UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10K-SB
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the Fiscal Year Ended December 31, 2003
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NETWORK INSTALLATION CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Nevada 7389 88-0394012
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Number)
Identification
Classification
Code Number)
18 Technology Drive
Suite 140A
Irvine, CA 92618
(Address and telephone number of principal executive offices)
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(949)753-7551
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities Registered Pursuant to Section 12(g) of the 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 Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the issuer 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, and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Issuer's revenues for the fiscal year ended December 31, 2003 were
$1,233,908.
As of March 1, 2004 there were 12,684,202 shares of Common Stock issued and
outstanding.
As of March 1, 2004, there were 2,204,519 shares of Common Stock held by
non-affiliates. The aggregate market value of the Issuer's common stock held by
non-affiliates was $8,818,076 based on the closing price of the Issuer's common
stock on March 1, 2004 of $4.00.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
NETWORK INSTALLATION CORPORATION TABLE OF CONTENTS
PART I PAGE NO.
ITEM 1 DESCRIPTION OF BUSINESS 2
ITEM 2 DESCRIPTION OF PROPERTY 6
ITEM 3 LEGAL PROCEEDINGS 6
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 7
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 7
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION 7
ITEM 7 FINANCIAL STATEMENTS 13
ITEM 8 CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 24
ITEM 8A CONTROLS AND PROCEDURES 24
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 24
ITEM 10 EXECUTIVE COMPENSATION 26
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS 26
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 27
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K 30
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES 31
PART I
ITEM I BUSINESS
OVERVIEW
We are a project engineering company that designs and installs specialty
communication systems for data, voice, video and telecom. We determine our
clients' requirements by doing a need analysis and site audit. Then we implement
our design and specification of the specialty communication system, which may
include Wireless Fidelity, or Wi-Fi, with the deployment of a fixed Wireless
Local Area Network. We believe we can integrate superior solutions across a vast
majority of communication requirements because we have experts in each aspect of
communication services from the design, project management, the installation of
our products through the maintaining of our products. We earn revenue for
services rendered which include; (i) the installation of data, voice, video and
telecom networks; (ii) the sale of networking products that are installed and
(iii) consulting services in the assessment of existing networks.
We have a multi-faceted approach to our business model. One is the continued
focus on our core competency of project management in wired networking
infrastructure, design, installation and support of data, voice and video
communications solutions. Second, is to leverage that expertise in our
pursuit of the infrastructure build-out of Wi-Fi, Wireless Local Area Networks
and Voice over Internet Protocol, or VoIP, applications.
With our experience and expertise in the wired networking infrastructure
industry, we can design, manage, install and service our wireless customers with
the same processes, personnel and management. Many of our competitors are new to
deploying wireless infrastructure and have never installed any type of
infrastructure. We believe we can leverage our expertise to compete in this new
technology. We conduct operations through our subsidiary.
HISTORY
We 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. On December 23, 1999, we changed our name to Infinite Technology
Corporation. On May 4, 2000, we changed our name from Infinite Technology
Corporation to Network Installation Corporation. On the same date, we changed
the name of our wholly-owned subsidiary to Network Installation Holdings, Inc.
In May of 2000, we acquired Mardock, Inc., a designer, manufacturer and
distributor of apparel and promotional products. In August 2000, we acquired a
majority interest in North Texas Circuit Board Co., or NTCB, through the
acquisition of 67% of the common stock of Primavera Corporation, the parent
company of NTCB, in exchange for 195,000 shares of our common stock, valued at
$325,000, plus a contribution of $1,250,000 in cash to NTCB as additional
working capital. NTCB manufactures high quality printed circuit boards. In
September 2000, we acquired 80% of the outstanding stock of OpiTV.com. OpiTV.com
was an I-commerce technology company in the development stage with a business
plan to market and distribute a TV device. In November 2000, we acquired an
additional 13% of Primavera Corporation. This increase in equity brought our
indirect ownership of NTCB from 67% to 80%.
In late 2000, we determined that our capital and management resources were
spread too thin to properly address the needs of our three subsidiaries. As a
result, in July of 2001, we sold all of our common stock ownership in Mardock,
Inc. and OpiTV.com.
In July 2001, we acquired the remaining 20% of Primavera's common stock. On
August 20, 2002, we sold NTCB to a third party in exchange for cancellation of
debt of approximately $2,255,860 and retention by us of a 10% interest in the
after tax profit of NTCB for a period of five years subsequent to the
consummation of the transaction. On December 27, 2002, we disposed of 100% of
Flexxtech Holdings, Inc. Flexxtech Holdings was the parent corporation of
Primavera Corporation. After the sale of NTCB, Flexxtech Holdings had no
significant assets and was disposed of to Western Cottonwood Corp., an
affiliate, for nominal consideration of $10.
On October 1, 2002, we signed to acquire 80% of the outstanding common shares of
W3M, Inc., dba Paradigm Cabling Systems, a privately held California
corporation, in a stock for stock exchange. Paradigm is a full service computer
cabling, networking and telecommunications integrator contractor. As part of the
transaction, we agreed to use our best efforts to arrange for an infusion of
$250,000 in additional capital, either as debt or equity or some combination of
both, to Paradigm, in order to increase its working capital. However, we were
unable to arrange infusion of the capital per the agreement.
On April 8, 2003, we and Paradigm agreed that the transaction is void ab initio,
that is, at its inception, with the effect that Paradigm remains the owner of
all of its assets and the shares of our preferred stock are restored to the
status of authorized shares. The Purchase Agreement and all related documents
and all documents delivered in connection therewith were thereby terminated ab
initio and are of no force or effect whatsoever. In connection with funds
invested as working capital into Paradigm during the period from October 1, 2002
until April 1, 2003, we issued to Ashford Capital LLC and eFund Capital/Barrett
Evans, 5 year convertible debentures in the amount of $65,000 and $75,000
respectively. Ashford and eFund made investments directly into Paradigm under
the assumption that a merger between Paradigm and us would be consummated. As
part of the rescission negotiations, we agreed to issue the debentures to
Ashford and eFund. Michael Cummings, President of Paradigm also resigned as a
Director of our Board of Directors.
On April 9, 2003, we executed a Restructuring Agreement. The Agreement was
executed to restructure our balance sheet in order to more easily attract an
operating business to merge with or acquire. Pursuant to the Restructuring
Agreement, Western Cottonwood Corporation, a related party through a major
shareholder, agreed to forgive its notes receivable and interest receivable from
us as of December 31, 2002. The receivable totaling $1,984,850 was booked in
consideration for cash we received from Western Cottonwood. The receivable
totaling $1,984,850, was forgiven in exchange for shares of our common stock
totaling 4.9% of the total outstanding shares immediately following our first
merger or acquisition transaction. At the time of the transaction, the principal
shareholder of Western Cottonwood Corporation and Atlantis Partners, Inc. was
John Freeland, formerly our largest investor. Mr. Freeland was also formerly an
affiliate through his beneficial ownership of 23% of our total outstanding
shares through Western Cottonwood. To our knowledge, Mr. Freeland is no longer
an affiliate. Pursuant to the agreement, (i) Western Cottonwood and Atlantis
Partners shall maintain a combined ownership percentage of a non-dilutive 4.9%
and Greg Mardock, our former president, shall maintain a combined ownership
percentage of a non-dilutive 2% through our first merger or acquisition
transaction and (ii) Mr. Mardock resigned as President and Director(iii) three
nominees of Dutchess Private Equities Fund, LP were appointed directors.
In April 2003, we executed a Letter of Intent to merge with Irvine, CA- based
Network Installation Corporation. The transaction closed in May, 2003. The total
consideration and method of payment was $50,000 in cash and 7,382,000 shares of
our common stock. In addition, we issued a five year option to purchase an
additional 618,000 shares of our common stock to Mr. Cummings if our total
revenue exceeded $450,000 for the period beginning on June 1, 2003 and ending
August 31, 2003. The option is exercisable at a price equal to the closing bid
price of our common stock on August 29, 2003 which was $2.95. Since our total
revenues exceeded $450,000 for the period beginning on June 1, 2003 and ending
August 31, 2003, Mr. Cummings can exercise the option to purchase 618,000 shares
of our common stock.
Network Installation was established in July 1997 as a California corporation as
a low voltage-cabling contractor and in 1999 changed its focus to provide
products, project management, design and installation within the networking and
communications sector.
On March 1, 2004, we acquired Del Mar Systems International, Inc., a
telecommunications solutions provider. We now have the ability to provide
integrated telecom solutions to customers ranging in size from 10 to 30,000
users. Del Mar provides Avaya Enterprise Class IP Solutions to customers as a
way to capitalize on the benefits of IP (Internet Protocol) Telephony. Avaya
offers a complete communications architecture that provides software,
infrastructure and services to help enterprises stay efficient. Del Mar Systems
offers both onsite and remote administration of systems equipped with remote
access dial up lines. Del Mar has delivered communication solutions to many well
known companies including General Electric, Western Digital, Bank of America,
SAIC, Marriott, Holiday Inn, Sheraton and Hilton Hotels throughout the U.S.
INDUSTRY OVERVIEW (SPECIALTY COMMUNICATION SYSTEMS)
A structured cabling system is a set of cabling and connectivity products that
integrates the voice, data, video, and various management systems of a building,
such as safety alarms, security access and energy systems. These systems
typically consist of an open architecture, standardized media and layout,
standard connection interfaces, adherence to national and international
standards, and total system design and installation. Other than the structured
cabling system, voice, data, video, and building management systems have nothing
in common except similar transmission characteristics, such as analog or digital
data signals, and delivery methods such as conduit, cable tray, or raceway, that
support and protect the cabling investment.
Modern Ethernet networking equipment is designed around the concept that each
device in a building's network has a dedicated media connection to a central
"hub". In a standard hub the LAN bandwidth is shared among all the stations.
With dedicated hubs, also called switched technology, a given cable is allocated
for use by a single device.
This was not always the case. The original design of network systems assumed a
common, shared medium: coaxial cable. Structured cabling systems, while having
drawbacks with regards to absolute transmission performance, show considerable
cost savings to the owner by reducing the costs of moves, changes and additions.
These benefits far outweigh the cost of implementation, making structured
cabling the optimum choice for building wiring.
The industry had been dominated by thousands of proprietors with former
employment experience in telecommunications and electrical contracting. With the
boom in technological advances over the past fifteen years, the convergence of
data medium; text, voice, and video has placed a premium in obtaining such
information, faster, cheaper and now wireless. This paradigm shift in the
functionality of data transmission now mandates a more detailed insight into
computer science, project management and a thorough understanding of a potential
customer's total communications needs.
INDUSTRY OVERVIEW (WI-FI)
We believe, in the past two years, Wireless Fidelity, also known as Wi-Fi, has
emerged as the dominant standard for wireless local areas networks, or WLANS
worldwide. A Wi-Fi network can cover an area of typically 100-500 feet with
Internet access hundreds of times faster than a modem connection. We believe
that, unlike other wireless technologies such as CDMA and GSM, Wi-Fi enjoys 100%
global acceptance and that it has become a single networking standard for all
developers, equipment manufacturers, service providers and users.
Hundreds of equipment manufacturers are now flooding the market with millions of
Wi-Fi cards and access points. The single Wi-Fi standard ensures these devices
all interoperate with each other, so, for example, an access point made by
Netgear will communicate with a network card from Linksys.
Hundreds of new companies have begun setting up Wi-Fi access points called "hot
spots" in cafes, hotels, airports, book stores and other public spaces. These
hot spot operators install Wi-Fi access points and either sell high speed
wireless Internet access for a fee or offer it to the public for free.
Hot Spot Operators include Wayport, STSN, Surf and Sip, StayOnline, Pronto,
NetNearU, Deep Blue, Fatport, Air Portal, Ikano, Picopoint, TheCloud and Azure.
In the last year, major wireless carriers have thrown their hat in the ring,
including T-Mobile, which is building hot spots in Starbucks cafes, Borders book
stores, Kinko's stores and airline clubs, AT&T Wireless, British Telecom,
Swisscom, Telecom Italia and Sprint PCS.
Forces outside the industry are also rapidly arming users with Wi-Fi radios.
Consumers also buying Wi-Fi-compatible hardware in their laptops and PDAs for
use in the office or home.
We believe Wi-Fi is over 100 times faster than a standard modem connection.
Wi-Fi is also significantly faster than the wireless services provided by
cellular carriers which typically deliver throughput between 40k and 60k. The
actual speed experienced by hot spot users is determined by the hot spot's
connection to the Internet, which can range from low-end DSL (384k) to one or
more T1s (1.5Mb and up), but this still promises much faster speed than any
other available technology.
