations, to fund future acquisitions
and investment. We continue to raise money for our operations and for
acquisitions. However, if we fail to raise the desired proceeds, or incur losses
in excess of those contemplated by our current business plan, or if we need
additional capital to establish our desired market position or for other
reasons, then there can be no assurance that such capital will be available or
will be available on terms that are acceptable to us or that we will be able to
obtain such additional capital from banks or similar financial institutions.
Failure to obtain such additional capital if and when needed would have a
material adverse effect on us.
Staff.
Our future success depends upon our ability to identify, attract, hire,
train, retain and motivate skilled technical, marketing, accounting and customer
service employees. Competition for such personnel is intense and there can be no
assurance that we will be able to successfully attract, assimilate and/or retain
qualified staff personnel. If we fail to acquire a productive staff, it will
adversely affect our business, operating results and financial condition.
Company Trademark
We intend to register the name "Flexxtech Corporation" with the U.S.
Patent and Trademark Office as a trademark and a service mark. The domain name
"www.flexxtech.com" is currently registered with Internic and is our property.
There are no assurances that there will not be challenges to the registrations
or attempts to infringe upon our marks. If we are unable to protect our rights
to the trademarks or if such mark infringes on the rights of others, our
business would be materially adversely affected.
Inventories and Materials
We rely on suppliers for the raw materials used in manufacturing our
printed circuit boards, and an increase industry demand for these raw materials
may increase the price of these raw materials and reduce our gross margins.
To manufacture our printed circuit boards, we use raw materials such as
laminated layers of fiberglass, copper foil and chemical solutions that we order
from our suppliers. Although we have preferred suppliers for most of our raw
materials, the materials we use are generally readily available in the open
market and numerous other potential suppliers exist. However, from time to time,
manufacturers of products that also use these raw materials increase their
demand for these materials and, as a result, the prices of these materials
27
increase. During these periods of increased demand, our gross margins decrease,
as we have to pay more for our raw materials. . Products we manufacture may
contain design or manufacturing defects, which could result in reduced demand
for our services and liability claims against us.
We manufacture products to our customers' specifications, which are
highly complex and may contain design or manufacturing errors or failures
despite our quality control and quality assurance efforts. Defects in the
products we manufacture, whether caused by a design, manufacturing or component
failure or error, may result in delayed shipments, customer dissatisfaction, or
a reduction or cancellation of purchase orders. If these defects occur either in
large quantities or too frequently, our business reputation may be impaired.
Because our products are used in products that are integral to our customers'
businesses, errors, defects or other performance problems could result in
financial or other damages to our customers, which we may be legally required to
compensate them for. Although our purchase orders generally contain provisions
designed to limit our exposure to product liability claims, existing or future
laws or unfavorable judicial decisions could negate these limitation of
liability provisions. Product liability litigation against us, even if it were
unsuccessful, would be time consuming and costly to defend.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included herewith: our audited
financial statements for the year ended December 31, 2000, and our audited
financial statements for the year ended December 31, 2001.
28
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and Board of Directors
Flexxtech Corporation
We have audited the accompanying consolidated balance sheet of Flexxtech
Corporation, a Nevada Corporation and subsidiaries (the "Company") as of
December 31, 2001 and the related consolidated statements of operations,
stockholders' deficit and cash flows for the years ended December 31, 2001 and
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Flexxtech
Corporation and subsidiaries as of December 31, 2001 and the results of its
operations and its cash flows for the years ended December 31, 2001 and 2000 in
conformity with accounting principles generally accepted in the United States of
America.
The Company's consolidated financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. The Company has accumulated deficit of $9,277,077 including net losses
of $7,434,926 and $1,814,953 for the years ended December 31, 2001 and 2000,
respectively. The Company has a shareholders deficit of $2,416,423 on December
31, 2001. These factors as discussed in Note 4 to the consolidated financial
statements, raises substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 4. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
KABANI & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Fountain Valley, California
March 14, 2002
F-1
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2001
ASSETS
Current Asset:
Cash and cash equivalents $ 370,784
Accounts receivable, net 581,377
Inventory 524,882
Prepaid expenses 13,280
Notes receivable - related parties 19,000
Deposits & other current assets 1,582
------------
Total Current Asset 1,510,905
------------
Property & equipment, net 1,508,205
------------
TOTAL ASSETS $ 3,019,110
============
LIABILITIES STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 1,438,215
Accrued expenses 236,446
Loans payable - current 1,123,548
Loans payable related parties 1,758,124
------------
Total Current Liabilities 4,556,333
Long-term Liabilities:
Convertible debt 879,200
STOCKHOLDERS' DEFICIT
Common stock, authorized 100,000,000 shares at $.001 par
value, issued and outstanding 17,869,853 shares 17,228
Additional paid in capital 7,388,776
Shares to be issued 30,150
Accumulated deficit (9,277,077)
Accumulated other comprehensive income:
Unrealized loss on securities available for sale (575,500)
------------
Total Stockholders' Deficit (2,416,423)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,019,110
============
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 & 2000
2001 2000
------------- -------------
Sales $ 5,716,009 $ 4,071,040
Cost of sales 4,953,525 3,749,920
------------- -------------
GROSS PROFIT 762,484 321,120
General and Administrative expenses 5,274,360 1,811,650
------------- -------------
LOSS FROM OPERATIONS (4,511,876) (1,490,530)
Other income (expenses)
Impairment of goodwill (420,188) --
Realized loss on sale of marketable securities (75,708) (53,398)
Other income (expense) 7,500 --
Interest income 1,475 26,350
Interest expense (261,966) (184,609)
------------- -------------
Total other income (expenses) (748,887) (211,657)
------------- -------------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES & EXTRAORDINARY ITEM (5,260,763) (1,702,187)
Provision of Income tax 1,600 1,600
------------- -------------
LOSS FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM (5,262,363) (1,703,787)
DISCONTINUED OPERATIONS (NOTE 14):
Loss from operations of discontinued subsidiary
(Less applicable income taxes of $1600) (34,492) (111,166)
Loss on disposal of subsidiary, net (1,318,071) --
------------- -------------
(1,352,563) (111,166)
------------- -------------
NET LOSS BEFORE EXTRAORDINARY ITEM (6,614,926) (1,814,953)
EXTRAORDINARY ITEM - LOSS ON SETTLEMENT
OF A NOTE RECEIVABLE (820,000) --
------------- -------------
NET LOSS (7,434,926) (1,814,953)
OTHER COMPREHENSIVE LOSS:
Unrealized loss on investments available for sale (209,130) (366,370)
------------- -------------
COMPREHENSIVE LOSS $ (7,644,056) $ (2,070,157)
============= =============
Basic and diluted loss per share $ (0.56) $ (0.31)
============= =============
Basic and diluted weighted average shares outstanding * 13,388,738 5,814,635
============= =============
* The basic and diluted net loss per share has been restated to retroactively
effect a 2:1 forward stock split on April 14, 2000, a 1:3 reverse split on
April 29, 2000 and a 3:2 forward stock split at March 26, 2001.
