SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2003
Commission file number 000-25499
Flexxtech Corporation
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(Exact name of small business issuer as specified in its charter)
Nevada 88-0390360
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State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or organization
100 Mill Plain Rd., 3rd Floor
Danbury,CT 06811
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(Address of principal executive offices) (Zip Code)
(203)791-3838
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports) Yes [ ] No [X], and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
As of March 31, 2003, the issuer had outstanding 503,407 shares of its
Common Stock, $0.001 par value.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
(A) BALANCE SHEET
(B) STATEMENT OF OPERATIONS
(C) STATEMENT OF CASH FLOWS
FLEXXTECH CORPORATION
BALANCE SHEET
MARCH 31, 2003
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents ....................... $ 667
Notes receivable - related parties .............. 44,008
Other current assets ............................ 660
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TOTAL ASSETS ................................................... $ 45,335
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LIABILITIES STOCKHOLDERS' DEFICIT
Current Liabilities:
Accrued expenses ................................ $ 381,861
Loans payable ................................... 21,781
Loans payable related parties ................... 1,727,908
Convertible debt - current ...................... 762,761
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Total Current Liabilities ............................... 2,894,311
Long-term Liabilities:
Convertible debt ................................ 140,000
STOCKHOLDERS' DEFICIT
Common stock, authorized 100,000,000 shares at $.001 par
value, issued and outstanding 503,407 shares ........... 503
Additional paid in capital ............................ 14,642,137
Shares to be issued ................................... 16,900
Accumulated deficit ................................... (17,648,516)
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Total Stockholders' Deficit
(2,988,976)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT .................... $ 45,335
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
FLEXXTECH CORPORATION
STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2003 & 2002
(UNAUDITED)
2003 2002
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REVENUE ..................................................... $ -- $ --
OPERATING EXPENSES .......................................... 50,530 273,326
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LOSS FROM OPERATIONS ............................ (50,530) (273,326)
Other income (expense)
Interest income ......................................... 660 --
Interest expense ........................................ (13,265) (32,379)
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Total other income (expense) ..................... (12,605) (32,379)
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES .............................................. (63,135) (305,705)
Provision of Income tax ..................................... 800 800
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LOSS FROM CONTINUING OPERATIONS ............................. (63,935) (306,505)
LOSS FROM DISCONTINUED OPERATIONS ........................... -- (818,075)
NET LOSS .................................................... $ (63,935) $(1,124,580)
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Basic and diluted loss per share from continuing operations . $ (0.13) $ (2.82)
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Basic and diluted loss per share from discontinued operations $ -- $ (7.54)
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Basic and diluted loss per share ............................ $ (0.13) $ (10.36)
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Basic and diluted weighted average shares outstanding ....... 485,907 108,537
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* The basic and diluted net loss per share has been restated to
retroactively effect a 2:3 forward stock split at March 26, 2001, and 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 the effect of dilutive securities is anti-dilutive.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
FLEXXTECH CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2003 & 2002
(UNAUDITED)
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ...................................................... $ (63,935) $(1,124,580)
Adjustments to reconcile net loss to cash used in
operating activities
Depreciation and amortization ........................... 3,683 74,202
Issuance of stocks for consulting services & compensation 3,750 205,400
(Increase) / decrease in current assets
Accounts receivable ................................ 300 (22,187)
Inventory .......................................... -- 101,574
Deposits & other current assets .................... 3,115 (45,045)
Increase /(decrease) in current liabilities
Accrued expenses & accounts payable ................ 45,358 36,074
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NET CASH USED IN OPERATING ACTIVITIES FROM
CONTINUED OPERATIONS ........................ (7,729) (774,562)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of common stock ................. -- 343,358
Proceeds from shares to be issued ................... 2,150 10,885
Repayment of notes receivable ....................... -- 19,000
Proceeds from borrowings ............................ 2,340 213,500
Payments of loans ................................... -- (53,572)
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NET CASH PROVIDED BY FINANCING ACTIVITIES ........... 4,490 533,171
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NET DECREASE IN CASH AND CASH EQUIVALENTS ..................... (3,239) (241,391)
CASH AND CASH EQUIVALENTS - BEGINNING ......................... 3,906 370,784
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CASH AND CASH EQUIVALENTS - ENDING ............................ $ 667 $ 129,393
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
FLEXXTECH CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION:
The accompanying unaudited condensed interim financial statements have
been prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for the presentation of interim financial information, but
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. The audited financial
statements for the two years ended December 31, 2002 and 2001 was filed on April
23, 2003 with the Securities and Exchange Commission and is hereby referenced.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the three-month periods
ended March 31, 2003 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2003.