We are seeking to exploit the rapid build up of wireless networks by focusing
our marketing efforts on our currently installed base of universities, K-12,
municipalities and Fortune 1000 companies.
In addition, we have increased our ability to take advantage of the rapid
acceptance and deployment of internet-based telephone communications as a result
of our acquisition of Del Mar Systems International, Inc. Del Mar Systems
provides Voice over Internet Protocol, or VoIP, which offers customers the
ability to effect local and long distance phone calls via the internet for flat
monthly rates, in most cases at a considerable cost savings from traditional per
minute charges from the major telecommunications providers. We now have the
ability to provide VoIP installation and deployment services to our customers
through Del Mar Systems.
OUR BUSINESS
A company's communication network is critical in achieving the timely flow of
information. Typically, a company's network expands beyond its existing
headquarters to remote offices and remote users. The number of networking
applications continues to grow and the demand for high-speed connectivity to
move data back and forth is increasing dramatically. Until recently, a company's
only alternative in obtaining high-speed connectivity was to contact the
telephone company and have a high-speed landline service installed so that
connectivity could be achieved between its locations. The issue today is that
these high-speed landlines take too much time to install, are not available in
all locations, do not solve remote application usage and are costly to use on a
monthly basis.
We seek to exploit the growing demand in high-speed connectivity by providing
complete network solutions including best of breed wireless products,
engineering services for which our technicians design the applications required
for the network build out, structured cabling and deployment. We offer the
ability to integrate superior solutions across the vast majority of
communication requirements.
There are multiple products associated with the deployment of a wireless
solution including microwave equipment, free space optical equipment and
specialty components. There are also important services such as site design,
product integration, structured cabling, network security, training and
technical support. The integration of all these products and services is
critical in achieving the desired results for the customer. The specific
products used and services offered vary depending on the connection speed
required and distances between points. We provide specialty communication
systems, Wi-Fi deployment and WLANs to corporations, municipalities and
educational institutions.
We define wireless deployment as the internal and external design and
installation of a wireless solution to support connectivity between two or more
points without the utilization of landline infrastructure. End users turn to us
to design and integrate a wireless solution, as there are many components from
various technology providers. Wireless solutions can offer a user:
- High-speed connectivity;
- Immediate installation;
- Network ownership; and
- Low costs.
We also provide network security, train end users and provide on-going technical
support to insure a successful installation.
SUPPLIERS
While we are predominately a service company, we purchase and resell products
such as networking routers, cable, software and video equipment that are
involved in our project installations. We purchase our products from various
distributors. Should any of these distributors cease operations, our business
would not be adversely affected because these products are readily available
from multiple distributors locally, regionally or nationally.
We have agreements with Vivato, Motorola Inc. and Aruba Wireless Networks that
give us what we believe to be the finest suite of products in the installation
of wireless solutions. Through our Motorola agreement and the use of one of its
flagship wireless products "The Canopy," we have the ability to install point to
point service directly for Wireless Internet Service Providers or proprietors of
WLANs or expanded 'Hot Zones' up to 4 kilometers through our Vivato agreement.
Vivato is a San Francisco-based network infrastructure company and manufacturer
of the industry's first Wi-Fi switches for enterprises and service providers.
Adhering to the IEEE 802.11 standard, Vivato's patent-pending PacketSteering(TM)
technology changes the old rules of Wi-Fi deployment. Vivato Wi-Fi switches
deliver unprecedented range and capacity, with enterprise-class security.
Aruba's family of Wi-Fi switches deliver centralized wireless security and
management of all types of enterprise environments.
SALES AND MARKETING
Our employees market and sell our services through a direct team of five sales
and project management professionals. We are proactive and able to visit
personally with our clients from time to time. We do not employ an outside sales
force.
We also use several methods of mass marketing to advertise our products and
services including direct mailings, and the distribution of brochures which
describe our services. Additionally, we maintain a web site that describes our
services. We believe that these methods of marketing are a key factor in the
securing of new business.
CUSTOMERS
We currently provide our products and services to the markets in K-12 education,
universities, municipalities and Fortune 1000 companies. Some of our current
customers include the University of California - Los Angeles, University of
Southern California, Wells Fargo and Safeway. The University of California - Los
Angeles currently represents approximately 30% of our annual revenue. No other
customer represents more than 10% of our annual revenue.
COMPETITION
The network cabling market is very fragmented and highly competitive. In the
markets where we operate, we experience intense competition from other
independent providers of network solutions. Our competitors include regional,
privately-held companies including Sunglo Communications, Pacific Coast Cabling,
and Netversant. We are aware of only one publicly-traded competitor, WPCS
International Inc. There is no one dominant competitor. We believe that success
in the industry is based on maintenance of product quality, competitive pricing,
delivery efficiency, customer service and satisfaction levels, maintenance of
satisfactory dealer relationships, and the ability to anticipate technological
changes and changes in customer preferences. We believe our competitive
advantage lies in our ability to provide superior customer service while
offering a more diverse line of hard product offering than our competitors.
EMPLOYEES
As of February 9, 2004, we employed 19 full time employees, four are executives,
three are in sales and marketing, eleven are project managers or technicians and
one is in administration. We believe our relations with all of our employees are
good.
ITEM 2 DESCRIPTION OF PROPERTY
We currently sublease 2,500 sq ft. of office space located in a technology park
at 18 Technology Dr., Suite 140A, Irvine, CA. Our monthly rent is approximately
$2,289 per month, and our lease runs month to month.
ITEM 3 LEGAL PROCEDINGS
In the year ended December 31, 2002, a suit was brought against us and
our former management in the Superior Court of the State of California,
County of San Francisco, by Martin Mast an individual alleging that we made
false written and oral representations to induce the plaintiff to invest
in our company and that such investment occurred despite the plaintiff's
request that the funds be held in a brokerage account maintained by a related
entity. A co-defendant Aslam Shaw an individual in the case also filed a
cross-complaint in the action alleging theories of recovery against us and
several other defendants and alleging fraud, breach of contract,
misrepresentation, conversion and securities fraud against us. On November
21, 2003, we reached a settlement with Martin Mast for $160,000. We are making
payments in installments through April 2004. Through April 1, 2004 $130,000 has
been paid. We had accrued $300,000 in the accompanying financial statements
against any possible outcome.
On April 25, 2003 the Superior Court of the State of California, County of
Orange, entered a judgment in the amount of $46,120 against us and our
former management in favor of Insulectro Corp., a vendor of our former
subsidiary, North Texas Circuit Board, or NTCB. We believe that we were never
issued proper service of process for the complaint. In addition, on August 20,
2002 we sold NTCB to BC Electronics Inc. Pursuant to terms of the share
purchase agreement, BC Electronics assumes all liabilities of NTCB. In
December 2003, we filed a motion to vacate the judgment for lack of personal
service. In February 2004, the Court ruled in our favor and the judgment was
vacated. Although we are the guarantor on the loan, NTCB is the principal debtor
and (i) we will bring action against NTCB to seek relief or (ii) because partial
payment was made by NTCB, it could affect the legal status of the guarantee,
which we believe may absolve us of liability. In February 2004, the plaintiff
re-filed the complaint. Although we will continue to oppose the action we have
begun settlement discussions with the plaintiff.
On April 29, 2003, Arman Moheban an individual brought a suit against us and
our former management in the Superior Court of the State of California,
County of Los Angeles, alleging breach of contract pursuant to a settlement
agreement dated November 20, 2002. The suit alleges that we are delinquent in
our repayment of a $20,000 promissory note, of which $5,000 has been repaid to
date. Although we plan to vigorously oppose the claim, we plan to begin
settlement discussion with the plaintiff.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Bid and ask quotations for our common shares are routinely submitted by
registered broker dealers who are members of the National Association of
Securities Dealers on the NASD Over-the-Counter Electronic Bulletin Board. These
quotations reflect inner-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. The high and low bid
information for our shares for each quarter for the last two years, so far as
information is reported, through the quarter ended December 31, 2003, as
reported by the Bloomberg Financial Network, are as follows:
Quarter Ended High Bid Low Bid
31-Mar-02 . . $ 0.86 $ 0.22
30-Jun-02 . . $ 0.51 $ 0.15
30-Sep-02 . . $ 0.20 $ 0.02
31-Dec-02 . . $ 0.03 $ 0.00
31-Mar-03 . . $ 2.00 $ 0.05
30-Jun-03 . . $ 0.35 $ 0.15
30-Sep-03 . . $ 5.35 $ 0.80
31-Dec-03 . . $ 3.50 $ 3.10
NUMBER OF SHAREHOLDERS
As of January 14, 2004, we had approximately 1,000 shareholders of record.
DIVIDEND POLICY
We have not paid any dividends since inception and presently anticipate
that all earnings, if any, will be retained for development of our business.
We expect that no dividends on the shares of common stock will be declared in
the foreseeable future. Any future dividends will be subject to the
discretion of our Board of Directors and will depend upon, among other
things, our future earnings, operating and financial condition, capital
requirements, general business conditions and other pertinent facts.
RECENT SALES OF UNREGISTERED SECURITIES
In October 2003, we issued a $75,000 convertible debenture to Dutchess Private
Equities Fund, LP. The debenture converts into common stock at the
lesser of (i) 75% of the lowest closing bid price during the fifteen trading
days prior to the Conversion Date or (ii) 100% of the average of the closing
bid prices for the twenty trading days immediately preceding the Closing
Date of the Transaction.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read this section together with our consolidated financial statements
and related notes thereto included elsewhere in this report.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve risks and
uncertainties. We generally use words such as "believe," "may," "could," "will,"
"intend," "expect," "anticipate," "plan," and similar expressions to identify
forward-looking statements, including statements regarding our expansion plans.
You should not place undue reliance on these forward-looking statements. Our
actual results could differ materially from those anticipated in the
forward-looking statements for many reasons, including the risks described in
our "Risk Factor" section and elsewhere in this report. Although we believe the
expectations reflected in the forward-looking statements are reasonable, they
relate only to events as of the date on which the statements are made, and our
future results, levels of activity, performance or achievements may not meet
these expectations. We do not intend to update any of the forward-looking
statements after the date of this document to conform these statements to actual
results or to changes in our expectations, except as required by law.
CRITICAL ACCOUNTING POLICIES
We have identified the policies below as critical to our business operations and
the understanding of our results of operations. The impact and any associated
risks related to these policies on our business operations are discussed
throughout this section where such policies affect our reported and expected
financial results. Our preparation of our Consolidated Financial Statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of our financial statements, and the reported amounts of revenue and
expenses during the reporting period. There can be no assurance that actual
results will not differ from those estimates.
Our accounting policies that are the most important to the portrayal of our
financial condition and results, and which require the highest degree of
management judgment relate to revenue recognition, the provision for
uncollectible accounts receivable, property and equipment, advertising and
issuance of shares for service.
Our revenue recognition policies are in compliance with all applicable
accounting regulations, including American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 81-1, Accounting for Performance
of Construction-Type and Certain Production-Type Contracts. Revenues from
installations, cabling and networking contacts are recognized when the contracts
are completed. The completed-contract method is used because the contracts are
short-term in duration or we are unable to make reasonably dependable estimates
of the costs of the contracts. Our revenue recognition policy for sale of
network products is in compliance with Staff accounting bulletin (SAB) 101.
Revenue from the sale of network products is recognized when a formal
arrangement exists, the price is fixed or determinable, the delivery is
completed and collectibility is reasonably assured.
We estimate the likelihood of customer payment based principally on a customer's
credit history and our general credit experience. To the extent our estimates
differ materially from actual results, the timing and amount of revenues
recognized or bad debt expense recorded may be materially misstated during a
reporting period.
Property and equipment is carried at cost. Depreciation of property and
equipment is provided using the declining balance method over the estimated
useful lives of the assets at five to seven years. Expenditures for maintenance
and repairs are charged to expense as incurred.
We expense advertising costs as incurred.
We account 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.
GOING CONCERN OPINION
Our audited financial statements for the fiscal year ended December 31, 2003,
reflect a net loss of $3,434,607. Although these conditions raised substantial
doubt about our ability to continue as a going concern if we do not acquire
sufficient additional funding or alternative sources of capital to meet our
working capital needs, we believe we could continue operating for the next
twelve months without additional capital but would have to curtail our
operations and plans for expansion. Our plan to continue operations in relation
to our going concern opinion is to complete the registration process with the
SEC so we can access the Equity Line of Credit provided by Preston Capital. We
believe proceeds from this offering should enable us to return to profitability.