Weighted average number of shares used to compute basic and diluted loss per
share is the same since since the effect of dilutive securities is antidilutive.
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2001 & 2000
COMMON STOCK
------------------------------------------
ADDITIONAL OTHER TOTAL
NUMBER OF PAID IN SHARES ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL TO BE ISSUED DEFICIT INCOME (LOSS) EQUITY
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, JANUARY 1, 2000 2,668,417 $ 2,669 $ 24,068 $ -- $ (27,198) $ -- $ (461)
Issuance of Common stock
for consulting services 100,672 100 385,572 -- -- -- 385,672
Issuance of Common stock for
acquisition of subsidiaries 1,245,000 1,245 1,548,755 -- -- -- 1,550,000
Issuance of Common stock
against debt settlement 90,000 90 59,910 -- -- -- 60,000
Issuance of Common stock for
acquisition of marketable
Securities 4,950,000 4,950 1,420,050 -- -- -- 1,425,000
Issuance of Common stock
against a note receivable 750,000 750 1,249,250 -- -- -- 1,250,000
Issuance of shares for cash 1,170,797 1,171 1,690,068 -- -- -- 1,691,239
Unrealizable loss on
marketable securities -- -- -- -- -- (366,370) (366,370)
Net Loss for year ended
December 31, 2000 -- -- -- -- (1,814,953) -- (1,814,953)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2000 10,974,885 10,975 6,377,673 -- (1,842,151) (366,370) 4,180,127
Issuance of Common stock
for consulting services 6,985,321 6,970 2,016,966 -- -- -- 2,023,936
Issuance of Common stock
against debt settlement 27,273 27 13,609 -- -- -- 13,636
Issuance of Common stock to
employees for compensation 20,000 20 91,780 -- -- -- 91,800
Issuance of shares for cash 797,374 770 345,463 -- -- -- 346,233
Cancellation of common stock
acquired through disposal
of subsidiaries and other
assets (note 12) (1,535,000) (1,535) (1,456,715) -- -- -- (1,458,250)
Issuance of shares as
collateral for a loan 600,000 -- -- -- -- -- --
Subscription received for
shares to be issued -- -- -- 30,150 -- -- 30,150
Unrealizable loss on
marketable securities -- -- -- -- -- (209,130) (209,130)
Net Loss for year ended
December 31, 2001 -- -- -- -- (7,434,926) -- (7,434,926)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2001 17,869,853 $ 17,228 $ 7,388,776 $ 30,150 $(9,277,077) $ (575,500) $(2,416,423)
============ ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
F-4
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 & 2000
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(7,434,926) $(1,814,953)
Adjustments to reconcile net loss to cash used in
operating activities
Depreciation and amortization 309,556 144,437
Amortization of goodwill 119,357 56,745
Impairment of goodwill 420,188 --
Issuance of stocks for consulting services & compensation 2,126,286 385,672
Loss on sale of marketable securities 75,708 53,398
Loss on settlement of note receivable 820,000 --
Disposal of subsidiaries 1,352,563 --
(Increase) / decrease in current assets
Accounts receivable 602,837 454,473
Insurance receivable 247,490 (247,490)
Inventory (72,340) 383,639
Prepaid expense (13,280) --
Deposits & other current assets 20,545 (9,035)
Increase /(decrease) in current liabilities
Accounts payable 217,490 (260,853)
Accrued expenses 176,533 (244,515)
Deferred Income Tax 10,559 --
Customers' deposit 2,306 (3,976)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,019,128) (1,102,458)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities -- (202,671)
Sale of marketable securities 197,456 48,485
Acquisition of property & equipment (384,984) (218,128)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (187,528) (372,314)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of common stock 346,233 1,691,239
Proceeds from shares to be issued 30,150 --
Proceeds from issuance of convertible debt 870,000 --
Payments on notes receivable -- (152,524)
Repayment of notes receivable 8,880 --
Proceeds from borrowings 1,312,324 453,053
Payments of loans (1,510,012) --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,057,575 1,991,768
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (149,081) 516,996
CASH AND CASH EQUIVALENTS -BEGINNING 519,865 2,869
------------ ------------
CASH AND CASH EQUIVALENTS -ENDING $ 370,784 $ 519,865
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTES TO 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with a maturity of three months or
less from the date of purchase that are readily convertible into cash to be cash
equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
In determining the allowance to be maintained, the management evaluates many
factors including industry and historical loss experience. The allowance for
doubtful accounts is maintained at an amount management deems adequate to cover
estimated losses. The allowance for doubtful accounts at December 31, 2001 was
$25,303 for trade receivables.
