UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2005
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________
Commission file number 000-25499
NETWORK INSTALLATION CORPORATION
--------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 88-0390360
-------------------- -----------------------
State or other jurisdiction of (IRS Employer
Incorporation or organization Identification Number)
15235 Alton Parkway, Suite 200, Irvine, CA 92618
-------------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
(949) 753-7551
--------------
(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 Exchange Act during the past 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 [ ]
State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date:
As of May 2, 2005 there were 21,057,813 shares of Common Stock issued and
outstanding, $0.001 par value.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES [ ] NO [X]
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NETWORK INSTALLATION CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
UNAUDITED CONSOLIDATED BALANCE SHEET 1
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS 2
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS 3
Network Installation Corp.
Consolidated Balance Sheets
March 31, December 31,
2005 2004
(Unaudited)
------------- --------------
ASSETS
Current Assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . $ 213,729 $ 1,732
Accounts Receivable . . . . . . . . . . . . . . . . . . 776,155 500,833
Allowance for Doubtful Accounts . . . . . . . . . . . . (95,486) (95,486)
Inventory . . . . . . . . . . . . . . . . . . . . . . . 44,786 -
Other Current Asset . . . . . . . . . . . . . . . . . . 97 -
Prepaid Expenses. . . . . . . . . . . . . . . . . . . . 34,375 595,812
------------- --------------
Total Current Assets . . . . . . . . . . . . . . . . 973,656 1,002,891
------------- --------------
Fixed Assets:
Vehicles. . . . . . . . . . . . . . . . . . . . . . . . 48,515 -
Equipment . . . . . . . . . . . . . . . . . . . . . . . 18,708 -
Furniture and Fixtures. . . . . . . . . . . . . . . . . 46,098 46,098
------------- --------------
113,321 46,098
Less: Accumulated Depreciation. . . . . . . . . . . . . (43,585) (9,937)
------------- --------------
Total Fixed Assets . . . . . . . . . . . . . . . . . 69,736 36,161
------------- --------------
Other Assets:
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . 594,738 -
Security Deposits . . . . . . . . . . . . . . . . . . . 20,690 19,916
------------- --------------
Total Other Assets . . . . . . . . . . . . . . . . . 615,428 19,916
------------- --------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,658,820 $1,058,968
============= ==============
LIABILITIES ANDSTOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable & Accrued Expenses . . . . . . . . . . 1,424,490 1,148,427
Bank Line of Credit . . . . . . . . . . . . . . . . . . 101,220 -
Notes Payable . . . . . . . . . . . . . . . . . . . . . 174,920 85,075
Notes Payable - Stockholder . . . . . . . . . . . . . . 105,580 120,580
------------- --------------
Total Current Liabilities. . . . . . . . . . . . . . 1,806,210 1,354,082
------------- --------------
Long-Term Debt:
Notes Payable . . . . . . . . . . . . . . . . . . . . . 97,500 0
Convertible Debentures - Long-Term Debt . . . . . . . . 1,782,546 1,582,517
------------- --------------
Total Long-Term Debt. . . . . . . . . . . . . . . . . . 1,880,046 1,582,517
------------- --------------
Stockholders Equity
Common stock, no par value, 50,000,000 shares. . . . . . 23,484 23,484
authorized, 23,483,873 shares issued and outstanding
Additional Paid-in Capital . . . . . . . . . . . . . . . 14,727,250 7,617,181
Subscriptions Receivable . . . . . . . . . . . . . . . . (30,600) -
Shares to be issued. . . . . . . . . . . . . . . . . . . 117,217 116,249
Treasury Stocks (Net). . . . . . . . . . . . . . . . . . (2,500) -
Accumulated Deficit. . . . . . . . . . . . . . . . . . . (16,862,287) (9,634,545)
------------- --------------
Total Stockholders' Equity (Deficit) . . . . . . . . (2,027,436) (1,877,631)
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . . . $ 1,658,820 $ 1,058,968
============= ==============
See Accountants Review Report
Network Installation Corp.