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.
Description of business
The Company was organized on March 24, 1998, under the laws of the State
of Nevada, as Color Strategies. On December 20, 1999, the Company changed its
name to Infinite Technology Corporation. The Company changed its name to
Flexxtech Corporation in April 2000. The Company has disposed off all of its
subsidiaries by December 31, 2002 and currently has no operations.
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.
Reclassifications
For comparative purposes, prior years' consolidated financial statements
have been reclassified to conform with report classifications of the current
year.
2. RECENT PRONOUNCEMENTS
In May 2002, the Board issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections ("SFAS 145"). SFAS 145 rescinds the automatic treatment of gains or
losses from extinguishments of debt as extraordinary unless they meet the
criteria for extraordinary items as outlined in APB Opinion No. 30, Reporting
the Results of Operations, Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. SFAS 145 also requires sale-leaseback accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions and makes various technical corrections to existing pronouncements.
The provisions of SFAS 145 related to the rescission of FASB Statement 4 are
effective for fiscal years beginning after May 15, 2002, with early adoption
encouraged. All other provisions of SFAS 145 are effective for transactions
occurring after May 15, 2002, with early adoption encouraged. The adoption of
SFAS 145 does not have a material effect on the earnings or financial position
of the Company.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3 a
liability for an exit cost as defined, was recognized at the date of an entity's
commitment to an exit plan. The adoption of SFAS 146 does not have a material
effect on the earnings or financial position of the Company.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of
Certain Financial Institutions." SFAS No. 147 removes the requirement in SFAS
No. 72 and Interpretation 9 thereto, to recognize and amortize any excess of
the fair value of liabilities assumed over the fair value of tangible and
identifiable intangible assets acquired as an unidentifiable intangible
asset. This statement requires that those transactions be accounted for in
accordance with SFAS No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." In addition, this statement amends
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," to include certain financial institution-related intangible assets.
The adoption of SFAS 147 does not have a material effect on the earnings or
financial position of the Company.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that
upon issuance of a guarantee, a guarantor must recognize a liability for the
fair value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of this pronouncement does not have a material effect on the
earnings or financial position of the Company.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock
Based Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used, on reported
results. The Statement is effective for the Companies' interim reporting period
ending January 31, 2003. The adoption of SFAS 148 does not have a material
effect on the earnings or financial position of the Company.
On April 30, the FASB issued FASB Statement No. 149 (FAS 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 (FAS
133), Accounting for Derivative Instruments and Hedging Activities. FAS 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. FAS 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 Company does not expect the
adoption of SFAS No. 149 to have a material impact on its financial position or
results of operations or cash flows.
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
$17,648,516 including a net loss of $63,935 for the three month period ended
March 31, 2003. The continuing losses have adversely affected the liquidity of
the Company. The Company faces continuing significant business risks, including
but not limited to, its ability to maintain vendor and supplier relationships by
making timely payments when due.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to raise
additional capital, obtain financing and to succeed in its future operations.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Management has taken the following steps to revise its operating and
financial requirements, which it believes are sufficient to provide the Company
with the ability to continue as a going concern. Management devoted considerable
effort during the period ended March 31, 2003, towards (i) obtaining additional
equity financing through various private placements (ii) reduction of salaries
and general and administrative expenses (iii) disposal of some of the
non-profitable subsidiaries and (iv) evaluation of its distribution and
marketing methods. In that regard, during the year ended December 31, 2002, the
Company disposed off all of its losing subsidiaries.