TWELVE MONTH PERIOD ENDED DECEMBER 31, 2003 AS COMPARED TO TWELVE MONTH PERIODS
ENDED DECEMBER 31, 2002 (RESTATED FOR DISPOSAL OF SUBSIDIARIES)
NET REVENUES
-------------
Net revenues for the year ended December 31, 2003 were $1,233,908 compared to
$804,080 for the year ended December 31, 2002 due to increased marketing and
contracts received. We also experienced an increase in higher education
contracts during the period ended December 31, 2003 vs. same period 2002 due to
an increase in target marketing to this sector. Our year to date revenues are
higher than the same period a year ago due to an increase in the total amount of
new contracts received. All of our revenue in the current period is from Network
Installation Corp. Our operations from the subsidiaries disposed off in 2002
have been separately classified in the Statements of Operations.
COST OF REVENUES
------------------
Cost of revenues for the year ended December 31, 2003 were $965,569 compared to
$568,444 for the year ended December 31, 2002. Our Cost of Revenue increased
for the 12 months ended December 31, 2003 when compared to the same period in
2002, due to a decrease in Revenues for the three month period ended September
30, 2003.
OPERATING EXPENSES
------------------
Operating Expenses for the year ended December 31, 2003 were $2,306,774 compared
to $340,267 for the year ended December 31, 2002 due to the issuance of shares
of common stock recorded as $889,550 for consulting fees and $1,199,700 for the
issuance of common stock for an investment recorded as interest expense.
OTHER INCOME (EXPENSE)
----------------------
Other Income (Expense) for the year ended December 31, 2003 were ($1,394,607)
compared to ($4,375) for the year ended December 31, 2003. The increase on
Other Expenses is primarily due increased interest expenses from the conversion
of debentures, and shares of common stock issued in conjunction with convertible
debentures which were recorded as Loss on Conversion and Interest Expense
respectively.
NET LOSS
---------
Net Loss for the year ended December 31, 2003 was ($3,434,607) compared to
($109,006) for the year ended December 31, 2002 due to increased General,
Administrative and Selling Expenses for the year ended December 31, 2003
compared to the year ended December 31, 2002.
BASIC AND DILUTED LOSS PER SHARE
-------------------------------------
Our basic and diluted loss for the year ended December 31, 2003 was ($0.34)
compared to ($0.01) for the year ended December 31, 2002 due to an increase of
our Net Loss.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
As of December 31, 2003, our Current Assets were $556,075 and Current
Liabilities were $2,554,680. Cash and cash equivalents were $667. Our
Stockholder's Deficit at December 31, 2003 was ($2,594,707). We had a net usage
of cash due to operating activities in December 31, 2003 and 2002 of $747,380
and $43,584 respectively. We had net cash provided by financing activities of
$730,061 and $(34,142) for the twelve month period ended December 31, 2003 and
2002, respectively. We had $303,399 from borrowings in the period ended December
31, 2003 as compared to $0 in the corresponding period last year.
Our obligations include:
- a $3,500 payable based on the purchase agreement of our subsidiary;
- $198,691 in loans from a major shareholder and officer. The amount is
unsecured, due on demand and non interest bearing.
- We defaulted on a note that prohibited certain acquisitions when we
acquired our subsidiary. We are in the process of making payments with a
financing institution. The amount outstanding at December 31, 2003,
amounted to $45,500.
- We have notes payable to unrelated parties amounting to $21,781. These
notes are due on demand, bear interest rate of 6% per annum and are
unsecured.
On February 27, 2003, our subsidiary entered into a factoring and security
agreement to sell, transfer and assign certain accounts receivable to Orange
Commercial Credit, or OCC. OCC may at its sole discretion purchase any specific
account. All accounts sold are with recourse on seller. All of the property of
our subsidiary including accounts receivable, inventories, equipment and
promissory notes are collateral under this agreement. Any assets held at the
Corporate level are not collateral under this agreement, however as of February
9, 2004, the amount of assets at the Corporate level is not material. OCC will
advance 80% of the face amount of each account. The difference between the face
amount of each purchased account and advance on the purchased account shall be
reserve and will be released after deductions of discount and charge backs on
the 15th and the last day of each month. OCC charges 1% of gross face value of
purchased receivable for finance charge and 1% for administrative fees with
minimum charge of $750 on each settlement date. As of December 31, 2003, we
factored receivables of approximately $205,929. In connection with the factoring
agreement, we included fees of $16,555 in the period ended December 31, 2003.
On September 17, 2003, our subsidiary entered a factoring agreement with a
related entity for $76,000 face amount. This amount is payable in 30 days and
certain receivables were assigned and delivered. In the event that on the
maturity date, any amounts on the note remain, the holder can exercise its right
to increase the face amount by $10,000 per month that the Note remains unpaid.
In the year ended December 31, 2001, we issued debentures amounting to $720,000,
carrying an interest rate of 6% per annum, due in August 2003. The term of the
debentures were subsequently extended to August 2008. Pursuant to the terms of
the debentures, interest is payable on the date of conversion. The holders are
entitled to, at any time or from time to time, convert the conversion amount
into shares of our common stock at a conversion price for each share of common
stock equal to the lower of (a) 120% of the losing bid price per share on the
closing date, and (b) 80% of the lowest closing bid price per share of our
common stock for the five trading days immediately preceding the date of
conversion. As of December 31, 2003, the outstanding balance of the debentures
amounted to $443,501.
On April 7, 2003, we issued convertible debentures of $75,000 to eFund Capital
and $65,000 to Ashford Capital LLC. The holders of the debentures are entitled
to convert the face amount of this debentures, plus accrued interest at the
lesser of (i) 75% of the lowest closing bid price during the 15 trading days
prior to the conversion date or (ii) 100% of the average of the closing bid
prices for the 20 trading days immediately preceding the closing date. The
convertible debentures shall pay 6% cumulative interest, in cash or in shares of
common stock, at our option, at the time of each conversion. The debentures are
payable on April 8, 2008. The convertible debentures are convertible into shares
of our common stock.
During the period ended December 31, 2003, we issued $338,000 debentures to
Dutchess Private Equities Fund, LP. These debentures carry an interest rate of
6% per annum, due in July to September 2008. The face amount of these debentures
may be converted, in whole or in part, any time following the closing date.
Pursuant to the terms of the debentures, interest is payable on the date of
conversion. The holder is entitled to convert the face amount of this debenture,
plus accrued interest, anytime, at the lesser of (i) 75% of the lowest closing
bid price during the 15 trading days prior to the Conversion Date or (ii) 100%
of the average of the closing bid prices for the 20 trading days immediately
preceding the Closing Date. The convertible debentures are convertible into
shares of our common stock.
Convertible promissory note payable
In the year ended December 31, 2001, we issued convertible promissory notes of
$100,000 due on April 1, 2004, carrying an interest rate of 10% per annum. The
holder of $100,000 promissory notes is entitled to convert the conversion amount
into shares of common stock of the Company, par value $.001, at any time, per
share at a conversion price for each share of common stock equal $7.00 per share
of common stock. The note is secured and collateralized by shares of common
stock of the Company at one share per every five dollars of the principal. As of
December 31, 2003, the outstanding value of this note is $75,000.
Investment Agreement
We have signed an Investment Agreement with Preston Capital for $2,500,000 in an
Equity Line arrangement. The Investment Agreement allows us to "put" to Preston
Capital at least $10,000, but no more than $100,000. The purchase price for our
common stock identified in the Put Notice shall be equal to 95% of the average
of four lowest posted bid prices of our common stock during the five days after
we deliver the put notice to Preston Capital. We can initiate a new put after we
close on the prior put. We can not access the Investment Agreement with Preston
Capital until we have an effective registration statement. As of March 31,
2004, we did not have an effective registration statement.
SUBSIDIARY
----------
As of March 1, 2004, we had two wholly-owned subsidiaries, Network Installation
Corp. and Del Mar Systems International, Inc. Network Installation Corp. is the
name of both the parent company incorporated in the state of Nevada and the
subsidiary incorporated in the state of California. On March 1, 2004, we
acquired Del Mar Systems International, Inc., a telecommunications solutions
provider.
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors, other information included in
this prospectus and information in our periodic reports filed with the SEC. If
any of the following risks actually occur, our business, financial condition or
results of operations could be materially and adversely affected, and you may
lose some or all of your investment.
RISKS ABOUT OUR BUSINESS
OUR INDEPENDENT ACCOUNTANTS HAVE ISSUED A GOING CONCERN OPINION.
Our audited financial statements for the fiscal year ended December 31, 2003,
reflect a net loss of $3,134,607. These conditions raised substantial doubt
about our ability to continue as a going concern. if we do not acquire
sufficient additional funding or alternative sources of capital to meet our
working capital, we may have to substantially curtail our operations and
business plan.
WE HAVE SUBSTANTIAL INDEBTEDNESS WHICH MAY AFFECT OUR ABILITY TO MAINTAIN OR
GROW OUR OPERATIONS.
We currently have $2,554,680 in current liabilities. As a result of our level of
debt and the terms of our debt instruments:
- our vulnerability to adverse general economic conditions is heightened;
- 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;
- 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;
- our flexibility in planning for, or reacting to, changes in its business
and industry will be limited; and
- 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 partly 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. We may not be able to affect
any of these remedies on satisfactory terms, or at all.
OUR OPERATING RESULTS WILL FLUCTUATE SIGNIFICANTLY FOR THE FORESEEABLE FUTURE,
WHICH MAY AFFECT OUR STOCK PRICE.
Our quarterly results of operations have varied in the past and are likely to
continue to vary significantly from quarter to quarter. Our operating expenses
are based on expected future revenues and are relatively fixed in the short
term. If our revenues are lower than expected, our results of operations could
be adversely affected. Additionally, we are unable to forecast our future
revenues with certainty because our business plan contemplates the acquisition
of new enterprises. Many factors can cause our financial results to fluctuate,
some of which are outside of our control. Quarter-to-quarter comparisons of our
operating results may not be meaningful and you should not rely upon them as an
indication of our future performance. In addition, during certain future periods
our operating results likely will fall below the expectations of public market
analysts and investors. In this event, the market price of our common stock
likely would decline.
WE NEED ADDITIONAL CAPITAL TO GROW OUR BUSINESS AND WE MAY NOT BE ABLE TO FIND
SUCH CAPITAL ON ACCEPTABLE TERMS.
Our business plan contemplates the acquisition of new enterprises and the
proceeds from our existing financing arrangements may not be sufficient to fully
implement our business plan. Additionally, we may not be able to generate
sufficient revenues from our existing operations to fund our capital
requirements. Accordingly, we may require additional funds to enable us to
operate profitably. Such financing may not be available on terms acceptable to
us. We currently have no bank borrowings or credit facilities, and we may not be
able to arrange any such debt financing. Additionally, we may not be able to
successfully consummate additional offerings of stock or other securities in
order to meet our future capital requirements. If we cannot raise additional
capital through issuing stock or bank borrowings, we may not be able to grow our
business.
OUR BUSINESS STRATEGY INCLUDES IDENTIFYING NEW BUSINESSES TO ACQUIRE, AND IF WE
CAN NOT INTEGRATE ACQUISITIONS INTO OUR COMPANY SUCCESSFULLY, WE MAY NOT BECOME
PROFITABLE.
Our success partially depends upon our ability to identify and acquire
undervalued businesses. Although we believe that there are companies available
for potential acquisition that are undervalued and might offer attractive
business opportunities, we may not be able to make any acquisitions, and if we
do make acquisitions, they may not be profitable.
WE DEPEND ON OUR KEY PERSONNEL AND IF THOSE PERSONNEL LEAVE THE COMPANY, OUR
BUSINESS MAY BE HARMED.
At this time, we are almost totally dependent upon Michael Cummings as our only
operating officer and on the directors of Network Installation Corporation, our
only business asset that is producing significant revenues. While we have an
employment agreement with Mr. Cummings, it does not obligate him to remain as
our Chief Executive Officer. We do not maintain insurance on the lives of our
officers, directors or key employees. The loss of their services would have a
material adverse effect on our business. We elect our directors each year and
while we expect to reelect our directors currently on the Board, our directors
are not obligated to continue in their positions.
SOME OF OUR POTENTIAL FUTURE GROWTH DEPENDS ON INCREASING CUSTOMER ACCEPTANCE OF
WIRELESS NETWORKS, AND TO THE EXTENT THAT SUCH ACCEPTANCE FAILS TO INCREASE, WE
MAY NOT GROW OUR BUSINESS.
While the majority of our revenues are currently derived from the installation
of cable systems, we believe that improving wireless technology will eventually
make wireless systems an acceptable alternative to many of our potential
customers. We have begun to enter the wireless marketplace and believe this
technology could lead to future growth for our company. The wireless industry
has historically experienced a dramatic rate of growth both in the United States
and internationally. If the rate of growth should slow down and end users
continue to reduce their capital investments in wireless infrastructure or fail
to expand their networks, we may not be able to expand our business.