Consolidated Statement of Operations
(Unaudited)
Three-Months Ended
March 31,
--------------------------------
2005 2004
-------------------- ----------
REVENUE:
Revenue. . . . . . . . . . . . . . . $ 750,716 $ 510,522
-------------------- ----------
Total Income . . . . . . . . . . . . . . 750,716 510,783
-------------------- ----------
Cost of Goods Sold. . . . . . . . . . 424,078 320,220
-------------------- ----------
Net Income . . . . . . . . . . . . 326,638 190,302
-------------------- ----------
COSTS AND EXPENSES:
Investor Relations. . . . . . . . . . 347,318 40,030
Office Salaries . . . . . . . . . . . 210,255 30,841
Officer Compensation. . . . . . . . . 6,575,426 77,666
Professional Fees . . . . . . . . . . 29,342 100,847
Telephone . . . . . . . . . . . . . . 19,973 10,022
Insurance . . . . . . . . . . . . . . 12,978 21,402
Consulting Fees . . . . . . . . . . . 33,188 134,069
Rent. . . . . . . . . . . . . . . . . 36,064 10,250
Travel. . . . . . . . . . . . . . . . 14,418 12,825
Payroll Taxes . . . . . . . . . . . . 16,774 1,073
Depreciation. . . . . . . . . . . . . 4,869 750
Other Operating Expenses. . . . . . . 81,598 145,258
-------------------- ----------
TOTAL EXPENSES . . . . . . . . . . . . . 7,382,203 585,033
-------------------- ----------
NET LOSS FROM OPERATIONS . . . . . . . . (7,055,565) (394,731)
-------------------- ----------
OTHER INCOME/EXPENSES
Interest Expense. . . . . . . . . . . (172,177) (151,390)
-------------------- ----------
TOTAL OTHER INCOME/EXPENSE . . . . . . . (172,177) (151,390)
-------------------- ----------
NET INCOME (LOSS). . . . . . . . . . . . (7,227,742) (546,122)
==================== ==========
BASIC AND DILUTED LOSS PER COMMON SHARE. $ (0.31) $ (0.04)
==================== ==========
See Accountants Review Report
Network Installation Corp.
Consolidated Statement of Cash Flows
(Unaudited)
Three-Months Ended
March 31,
----------------------------------
2005 2004
-------------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Profit . . . . . . . . . . . . . . . . . . . . $ (7,227,742) $(545,122)
Stock issued for services and debt reduction . . . 6,487,772 195,000
Beneficial conversion feature expense. . . . . . . (170,250) 135,125
Stock rescinded. . . . . . . . . . . . . . . . . . (530,590) -
Stock warrants issued for debt inducement. . . . . 109,342 -
Stock issued for acquisition . . . . . . . . . . . 200,000 -
Depreciation . . . . . . . . . . . . . . . . . . . 33,648 2,250
Adjustments to reconcile net loss to net cash used
by operating activities
Changes in operating assets and liabilities
Increase in Accounts Payable. . . . . . . . . . 276,063 (250,622)
(Increase) in Accounts Receivable . . . . . . . (97) 272,173
(Increase) Decrease in Prepaid Expenses . . . . 561,437 (92,500)
(Increase) Decrease in Other Assets . . . . - (2,172)
Increase (Decrease) in Deferred Revenues . . . . - (202,055)
-------------------- ------------
NET CASH USED IN OPERATING ACTIVITIES . . . . . . . . (260,417) (324,190)
-------------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Inventory. . . . . . . . . . . . . . . (44,786) 164,013
Purchase of Goodwill . . . . . . . . . . . . . . . (594,738) -
Purchase of property and equipment . . . . . . . . (67,223) -
-------------------- ------------
NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES . . . (706,747) 164,013
-------------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on Notes Payable - Stockholder. . . (15,000) -
Proceeds from Notes Payable . . . . . . . . . . . - 17,271
Proceeds from Factor . . . . . . . . . . . - (3,297)
Proceeds from Notes Payable . . . . . . . . . . . 288,566 -
Proceeds from Long-Term borrowing . . . . . . . . 200,029 426,989
Payments on Notes Payable . . . . . . . . . . . . (1,181) (116,720)
-------------------- ------------
NET CASH USED FOR FINANCING ACTIVITIES. . . . . . . . 472,414 324,243
-------------------- ------------
NET INCREASE IN CASH & CASH EQUIVALENTS . . . . . . . 211,997 (667)
BEGINNING CASH & CASH EQUIVALENTS . . . . . . . . . . 1,732 667
-------------------- ------------
ENDING CASH & CASH EQUIVALENTS. . . . . . . . . . . . $ 213,729 $ 0
==================== ============
SUPPLEMENTAL DISCLOSUE OF CASH FLOW INFORMATION
Cash paid for interest . . . . . . . . . . . . . $ 605 $ 0
==================== ============
Cash paid for Income Taxes . . . . . . . . . . . $ - $ -
==================== ============
NON-CASH TRANSACTIONS
Stocks issued for Services & Debt reduction. . . . $ 6,487,772 $ -
Stocks issued for Debt Inducement. . . . . . . . . $ 109,342 $ -
Stocks rescinded or conversion feature expense . . $ (700,840) $ -
==================== ============
See Accountants Review Report
Network Installation Corp.