4. NOTES RECEIVABLE/PAYABLE - RELATED
Notes receivable from related parties
Through March 31, 2003, the Company had advanced $6,008 to an entity
related through common director and $38,000 to a shareholder and former officer
of the Company. The advances bear interest at 6% per year, due on demand and
unsecured. Interest income for the three month period ended March 31, 2003 was
$660
Notes payable to related parties
The Company has notes payable to related parties through common major
shareholders and officer of the Company and individuals related to major
shareholders of the Company, amounting $1,727,908 at March 31, 2003. The notes
were due on demand, bear interest rate ranging from 10% to 18% per year and
secured by the assets of the Company. Interest the notes along with any accrued
interest were forgiven per a restructuring agreement signed by the Company on
April 9, 2003 (note 9).
5. INCOME TAXES
No provision was made for Federal income tax since the Company has
significant net operating loss carryforwards. Through March 31, 2003, the
Company incurred net operating losses for tax purposes of approximately
$16,520,000. The net operating loss carryforwards may be used to reduce taxable
income through the year 2017. Net operating loss for carryforwards for the State
of California are generally available to reduce taxable income through the year
2007. The availability of the Company's net operating loss carryforwards are
subject to limitation if there is a 50% or more positive change in the ownership
of the Company's stock. The provision for income taxes consists of the state
minimum tax imposed on corporations.
Temporary differences which give rise to deferred tax assets and
liabilities at March 31, 2003 comprised of depreciation and amortization and net
operating loss carry forward. The gross deferred tax asset balance as of March
31, 2003 was approximately $6,600,000. A 100% valuation allowance has been
established against the deferred tax assets, as the utilization of the loss
carryforwards cannot reasonably be assured.
6. STOCKHOLDERS' EQUITY
During the three month periods ended March 31, 2003, the Company issued
stock, as described per the following. The stock was 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. The financial statements
have been retroactively restated for the effects of stock splits.
Common Stock:
During the three month period ended March 31, 2003, the Company issued
75,000 shares of common stock to an entity related through common officer at
that time, for consulting fees, amounting $3,750.
Convertible debentures:
In the year ended December 31, 2001, the company issued debentures
amounting $720,000, carrying an interest rate of 6% per annum, due in August
2003. The holders are entitled to, at any time or from time to time, convert the
conversion amount into shares of common stock of the Company, par value $.001
per share at a conversion price for each share of common stock equal to the
lower of (a) 120% of the losing bid price per share (as reported by Bloomberg,
LP) on the closing date, and (b) 80% of the lowest closing bid price per share
(as reported by Bloomberg, LP) of the Company's common stock for the five
trading days immediately preceding the date of conversion. As of March 31, 2003,
the outstanding balance of the debentures amounted to $662,761.
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.
On April 8, 2003, in connection with the recession agreement (note 14),
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.
Stock option plan
The Company has adopted a Stock option plan for the granting of options
to employees, consultants and other providers of goods and services to the
Company. The Company has set aside 1,000,000 shares of common stock under the
plan. No option has been granted under the plan through March 31, 2003.
7. LITIGATION
In the year ended December 31, 2002, a suit was brought against the
Company alleging 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 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.
Presently, the complaint and cross-complaint have been answered by the Company
and discovery has commenced. The plaintiff has filed a motion to compel further
discovery and for sanctions. Management of the Company is opposing the claims
and alleges that it delivered a properly issued convertible note to the
plaintiff. In the opinion of the Company's counsel, the Company's exposure in
the case is $100,000 for the investment plus interest. However, if the claims
against the Company are successful, the punitive damages could triple the
damages. 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 entered
a judgment in the amount of $46,120 against the Company, in favor of a vendor of
the Company's former subsidiary North Texas Circuit Board ("NTCB"). The Company
believes that it was never issued proper service of process for the complaint.