INVENTORY
Inventory is valued at the lower of cost or market value. Cost is determined
using the first-in, first-out method. Inventory at December 31, 2001 consisted
of:
F-6
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Raw materials $276,858
Work-in-process 224,545
Gold Tank 23,479
---------
$524,882
=========
MARKETABLE SECURITIES
The Company's securities are classified as available-for-sale and, as such, are
carried at fair value. All of the securities comprised of shares of common stock
of investee. Securities classified as available-for-sale may be sold in response
to changes in interest rates, liquidity needs, and for other purposes. The
Company does not currently have any held-to-maturity or trading securities.
Unrealized holding gains and losses for available-for-sale securities are
excluded from earnings and reported as a separate component of stockholder's
equity. Realized gains and losses for securities classified as
available-for-sale are reported in earnings based upon the adjusted cost of the
specific security sold. On December 31, 2001, the investments have been recorded
at zero value based upon the fair value of the marketable securities on December
31, 2001. Total accumulated unrealized loss on marketable securities amounted to
$575,500 at December 31, 2001 as compared to $366,370 at December 31, 2000.
PROPERTY & Equipment
Property and equipment is carried at cost. Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives of the assets ranging from three to five years. Expenditures for
maintenance and repairs are charged to expense as incurred.
GOODWILL
The Company continuously monitors its goodwill to determine whether any
impairment of this asset has occurred. In making such determination with respect
to goodwill, the Company evaluates the performance, on an undiscounted cash flow
basis, of the underlying assets or group of assets that gave rise to this
amount. Goodwill was being amortized on the straight-line basis over 15 years.
As of December 31, 2001, goodwill was $420,188 after amortization of $119,357
for the year ended December 31, 2001. The goodwill on acquisitions of
subsidiaries which were disposed off during the year 2001, was eliminated
amounting $1,291,702, net of accumulated amortization.
On December 31, 2001, the Company re-evaluated value of each acquisition based
upon performance and future cash flow. The Company estimated the total value of
goodwill at December 31, 2001 at zero since NTCB was having losses through
December 31, 2001 and did not have goodwill value associated with it. The
Company wrote off goodwill balance of $420,188 on December 31, 2001. The write
off of goodwill has been shown as a separate line item in the Statement of
Operation.
REVENUE RECOGNITION
The Company's revenue recognition policies are in compliance with Staff
accounting bulletin (SAB) 101. Revenue is recognized when merchandise is shipped
to a customer. Generally, the Company extends credit to its customers and does
not require collateral. The Company performs ongoing credit evaluations of its
customers and historic credit losses have been within management's expectations.
F-7
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ADVERTISING
The Company expenses advertising costs as incurred.
INCOME TAXES
Deferred income tax assets and liabilities are computed annually for differences
between the financial statements and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted laws
and rates applicable to the periods in which the differences are expected to
affect taxable income (loss). Valuation allowance is established when necessary
to reduce deferred tax assets to the amount expected to be realized.
BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS No. 128), "Earnings per share". SFAS No. 128
superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per
share for all periods presented has been restated to reflect the adoption of
SFAS No. 128. Basic net loss per share is based upon the weighted average number
of common shares outstanding. Diluted net loss per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The company uses the intrinsic value method prescribed by APB25 and has
opted for the disclosure provisions of SFAS No.123.
ISSUANCE OF SHARES FOR SERVICE
The Company accounts for the issuance of equity instruments to acquire goods and
services based on the fair value of the goods and services or the fair value of
the equity instrument at the time of issuance, whichever is more reliably
measurable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of financial accounting standard No. 107, Disclosures about fair value
of financial instruments, requires that the Company disclose estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
F-8
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
deciding how to allocate resources and in assessing performances. The Company
allocates resources and assesses the performance of its sales activities as one
segment. For the year ended December 31, 2001, the Company only operated in one
segment as the Company had one remaining operating entity in NTCB, a subsidiary
of Primavera.
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 year ended December 31, 2001, the Company recorded $782,723 of its wages
and salaries as general & administrative expenses instead of cost of goods sold,
since during the year 2001, 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 year ended December 31, 2000, 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.
F-9
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SFAS No. 141 establishes new standards for accounting and reporting requirements
for business combinations and will require that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Use of the pooling-of-interests method will be prohibited. This statement is
effective for business combinations completed after June 30, 2001.
SFAS No. 142 establishes new standards for goodwill acquired in a business
combination and eliminates amortization of goodwill and instead sets forth
methods to periodically evaluate goodwill for impairment. Intangible assets with
a determinable useful life will continue to be amortized over that period. This
statement becomes effective January 1, 2002.
Management is in the process of evaluating the requirements of SFAS No.
141 and 142 and does not expect these pronouncements will materially
Fimpact the Company's financial position or results of operations.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations". SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. This Statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
was issued in August 2001. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001, and addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. This statement supersedes SFAS
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for the disposal of a segment of a business.
Management is in the process of evaluating the requirements of SFAS No. 143 and
144 but does not expect these pronouncements will materially impact the
Company's financial position or results of operations.
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
$9,277,077 including net losses of $7,434,926 and $1,814,953 for the years ended
December 31, 2001 and 2000, respectively. The continuing losses have adversely
affected the liquidity of the Company. The Company faces continuing significant
business risks, including but not limited to, its ability to maintain vendor and
supplier relationships by making timely payments when due.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to raise additional capital, obtain
financing and to succeed in its future operations. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. Management devoted considerable effort
F-10
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
during the period ended December 31, 2001, towards (i) obtaining additional
equity financing through various private placements (ii) reduction of salaries
and general and administrative expenses (iii) disposal of some of the
non-profitable subsidiaries and (iv) evaluation of its distribution and
marketing methods.