OUR INDUSTRY HAS RAPIDLY CHANGING TECHNOLOGY AND, IF WE DO NOT STAY CURRENT, WE
MAY LOSE CUSTOMERS AND OUR BUSINESS WILL BE HARMED.
The network installation industry and related technology business involve a
broad range of rapidly changing technologies. Our technologies may not remain
competitive over time, and others may develop technologies that are superior to
ours which may render our products non-competitive. Our business may depend on
trade secrets, know-how, continuing innovations and licensing opportunities to
develop and maintain our competitive position. Others may independently develop
equivalent proprietary information or otherwise gain access to or disclose our
information. Our confidentiality agreements on which we rely may not provide
meaningful protection of any trade secrets on which we may depend for success,
or provide adequate remedies in the event of unauthorized use or disclosure of
confidential information or prevent our trade secrets from otherwise becoming
known to or independently discovered by our competitors.
ITEM 7 FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and Board of Directors
Network Installation Corp.
We have audited the accompanying consolidated balance sheet of Network
Installation Corp. (formerly, Flexxtech Corporation), a Nevada Corporation and
subsidiary, as of December 31, 2003 and the related consolidated statements of
operations, stockholders' deficit and cash flows for each of the two years in
the period ended December 31, 2003. 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 Network Installation
Corporation and subsidiary as of December 31, 2003 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2003, 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 $5,466,840 including net losses
of $3,434,607 and $109,806 for the years ended December 31, 2003 and 2002,
respectively. These factors as discussed in Note 3 to the financial statements
raise 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 3. The 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 12, 2004
NETWORK INSTALLATION CORP.
(FORMERLY, FLEXXTECH CORPORATION)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003
ASSETS
Current Asset:
Cash and cash equivalents . . . . . . . . . . . . $ 667
Accounts receivable, net. . . . . . . . . . . . . 353,119
Work in progress . . . . . . . . . . . . . . . . . 200,000
Other current assets. . . . . . . . . . . . . . . 2,289
------------
Total Current assets. . . . . . . . . . . . . . . . . . . 556,075
Property and Equipment, net. . . . . . . . . . . . . . . . . . . 6,898
------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . $ 562,973
============
LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses . . . . . . $ 1,532,893
Deferred revenue. . . . . . . . . . . . . . . . . 280,924
Loans payable . . . . . . . . . . . . . . . . . . 45,500
Loans payable related parties . . . . . . . . . . 163,691
Due to factor . . . . . . . . . . . . . . . . . . 14,056
Convertible debt - current. . . . . . . . . . . . 517,616
------------
Total Current Liabilities . . . . . . . . . . . . . . . . 2,554,680
Long-term Liabilities:
Loans Payable . . . . . . . . . . . . . . . . . . 65,000
Loans payable related parties . . . . . . . . . . 35,000
Convertible debt. . . . . . . . . . . . . . . . . 165,000
Convertible debt -related parties . . . . . . . . 338,000
------------
Total Long-term Liabilities . . . . . . . . . . . . . . . 603,000
STOCKHOLDERS' DEFICIT
Common stock, authorized 100,000,000 shares at $.001 par
value, issued and outstanding 12,616,330 shares. . 12,616
Additional paid in capital. . . . . . . . . . . . . . . 2,743,222
Shares to be issued . . . . . . . . . . . . . . . . . . 116,295
Accumulated deficit . . . . . . . . . . . . . . . . . . (5,466,840)
------------
Total Stockholders' Deficit . . . . . . . . . . . . (2,594,707)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT. . . . . . . . . . . $ 562,973
============
The accompanying notes are an integral part of these financial statements.
NETWORK INSTALLATION CORP.
(FORMERLY, FLEXXTECH CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
------------ -----------
NET REVENUE. . . . . . . . . . . . . . . . . . . . . . $ 1,233,908 $ 804,080
COST OF REVENUE. . . . . . . . . . . . . . . . . . . . 965,569 568,444
------------ -----------
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . 268,339 235,636
OPERATING EXPENSES . . . . . . . . . . . . . . . . . . 2,306,744 340,267
------------ -----------
LOSS FROM OPERATIONS . . . . . . . . . . . . . . . . . (2,038,405) (104,631)
Other income (expense)
Loss on conversion of debenture. . . . . . . . . . (91,110) -
Interest expense . . . . . . . . . . . . . . . . . (1,303,492) (4,375)
------------ -----------
Total other income (expense). . . . . . . . (1,394,602) (4,375)
------------ -----------
LOSS BEFORE INCOME TAXES . . . . . . . . . . . . . . . (3,433,007) (109,006)
Provision of Income taxes. . . . . . . . . . . . . . . 1,600 800
------------ -----------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . $(3,434,607) $ (109,806)
============ ===========
BASIC AND DILUTED NET LOSS PER SHARE:* . . . . . . . . $ (.34) $ (.01)
============ ===========
Basic and diluted weighted average shares outstanding. 10,151,468 7,382,000
============ ===========
* The basic and diluted net loss per share has been restated to retroactively
effect a 200:1 reverse stock
split at January 23, 2003
Weighted average number of shares used to compute basic and diluted loss per
share is the same since
since the effect of dilutive securities is anti-dilutive.
The accompanying notes are an integral part of these financial statements.
NETWORK INSTALLATION CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
DECEMBER 31, 2003
COMMON STOCK
------------ TOTAL
NUMBER OF ADDITIONAL SHARES ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAID IN CAPITAL TO BE ISSUED DEFICIT DEFICIT
------------ ------- ----------------- ------------- ------------- ---------------
BALANCE AT JANUARY 1, 2002. . . . . . . . 7,382,000 $10,000 $ - $ - $ (245,727) $ (235,727)
Recapitalization upon reverse acquisition 2,943,407 325 (74,326) 16,900 (1,826,558) (1,883,659)
Distribution. . . . . . . . . . . . . . . - - - - (34,142) (34,142)
Net loss for the year 2002. . . . . . . . - - - - (109,806) (109,806)
------------ ------- ----------------- ------------- ------------- ---------------
BALANCE AT DECEMBER 31, 2002. . . . . . . 10,325,407 10,325 (74,326) 16,900 (2,216,223) (2,263,334)
Issuance of common stock
for consulting services. . . . . . . . . 275,000 275 278,475 278,750
Issuance of common stock
to directors for compensation. . . . . . 400,000 400 610,400 610,800
Issuance of common stock
on conversion of debentures. . . . . . . 65,923 66 158,641 158,707
Issuance of common stock
for incentive for debentures . . . . . . 1,550,000 1,550 1,198,150 1,199,700
Beneficial conversion
feature of debentures. . . . . . . . . . 134,000 134,000
Issuance of stock warrants
for consulting services. . . . . . . . . 289,967
Dividend to officer of the Company 184,000 184,000
Contributions to equity
of subsidiary . . . . . . . . . . . . . 147,915 147,915
Conversion of debentures . . . . . . . . 99,395 99,395
Net loss for the year 2003 . . . . . . . (3,434,607) (3,434,607)
------------ ------- ----------------- ------------- ------------- ---------------
BALANCE AT DECEMBER 31, 2003. . . . . . . 12,616,330 $12,616 $ 2,743,222 116,295 $ (5,466,840) $ (2,884,674)
============ ======= ================= ============= ============= ===============
The accompanying notes are an integral part of these financial statements.
NETWORK INSTALLATION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 2003
2003 2002
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,434,607) $(109,806)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 3,364 3,355
Issuance of stocks for consulting services, compensation & interest. 2,089,250 -
Issuance of stock warrants for consulting services. . . . . . . . . 289,967
Loss on settlement/conversion of debt. . . . . . . . . . . . . . . . 91,110 -
Beneficial conversion feature of debentures. . . . . . . . . . . . . (134,000) -
(Increase) / decrease in current assets
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . (353,119) 50,219
Work in progress . . . . . . . . . . . . . . . . . . . . . . . (200,000)
Deposits & other current assets . . . . . . . . . . . . . . . (969) -
Increase in current liabilities
Accrued expenses & accounts payable. . . . . . . . . . . . . . 901,624 99,816
------------ ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES . . . . . . (747,380) 43,584
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash balance with disposed subsidiary . . . . . . . . . . . . . . . - (5,700)
Cash received in acquisition of subsidiary. . . . . . . . . . . . . 667 -
------------ ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES . . . . . . 667 (5,700)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distribution to officer of the subsidiary . . . . . . . . . . . . . 184,000 (34,142)
Proceeds from factor. . . . . . . . . . . . . . . . . . . . . . . . 14,056 -
Proceeds from shares to be issued . . . . . . . . . . . . . . . . . 147,915 -
Proceeds from related party debts . . . . . . . . . . . . . . . . . 80,691 -
Proceeds from borrowings. . . . . . . . . . . . . . . . . . . . . . 303,399 -
------------ ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES. . . . . . . 730,061 (34,142)
------------ ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . (16,652) 3,742
CASH AND CASH EQUIVALENTS -BEGINNING . . . . . . . . . . . . . . . . . . . 17,319 13,577
------------ ----------
CASH AND CASH EQUIVALENTS -ENDING. . . . . . . . . . . . . . . . . . . . . $ 667 $ 17,319
============ ==========
The accompanying notes are an integral part of these financial statements.
NETWORK INSTALLATION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SEGMENTS
Network Installation Corp (NIC) was incorporated on July 18, 1997, under the
laws of the State of California. NIC is a full service computer cabling,
networking and telecommunications integrator contractor, providing networks from
stem to stem in house. NIC participates in the worldwide network infrastructure
market to end users, structured cabling market and the telephony services. NIC
and Flexxtech are together referred as "the Company".
Pursuant to a purchase agreement on May 23, 2003, Flexxtech Corporation
("Flexxtech") acquired 100% of the issued and outstanding common stock of (NIC).
The purchase price consisted of $50,000 cash, 7,382,000 shares of Flexxtech's
common stock and five year option to purchase an additional 618,000 shares of
Flexxtech stock if NIC's total revenue exceeds $450,000 for the period beginning
on June 1, 2003 and ending August 31. The option is exercisable at a price equal
to the closing bid price of the stock on August 31, 2003.
According to the terms of the share exchange agreement, control of the combined
companies (the "Company") passed to the former shareholders of NIC. This type
of share exchange has been treated as a capital transaction accompanied by
recapitalization of NIC in substance, rather than a business combination, and is
deemed a "reverse acquisition" for accounting purposes since the former owners
of NIC controlled majority of the total common shares outstanding immediately
following the acquisition. No pro forma financial statements are being presented
as Flexxtech had no significant asset prior to the acquisition.
Flexxtech Corporation ("Flexxtech") was organized on March 24, 1998, under the
laws of the State of Nevada, as Color Strategies. On December 20, 1999,
Flexxtech changed its name to Infinite Technology Corporation. Flexxtech changed
its name to Flexxtech Corporation in April 2000.
A certificate of amendment was filed on July 10, 2003 to change the parent
company's name from Flexxtech Corporation to Network Installation Corp.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of Network
Installation Corp., formerly Flexxtech Corporation (legal acquirer, the
"Parent"), and its 100% owned subsidiary, Network Installation Corporation. All
significant inter-company accounts and transactions have been eliminated in
consolidation. The historical results for the year ended December 31, 2003
include the accounts of NIC for the full year and Flexxtech from the acquisition
date through December 31, 2003, while the historical results for the year ended
December 31, 2002 include NIC only.
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.
ACCOUNTS RECEIVABLE
The Company maintains reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Reserves are recorded primarily on a
specific identification basis. Allowance for doubtful debts amounted to $79,309
as at December 31, 2003.
WORK IN-PROGRESS
Work in-progress represents cost incurred on uncompleted contracts. Cost
consists of labor and direct costs incurred on the contract. Work in progress at
December 31, 2003 amounted to $200,000.
PROPERTY & EQUIPMENT
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to earnings as incurred; additions, renewals and betterments
are capitalized. When property and equipment are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets with estimated lives of five to seven years.
LONG-LIVED ASSETS
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and 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 for a Disposal of a Segment of a
Business." The Company periodically evaluates the carrying value of long-lived
assets to be held and used in accordance with SFAS 144. SFAS 144 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair market value of the long-lived assets. Loss on
long-lived assets to be disposed of is determined in a similar manner, except
that fair market values are reduced for the cost of disposal. Based on its
review, the Company believes that, as of December 31, 2003 and 2002,
there were no significant impairments of its long-lived assets.
REVENUE RECOGNITION & DEFERRED REVENUE
The Company's revenue recognition policies are in compliance with all applicable
accounting regulations, including American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 81-1, Accounting for Performance
of Construction-Type and Certain Production-Type Contracts. Revenues from
installations, cabling and networking contacts are recognized when the contracts
are completed (Completed-Contract Method). The completed-contract method is used
because the contracts are short-term in duration or the Company is unable to
make reasonably dependable estimates of the costs of the contracts.