In addition, on August 20, 2002 NTCB was sold by the Company to a purchaser
("Purchaser"). Pursuant to terms of the share purchase agreement, Purchaser
assumes all liabilities of NTCB. The Company plans to vigorously oppose the
action.
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. While management of the Company intends to
oppose the claims, the Company is attempting to settle the dispute with the
investor.
The Company may be involved in litigation, negotiation and settlement
matters that may occur in the day-to-day operations of the Company. Management
does not believe implication of these litigations will have any other material
impact on the Company's financial statements.
8. 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 $-0- for income taxes and interest during the three
month period ended March 31, 2003. The Company paid income taxes of $-0- and
interest of $15,100 during the three month period ended March 31, 2002.
The statement of cash flows does not include effect of non-cash
transaction of issuance of shares (note 7) for consulting services.
9. SUBSEQUENT EVENTS
On October 1, 2002, the Company signed to acquire 80% of the
outstanding Common Shares of W3M, Inc. (dba "Paradigm Cabling Systems"), a
privately held California corporation ("Paradigm"), in a stock for stock
exchange. Paradigm was incorporated in California in May of 1998, under its
current corporate name, W3M, Inc. Paradigm is a full service computer cabling,
networking and telecommunications integrator contractor, providing networks from
stem to stern in house, for larger, medium and smaller industrial, educational
and residential complexes. As part of the transaction, the Company agreed to use
its best efforts to arrange in the future 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, the Company was
unable to arrange infusion of the capital per the agreement.
On April 8, 2003, the Company 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 the Company's
Preferred Stock are restored to the status of authorized but un-issued 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, the Company
issued to Ashford Capital LLC and e-fund Capital/Barrett Evans (or its
designee), 5 year convertible debentures in the amount of sixty five thousand
dollars ($65,000) and seventy five thousand dollars ($75,000) respectively. The
Company recorded $140,000 as loss on acquisition and recession in the financial
statements at December 31, 2002. Michael Cummings, President of Paradigm also
resigned as a Director of the Company's Board of Directors.
On April 9, 2003, the Company signed a restructuring agreement with
Duchess Advisors LLC and its affiliates. Under the agreement, Western Cottonwood
Corporation, a related party through major shareholder, agreed to forgive in
Notes receivable and interest receivable from the Company as of December 31,
2002. Under the agreement (i) Western Cottonwood and Atlantis Partners shall
maintain a combined ownership percentage of a non-dilutive 4.9% and Greg
Mardock, former president of the Company, shall maintain a combined ownership
percentage of a non-dilutive 2% through the Company's first merger or
acquisition transaction. Per the agreement, the president of the Company
resigned and nominees of Dutchess Advisors LLC were appointed officers of the
Company. Pursuant to the attached consulting Agreement, the Company shall issue
Seven Hundred Thousand (700,000) shares or common stock of the Company to
Dutchess Advisors, Ltd. (the "consultant"). Also, the Company will pay to the
Consultant, the sum of three thousand dollars per month ($3,000) for non
accountable expenses for months 1-12. The Retainer shall increase to five
thousand dollars ($5,000) per month for months 13-24. Payment of nine thousand
dollars ($9,000) for the first three months is due upon execution of this
Agreement. Payment for the remaining months shall be due by the fifth business
day of each month and payable in the form of corporate check or wire transfer.
The Company shall reimburse Consultant for those reasonable and necessary
out-of-pocket expenses (including but not limited to travel, transportation,
lodging, meals etc.) which have been approved by the President of the Company
prior to their incurrence and which have been incurred by Consultant in
connection with the rendering of services hereunder. The term of this Agreement
shall be twenty four (24) months commencing on the date and year first above
written. (ii) the president of the Company resigned and (iii) nominees of
Dutchess Advisors LLC were appointed officers of the Company.