In that regard, the Company sold 797,374 shares for cash in the amount of
$346,233 and the Company received subscription of $30,150 for 69,689 shares of
common stock to be issued during the year ended December 31, 2001. The company
also issued convertible debentures amounting $720,000, due in August 2003 and
issued convertible promissory notes of $50,000 due on March 1, 2004 and $100,000
due on April 1, 2004 (note 12). The Company also disposed off three of its
non-profitable subsidiaries during the year 2001 (note 14).
5. NOTES RECEIVABLE - RELATED PARTY
As of December 31, 2001, the Company has notes receivable from an
officer of the Company, totaling $19,000. The notes bear interest rate
of 10% per year, are unsecured and due on demand. Interest income from
Note receivable from related parties, for the year ended December 31,
2001 and 2000, amounted to $1000 and 26,350, respectively.
6. INVESTMENTS IN STOCK AVAILABLE FOR SALE
Following is a summary of investment securities classified as available for sale
as on December 31, 2001:
Gross Unreal-
Cost Basis Fair Value ized loss
---------- ---------- -------------
Marketable equity securities $ 575,500 $ - $ 575,500
The change in net unrealized holding loss on securities available for sale that
has been included as a separate component of stockholders' equity for the year
ended December 31, 2001 was $209,130. The Company believes the change in value
of the marketable securities is temporary.
7. PROPERTY AND EQUIPMENT
Property and equipment comprised of following on December 31, 2001:
Machinery and equipment $ 2,484,020
Furniture & fixtures 121,030
Computer software 149,731
Transportation equipment 69,530
------------
2,824,311
Less Accumulated Depreciation (1,316,106)
------------
$ 1,508,205
============
F-11
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LOANS PAYABLE
The loans payable comprised of following as of December 31, 2001:
Lender Terms Amount
------ ----- ------
Note Payable Due on demand unpaid balance plus interest at lower $ 316,130
Comerica Bank of Maximum rate defined as interest rate is subject
to changes under various conditions maximum
nonuserous rate of interest or prime rate plus 2%.
The note and other debtness to the
bank are secured by assets of NTCB.
Revolving Line of Receivable line of credit, payable on demand, 460,952
credit Comerica Bank unpaid balance plus interest at lower of Maximum
rate defined as maximum nonuserous rate of interest
or prime rate plus 2%. The interest rate is subject
to changes under various conditions. The note and
other debtness to the bank are secured by assets of
the Company. The note is personally guaranteed by
the president of NTCB.
Note Payable BECO M-A, Note Payable to an affiliated company related 63,975
L.P through common officers at Primavera. Due on
demand, unsecured and bears an interest rate of 9%
per year. Total interest during the year amounted
to $5,400.
Notes payable to Due by July 2001, bear interest rates ranging from 282,491
Vendors at NTCB 8% to 12% and secured by the assets of NTCB.
Convertible debentures Due in 2003, secured by common stock of the Company 720,000
and bear interest rates of 6% per annum (see note
12)
Convertible promissory notes Due in 2004, secured by common stock of the Company 159,200
and bear interest rates of 10% per annum (see note
12)
Notes payable to The notes are payable to related party through
related parties common major shareholders and officer of the
Company, due on demand, bear interest rate ranging
from 10% to 18% per year and secured by the assets
of the Company. Interest paid during the year
amounted to $88,344. 1,758,124
--------------
Total debt 3,760,872
Less: total current 2,881,672
--------------
Total-long term $ 879,200
==============
F-12
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The current portion of long-term debt has been reflected in the balance sheet on
December 31, 2001, as follows:
Loans payable - current $1,123,548
Loans payable related parties - current 1,758,124
-----------
$2,881,672
===========
The current maturity of notes payable, including capital lease obligations, is
as follows:
Year Ended December 31
----------------------------
2001 $ 2,881,672
2002 -
2003 720,000
2004 159,200
---------------
TOTAL $ 3,760,872
===============
9. LITIGATION
In April 2001, a suit was brought against the Company and certain officers and
directors for alleged breach of contract. The Company has denied all the claims
and believes it is a frivolous suit. The management of the Company plans to
rigorously defend the Company. Management does not believe implication of this
litigation will have any material impact on the Company's financial statements.
Subsequent to the year ended December 31, 2001, the Company settled the
litigation by agreeing to pay the plaintiffs a sum of $8,000, 82,500 shares of
restricted common stock and 90,000 options to purchase common stock of the
Company at $1.66 per share, with an expiration date of January 1, 2004.
10. INCOME TAXES
No provision was made for Federal income tax since the Company has significant
net operating loss carryforwards. Through December 31, 2001, the Company
incurred net operating losses for tax purposes of approximately $9,300,000. The
net operating loss carryforwards may be used to reduce taxable income through
the year 2016. Net operating loss for carryforwards for the State of California
are generally available to reduce taxable income through the year 2006. The
availability of the Company's net operating loss carryforwards are subject to
limitation if there is a 50% or more positive change in the ownership of the
Company's stock. The provision for income taxes consists of the state minimum
tax imposed on corporations.
Temporary differences which give rise to deferred tax assets and liabilities at
December 31, 2001 comprised of depreciation and amortization and net operating
loss carry forward. The gross deferred tax asset balance as of December 31, 2001
was approximately $3,600,000. A 100% valuation allowance has been established
against the deferred tax assets, as the utilization of the loss carrytforwards
cannot reasonably be assured.
The following is a reconciliation of the provision for income taxes at the U.S.
federal income tax rate to the income taxes reflected in the Consolidated
Statements of Operations:
F-13
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, December 31,
2001 2000
---- ----
Tax expense (credit) at statutory
rate-federal (34)% (34)%
State tax expense net of federal tax (6) (6)
Permanent differences 1 1
Changes in valuation allowance (39) (39)
------ ------
Tax expense at actual rate -- --
====== ======
11. COMMITMENT
Lease - NTCB 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.