Consolidated Stockholders' Equity (Deficit)
March 31, 2005
(Unaudited)
Sub-
Addi- scrip- Total
COMMON STOCKS tional tions Shares Accum- Stock-
------------------------- Paid-in Receiv- To Be Treasury ulated holders'
# of Shares Amount Capital able Issued Stock (Net) Deficit Equity
-------------- --------- ------------ ---------- --------- ------------ ------------- ------------
Balance -
December 31, 2003. . . 12,616,330 $ 12,616 $ 2,743,222 $ - $116,295 $ - $ (5,466,040) $(2,593,907)
Recapitalization
of stock
for Reverse Merger . . (2,149,500) (2,150) 2,185 - (35) - - -
Issuance of stock
for services . . . . . 372,383 372 365,778 - - - - 366,150
Issuance of stock
for cash . . . . . . . 745,001 745 2,234,258 - - - - 2,235,003
Conversion feature expense. - - 511,275 - - - - 511,275
Issuance of Stock
for Acquisition. . . . 130,549 131 499,869 - - - - 500,000
Conversion on
convertible debenture. 188,365 189 706,044 - (11) - - 706,222
Issuance of
stock warrants . . . . - - 466,790 - - - - 466,790
Forward stock split . . 11,580,745 11,581 (11,581) - - - - -
Issuance of
stock warrants
Advisory Board . . . . - - 99,341 - - - - 99,341
Net Loss for Year . . . - - - - - - (4,168,505) (4,168,505)
-------------- --------- ------------ ---------- --------- ------------ ------------- ------------
Balance -
December 31, 2004. . . 23,483,873 23,484 7,617,181 - 116,249 - (9,634,545) (1,877,631)
-------------- --------- ------------ ---------- --------- ------------ ------------- ------------
Conversion feature expense - - 52,500 - - - - 52,500
Issuance of
stock warrants . . . . - - 109,342 - - - - 109,342
Issuance of Stock
for Acquisition. . . . - - 199,891 - 109 - - 200,000
Conversion on
convertible debenture. - - 98,900 - 100 - - 99,000
Conversion feature expense - - 18,750 - - - - 18,750
Issuance of Stock
warrants Officers. . . - - 6,476,085 - - - - 6,476,085
Rescind founders stock. - - 1,814 - - (1,814) - -
Rescind of
Investor shares. . . . - - (529,904) - - (686) - (530,590)
Issuance of Stock
(Private Placement). . - - 682,691 (30,600) 759 - - 652,850
Net Loss for Period . - - - - - - (7,227,742) (7,227,742)
-------------- --------- ------------ ---------- --------- ------------ ------------- ------------
Balance -
March 31, 2005 . . . . 23,483,873 $ 23,484 $14,727,250 $ (30,600) $117,217 $ (2,500) $(16,862,287) $(2,027,436)
============== ========= ============ ========== ========= ============ ============= ============
See Accountants Review Report
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors
Network Installation Corp., Inc.
We have reviewed the accompanying balance sheet of Network Installation Corp,
Inc. as of March 31, 2005 and the related statements of operations and cash
flows for the three months ended March 31, 2005 and 2004, included in the
accompanying Securities and Exchange Commission Form 10-QSB for the period ended
March 31, 2005. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the objective of which is the expression of an opinion
regarding the financial statements as a whole. Accordingly, we do not express
such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, conditions
exist which raise substantial doubt about the Company's ability to continue as a
going concern unless it is able to generate sufficient cash flows to meet its
obligations and sustain its operations. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the balance sheet as of
December 31, 2004 and the related statements of operations, stockholders'
equity and cash flows for the year then ended (not presented herein). In our
report dated May 6, 2005, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying balance sheet as of March 31, 2005 is fairly stated in all material
respects in relation to the balance sheet from which it has been derived.
Michael Johnson & Co., LLC.