ITEM II. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Report on Form 10-QSB contains forward-looking statements,
including (without limitation) statements concerning possible or assumed future
results of operations and those preceded by, followed by or
that include the words "believes," "could," "expects," "anticipates," or similar
expressions. For those statements, we assert the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. You should understand that various events could cause those
results to differ materially from those expressed in such forward-looking
statements: materially adverse changes in economic conditions in the markets
that we and our subsidiaries serve; competition from others in the markets and
industry segments occupied by us and our subsidiaries; the ability to enter, the
timing of entry and the profitability of entering new markets; greater than
expected costs or difficulties related to the integration of the businesses
acquired by our subsidiaries; and other risks and uncertainties as may be
detailed from time to time in our public announcements and SEC filings.
The discussion and financial statements contained herein are for the three
months ended March 31, 2003 and March 31, 2002. The following discussion
regarding the financial statements of the Company should be read in conjunction
with the financial statements of the Company included herewith.
Overview:
On October 1, 2002, the Company signed to acquire 80% of the
outstanding Common Shares of W3M, Inc. (dba "Paradigm Cabling Systems"), a
privately held California corporation ("Paradigm"), in a stock for stock
exchange. Paradigm was incorporated in California in May of 1998, under its
current corporate name, W3M, Inc. Paradigm is a full service computer cabling,
networking and telecommunications integrator contractor, providing networks from
stem to stern in house, for larger, medium and smaller industrial, educational
and residential complexes. As part of the transaction, the Company agreed to use
its best efforts to arrange in the future 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, the Company was
unable to arrange infusion of the capital per the agreement.
On April 8, 2003, the Company 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 the Company's
Preferred Stock are restored to the status of authorized but un-issued 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, the Company
issued to Ashford Capital LLC and e-fund Capital/Barrett Evans (or its
designee), 5 year convertible debentures in the amount of sixty five thousand
dollars ($65,000) and seventy five thousand dollars ($75,000) respectively. The
Company recorded $140,000 as loss on acquisition and recession in the financial
statements at December 31, 2002. The Company recorded $140,000 as loss on
acquisition and recession in the financial statements at December 31, 2002.
Michael Cummings, President of Paradigm also resigned as a Director of the
Company's Board of Directors.
On April 9, 2003, the Company executed a Restructuring Agreement
pursuant to which Western Cottonwood Corporation, a related party through a
major shareholder, agreed to forgive its Notes receivable and interest
receivable from the Company as of December 31, 2002. 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, former president of the
Company, shall maintain a combined ownership percentage of a non-dilutive 2%
through the Company's first merger or acquisition transaction and (ii) the
president of the Company resigned and (iii) nominees of Dutchess Advisors LLC
were appointed officers of the Company. It is the intent of the Company's new
board of directors to continue as a public company and seek out business
opportunities that will add value to the Company.
On April 17, 2003, the Company executed a Letter of Intent to merge
with Irvine, CA - based Network Installation Corporation. Network Installation
is a designer and installer of data, voice, and video networks. Closing of the
transaction is expected on or about May 16, 2003.
A detailed description of the terms and conditions of (i) the voided
Paradigm Cabling Purchase Agreement and (ii) the Restructuring Agreement are
available in the Company's filing on Form 8K dated April 23, 2003.
While there is no assurance that we will be successful in raising
additional capital, we are actively seeking private equity financing to assure
that we will be capable of financing the continuation of our business. Any
additional capital raised above and beyond what we need as our monthly
expenditure would be used in increasing marketing, sales efforts and
acquisitions. Should we fail to raise additional funding, we will be forced to
curtail our growth, both through internal development and through acquisitions.
As only a holding company to date, we do not generate our own revenues, but we
rely on additional financing to pay our operating expenses.
THREE MONTHS ENDED JUNE 30, 2003 AS COMPARED TO THREE MONTHS ENDED JUNE 30, 2002
(restated for disposal of subsidiaries)
Results of Operations
We have generated consolidated revenues of $0 for the three months
ended March 31, 2003 as compared to $0 for the three months ended March 31,
2002. Currently, our cash needs include, but are at no means limited to, legal
and accounting to fund operation of the parent, and for future acquisitions.