12. STOCKHOLDERS' EQUITY
STOCK SPLIT
On December 29, 2000, the Board of Directors of the Company declared a
13.09322865 to 1 forward stock split of the Company's common stock. The
stockholders approved an increase in the authorized number of shares of common
stock from 26 million to 100 million. On April 14, 2000, the Company effected a
2-for-1 forward stock split of its common stock. On April 29, 2000, the Company
effected a reverse stock split of 1:3 and on March 26, 2001, the Company
effected a 3:2 forward stock split. The financial statements have been
retroactively restated for the effects of stock splits.
COMMON STOCK:
Effective March 30, 2001, the Board of directors approved to cancel 750,000
shares of common stock issued to a related party, related through common share
holder, in exchange of various notes receivable. The notes were receivable from
a Corporation totaling $1,250,000. The notes, carried interest ranging from 8%
to 12% per year, were secured and due on demand. The company returned the notes
to the related party. There was no gain or loss on the return of note as the
Company received the whole consideration paid within short period of time.
During the year, the Company disposed of two subsidiaries in exchange of 310,000
shares of common stock of the Company valued at $62,000. The Company exchanged a
note receivable from a related party for 450,000 shares of the Company's common
stock valued at $80,000. The Company sold marketable securities to a related
party for 25,000 shares of the Company's common stock valued at $66,250.
During the year, the Company cancelled 1,535,000 shares of common stock it had
in its treasury.
During the year ended December 31, 2001, the Company sold 797,374 shares for
cash in the amount of $346,233 and the Company received subscription of $30,150
for 69,689 shares of common stock to be issued. The Company issued 6,985,321
shares of common stock for consulting services amounting $2,023,936, including
6,429,333 restricted shares for consulting services to a related party for
$1,286,000. The Company recorded value of shares issued to related party based
upon market value of such a large chunk of stock at one time and its restriction
clause. The Company issued 20,000 shares of common stock for compensation
amounting $91,800. The Company exchanged 27,273 shares of common stock for debt
amounting $13,636. The exchange resulted in no gain or loses to the Company.
F-14
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company issued 600,000 shares of common stock to a related party, related by
common major shareholders, as a collateral against the loan of $195,573. The
Company has not recorded any value for such shares since the shares are issued
as collateral and are returnable once the loan amount is fully paid.
CONVERTIBLE DEBENTURES:
The company issued debentures amounting $720,000, carrying an interest rate of
6% per annum, due in August 2003. The holders are entitled to, at any time or
from time to time, convert the conversion amount into shares of common stock of
the Company, par value $.001 per share at a conversion price for each share of
common stock equal to the lower of (a) 120% of the losing bid price per share
(as reported by Bloomberg, LP) on the closing date, and (b) 80% of the lowest
closing bid price per share (as reported by Bloomberg, LP) of the Company's
common stock for the five trading days immediately preceding the date of
conversion.
CONVERTIBLE PROMISSORY NOTES PAYABLE
The Company issued convertible promissory notes of $59,200 due on March 1, 2004
and $100,000 due on April 1, 2004, carrying an interest rate of 10% per annum.
The holder of $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 December 31, 2001.
13. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95.
The Company paid income taxes of $932 and interest of $133,680 during the year
ended December 31, 2001. The Company paid income taxes of $3,614 and interest of
$126,361 during the year ended December 31, 2000.
Supplemental disclosure of non-cash investing and financing activities:
The cash flow statements do not include following non-cash investing and
financing activities:
(1) During the year, the Company disposed of two subsidiaries in exchange
of 310,000 shares of common stock of the Company, resulting in a loss
of $1,318,071. The cash flow statements do not include disposal of
following assets and liabilities of the disposed companies:
F-15
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Current assets $ 97,662
Non-current assets $101,074
Current liabilities $273,781
(2) The Company issued 6,985,321 shares of common stock for consulting
services amounting $2,023,936, including 6,429,333 restricted shares
for consulting services to a related party for $1,286,000.
(3) The Company exchanged a note receivable from a related party for
450,000 shares of the Company's common stock valued at $80,000,
resulting in a loss of $820,000.
(4) On July 1st, 2001 the Company sold 100,000 shares of Easyriders, Inc.
to a shareholder for 25,000 shares common stock of Flexxtech resulting
in a realized loss of $23,750.
14. DISPOSAL OF SUBSIDIARIES AND INVESTMENTS
On July 1st, 2001, the Company sold two of its subsidiaries to its previous
owners. Mardock, Inc. in exchange for 200,000 shares of its common stock and
OpiTV.com for 110,000 shares of its common stock (including return of 60,000
shares by an officer of OpiTV). Mardock, Inc. was established in 1986 and was a
designer, manufacturer, and distributor of apparel and promotional products to
the corporate community. OpiTV.com, a Nevada Corporation, was formed on October
12, 1999. OpiTV.com was an I-Commerce technology company. Through June 30, 2001,
OpiTV.com has not generated any revenue. The valuation of the 310,000 at $62,000
was based upon estimated fair value of the shares. The Company also, disposed
off its subsidiary, Flexx Capital Partners (FCP). FCP, a Nevada Corporation, was
formed on December 1, 2000. FCP did not have any operations during the years
ended December 31, 2001 and 2000. The subsidiary was acquired for $5,000 and
disposed off for zero amount. The disposal of subsidiaries resulted in net loss
of $1,318,071. Following is the summary of the transactions ((Dollars in
thousands):
Mardock OpiTV Total
------- ------- -------
Investment $ 600 $ 850 $1,450
Value of the Companies at disposal:
Assets 196 2 198
Liabilities 250 23 273
Consideration received 40 22 62
------- ------- -------
Loss on disposal $ 506 $ 807 1,313
======= ======= =======
Loss on disposal of Flexx Capital Partners 5
-------
Total loss on disposal of subsidiaries $1,318
=======
Following is the results of the Mardock operations included in the loss from
discontinued operations for all periods presented:
YEARS ENDED DECEMBER 31,
2001 2000
---- ----
(Dollars in thousands)
Revenue $ 285 $ 455
Expenses:
Costs of revenue 166 308
Operating expenses 145 204
------ ------
Total expenses 311 512
------ ------
Loss from discontinued operations $ (26) $ (57)
====== ======
F-16
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is the results of the OpiTV included in the loss from discontinued
operations for all periods presented:
YEARS ENDED DECEMBER 31,
2001 2000
---- ----
(Dollars in thousands)
Revenue $ -- $ --
Expenses:
Costs of revenue -- --
Operating expenses 8 54
------ ------
Total expenses 8 54
------ ------
Loss from discontinued operations $ (8) $ (54)
====== ======
Flexx Capital Partners did not have any operation since its inception.