Denver, Colorado
May 20, 2005
1. DESCRIPTION OF BUSINESS AND SEGMENTS
OVERVIEW
We are a one-source solution company focusing on the design, installation, and
deployment of specialty communication systems for data, voice, video and
telecom. We first determine our clients' requirements by doing a needs analysis
and site audit. We then implement our specific design of the communication
system, which may include either Wired or Wireless Fidelity, also referred to as
Wi-Fi. We seek to exploit the growing demand for high-speed connectivity by
leveraging our extensive installation expertise into providing complete superior
network solutions across a vast majority of communication requirements.
We have distinguished ourselves from our peers by consolidating three
traditionally fragmented industries. Our technicians design the applications
required for network build-outs, structured cabling, deployment, security,
training, and technical support and we use the best available Wi-Fi, Voice over
Internet Protocol, or VoIP, and traditional telecom products. We earn revenue
for services rendered which include; (i) the installation of data, voice, video
and telecom networks; (ii) the resale of installed networking products, and
(iii) consulting services in the assessment of existing networks.
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.
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 period ended December 31, 2004 were filed on May 6, 2005 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,
2005 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2005.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
-----------------------------
The accompanying financial statements include the accounts of Network
Installation Corp. ("NIC"), formerly Flexxtech Corporation (legal acquirer, the
"Parent"), and its 100% owned subsidiaries, Network Installation Corporation,
COM Services, Inc. ("COM"), and Del Mar Systems International, Inc. ("DMSI").
All significant inter-company accounts and transactions have been eliminated in
consolidation. The results include the accounts of NIC and Flexxtech for the
three months ended March 31, 2005, and the results of COM from the date of
acquisition, January 17, 2005 through March 31, 2005. The historical results for
the three months ended March 31, 2004 include NIC and DMSI only.
REVENUE RECOGNITION
--------------------
In the first quarter of 2004, the Company utilized a different revenue
recognition method, the completed contracts approach. This approach was changed
with the 10KSB/A reporting submitted for the year ending December 31, 2004 to
the percentage-of-completion method, which the Company believes better
represents business activity. However, when comparing first quarter numbers for
2005 to those for 2004, the comparison involves numbers calculated using
differing methods.
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 using the
percentage-of-completion method of accounting. Accordingly, income is recognized
in the ratio that costs incurred bears to estimated total costs. Adjustments to
cost estimates are made periodically, and losses expected to be incurred on
contracts in progress are charged to operations in the period such losses are
determined. The aggregate of costs incurred and income recognized on uncompleted
contracts in excess of related billings is shown as a current asset, and the
aggregate of billings on uncompleted contracts in excess of related costs
incurred and income recognized is shown as a current liability.
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.
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.
STOCK-BASED COMPENSATION
-------------------------
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" amended by SFAS No 148, "Accounting for Stock Based Compensation
Transition and Disclosure". SFAS No. 123 prescribes accounting and reporting
standards for all stock-based compensation plans, including employee stock
options, restricted stock, employee stock purchase plans and stock appreciation
rights. SFAS No. 123 requires compensation expense to be recorded (i) using the
new fair value method or (ii) using the existing accounting rules prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for stock issued to
employees" (APB 25) and related interpretations with pro-forma disclosure of
what net income and earnings per share would have been had the Company adopted
the new fair value method. The Company uses the intrinsic value method
prescribed by APB 25 and has opted for the disclosure provisions of SFAS No.123.
No options were issued during the three months ended March 31, 2004 and 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". 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 debentures and warrants were converted or exercised.
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 for the
period ended March 31, 2004 and 2003, as substantially all of the Company's
operations are conducted in one industry segment.
3. GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has accumulated deficit of
$16,862,287, and is generating losses from operations. 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
toward obtaining additional equity financing through various private placements
and evaluation of its distribution and marketing methods.
4 ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses is comprised of the following:
March 31, 2005
--------------
Accounts payable. . $ 567,560
Payroll tax payable 405,418
Litigation accrual. 110,000
Accrued expenses. . 341,512
----------
$1,424,490
==========
Payroll tax liabilities of $53,927 and $351,491, $405,418 in total, are payable
for 2005 and 2004, respectively. As of the date of these financial statements,
the Company is negotiating with the Internal Revenue Service to determine an
installment payment plan. The Company intends to commence installment payments
in 2005.
5. BANK LINE OF CREDIT AND NOTES PAYABLE
The Company assumed a $100,000 revolving line of credit with a balance of
$100,538 in connection with the COM acquisition. This note bears interest at a
variable rate, 8.75% as of March 31, 2005, and is due on demand. The balance
outstanding as of March 31, 2005 was $101,220.