Net Revenues
We had net revenues of $0 for the quarter ended March 31, 2003 as
compared to $0 for the quarter ended March 31, 2002.
Cost of Revenue
We incurred Cost of Revenue of $0 for the quarter ended March 31,
2003 as compared to $0 for the quarter ended March 31, 2002.
General, Administrative and Selling Expenses
We incurred costs of $50,530 for the quarter ended March 31, 2002 as
compared to $273,326 for the quarter ended March 31, 2002. The decrease was due
to the fact the Company no longer maintains any operations.
Net loss before income taxes and loss on discontinued segments
We had a loss before taxes and discontinued segments of ($63,935)
for the quarter ended March 31, 2003, as compared to a loss of ($306,505) for
the quarter ended March 31, 2002. $34,927 of the loss came from the issuance of
common stock for consulting services.
Unrealized loss on investments available for sale
We did not have an unrealized loss on investments available for sale
for the three months ending March 31, 2003.
Loss from discontinued operations
We had a loss from operations of discontinued entities of $818,075
in the period ended March 31, 2002. We did not have such loss in 2003 since the
entities, Flexxtech Holdings, Inc. and its wholly owned subsidiary, Primavera
were disposed off on December 31, 2002.
Net loss
We had a net loss of ($63,935) for the quarter ended March 31, 2003
as compared to a net loss of ($1,124,580) for the quarter ended March 31, 2002.
Comprehensive Loss.
We had a Comprehensive Loss of ($63,935) for the quarter ended March
31, 2003 as compared to a Comprehensive Loss of ($1,124,580) for the quarter
ended March 31, 2002.
Basic and diluted loss per share
Our basic and diluted loss per share for the quarter ended March 31,
2003 was ($0.13) as compared to ($10.36) for the quarter ended March 31, 2002
Litigation
In the year ended December 31, 2002, a suit was brought against the
Company alleging 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 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.
Presently, the complaint and cross-complaint have been answered by the Company
and discovery has commenced. The plaintiff has filed a motion to compel further
discovery and for sanctions. Management of the Company is opposing the claims
and alleges that it delivered a properly issued convertible note to the
plaintiff. In the opinion of the Company's counsel, the Company's exposure in
the case is $100,000 for the investment plus interest. However, if the claims
against the Company are successful, the punitive damages could triple the
damages. 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
entered a judgment in the amount of $46,120 against the Company, in favor of a
vendor of the Company's former subsidiary North Texas Circuit Board ("NTCB").
The Company believes that it was never issued proper service of process for the
complaint. In addition, on August 20, 2002 NTCB was sold by the Company to a
purchaser ("Purchaser"). Pursuant to terms of the share purchase agreement,
Purchaser assumes all liabilities of NTCB. The Company plans to vigorously
oppose the action.
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. While management of the Company
intends to oppose the claims, the Company is attempting to settle the dispute
with the investor.
The Company may be involved in litigation, negotiation and
settlement matters that may occur in the day-to-day operations of the Company.
Management does not believe implication of these litigations will have any other
material impact on the Company's financial statements.
Change in Securities
During the three month period ended March 31, 2003, we issued 75,000
shares of common stock to an entity related to the major shareholder of the
Company before the restructuring agreement, as consulting fees.
Liquidity and Capital Resources
The Company must continue to raise capital to fulfill its plan of
acquiring companies and assisting in the development of those companies
internally. If the Company is unable to raise any additional capital its
operations will be curtailed. As of March 31, 2003, the Company had total
Current Assets of $45,335 and Current Liabilities of $2,894,311. Cash and cash
equivalents were $667 as compared to $129,393 at march 31, 2002,. Our
Stockholder's Deficit at march 31, 2003 was ($2,988,976).
We had a net usage of cash due to operating activities in March 31,
2003 and 2002 of $7,729 and $774,562, respectively. We had net cash provided by
financing activities of $4,490 and $533,171 in the three month period ended
March 31, 2003 and 2002, respectively. We had cash inflow of 343,358 from sale
of stock and $213,500 from borrowings in the period ended March 31, 2002.