Under the Completed-Contract Method, revenues and expenses are recognized when
services have been performed and the projects have been completed. For projects,
which have been completed but not yet billed to customers, revenue is recognized
based on management's estimates of the amounts to be realized. When such
projects are billed, any differences between the initial estimates and the
actual amounts billed are recorded as increases or decreases to revenue.
Expenses are recognized in the period in which the corresponding liability is
incurred. Deferred revenue represents revenue that has been received or is
receivable before it is earned, i.e., before the related services are performed.
Deferred revenue amounted to $280,924 at December 31, 2003.
The Company's revenue recognition policy for sale of network products is in
compliance with Staff accounting bulletin (SAB) 104. Revenue from the sale of
network products is recognized when a formal arrangement exists, the price is
fixed or determinable, the delivery is completed and collectibility is
reasonably assured. 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.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expenses for the
year ended December 31, 2003 and 2002 were insignificant.
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.
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 proforma 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 APB 25 and has opted for
the disclosure provisions of SFAS No.123.
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.
SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure
About Segments of an Enterprise and Related Information" requires use of the
"management approach" model for segment reporting. The management approach model
is based on the way a company's management organizes segments within the company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company. SFAS
131 has no effect on the Company's consolidated financial statements as
substantially all of the Company's operations are conducted in one industry
segment.
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.
RISKS AND UNCERTAINTIES
VULNERABILITY DUE TO SUPPLIER CONCENTRATIONS - The Company had three major
sources for the supply of materials and one major source for supply of
subcontracted labor in 2003. The Company had a major source for the supply of
materials in 2002. The percentages of purchases from this source were 64% and
94% of total purchases in the year ended December 31, 2003 and 2002,
respectively. Total outstanding balances due to these suppliers as of December
31, 2003 and 2002 were $222,339 and $84,452, respectively. The effect of the
loss of any of these sources or a disruption in their business will depend
primarily upon the length of time necessary to find a suitable alternative
source and could have a material adverse effect on the Company's results of
operations.
VULNERABILITY DUE TO CUSTOMER CONCENTRATIONS - Total sales to two major
customers in the year ended December 31, 2003 amounted to approximately $692,535
and to three major customers in the year ended December 31, 2002 amounted to
$428,000. There was receivable balance of $58,338 from these customers as of
December 31, 2003 and $-0- as of December 31, 2002.
RECENT PRONOUNCEMENTS
On April 30, 2003, the FASB issued FASB Statement No. 149 ("SFAS 149"),
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities".
FAS 149 amends and clarifies the accounting guidance on (1) derivative
instruments (including certain derivative instruments embedded in other
contracts) and (2) hedging activities that fall within the scope of FASB
Statement No. 133 ("SFAS 133"), Accounting for Derivative Instruments and
Hedging Activities. SFAS 149 also amends certain other existing pronouncements,
which will result in more consistent reporting of contracts that are derivatives
in their entirety or that contain embedded derivatives that warrant separate
accounting. SFAS 149 is effective (1) for contracts entered into or modified
after June 30, 2003, with certain exceptions, and (2) for hedging relationships
designated after June 30, 2003. The guidance is to be applied prospectively. The
adoption of SFAS No. 149 does not have a material impact on the Company's
financial position or results of operations or cash flows.
On May 15 2003, the FASB issued FASB Statement No. 150 ("SFAS 150"), Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity. SFAS 150 changes the accounting for certain financial instruments that,
under previous guidance, could be classified as equity or "mezzanine" equity, by
now requiring those instruments to be classified as liabilities (or assets in
some circumstances) in the statement of financial position. Further, SFAS 150
requires disclosure regarding the terms of those instruments and settlement
alternatives. SFAS 150 affects an entity's classification of the following
freestanding instruments: a) Mandatorily redeemable instruments b) Financial
instruments to repurchase an entity's own equity instruments c) Financial
instruments embodying obligations that the issuer must or could choose to settle
by issuing a variable number of its shares or other equity instruments based
solely on (i) a fixed monetary amount known at inception or (ii) something other
than changes in its own equity instruments d) SFAS 150 does not apply to
features embedded in a financial instrument that is not a derivative in its
entirety. The guidance in SFAS 150 is generally effective for all financial
instruments entered into or modified after May 31, 2003, and is otherwise
effective at the beginning of the first interim period beginning after June 15,
2003. For private companies, mandatorily redeemable financial instruments are
subject to the provisions of SFAS 150 for the fiscal period beginning after
December 15, 2003. The adoption of SFAS No. 150 does not have a material impact
on the Company's financial position or results of operations or cash flows.
In December 2003, the Financial Accounting Standards Board (FASB) issued a
revised Interpretation No. 46, "Consolidation of Variable Interest Entities"
(FIN 46R). FIN 46R addresses consolidation by business enterprises of variable
interest entities and significantly changes the consolidation application of
consolidation policies to variable interest entities and, thus improves
comparability between enterprises engaged in similar activities when those
activities are conducted through variable interest entities. The Company does
not hold any variable interest entities.
3. 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
$5,466,840 including net losses of $3,434,607 and $109,806 for the years ended
December 31, 2003 and 2002, respectively. The continuing losses have adversely
affected the liquidity of the Company. The Company faces continuing significant
business risks, including but not limited to, its ability to maintain vendor and
supplier relationships by making timely payments when due.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to raise additional capital, obtain
financing and to succeed in its future operations. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. Management devoted considerable effort
during the year ended December 31, 2003, towards obtaining additional equity
financing through various private placements and evaluation of its distribution
and marketing methods.
4. PROPERTY AND EQUIPMENT
Property and equipment comprised of following on December 31, 2003:
Furniture & fixtures $ 3,160
Machinery & Equipment 10,800
------
13,960
Less Accumulated Depreciation (7,062)
-------
$ 6,898
=======
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of following on December 31,
2003:
Accounts payable $ 655,334
Payroll tax payable 122,749
Litigation accrual 430,000
Accrued expenses 324,810
---------
$1,532,893
==========
Payroll tax liabilities amounting $92,890 pertains to the calendar years from
1999 to 2001. The Company has agreed to pay the payroll tax liability in monthly
installment of $6,500 beginning March 15, 2003 until entire amount is paid in
full.
6. NOTE PAYABLE
The Company has an unsecured note of $47,500, guaranteed by the officer and
shareholder of the Company, bearing an interest rate of prime plus 3.25%. The
note is payable through a revolving line of credit, which commenced on November
6, 2001, the date of the note, and expires three years following the note date.
The Company must pay a total of 36 payments of interest only on the disbursed
balance beginning one month from the note date and every month thereafter. The
term period will commence upon the termination of the revolving line of credit
period. During the term period, the Company must pay principal and interest
payments in equal installment sufficient to fully amortize the principal balance
outstanding, beginning one month from the commencement of the term period. All
remaining principal and accrued interest is due and payable 7 years from the
date of the note.
As a result of acquisition of NIC by the Company, NIC was in default on this
note, since the note prohibited a change of ownership over 25% of NIC's common
stock outstanding. The entire principal amount became due upon default and the
revolving line of credit is no longer available to NIC. The Company is in the
process of making payment arrangement with the financing institution. The amount
outstanding at December 31, 2003, amounted to $45,500.
The interests on this note were $3,728 and $4,375 for the year ended December
31, 2003 and 2002, respectively.
The Company has unsecured, non-interest bearing notes for $65,000 due November
2005.
7. RELATED PARTY TRANSACTIONS
RELATED PARTY NOTES PAYABLE - CURRENT
The Company has $3,500 payable based on the purchase agreement of the subsidiary
and an unsecured, non-interest bearing note for $84,191 due June 15, 2004, due
to an officer.
The Company entered a factoring agreement on September 17, 2003 with a related
party for $76,000 face amount. This amount is payable in 30 days and certain
receivables were assigned and delivered. In the event that on the maturity date,
any amounts on the note remain, the holder can exercise it's right to increase
the face amount by $10,000 per month that the note remains unpaid. In the event
of default the holder shall have the right to switch any remaining amount left
on the debenture to a 3 year, 10% interest bearing Convertible Debenture and the
Company must issue 100,000 shares per $10,000 invested in this debenture. The
principle amount was paid back in full by January 23, 2004.
RELATED PARTY NOTES PAYABLE - LONG TERM
The Company has an unsecured, non-interest bearing note for $35,000 due December
17, 2005 due to the majority shareholder.
RELATED PARTY - CONVERTIBLE DEBENTURES
The Company issued 65,923 shares of common stock valued at $158,707 for
conversion of debenture amount of $98,967 to a related party, a major
shareholder of the Company. The difference of the value of the stock issued and
debenture amount of $59,740 was charged as a loss on conversion.
The Company is to issue 31,129 shares of common stock valued at $99,395 for
conversion of debenture amount of $68,025 to a related party. The Company had
not issued the stock as of December 31, 2003. The difference of the value of
the stock to be issued and debenture amount of $31,370 was charged as a loss on
conversion.
8. INCOME TAXES
No provision was made for Federal income tax since the Company has significant
net operating loss. Through December 31, 2003, the Company incurred net
operating losses for tax purposes of $3,450,000, approximately. The net
operating loss carry forwards may be used to reduce taxable income through the
year 2022. 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, 2003 comprised mainly of net operating loss carryforward. The gross
deferred tax asset balance as of December 31, 2003 was approximately $1,380,000.
A 100% valuation allowance has been recorded for the deferred tax assets due to
the uncertainty of its realization.
The following is a reconciliation of the provision for income taxes at the U.S.
federal income tax rate to the income taxes reflected in the Consolidated
Statements of Operations:
December 31, December 31,
2003 2002
------------------- -------------
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 - - .
=================== =============
9. COMMITMENT & LITIGATION
Lease:
The Company did not have a lease agreement during the year ended December 31,
2002. The Company paid the usage charge each month. On February 5, 2003, the
Company entered into short term rental agreement for 90 days and month to month
thereafter. The monthly rental is $2,289.
The rent expenses were $27,452 and $ 12,323 for the year ended December 31, 2003
and 2002, respectively.
Litigation:
In the year ended December 31, 2002, a suit was brought against the
Company and its former management in the Superior Court of the State of
California, County of San Francisco, by an individual alleging that the Company
made false written and oral representations to induce the plaintiff to
invest in the Company and that such investment occurred despite the
plaintiff's request that the funds be held in a brokerage account maintained by
a related entity. A co-defendant, an individual in the case also filed a
cross-complaint in the action alleging theories of recovery against the
Company and several other defendants and alleging fraud, breach of contract,
misrepresentation, conversion and securities fraud against the Company. On
November 21, 2003, the Company reached a settlement with the plaintiffs for
$160,000. The Company is making payments in installments through April 2004. The
Company has accrued $300,000 in the accompanying financial statements against
any possible outcome.
On April 25, 2003 the Superior Court of the State of California, County of
Orange, entered a judgment in the amount of $46,120 against the Company
and its former management in favor of a vendor of the Company's former
subsidiary, North Texas Circuit Board, or NTCB. On August 20, 2002 the Company
sold NTCB to BC Electronics Inc. Pursuant to terms of the share purchase
agreement, BC Electronics assumed all liabilities of NTCB. In December 2003 the
Company filed a motion to vacate the judgment for lack of personal service. In
February 2004, the Court ruled in favor of the Company and the judgment was
vacated. Although the Company was the guarantor on the loan, NTCB is the
principal debtor and (i) the Company will bring action against NTCB to seek
relief or (ii) because partial payment was made by NTCB, it could affect the
legal status of the guarantee, which the Company believes may absolve it of
liability. In February 2004, the plaintiff refiled the complaint. Although the
Company will continue to oppose the action the Company and its current
management have begun settlement discussions with the plaintiff.
On April 29, 2003 a suit was brought against the Company by an investor,
alleging breach of contract pursuant to a settlement agreement executed between
the Company and investor dated November 20, 2002. The suit alleges that the
Company is delinquent in its repayment of a $20,000 promissory note, of which
$5,000 has been repaid to date. Although management of the Company intends to
oppose the claims, the Company's current management plans to begin settlement
discussion with the plaintiff.
The Company may be involved in litigation, negotiation and settlement matters
that may occur in the day-to-day operations of the Company and its subsidiary.
Management does not believe implication of these litigations will have any other
material impact on the Company's financial statements.