The Company contracted a $500,000 note payable in March 2004 in connection with
the DMSI acquisition. This note bears interest at 5% and is payable in monthly
installments of $42,804, maturing in April 2005. The balance outstanding as of
March 31, 2005 was $85,075.
The Company assumed a $7,850 note payable secured by an automobile with a
balance of $7,450 in connection with the COM acquisition. The loan bears
interest of 7.99%. The balance outstanding as of March 31, 2005 was $7,345.
The Company contracted a $126,000 note payable in January 2005 in connection
with the COM acquisition. This note bears interest at 6% and is payable in
monthly installments of $5,250, maturing in January 2007. The balance
outstanding as of March 31, 2005 was $126,000.
The Company contracted a $54,000 note payable in January 2005 in connection with
the COM acquisition. This note bears interest at 6% and is payable in monthly
installments of $2,250, maturing in January 2007. The balance outstanding as of
March 31, 2005 was $54,000.
6. RELATED PARTY TRANSACTIONS
RELATED PARTY NOTES PAYABLE - CURRENT
------------------------------------------
The Company has an unsecured, non-interest bearing note, due on demand, to a
former officer. The balance outstanding as of March 31, 2005, was $105,580.
During the period ended March 31, 2005, the Company issued $210,000 debentures
to a major shareholder of the Company. These debentures carry an interest rate
of 8% per annum, due in December 2010. These debentures carried a discounted
price from the face value of $35,000. 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
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
accordance with EITF 00-27 98-5, the beneficial conversion feature on the
issuance of the convertible debenture for the quarter ended March 31, 2005 has
been recorded in the amount of $52,500.
During the period ended March 31, 2005, the Company issued $75,000 debentures to
a major shareholder of the Company. These debentures carry an interest rate of
6% per annum, due in December 2010. 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
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
accordance with EITF 00-27 98-5, the beneficial conversion feature on the
issuance of the convertible debenture for the quarter ended March 31, 2005 has
been recorded in the amount of $18,750.
7. INCOME TAXES
No provision was made for Federal income tax since the Company has significant
net operating loss. Through December 31, 2004, the Company incurred net
operating losses for tax purposes of approximately $3,500,000. The net operating
loss carry forwards may be used to reduce taxable income through the year 2023.
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. A valuation allowance for 100% of the deferred taxes asset has
been recorded due to the uncertainty of its realization.
8. COMMITMENTS & CONTINGENCIES
Litigation:
-----------
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 services. 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
(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 intends to
continue to oppose the action in court, 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
discussions 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.
9. DUE TO FACTOR
On January 19, 2005, the Company entered into a $128,750 factoring and security
agreement to sell, transfer and assign certain accounts receivable to Dutchess
Private Equities Fund II, LP ("Dutchess"). Dutchess 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. 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. Dutchess
charged $5,205 for finance charges in connection with this agreement. During the
three months ended March 31, 2005, the Company collected and made payment to
Dutchess on all amounts owed in connection with this agreement. Due to factor
amounted to $0 as of March 31, 2005, respectively.
10. STOCKHOLDERS' EQUITY
EQUITY
------
During the three months ended March 31, 2005, the Company issued and agreed to
issue common stock as follows:
During the three months ended March 31, 2005, the Company agreed to issue
725,389 shares of common stock to accredited investors for a total of $683,450.
A total of $652,850 was received from the individual investors during the three
months ended March 31, 2005. The remaining $30,600 is recorded as a stock
subscription receivable as of March 31, 2005 and was received in April 2005.
During the three months ended March 31, 2005, the Company agreed to issue
108,696 shares of common stock in connection with the acquisition of COM for a
total of $200,000.
During the three months ended March 31, 2005, the Company agreed to issue
100,000 shares of common stock valued at $99,000 for investor relations services
to be consummated in February 2005.
During the three months ended March 31, 2005, the founder and former CEO agreed
to rescind 1,814,482 shares of common stock back to the Company. These shares of
common stock had been acquired by the founder and former CEO in connection with
the organization of the Company. As such, the shares were originally recorded
with a $0 value and have been rescinded with a $0 value.
During the three months ended March 31, 2005, a majority shareholder agreed to
rescind 685,517 shares of common stock valued at $530,590 back to the Company.
These shares of common stock were acquired in September 2003 by the majority
shareholder in connection with various debt financings consummated in 2003 and
were valued at $.774 per share at the time of issuance. Investor relations for
the three months ended March 31, 2005 includes a reduction of the total expense
for the period, of $530,590, recorded as a result of the rescinding of these
shares of common stock.