On July 1st, 2001, the Company exchanged a promissory note receivable it was
holding for $900,000 from the major shareholder of the Company, for 450,000
shares of the Company's common stock. The valuation of shares at $80,000 was
based on estimated fair value. The Company recorded the shares at its fair
value. The exchange resulted in a loss to the Company of $820,000, which has
been reflected as an extraordinary loss in the financial statements.
15. SEGMENT INFORMATION
For the years ended December 31, 2001, the Company only operated in one segment
as the Company had one remaining operating entity in NTCB, subsidiary of
Primavera.
For the year ended December 31, 2000, in computing income from operations by
industry segment, un-allocable general and administrative expenses have been
excluded from each segments' pre-tax operating earnings before interest expense
and have been included in general corporate and other operations. The Company
reportable business segments are strategic business units that offer distinctive
products and services that are marketed through different channels. The Company
was a holding company of two operating subsidiaries in the year 2000: North
Texas Circuit Board, Inc. (a 100% subsidiary of Primavera, Inc.) and Mardock,
Inc. North Texas Circuit Board, Inc. (NTCB) manufactures printed circuit boards.
The products are sold through its facility in Grand Prairie, Texas utilizing
outside sales people. Deliveries are made primarily throughout the United
States. Mardock was a designer, manufacturer, and distributor of apparel and
promotional products to the corporate community.
The Company was a holding company (through a subsidiary) of two operating
subsidiaries: North Texas Circuit Board, Inc. (a 100% subsidiary of Primavera,
Inc.) and Mardock, Inc. North Texas Circuit Board, Inc. (NTCB) manufactures
printed circuit boards. NTCB products are sold through its facility in Grand
Prairie, Texas utilizing outside sales people. Deliveries are made primarly
throughout the United States. Mardock was a designer, manufacturer, and
distributor of apparel and promotional products to the corporate community.
Substantially all of the Company's operations are domestic. The Company's
foreign operations are not material to the Company's results of operations. The
Company disposed off its subsidiary Mardock, Inc. in 2001. For the years ended
December 31, 2001 and 2000, the Company only operated in one segment as the
Company had one remaining operating entity in NTCB, a subsidiary of Primavera.
F-17
FLEXXTECH CORPORATION
FORMERLY INFINITE TECHNOLOGY CORPORATION AND
COLOR STRATEGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of segmented information for the year ended December 31,
2000:
NTCB Mardock
---- -------
Sales $4,071,000 $ 455,000
Operating loss 845,700 56,300
Total Assets 4,183,087 1,490,582
Capital Expenditure 218,000 --
Depreciation and amortization 119,700 24,737
The operating statements for 2000 has been restated to reflect loss from
operations of discontinued subsidiary Separately from the continuing entity.
Substantially all of the Company's operations are domestic. The Company's
foreign operations are not material to the Company's results of operations.
16. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of trade accounts receivable and temporary cash investments.
The Company grants credit to customers throughout the country. The Company
performs credit checks on all new customers, and generally requires no
collateral from its customers.
17. BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share for the year ended December 31, 2001 and
2000 were determined by dividing net loss for the periods by the weighted
average number of both basic and diluted shares of common stock and common stock
equivalents outstanding. Weighted average number of shares used to compute basic
and diluted loss per share is the same since the effect of dilutive securities
is antidilutive.
18. SUBSEQUENT EVENT
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.
F-18
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with our independent
accountants.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT OFFICERS AND
DIRECTORS
The names and ages of all of our directors and executive officers,
along with their respective positions, term of office and period such
position(s) was held, is as follows:
Name Age Position Held & Since (1)
----------------- --- -------------------------
Edward Fearon (2) 56 Chief Executive Officer and Director.
(Chairman & CEO of NTCB)
Greg Mardock 46 President, Chairman of the Board of Directors,
and Director.
Chris H. Beshlian 33 Secretary, Treasurer and Director.
Khanh Tran 36 Director.
David Pimentel (3) 31 Director
---------------
(1) Each of the above individuals will serve in their respective capacities
until the next annual meeting of the shareholders or until a successor is duly
qualified and elected.
(2) Mr. Fearon has agreed to serve as CEO and Director of our Company upon
execution of an employment agreement and having Directors & Officers Insurance.
The Agreement was not executed as of December 31, 2001.
29
BIOGRAPHICAL INFORMATION ON OFFICERS AND DIRECTORS
--------------------------------------------------
Edward Fearon, age 56, serves as CEO and Director of a subsidiary of
Flexxtech Holdings, Inc., Primavera Corporation, and Chairman of North Texas
Circuit Board Company and has agreed to serve as CEO and Director of our Company
upon execution of an employment agreement and adequate Directors and Officers
Insurance. Mr. Fearon, a physicist, filed his first United States Patent
Application in 1966 and for a period of more than thirty years has been engaged
in the research, development and invention of devices in the electronics Article
Surveillance and other industries and holds 126 United States and foreign
patents. Mr. Fearon is regarded as the founder of the Electronic Article
Surveillance field. His Patents are the grandfather, or original patents in the
field. His patents in the EAS field were licensed to 3M and Sensormatic and are
for protection of books, audio and videotapes, clothing and other merchandise.