Subsidiaries
As of March 31, 2003, we do not have any subsidiary.
Plans to Raise Capital
We currently need to raise additional capital to stay in business.
Proceeds from any such capital raising transactions will be used for general
corporate purposes, including working capital. Should we not raise capital, our
ability to develop new business opportunities will be greatly diminished.
Substantial Indebtedness
We have a substantial amount of indebtedness. As a result of our
level of debt and the terms of our debt instruments:
o our vulnerability to adverse general economic conditions is
heightened;
o we will be required to dedicate a substantial portion of our
cash flow from operations to repayment of debt, limiting the
availability of cash for other purposes;
o we are and will continue to be limited by financial and other
restrictive covenants in our ability to borrow additional
funds, consummate asset sales, enter into transactions with
affiliates or conduct mergers and acquisitions;
o our flexibility in planning for, or reacting to, changes in
its business and industry will be limited;
o we are sensitive to fluctuations in interest rates because
some of our debt obligations are subject to variable interest
rates; and
o our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired.
Our ability to pay principal and interest on our indebtedness and to
satisfy our other debt obligations will depend upon our future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, some of which are beyond our control. If
we are unable to service our indebtedness, we will be forced to take actions
such as reducing or delaying capital expenditures, selling assets, restructuring
or refinancing our indebtedness, or seeking additional equity capital. There is
no assurance that we can effect any of these remedies on satisfactory terms, or
at all.
Item 3. Subsequent Events
On April 9, 2003, the Company signed a restructuring agreement with
Duchess Advisors LLC and its affiliates. Under the agreement, Western Cottonwood
Corporation, a related party through major shareholder, agreed to forgive in
Notes receivable and interest receivable from the Company as of December 31,
2002. Under the agreement, Western Cottonwood and Atlantis Partners shall
maintain a combined ownership percentage of a non-dilutive 4.9% and Greg
Mardock, former president of the Company, shall maintain a combined ownership
percentage of a non-dilutive 2% through the Company's first merger or
acquisition transaction. Per the agreement, the president of the Company
resigned and nominees of Dutchess Advisors LLC were appointed officers of the
Company.
Item 4. Defaults Upon Senior Securities
Not Applicable.
Item 5. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 6. Other Information.
On April 8, 2003, the Company 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 the Company's Preferred Stock are
restored to the status of authorized but un-issued shares. Michael Cummings,
President of Paradigm also resigned as a Director of the Company's Board of
Directors.
Item 7. Exhibits and Reports on Form 8-K.
Exhibits filed with this Report
(a) Reports on Form 8-K
Not Applicable
ITEM III. Controls and Procedures
Evaluation of disclosure controls and procedures. We maintain controls
and procedures designed to ensure that information required to be disclosed in
this report is recorded, processed, accumulated and communicated to our
management, including our chief executive officer and our chief financial
officer, to allow timely decisions regarding the required disclosure. Within the
90 days prior to the filing date of this report, our management, with the
participation of our chief executive officer and chief financial officer,
carried out an evaluation of the effectiveness of the design and operation of
these disclosure controls and procedures. Our chief executive officer and chief
financial officer concluded, as of fifteen days prior to the filing date of this
report, that these disclosure controls and procedures are effective.
Changes in internal controls. Subsequent to the date of the above
evaluation, we made no significant changes in our internal controls or in other
factors that could significantly affect these controls, nor did we take any
corrective action, as the evaluation revealed no significant deficiencies or
material weaknesses.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLEXXTECH CORPORATION
(Registrant)
Date: May 20, 2003 By: /s/ Michael A. Novielli
---------------------------------
Michael A. Novielli
Chairman, CEO & CFO
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I, Michael A. Novielli, Chairman, CEO & CFO of the registrant, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Flexxtech
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 20, 2003 /s/ Michael A. Novielli
---------------------------
Michael A. Novielli
Chairman, CEO & CFO