CONVERTIBLE DEBENTURES - RELATED PARTIES
--------------------------------------------
During the period ended March 31, 2005, the Company issued $210,000 debentures
to a major shareholder of the Company. These debentures carry an interest rate
of 8% per annum, due in December 2010. These debentures carried a discounted
price from the face value of $35,000. 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
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
accordance with EITF 00-27 98-5, the beneficial conversion feature on the
issuance of the convertible debenture for the quarter ended March 31, 2005 has
been recorded in the amount of $52,500.
During the period ended March 31, 2005, the Company issued $75,000 debentures to
a major shareholder of the Company. These debentures carry an interest rate of
6% per annum, due in December 2010. 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
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
accordance with EITF 00-27 98-5, the beneficial conversion feature on the
issuance of the convertible debenture for the quarter ended March 31, 2005 has
been recorded in the amount of $18,750.
11. BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share for the three-month period ended March 31,
2005 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.
12. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
The Company paid income taxes of $0 during the three months ended March 31, 2005
and 2004, respectively.
13. ACQUISITION OF COM SERVICES, INC.
Pursuant to an acquisition agreement, the Company acquired 100% of the
outstanding shares of common stock of COM Services, Inc., a California
corporation, on January 17, 2005 for $50,000 in cash, $200,000 in common stock,
and notes payable of $180,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The discussion and financial statements contained herein are for the three
months ended March 31, 2005 and March 31, 2004. The following discussion should
be read in conjunction with our financial statements and notes thereto included
herewith
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Report on Form 10-QSB contains forward-looking statements, including,
without limitation, statements concerning our possible or assumed future results
of operations. These statements are preceded by, followed by or include the
words "believes," "could," "expects," "intends," "anticipates," or similar
expressions. Our actual results could differ materially from those anticipated
in the forward-looking statements for many reasons including: our ability to
continue as a going concern, adverse economic changes affecting markets we
serve; competition in our markets and industry segments; our timing and the
profitability of entering new markets; greater than expected costs, customer
acceptance of wireless networks or difficulties related to our integration of
the businesses we may acquire and other risks and uncertainties as may be
detailed from time to time in our public announcements and SEC filings. 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.
The discussion and financial statements contained herein are for the three
months ended March 31, 2005 and March 31, 2004. The following discussion should
be read in conjunction with our financial statements and the notes thereto
included herewith.
THREE MONTHS PERIOD ENDED MARCH 31, 2005 AS COMPARED TO THREE MONTHS ENDED MARCH
31, 2004
RESULTS OF OPERATIONS
NET REVENUE
------------
We generated consolidated net revenues of $750,716 for the three months ended
March 31, 2005, as compared to $510,522 for the three month period ended March
31, 2004. The increase in revenues for this quarter when compared to the same
quarter last year is due to the increase in marketing expenditures, increase in
our sales force and the acquisition of COM Services which contributed to our
revenue for the quarter.
COST OF REVENUE
-----------------
We incurred Cost of Revenue of $424,078 for the three months ended March 31,
2005, as compared to $320,220 for the three month period ended March 31, 2004.
Our Cost of Revenue increase is due to an increase in the expansion of business
from the prior quarter which were expensed in the period ending March 31, 2005.
GROSS PROFIT
-------------
We generated gross profit of $326,638 for the three month period ended March 31,
2005, as compared to $190,302 for the three month period ended March 31, 2004.
The increase in gross profit is due to a larger volume of projects completed.
COSTS ANDEXPENSES
---------------
We incurred costs of $7,382,203 for the three month period ended March 31, 2005
as compared to $585,034 for the three month period ended March 31, 2004,
respectively. Costs and Expenses in the current period increased due to a
substantial increase in Officer Compensation. Warrants expensed at $6,476,085
were issued pursuant to employment agreements executed with our new Chief
Executive Officer and Chief Financial Officer.
NET INCOME (LOSS)
-------------------
We had a loss before taxes of ($7,227,742) for the three month period ended
March 31, 2005 as compared to a loss of ($546,122) for the three month period
ended March 31, 2004. The increase in loss is due a substantial increase in
Officer Compensation as described above in Other Expenses.