Early in his career, Mr. Fearon first served with ElectroChemical
Laboratories In Tulsa, Oklahoma where he conducted research for Sinclair
Research (division of Sinclair Oil & Gas) and the Williams Brothers Companies
(pipeline & energy) on Radio Carbon 14 and Nuclear Magnetic Resonance
nondestructive non-contact analysis: magnetometers for pitch/yaw of missiles and
gradiometer magnetic field mapping of magnetite of planet earth for prediction
of oil fields: flaw/defect detection and analysis in buried pipelines; geophones
for seismic data for prediction of oil fields. Mr. Fearon in 1969 joined
Standard Engineering & Manufacturing Co. (SEMCO) as Vice President of R&D where
their principal business was electronic Article Surveillance. In 1971 Mr. Fearon
was the founder and President of S D & E, Inc. dba Systems Development &
Engineering, an engineering firm. He managed this company until 1986. In 1973
Mr. Fearon became the managing partner of Martin Wholesale, Inc. a national
distributor for Sony, Panasonic, Sharp, Hitachi and other commercial lines. He
managed this company until 1998 when it was acquired by Fox Electronics. In 1998
Mr. Fearon served as chairman of the Board and Chief Executive Officer of a
public company, EAS Technologies, Inc. which was acquired and served as director
of Canyon Creek National Bank and a member of the loan and discount committee.
Mr. Fearon was the founder, President and majority shareholder of Computer
Crossroads of America, Inc., a designer, integrator and manufacturer of defense
related computer equipment from 1979 until 1995. CCA had annual revenues in the
range of $20 million and employed an average of fifty people. Mr. Fearon was
responsible for all administration with actual involvement in all departments
including purchasing, engineering, production, finance, accounting and
sub-contract management. Mr. Fearon has extensive experience in the area of
Government contracting including preparation, negotiation, and management of
SF1411/1412 proposals and contracts. Mr. Fearon has an extensive working
knowledge of FAR, and FAR requirements. He has also administered
Corporate/Divisional Material Agreement negotiations and contracts as well as
contracts with customers such as General Dynamics, Fairchild Communications and
Electronics Co., McDonnell Douglas, Boeing, U.S. Army and the U.S. Air Force.
Mr. Fearon holds Security Clearances.
Greg Mardock, age 46, currently serves as President and has served as a
Director of our Company since April 2000. Mr. Mardock also serves as the
President and CEO of Mardock, Inc., a subsidiary of Flexxtech Hodlings, Inc.
Mardock, Inc. designs, manufactures, and distributes corporate promotional
products. Mardock is developing its e-commerce site to become the premier
corporate promotional company on the Internet. Mr. Mardock is also a Partner in
Oregon.com, a state-wide portal providing information on the State of Oregon,
and in Oregon Interactive, an e-commerce site designer and developer. He further
serves as the President of Sterling Golf, Inc., a golf equipment distributor.
>From 1976 to 1986, Mr. Mardock served as Founder and President of Sports
Graphics, Inc. and has designed and produced products for Nike's Sports Apparel
Program, Speedo Swimwear, Guess Athletic, K Swiss Footwear, and Panasonic, among
others.
Chris H. Beshlian, Esq., age 33, currently serves as Secretary and
Director of our Company. Mr. Beshlian is a practicing attorney in corporate law
with offices in Los Angeles, California. From March 1998 to January 2000, Mr.
Beshlian served as Secretary and Director of Pacific Sports Holdings, Inc., a
publicly traded sports equipment and apparel holding company. Mr. Beshlian holds
a law degree from Southwestern University School of Law and a BA degree in
Economics from the University of California, Los Angeles.
30
Khanh Tran, age 36, has served as a Director of our Company since April
2000. Since 1994, Mr. Tran has served as Chairman, President, CEO and founder of
Chameleon Technology, Inc., a fiber channel design and development company,
which was acquired by Applied Micro Circuits (NASDAQ: AMCC) in March 2000. Mr.
Tran has lead design teams at Motorola, Boeing, Atmel, Applied Materials,
Rockwell, LSI Logic and Western Digital. Mr. Tran has also served as Vice
President of Design Engineering with California ASIC Technical Services, Inc.
from May 1992 to November 1994. From 1988 to 1992, Mr. Tran served as a Design
Manager for Lasarray Corporation. Mr. Tran holds a BS degree in Electrical
Engineering from the University of California, Irvine and an MBA from California
State University, Fullerton.
David Pimentel, age 31, has served as a Director of our Company since
April 2000. Mr. Pimentel currently serves as the Chief Information Officer for
Absolute Internet Marketing, Inc. where his responsibilities include the design,
installation and maintenance of networking infrastructure for multi-million
dollar projects. From 1998 to 2000, Mr. Pimentel served as the Chief Information
Officer, Secretary and Co-Founder of ivenue.com, a developer of a complete
electronic commerce suite for management of online stores utilizing a web
browsers. From June 1997 to January 1999 Mr. Pimentel served as the Chief
Information Officer and Partner of Top Level Design, Inc. Mr. Pimentel served as
a network manager and systems analyst for the University of Southern California
from 1994 through 1998 and also served as a PC/LAN Analyst for the Walt Disney
Company from 1995 through 1997. Mr. Pimentel studied Computer Science at the
University of Southern California.
Our Company does not presently maintain key man life insurance coverage
with respect to any of its officers, directors, or key employees; however, we
intend to investigate the addition of key man life insurance in the future.