10. DUE TO FACTOR
On February 27, 2003, NIC entered into a factoring and security agreement to
sell, transfer and assign certain accounts receivable to Orange Commercial
Credit (OCC). OCC may on its sole discretion purchase any specific account. All
accounts sold are with recourse on seller. All of the Company's property of NIC
including accounts receivable, inventories, equipment and promissory notes are
collateral under this agreement. OCC will advance 80% of the face amount of each
account. The difference between the face amount of each purchased account and
advance on the purchased account shall be reserve and will be released after
deductions of discount and charge backs on the 15th and the last day of each
month. OCC charges 1% of gross face value of purchased receivable for finance
charge and 1% for administrative fees with minimum charge of $750 on each
settlement date. As of December 31, 2003, the Company factored receivables of
approximately $205,929. In connection with the factoring agreement, the Company
included fees of $16,555 in the period ended December 31, 2003. Due to factor
amounted to $14,056 as of December 31, 2003.
11. STOCKHOLDERS' EQUITY
During the year ended December 31, 2003, the Company issued stocks at various
times, as described per the following. The stocks were valued at the average
fair market value of the freely trading shares of the Company as quoted on OTCBB
on the date of issuance.
STOCK SPLIT
On January 23, 2003, the Company announced a 1 for 200 reverse stock split of
its common stock. All fractional shares are rounded up and the authorized shares
remain the same. The financial statements have been retroactively restated for
the effects of stock splits.
EQUITY:
During the year ended December 31, 2003, the Company issued common stock as
follows:
7,382,000 shares of common stock valued at $1,107,300 were issued for
acquisition of its subsidiary, Network Installation Corporation.
The Company issued 400,000 shares of common stock to directors for directors'
fees amounting $610,800.
The Company issued 275,000 shares of common stock to the major shareholder for
consulting services amounting $278,750.
The Company issued 65,923 shares of common stock valued at $158,707 for
conversion of debenture amount of $98,967 to a related party, a major
shareholder of the Company. The difference of the value of the stock issued and
debenture amount of $59,740 was charged as a loss on conversion.
The Company was to issue 31,129 shares of common stock valued at $99,395 for
conversion of debenture amount of $68,025 to a related party, a major
shareholder of the Company. The Company had not issued the stock as of December
31, 2003. The difference of the value of the stock to be issued and debenture
amount of $31,370 was charged as a loss on conversion.
The Company issued 1,550,000 shares to the major shareholder in 2003 as
incentive per the debenture agreement, valued at $1,199,700. The Company
recorded such issuance as interest in the accompanying consolidated financial
statement.
The Company had distributions to a major shareholder and the officer of the
Company amounting $110,794 in the year ended December 31, 2003. The Company had
a receivable from a major shareholder and the officer of the Company amounting
$73,206. The amount was considered as uncollectible and was recorded as deemed
dividend in the year ended December 31, 2003.
The Company had contributions to equity of NIC, the wholly owned subsidiary, of
$147,915 in the year ending December 31, 2003.
During the year ended December 31, 2002, NIC, the wholly owned subsidiary
distributed $34,142 as dividend.
CONVERTIBLE DEBENTURES:
In the year ended December 31, 2001, the company issued debentures amounting
$720,000, carrying an interest rate of 6% per annum, due in August 2003. The
holders are entitled to, at any time or from time to time, convert the
conversion amount into shares of common stock of the Company, par value $.001
per share at a conversion price for each share of common stock equal to the
lower of (a) 120% of the closing bid price per share (as reported by Bloomberg,
LP) on the closing date, and (b) 80% of the lowest closing bid price per share
(as reported by Bloomberg, LP) of the Company's common stock for the five
trading days immediately preceding the date of conversion. The Company recorded,
in accordance with EITF 00-27 and 98-5, a beneficial conversion feature on the
issuance of the convertible debentures amounting $180,000 reflected in the
interest expense in the financial statement. As of December 31, 2003, the
outstanding balance of the debentures amounted to $517,616 out of which, $-0-
pertains to major shareholder.
On April 7, 2003, in connection with the recession agreement (note 12), the
Company issued convertible debentures of $140,000 to various parties. The
Company has recorded the debentures as recession cost in the financial
statements at December 31, 2002. The Holder of the debentures is entitled to
convert the face amount of this Debenture, plus accrued interest, anytime
following the Restricted Period, at the lesser of (i) 75% of the lowest closing
bid price during the fifteen (15) trading days prior to the Conversion Date or
(ii) 100% of the average of the closing bid prices for the twenty (20) trading
days immediately preceding the Closing Date ("Fixed Conversion Price"), each
being referred to as the "Conversion Price". No fractional shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded up or down, as the case may be, to the nearest
whole share. The Debentures shall pay six percent (6%) cumulative interest, in
cash or in shares of common stock, par value $.001 per share, of the Company
("Common Stock"), at the Company's option, at the time of each conversion. The
debentures are payable on April 8, 2008.
During the period ending June 30, 2003, the Company issued debentures amounting
$105,000 to a major shareholder of the Company and $25,000 to another party,
carrying an interest rate of 6% per annum, due in April to June 2008. The face
amount of this Debenture may be converted, in whole or in art, any time
following the Closing Date. Holder is entitled to convert the face amount of
this Debenture, plus accrued interest, anytime following the Closing Date, at
the lesser of (i) 75% of the lowest closing bid price during the fifteen (15)
trading days prior to the Conversion Date or (ii) 100% of the average of the
closing bid prices for the twenty (20) trading days immediately preceding the
Closing Date ("Fixed Conversion Price"), each being referred to as the
"Conversion Price". No fractional shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be
rounded up or down, as the case may be, to the nearest whole share.
In connection with issuance of debentures, the Company issued 250,000 shares of
common stock to an unrelated party and 800,000 shares of common stock to a
related party. The shares issued to the unrelated party were recorded as
debenture issuance cost up-to the amount of debenture amounting $25,000. The
debentures have been presented net of debentures issuance cost in the financial
statements. The shares issued to the related party have been recorded as deemed
dividend amounting $120,000. The valuation of shares was based upon average fair
market value of the freely trading shares of the Company as quoted on OTCBB on
the date of issuance.
The Company has recorded, in accordance with EITF 00-27 and 98-5, a beneficial
conversion feature on the issuance of the convertible debentures in the year
ended December 30, 2003, an amount of $134,000, reflected in the financial
statement as interest expense.
During the period ended December 31, 2003, the Company issued $233,000
debentures to a major shareholder of the Company. These debentures carry an
interest rate of 6% per annum, due in July to October 2008. The face amount of
these Debentures may be converted, in whole or in part, any time following the
Closing Date. Holder is entitled to convert the face amount of this Debenture,
plus accrued interest, anytime following the Closing Date, at the lesser of (i)
75% of the lowest closing bid price during the fifteen (15) trading days prior
to the Conversion Date or (ii) 100% of the average of the closing bid prices for
the twenty (20) trading days immediately preceding the Closing Date ("Fixed
Conversion Price"), each being referred to as the "Conversion Price". No
fractional shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded up or down, as
the case may be, to the nearest whole share.
The Company issued 1,550,000 shares to the major shareholder per debenture
agreement. Per the agreement, the Company was required to issue one hundred
thousand (100,000) shares of its common stock to holder, for each ten thousand
dollars ($10,000) invested. The Company recorded stock issued amounting
$1,199,700 as interest expense in the accompanying financial statements.
CONVERTIBLE PROMISSORY NOTES PAYABLE
In the year ended December 31, 2001, the Company issued convertible promissory
notes of $100,000 due on April 1, 2004, carrying an interest rate of 10% per
annum. The holder of $100,000 promissory notes is entitled to convert the
conversion amount into shares of common stock of the Company, par value $.001,
at any time, per share at a conversion price for each share of common stock
equal $7.00 per share of common stock. The note is secured and collateralized by
shares of common stock of the Company at one share per every five dollars
($5.00) of the principal.
STOCK OPTION
During the year ended December 31, 2003, the company issued options to acquire
300,000 shares of the company's common stock to an employee. The weighted
average grant date fair value, stock price and exercise price of the options
were $1.82, $2.95 and $2.65. On November 30, 2003, the board of directors
agreed to terminate the vested option incentive for the employee valued at
$6,987. As of December 31, 2003, there are no stock options outstanding.
During the year ended December 31, 2003, the Company issued warrants to purchase
200,000 shares to consultants for services. The Company recorded consulting
expense amounting to $290,000 which represents the fair value of the vested
portion of the warrants calculated using the Black- Schoels option pricing model
with the following assumptions:
Expected life (years) 2-5 years
Risk-free interest rate 3.0%
Dividend yield -
Volatility 100%
The weighted average stock price, exercise price, fair value of warrants at the
grant date issued to consultants was $3.13, $4.75 and $1.80. At December 31,
2003, 114,583 of these warrants were exercisable. The weighted average remaining
life of these warrants at December 31, 2003 was 3.73 years.
12. BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share for the twelve-month period ended December
31, 2003 and 2002 were determined by dividing net loss for the periods by the
weighted average number of basic and diluted shares of common stock 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 anti-dilutive.
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 interest of $-0- and $3,526 during the year ended December 31,
2003 and 2002, respectively. The Company paid income taxes of $-0- during the
years ended December 31, 2003 and 2002.
14. SUBSEQUENT EVENTS
ACQUISITION:
Pursuant to an acquisition agreement, the Company acquired 100% of the
outstanding shares of San Diego area-based telecommunication solutions firm Del
Mar Systems International, Inc. (Del Mar) for $1 million structured as a (i)
$500,000 12 month 5% Note consisting of 12 equal monthly installments of $42,804
and (ii) $500,000 in shares of the Company's restricted common stock. Del Mar
will continue to operate as a wholly-owned subsidiary of the Company. The
financial information of Del mar is not available through the date of these
financial statements as they were in process of being compiled.
PAYMENT OF RELATED PARTY LOAN:
The Company paid the $76,000 due to the majority shareholder by January 23,
2004, fulfilling its obligation on the note.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 8A CONTROLS AND PROCEDURES
We have established disclosure controls and procedures to ensure that material
information relating to us, including our consolidated subsidiaries, is made
known to the officers who certify our financial reports and to other members of
senior management and the Board of Directors.
9(a) Evaluation of disclosure controls and procedures. Our management, with the
participation of our principal executive officer and principal financial
officer, has evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of the end of the
period covered by this Annual Report on Form 10-KSB. Based on this evaluation,
our principal executive officer and principal financial officer concluded that
these disclosure controls and procedures are effective and designed to ensure
that the information required to be disclosed in our reports filed or submitted
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the requisite time periods.
9(b) Changes in internal controls. There was no change in our internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended) that occurred during our last
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age, positions, and offices or
employments for the past five years as of March 1, 2004, of our executive
officers and directors.
NAME AGE POSITION
Michael Cummings 39 Chief Executive Officer,
Director
Michael A. Novielli 39 Chairman of the Board of
Directors
Douglas H. Leighton 35 Director
Theodore Smith 27 Director
Robert Barnett 44 Vice President of Sales and
Marketing
BIOGRAPHIES OF OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES
Set forth below is a brief description of the background of our officers and
directors based on information provided by them to us.
MICHAEL CUMMINGS has served as our Chief Executive Officer and director since
May 2003. He previously founded and served as President of Network Installation
Corp. from 1997 to 2003. During the period from 1999-2001, Mr. Cummings
purchased a controlling interest in Tri-City Datatel, Inc., a designer and
installer of networking systems. Mr. Cummings sold his interest in 2001. In
1983, Mr. Cummings attended Goldenwest College for Business Law.
MICHAEL A. NOVIELLI has served as our director since April, 2003. Mr. Novielli
is a Managing Partner of Dutchess Capital Management, LLC and Dutchess Advisors,
LLC. A co-founder of Dutchess in 1996, Mr. Novielli advises the senior
management of issuers in which Dutchess Private Equities Fund LP has invested,
in areas of business development, legal, accounting and regulatory compliance.
Prior to co-founding Dutchess, Mr. Novielli was a partner at Scharff, Witchel &
Company, a 40 year-old, full service investor relations firm, where he consulted
with publicly-traded companies on areas of finance and business development.
Prior to joining Scharff, Mr. Novielli was Vice-President of Institutional
Sales-Private Placements at Merit Capital Associates, an independent NASD
registered broker-dealer. Before joining Merit, Mr. Novielli began his
investment career at PaineWebber, where he served for approximately three years
as a registered representative servicing high net worth individuals and
institutional clientele. Mr. Novielli has held series 7, 63 and 65 licenses and
received his B.S. in Business from the University of South Florida in 1987.
DOUGLAS LEIGHTON has served as our director since April, 2003. Mr. Leighton is a
Managing Partner of Dutchess Capital Management, LLC and Dutchess Advisors, LLC.