BASIC AND DILUTED INCOME (LOSS) PER SHARE
-----------------------------------------------
Our basic and diluted income (loss) per share for the three month period ended
March 31, 2005 was ($0.31) as compared to ($0.04) for the period ended March 31,
2004. The increase in our loss per share is due to the increase in our net loss
to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
As of March 31, 2005, our Current Assets were $973,656 and Current Liabilities
were $1,806,210. Cash and cash equivalents were $213,729. Our Stockholder's
Deficit at March 31, 2005 was ($2,027,436).
We had a net usage of cash due to operating activities for the three month
period ended March 31, 2005 of ($260,417)compared to a ($324,910), for the
three-month period ended March 31, 2004. The increase is due to an increase in
warrants issued for debt inducements and stock paid for acquisitions. We had
net cash provided by financing activities of for the three month period ended
March 31, 2005 and 2004 of $472,414 and $324,243, respectively. The increase is
due to an increase in proceeds from Notes Payable and Long Term Borrowings. We
had $200,029 from borrowings in the period ended March 31, 2005 as compared to
$426,989 in the corresponding 2004 quarter.
FINANCING ACTIVITIES
---------------------
On January 6, 2005, we issued convertible debentures of $150,000 to Dutchess
Private Equities Fund, II, LP. The holders of the debentures are entitled to
convert the face amount of these 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 8% cumulative interest, in cash or in shares of common
stock, at our the holder's option, at the time of each conversion. The
debentures are payable in 2010. The convertible debentures are convertible into
shares of our common stock.
In connection with the above financing, on January 6, 2005, we issued a warrant
to purchase 150,000 shares of our common stock to Dutchess at $1.83
On January 21, 2005, we issued convertible debentures of $60,000 to Dutchess
Private Equities Fund, II, LP. The holders of the debentures are entitled to
convert the face amount of these 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 8% cumulative interest, in cash or in shares of common
stock, at our option, at the time of each conversion. The debentures are payable
in 2010. The convertible debentures are convertible into shares of our common
stock.
In connection with the above financing, on January 21, 2005, we issued a warrant
to purchase 60,000 shares of our common stock to Dutchess at $1.80
On February 3, 2005, we issued convertible debentures of $50,000 to Preston
Capital Partners, LLC. The holders of the debentures are entitled to convert the
face amount of these 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 8% cumulative interest, in cash or in shares of common stock, at our
option, at the time of each conversion. The debentures are payable in 2010. The
convertible debentures are convertible into shares of our common stock.
On February 10, 2005, we issued convertible debentures of $25,000 to Preston
Capital Partners, LLC. The holders of the debentures are entitled to convert the
face amount of these 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 8% cumulative interest, in cash or in shares of common stock, at our
option, at the time of each conversion. The debentures are payable in 2010. The
convertible debentures are convertible into shares of our common stock.
During the three months ended March 31, 2005, the Company agreed to issue
725,389 shares of common stock to individual investors for a total of $683,450.
A total of $652,850 was received from the individual investors during the three
months ended March 31, 2005. The remaining $30,600 is recorded as a stock
subscription receivable as of March 31, 2005 and was received in April 2005.
SUBSIDIARIES
As of March 31, 2005, we had three wholly-owned subsidiaries, Network
Installation Corp., Del Mar Systems International, Inc., and COM Services, Inc.
ITEM 3. CONTROLS AND PROCEDURES
As required by Rule 13a-15(b) under the Exchange Act, we conducted an
evaluation, under the supervision and with the participation of our management,
including the current Chief Executive Officer and the Chief Financial Officer,
both of whom were appointed in March of 2005, of the effectiveness and the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this report. Based on the foregoing, it was determined
that our internal controls over revenue recognition for certain of our contracts
was deficient.
This deficiency in our internal controls related to improper recognition of
revenue prior to final completion of certain contracts and recognizing revenue
in amounts greater than the proportion of project completion, and included
ineffective controls to monitor compliance with existing policies and procedures
and insufficient training of accounting personnel on complex accounting
standards related to revenue recognition. The first deficiency related to
revenue recognition of partially complete projects when the accounting approach
to revenue recognition then in place only allowed recognition after the project
was complete. The second deficiency related to revenue recognition on a number
of accounts, whereby the company had generated an invoice in its accounting
software for more than it was eligible to bill, recognizing revenues and A/R in
the process. These invoices were not sent to the customer. Rather, when the
project reached a percent complete where the company was eligible for progress
billing, a smaller invoice was generated which was actually sent to the customer
for these accounts. These progress billings were not captured in the accounting
software as revenue or A/R as the larger one already had been captured. It
should be noted that this occurred beginning in May of 2004, through the first
quarter of 2005, and was not done on all accounts, but selectively.