There is no assurance we will be able to obtain it.
FAMILY RELATIONSHIPS
--------------------
There are no family relationships among our directors and/or executive
officers.
INVOLVEMENT IN OTHER PUBLIC COMPANIES
-------------------------------------
None of our directors are involved in other public companies that would
be described as "reporting" companies.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
----------------------------------------
Except as indicated herein, to the knowledge of our management, during
the past five years, no present or former director, executive officer, or person
nominated to become a director or executive officer of our Company:
(1) Filed a petition under federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer appointed by
a court for the business or property of such person, or any partnership in which
he was a general partner at or within two years before the time of such filing,
or any corporation or business association of which he was an executive officer
at or within two years before the time of such filing;
(2) Was convicted in a criminal proceeding or named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offences);
(3) Was the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him or her from or otherwise limiting
his/her involvement in any type of business, securities or banking activities;
(4) Was found by a court of competent jurisdiction in a civil action,
by the Securities and Exchange Commission or the Commodity Futures Trading
Commission, to have violated any federal or state securities law, and the
judgment in such civil action or finding by the Securities and Exchange
Commission has not been subsequently reversed, suspended, or vacated.
31
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------
Based solely on the review of Form 3's furnished to us, to the best
knowledge of our management, each of our officers/directors and 10% shareholders
has filed their Initial Statement of Beneficial Ownership on Form 3, although
the same were filed on a delinquent basis.
PART III
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information as to compensation
received by our Chief Executive Officer who is also a director of our Company
and our President and Secretary, as of December 31, 2001.
SUMMARY COMPENSATION TABLE
Long Term Compensation
------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
-
------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Annual Restricted Other
Name and Compensa- Stock Underlying LTIP Compensa-
Principal tion Award Options/ Payouts tion
Position Year Salary($) Bonus($) ($) ($) SAR's(#) ($) ($)
------------------------------------------------------------------------------------------------------------------------------------
Greg Mardock (1) 2001 -0- -0- -0- -156,666- -0- -0- -0-
President, Treasurer 2000 -0- -0- -0- -0- -0- -0- -0-
Director
--------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Mardock received compensation from Mardock, Inc., a subsidiary of our wholly-owned subsidiary, Flexxtech Holdings, Inc.
OPTIONS/SAR GRANTS
------------------
There were no stock options or stock appreciation rights granted to any
executive officer since its inception through present date.
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR VALUE TABLE
--------------------------------------------------------------------------
Not applicable.
LONG TERM INCENTIVE PLANS
-------------------------
There are no long-term incentive plans in effect and therefore no
awards have been given to any executive officer in the past year.
32
COMPENSATION OF DIRECTORS
-------------------------
We pay no fees to members of our Board of Directors for the performance
of their duties as directors. We are in the process of establishing an Audit
Committee, but we have not established any other committees of the Board of
Directors.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
------------
We have no employment contracts in effect with any of the members of
our Board of Directors or our executive officers nor are there any agreements or
understandings with such persons regarding termination of employment or
change-in-control arrangements.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2001, the amount and
nature of beneficial ownership of each person known to a beneficial owner of
more than five percent of the issued and outstanding shares of our Company. The
following information is based on 17,869,853 shares issued and outstanding as of
December 31, 2001.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
(1) (2) (3) (4)
Title of Name and Amount and Percent of
Class Address of Nature of Class
Beneficial Beneficial
Owner Owner
--------- ---------- ---------- ----------
Common VLK Capital Corp. (1) 6,025,000 33.72%
3620 NW Westside Road
McMinnville, OR 97128
Common Gregport Land and Investment (2) 650,000 3.64%
3620 NW Westside Road
McMinnville, OR 97128
Common Greg Mardock (1) (2) 783,333 4.38%
3620 NW Westside Road
McMinnville, OR 97128
Common Edward Fearon 2,729,250 15.27%
14908 Havenshire Place
Dallas, TX 75250
-------------------
(1) Greg Mardock is a shareholder, officer and director of VLK Capital Corp.
(2) Greg Mardock is a shareholder, officer and director of Gregport Land and
Investment. The shares are owned by Gregport Land and Investment.
The following table sets forth the amount and nature of beneficial
ownership of each of the executive officers and directors of our Company. The
information below is based on 17,869,853 shares issued and outstanding as of
December 31, 2001.
33
SECURITY OWNERSHIP OF MANAGEMENT
(1) (2) (3) (4)
Title of Name and Amount and Percent of
Class Address of Nature of Class
Beneficial Beneficial
Owner Owner
--------- ---------- ---------- ----------
Common Edward Fearon (1) 2,729,250 15.27%
14908 Havenshire Place
Dallas, TX 75250
Common Greg Mardock (2) 7,458,333 41.74%
3620 NW Westside Road
McMinnville, OR 97128
--------------------------------------------------------------------------------
Officers & Directors as a group 10,187,583 shares 57.01%
--------------------------------------------------------------------------------
(1) Mr. Fearon has agreed to serve as CEO and Director of our Company upon
execution of an employment agreement. The Agreement was not executed as of
December 31, 2001.
(2) Greg Mardock is a shareholder, officer and director of Gregport Land and
Investment and VLK Capital Corp. The shares are owned by Gregport Land and
Investment and VLK Capital Corp. Mr. Mardock does not own any shares of our
Company in his individual capacity.
CHANGES IN CONTROL
------------------
We have no arrangements which might result in a change in control of
our Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS AND REPORTS ON 8-K
(a) Exhibits
Exhibit 21 List of Subsidiaries
34
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report be signed on its behalf by the undersigned, thereunto duly
authorized.
Registrant:
FLEXXTECH CORPORATION
Date: April 16, 2002 By: /s/ Greg Mardock
-----------------------------
Greg Mardock
President and Chairman of
the Board of Directors
35