A co-founder of Dutchess in 1996, Mr. Leighton oversees trading and portfolio
risk management of investments made on behalf of Dutchess Private Equities Fund
LP. Prior to co-founding Dutchess, Mr. Leighton was founder and president of
Boston-based Beacon Capital from 1990-1996, which engaged in money management.
Mr. Leighton holds a BS/BA in Economics & Finance from the University of
Hartford.
THEODORE SMITH has served as our director since April 2003. Mr. Smith serves as
Executive Vice President of Dutchess Advisors LLC, whom he joined in 1998 and is
a liaison between Dutchess Capital Management, LLC on behalf of Dutchess Private
Equities Fund, LP and senior management of companies in the Fund's portfolio.
Prior to joining Dutchess in 1998, Mr. Smith was a principal at Geneva Atlantic
Capital, LLC where he focused on assisting corporate clients with SEC compliance
matters, business plan preparation and presentation and capital markets
financing. Mr. Smith received his BS in Finance and Marketing from Boston
College. Mr. Smith has also served as a director of several public as well as
private companies.
ROBERT BARNETT has served as our Vice President of Sales and Marketing since
January 2004. Prior to joining us and since February 2002, Mr. Barnett was the
Vice President of Sales for Addonics Technologies, Inc. From April 2001 through
February 2002, Mr. Barnett was the Vice President of Sales and Marketing for
FollowMedia Wireless, Inc. From July 1993 through March 2001, Mr. Barnett was
the Vice President of Sales and Marketing. Mr. Barnett has a BS in Marketing &
Management from Boise State University.
BOARD OF DIRECTORS
We currently have four members of our Board of Directors, who are elected to
annual terms and until their successors are elected and qualified. Executive
officers are appointed by the Board of Directors on an annual basis and serve
until their successors have been duly elected and qualified. There are no
family relationships among any of our directors, officers or key employees.
AUDIT COMMITTEE
We do not have a separate Audit Committee. Our full Board of Directors performs
the functions usually designated to an Audit Committee. Mr. Novielli, the
Chairman of the Board of Directors qualifies as an "audit committee financial
expert" under the rules of the Securities and Exchange Commission.
SECTION 16(a)BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers and persons who beneficially own more than ten percent of our
common stock, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission. Executive officers,
directors and greater than ten percent beneficial owners are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such reports
furnished to us and written representations from our executive officers and
directors, all required reports were filed during the fiscal year ended December
31, 2003. Four Form 3s were filed late. The purpose of the Form 3s was to
disclose initial reports of ownership for Douglas Leighton, Michael Novielli,
Michael Cummings and Theodore Smith. The Form 3s did not report any
transactions. Except for these four late filings, we believe that all other
Section 16(a) filing requirements applicable to the executive officers,
directors and greater than ten percent beneficial owners were complied with.
CODE OF ETHICS
We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. Our Code of Ethics is
attached to this Report on Form 10-KSB as Exhibit 14.1.
ITEM 10 EXECUTIVE COMPENSATION
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------- -----------------------
AWARDS PAYOUTS
----------- -------------------
NAME AND PRINCIPAL YEAR(1) SALARY BONUS OTHER RESTRICTED SECURITIES LTIP ALLOTHER
POSITION ($) ($) ANNUAL STOCK UNDERLYING PAYOUT($) COMP.($)
COMP ($) AWARDS OPTIONS/SARS
Greg Mardock, Chief. . . (2)2002 156,666
Executive Officer (1)2001 $12,000 0
$ 0 0
Michael Cummings, Chief 2003 $100,000 0 152,700 (3)
Executive Officer
(1) Mr. Mardock received compensation from Mardock, Inc., a subsidiary of our
wholly-owned subsidiary, Flexxtech Holdings, Inc. at that time.
(2) Mr. Mardock received compensation from Mardock, Inc., a subsidiary of our
wholly-owned subsidiary at that time, Flexxtech Holdings, Inc. VLK Capital Corp.
was issued 5,909,333 shares of common stock for managerial services valued at
$.902 per share, as amended for the 18 month period from January 2001 through
June 2002. VLK subsequently issued 783,333 shares to Greg Mardock.
(3) Mr. Cummings received 100,000 shares of common stock valued at $1.527 per
share as compensation for serving on the Board of Directors.
Mr. Mardock resigned in April, 2003. Mr. Cummings became our Chief Executive
Officer in May 2003.
EMPLOYMENT AGREEMENT
We executed an employment agreement with Mr. Cummings on May 23, 2003. The
employment agreement shall continue in effect for a period of one year and can
be renewed upon mutual agreement between Mr. Cummings and us. We may terminate
the employment agreement at our discretion during the initial term, provided
that we shall pay Mr. Cummings an amount equal to payment at Mr. Cumming's base
salary rate for six months. We can also terminate the employment agreement for
cause with no financial obligations to Mr. Cummings. Mr. Cummings currently
earns a gross salary of $16,000 per month and 5% of the adjusted net profits for
a two-year period ending on May 23, 2005.
DIRECTORS COMPENSATION
During the twelve month period ended December 31, 2003, each Board Member
received 100,000 shares of common stock for their duties.
We do not have a formal plan to compensate directors.
PART 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth, to our knowledge, certain information concerning
the beneficial ownership of our common stock as of December 31, 2003 by
each stockholder known by us to be (i) the beneficial owner of more than 5%
of the outstanding shares of common stock, (ii) each current director, (iii)
each of the executive officers named in the Summary Compensation Table who were
serving as executive officers at the end of the 2002 fiscal year and (iv)
all of our directors and current executive officers as a group:
Unless otherwise indicated below, to our knowledge, all persons listed below
have sole voting and investment power with respect to their shares of common
stock except to the extent that authority is shared by spouses under applicable
law.
NAME AND ADDRESS COMMON SHARES PERCENTAGE
OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED OWNED OF CLASS(2)
Michael A. Novielli . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,087,033(3) 24.5%
Douglas Leighton. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,087,033(3) 24.5%
Theodore Smith. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,600(3) *
Michael Cummings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,424,650(4) 60.8%
Dutchess Private Equities, L.L.P, 312 Stuart Street, 3rd Floor, Boston, MA 02116. 3,049,033(3) 24.2%
Dutchess Advisors, Ltd., 312 Stuart Street, 3rd Floor, Boston, MA 02116 . . . . . 3,049,033(3) 24.2%
All directors and current executive officers as a group (4 Persons) . . . . . . . 11,221,983 84.8%
* Less than 1% of outstanding shares of common stock.
(1) The address of all individual directors and executive officers is c/o Network Installation Corporation, 18
Technology Drive, Suite 140A, Irvine, CA 92618.
(2) The number of shares of common stock issued and outstanding on December 31, 2003 was 12,616,330 shares. The
calculation of percentage ownership for each listed beneficial owner is based upon the number of shares of
common stock issued and outstanding on December 31, 2003, plus shares of common stock subject to options held by
such person on December 31,2003 and exercisable within 60 days thereafter.
(3) Two of our directors, Michael Novielli and Douglas Leighton, are the principals of Dutchess Advisors.
Messrs. Novielli and Leighton are also the principals of Dutchess Capital Management LLC, which is the general
partner to Dutchess Private Equities Fund. Our director, Theodore Smith, is the Executive Vice President of
Dutchess Advisors, LLC. Dutchess Advisors owns 700,000 shares of our common stock. Dutchess Private Equities
Fund owns 2,349,333 shares of our common stock. Messrs. Novielli and Leighton share voting and dispositive power
over the shares of our common stock held by Dutchess Advisors and Dutchess Private Equities Fund.
(4) Includes a five year option to purchase 618,000 shares of our common stock at a price equal to the closing
bid price of our common stock on August 29, 2003 which was $2.95. All shares are held directly.
No options, warrants or other stock rights have been issued to the officers
other than as disclosed above.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 7, 2002, we issued 51,361 shares of common stock in the name of
Delaware Charter Guarantee and Trust, FBO Greg Mardock, our CEO and a director
at that time, in exchange for a promissory note of $64,588 principal amount and
interest of $5,861. This transaction is no less favorable than if we had entered
into it on an arms length basis with an unrelated third party.
On October 8, 2002, we issued to 21,250 and 8,750 shares to Edward R. Fearon,
and Escamilla Capital Corporation respectively, both related parties. Fearon and
Hector Escamilla were each an officer and director of both Primavera Corp. and
Escamilla Capital Corporation. In addition, Fearon was CEO of our former
subsidiary NTSB. These shares were issued in exchange for notes issued by
Primavera Corporation to BECO M-A, L.P. and BECO Joint Venture No. 1 amounting
to $60,000 and accrued interest of $16,595 total consideration of $76,595.
Fearon and Escamillia were also officers and directors of BECO M-A, L.P. and
BECO Joint Venture No. 1. When we acquired Primavera Corp. we also acquired its
liability to BECO M-A, L.P. and BECO Joint Venture No. 1. Mr. Fearon and
Escamilla Capital Corporation agreed to accept shares to settle the debt instead
of cash. This transaction is no less favorable than if we had entered into it on
an arms length basis with an unrelated third party.
On October 31, 2002, Western Cottonwood Corporation, a related entity, agreed to
convert $2,000,000 in debt owed by us to 200 shares of our Series A Preferred
Stock. Subsequent to December 31, 2002 the shares were not issued and the
agreement was mutually voided. This transaction is no less favorable than if we
had entered into it on an arms length basis with an unrelated third party.
On November 5, 2002, we issued Western Cottonwood Corp 75,000 shares of common
stock in exchange for $75,000 in Promissory Notes. Subsequent to December 31,
2002 the note was amended to be in exchange for $300,000 in Promissory Notes.
This transaction is no less favorable than if we had entered into it on an arms
length basis with an unrelated third party.
On April 7, 2003, we issued 800,000 shares of common stock to Dutchess Private
Equities Fund as inducement for debentures amounting to $80,000. The shares were
valued at $120,000. This transaction is no less favorable than if we had entered
into it on an arms length basis with an unrelated third party.
On April 8th, 2003, we entered into an agreement to rescind the acquisition of
W3M, Inc., dba Paradigm Cabling Systems, from its inception. The agreement was
made available in our 10-KSB filed on April 15, 2003. In order to acquire 80% of
the outstanding common stock of Paradigm, we entered into an acquisition
agreement dated October 31, 2002. Pursuant to the terms of the acquisition, 80%
of the outstanding capital stock of Paradigm was transferred to us. In exchange,
we agreed to issue shares of a new Series A Convertible Preferred Stock to the
exchanging shareholders of Paradigm as follows:
Name No. Of Shares of Series A Convertible Preferred
---- ----------------------------------------------
Michael Cummings 71.25 shares
Ashford Capital 71.25 shares Total 142.50 shares
This transaction is no less favorable than if we had entered into it on an arms
length basis with an unrelated third party.
We subsequently agreed with Paradigm to void the Transaction ab initio (that is,
at its inception), with the effect that Paradigm is the owner of its Assets and
Liabilities and the shares of our Preferred Stock issued to Paradigm are
restored to the status of authorized but unissued shares. We exchanged mutual
general releases with Paradigm in order to restore the parties to their
respective positions immediately prior to the execution and delivery of the
purchase agreement. This transaction is no less favorable than if we had entered
into it on an arms length basis with an unrelated third party.
On April 9, 2003, we entered into a Restructuring & Release Agreement with Greg
Mardock, John Freeland, Western Cottonwood Corporation, Atlantis Partners and
VLK Capital Corp. Pursuant to this Agreement, Greg Mardock resigned as our
director and employee and Michael A. Novielli, Douglas H. Leighton and Theodore
J. Smith, Jr. were appointed as directors. Listed below are additional
obligations of parties to the Agreement:
- Western Cottonwood Corporation agreed to forgive $1,984,849.99 in Notes
receivable and interest receivable as of December 31, 2002.
- Greg Mardock resigned as our officer and employee.
- Messrs. Mardock and Freeland immediately released any and all claims to
collateral, security or title of any of our assets.
- Western Cottonwood and Atlantis Partners will maintain a combined ownership
percentage of 4.9%. The percentage ownership of 4.9% shall be non-dilutive
through our first merger or acquisition transaction with a going concern. -
Greg Mardock will maintain an ownership percentage of 2.0%. His ownership
percentage of 2.0% shall be non-dilutive through our first merger or
acquisition transaction with a going concern.
- We issued 690,000 shares of common stock as a part of restructuring
agreement at a value of $1,727,908. All stock issued to the parties to this
Agreement was restricted and had no registration rights. The parties also
agreed to additional rules governing resale of the shares. The shares may
not be sold either in the public market nor in a private transaction for a
period of one year, the parties may not sell more than one twelfth of their
entire ownership stake in any one month for a period covering the
thirteenth month through the twenty fourth month. Additionally, for a
period of time the stock is not transferable and may not be loaned. This
transaction is no less favorable than if we had entered into it on an arms
length basis with an unrelated third party.
On April 1, 2003 we entered into a Consulting Agreement with Dutchess Advisors
LLC, where Dutchess would provide the following services:
- Assist us with our capitalization and restructuring; and
- Assist us with our business development by seeking potential business
partners, candidates for joint ventures, mergers and acquisitions or
qualified persons to join our board of directors. This transaction as no
less favorable than if we had entered into it on an arms length basis with
an unrelated third party.
We agreed to pay Dutchess Advisors, LLC 700,000 shares of common stock for these
Services. These shares were valued at $105,000. Additionally, we agreed to pay
$3,000 per month for non accountable expenses for months 1-12 and $5,000 per
month for months 13-24. The term of the Consulting Agreement is 24 months. In
June 2003, we amended the Agreement to pay Dutchess Advisors $5,000 per month
beginning June 2003. This transaction as no less favorable than if we had
entered into it on an arms length basis with an unrelated third party.
On April 10, 2003, we issued convertible debenture of $40,000 to Dutchess
Private Equities Fund, LP. The debentures convert into common stock
at the lesser of (i) 75% of the lowest closing bid price during the fifteen
trading days prior to the Conversion Date or (ii) 100% of the average of
the closing bid prices for the twenty trading days immediately preceding
the Closing Date of the Transaction. This transaction is no less favorable
than if we had entered into it on an arms length basis with an unrelated third
party.
On May 5, 2003, we issued convertible debenture of $15,000 to Dutchess
Private Equities Fund, LP. The debentures convert into common stock
at the lesser of (i) 75% of the lowest closing bid price during the fifteen
trading days prior to the Conversion Date or (ii) 100% of the average of
the closing bid prices for the twenty trading days immediately preceding
the Closing Date of the Transaction. This transaction is no less favorable
than if we had entered into it on an arms length basis with an unrelated third
party.
On May 16, 2003, we entered into a Stock Purchase Agreement with Michael
Cummings, the owner of 100% of the outstanding shares of common stock of Network
Installation, Inc., or Network. Pursuant to this Agreement, we acquired all
outstanding shares of common stock of Network. The purchase price consisted of
$50,000 and 7,382,000 shares of our common stock. In addition, we agreed to
issue a five year option to purchase an additional 618,000 shares of our common
stock to Mr. Cummings if Network's total revenue exceeds $450,000 for the period
beginning on June 1, 2003 and ending August 31, 2003. Network's total revenues
exceeded $450,000 for the period beginning June 1, 2003 and ending August 31,
2003. The options are exercisable at a price equal to the closing bid price of
our common stock on August 29, 2003 which was $2.95. As of January 15, 2004, Mr.
Cummings has not exercised the options. At the time of the acquisition there
were no material relationships between us and Mr. Cummings. As a result of the
acquisition, Mr. Cummings replaced Mr. Novielli as Chief Executive Officer and
became our director. Mr. Novielli remained as Chairman of the Board of
Directors. This transaction is no less favorable than if we had entered into it
on an arms length basis with an unrelated third party.
On May 26, 2003, we issued convertible debenture of $25,000 to Dutchess
Private Equities Fund, LP. The debentures convert into common stock
at the lesser of (i) 75% of the lowest closing bid price during the fifteen
trading days prior to the Conversion Date or (ii) 100% of the average of
the closing bid prices for the twenty trading days immediately preceding
the Closing Date of the Transaction. This transaction is no less favorable
than if we had entered into it on an arms length basis with an unrelated third
party.
On June 16, 2003, we issued convertible debenture of $25,000 to Dutchess
Private Equities Fund, LP. The debentures convert into common stock
at the lesser of (i) 75% of the lowest closing bid price during the fifteen
trading days prior to the Conversion Date or (ii) 100% of the average of
the closing bid prices for the twenty trading days immediately preceding
the Closing Date of the Transaction. This transaction is no less favorable
than if we had entered into it on an arms length basis with an unrelated third
party.
On July 22, 2003, we issued convertible debenture of $15,000 to Dutchess
Private Equities Fund, LP. The debentures convert into common stock
at the lesser of (i) 75% of the lowest closing bid price during the fifteen
trading days prior to the Conversion Date or (ii) 100% of the average of
the closing bid prices for the twenty trading days immediately preceding
the Closing Date of the Transaction. This transaction is no less favorable
than if we had entered into it on an arms length basis with an unrelated third
party.
On July 28, 2003, we issued convertible debenture of $95,000 to Dutchess
Private Equities Fund, LP. The debentures convert into common stock
at the lesser of (i) 75% of the lowest closing bid price during the fifteen
trading days prior to the Conversion Date or (ii) 100% of the average of
the closing bid prices for the twenty trading days immediately preceding
the Closing Date of the Transaction. This transaction is no less favorable
than if we had entered into it on an arms length basis with an unrelated third
party.
On August 13, 2003, we issued convertible debenture of $20,000 to Dutchess
Private Equities Fund, LP. The debentures convert into common stock
at the lesser of (i) 75% of the lowest closing bid price during the fifteen
trading days prior to the Conversion Date or (ii) 100% of the average of
the closing bid prices for the twenty trading days immediately preceding
the Closing Date of the Transaction. This transaction is no less favorable
than if we had entered into it on an arms length basis with an unrelated third
party.
On September 10, 2003, we issued convertible debenture of $28,000 to Dutchess
Private Equities Fund, LP. The debentures convert into common stock at the
lesser of (i) 75% of the lowest closing bid price during the fifteen trading
days prior to the Conversion Date or (ii) 100% of the average of the closing bid
prices for the twenty trading days immediately preceding the Closing Date of the
Transaction.
On September 18, 2003, we entered into a Promissory Note with Dutchess Private
Equities Fund, LP. The note carries no interest rate and was due on October 17,
2003. As of January 27, 2004, we had paid the entire amount due. This
transaction is no less favorable than if we had entered into it on an arms
length basis with an unrelated third party.
On October 5, 2003, we issued convertible debenture of $75,000 to Dutchess
Private Equities Fund, LP. The debentures convert into common stock
at the lesser of (i) 75% of the lowest closing bid price during the fifteen
trading days prior to the Conversion Date or (ii) 100% of the average of
the closing bid prices for the twenty trading days immediately preceding
the Closing Date of the Transaction. This transaction is no less favorable
than if we had entered into it on an arms length basis with an unrelated third
party.
On December 17, 2003, we entered into a Promissory Note with Dutchess Private
Equities Fund, LP. The note carries no interest rate and was due on December
17, 2005. This transaction is no less favorable than if we had entered into it
on an arms length basis with an unrelated third party.
On the respective dates above, for each issuance of a convertible debenture, we
issued 100,000 shares of common stock for each $10,000 invested, for a total of
1,550,000 shares to Dutchess Private Equities Fund, LP in 2003 as incentive
per the debenture agreement.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT LIST
NUMBER DESCRIPTION
3.1 Articles of Incorporation filed as Exhibit 3.1 to the Company's
Registration Statement on Form 10SB filed on March 5th, 1999 and
incorporated herein by reference.
3.2 Certificate of Amendment to Article of Incorporation filed as Exhibit 3.3
to the Company's Form 10-KSB on April 15, 2003.
3.3 By-laws filed as Exhibit 3.2 to the Company's Registration Statement on
Form 10SB filed on March 5th, 1999 and incorporated herein by reference.
3.4 Certificate of Amendment to the Certificate of Incorporation of Flexxtech
Corporation filed as Exhibit 4.1 to the Company's Form 10-QSB dated
November 13, 2003 and incorporated herein by reference.
4.1 Warrant #101 issued to C.C.R.I. Corp. on September 29, 2003.
4.2 Warrant #102 issued to C.C.R.I. Corp. on September 29, 2003.
10.1 Consulting Agreement between the Company and Dutchess Advisors, LLC dated
April 1, 2003 filed as Exhibit 10.3 to the Company's Form 8-K on April 23,
2003 and incorporated herein by reference.
10.2 Reseller Agreement between Vivato, Inc. and the Company dated August 14,
2002 filed as Exhibit 10.1 to the Company's Form 10-QSB dated November 13,
2003 and incorporated herein by reference.
10.3 Motorola Reseller Agreement between Motorola, Inc. and the Company dated
August 18, 2003 filed as Exhibit 10.2 to the Company's Form 10-QSB dated
November 13, 2003 and incorporated herein by reference.
10.4 Short Term Rental Agreement between Vidcon Solutions Group, Inc. and the
Company dated February 5, 2003 filed as Exhibit 10.3 to the Company's Form
10-QSB dated November 13, 2003 and incorporated herein by reference.
10.5 Restructuring and Release Agreement Dutchess Advisors LLC, Dutchess Capital
Management LLC, Michael Novielli, Western Cottonwood Corporation, Atlantis
Partners, Inc., John Freeland, Greg Mardock, VLK Capital Corp. and the
Company dated April 9, 2003 filed as Exhibit 10.2 to the Company's Form 8-K
on April 23, 2003 and incorporated herein by reference.
10.6 Stock Purchase Agreement between Michael Cummings and the Company dated May
16, 2003 filed as Exhibit 2.1 to the Company's Form 8-K filed on June 13,
2003 and incorporated herein by reference.
10.7 Investment Agreement between the Company and Preston Capital Partner, LLC
dated January 21, 2004 filed as Exhibit 10.7 to the Company's Form SB-2 on
January 21, 2004 and incorporated herein by reference.
10.8 Registration Rights Agreement between the Company and Preston Capital
Partners, LLC dated January 21, 2004 filed as Exhibit 10.8 to the Company's
Form SB-2 on January 21, 2004 and incorporated herein by reference.
10.9 Placement Agent Agreement between the Company and Park Capital Securities,
LLC dated January 21, 2004 filed as Exhibit 10.9 to the Company's Form SB-2
on January 21, 2004 and incorporated herein by reference.
10.10 Agreement between the Company and Aruba Wireless Networks, Inc. dated
January 29, 2004 filed as Exhibit 10.10 to the Company's Form SB-2/A on
February 9, 2004 and incorporated herein by reference.
14.1 Code of Ethics
21.1 List of Subsidiaries
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of the Interim Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
REPORTS ON FORM 8-K
We filed a report on Form 8-K on December 8, 2003.
ITEM 14 PRINCIPAL ACCOUNTING, FEES AND SERVICES
AUDIT FEES
Kabani & Company, Inc. were our auditors for the fiscal years ended December
31, 2002 and 2003.
AUDIT FEES
For their audit of our annual financial statements and for their review of our
Quarterly Reports on Form 10-Q, Kabani & Company, Inc. billed us a total
of $20,000 for the fiscal year ended December 31, 2002 and $54,500 for the
fiscal year ended December 31, 2003.
TAX FEES
For their review of tax matters, Kabani & Company, Inc. billed us a total
of $0 in 2002 and $0 in 2003.
ALL OTHER FEES
Kabani & Company, Inc. billed us $5,000 related to a registration statement
on Form SB-2.
The Board of Directors Pre-approval Policy and Procedures
We do not have a separate Audit Committee. Our full Board of Directors performs
the functions of an Audit Committee. During fiscal year 2003, the Board of
Directors adopted policies and procedures for the pre-approval of audit and
non-audit services for the purpose of maintaining the independence of our
independent auditors. We may not engage our independent auditors to render any
audit or non-audit service unless either the service is approved in advance by
the Board of Directors or the engagement to render the service is entered into
pursuant to the Board of Director's pre-approval policies and procedures. On an
annual basis, the Board of Directors may pre-approve services that are expected
to be provided to us by the independent auditors during the following 12 months.
At the time such pre-approval is granted, the Board of Directors must (1)
identify the particular pre-approved services in a sufficient level of detail so
that management will not be called upon to make judgment as to whether a
proposed service fits within the pre-approved services and (2) establish a
monetary limit with respect to each particular pre-approved service, which limit
may not be exceeded without obtaining further pre-approval under the policy.
The Board has considered whether the provision of the services described above
under the caption "All Other Fees" is compatible with maintaining Kabani &
Company, Inc.'s independence.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Stanton, State of
California on the 9th day of April 2004.
Network Installation Corporation
/s/ Michael Cummings
By: Michael Cummings
Director and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
Signature
Name Title Date
/s/ Michael Cummings
Michael Cummings Director and Chief April 09, 2004
Executive Officer
/s/ Michael A. Novielli
Michael A. Novielli Chairman of April 09, 2004
the Board of Directors
/s/ Douglas Leighton
Douglas Leighton Director April 09, 2004
/s/ Theodore Smith
Theodore Smith Director April 09, 2004