The majority of the improper revenue recognition was detected in the review
process prior to the 2004 10KSB filing and was not included in our financial
statements filed with the SEC or otherwise publicly disclosed. To the best of
our knowledge, no discrepancy in numbers exists due to the issues identified
above in the figures filed for the fourth quarter of 2004 and the first quarter
of 2005. We are in the process of improving our internal controls over financial
reporting regarding these contracts in an effort to remediate this deficiency
providing additional training on complex revenue recognition principles for our
accounting staff and establishing additional policies and procedures related to
revenue recognition. We have already implemented personnel changes and added a
new Chief Financial Officer. In addition, access to the company's accounting
software has been limited, a review process has been added for all invoices
prior to their release, functional responsibility and accountability for
employees has been clarified, and redundancy of accounting functions has been
eliminated. Additional work is needed to fully remedy this deficiency and we
intend to continue our efforts to improve and strengthen our control processes
and procedures.
Other than as described above, there has been no change in our internal control
over financial reporting during the fiscal quarter ended March 31, 2005 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting. In addition, other than as described above,
since the most recent evaluation date, there have been no significant changes in
our internal control structure, policies, and procedures or in other areas that
could significantly affect out internal control over financial reporting.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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. We believe that we were never issued proper service
of process for the complaint. In addition, on August 20, 2002, we sold North
Texas Circuit Board to BC Electronics Inc. Pursuant to terms of the share
purchase agreement, BC Electronics assumes all liabilities of North Texas
Circuit Board. 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. In February 2004, the plaintiff re-filed the complaint. In
March 2005, the complaint was settled for the sum of $25,000. Commencing in
March 2005, we agreed to make five equal monthly installments of $5,000 to
Insulectro. Pursuant to the settlement terms, since March 2005 we have made
two installment payments of $5,000 each.
On January 24, 2005, we filed an action in the Superior Court of California,
County of Orange against Steve and Dorota Pearson for damages and injunctive
relief based on alleged fraud and breach of contract relating to our purchase of
Del Mar Systems International, Inc. from Steve and Dorota Pearson. The complaint
was amended on March 14, 2005 to seek rescission of our purchase of Del Mar
Systems from Steve and Dorota Pearson. The defendants have not yet filed
responsive pleadings in the case. The Defendant has recently filed a
cross-complaint in the above action seeking recovery under various employment
and contract theories for unpaid compensation, expenses and benefits totaling
approximately $90,000. Defendant also seeks payment of an outstanding balance
of a note related to the purchase by the Company of Del Mar Systems totaling
approximately $85,000. Further, Defendant is seeking injunctive relief for
enforcement of the stock purchase agreement of Del Mar Systems. Management is
vigorously opposing these claims and does not feel the claims have substantial
merit.
We may be involved in litigation, negotiation and settlement matters that may
occur in our day-to-day operations. Management does not believe the implication
of these litigations will, including those discussed above, have a material
impact on our financial statements.
ITEM 2. CHANGES IN SECURITIES.
(c) Recent Sales of Unregistered Securities
On January 6, 2005, we issued convertible debentures of $150,000 to Dutchess
Private Equities Fund, II, LP. The holders of the debentures are entitled to
convert the face amount of these 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 8% cumulative interest, in cash or in shares of common
stock, at the holder's option, at the time of each conversion. The
debentures are payable in 2010. The convertible debentures are convertible into
shares of our common stock.
In connection with the above financing, on January 6, 2005, we issued a warrant
to purchase 150,000 shares of our common stock to Dutchess at $1.83.
On January 21, 2005, we issued convertible debentures of $60,000 to Dutchess
Private Equities Fund, II, LP. The holders of the debentures are entitled to
convert the face amount of these 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 8% cumulative interest, in cash or in shares of common
stock, at our option, at the time of each conversion. The debentures are payable
in 2010. The convertible debentures are convertible into shares of our common
stock.
In connection with the above financing, on January 21, 2005, we issued a warrant
to purchase 60,000 shares of our common stock to Dutchess at $1.80.
On February 3, 2005, we issued convertible debentures of $50,000 to Preston
Capital Partners, LLC. The holders of the debentures are entitled to convert the
face amount of these 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 8% cumulative interest, in cash or in shares of common stock, at our
option, at the time of each conversion. The debentures are payable in 2010. The
convertible debentures are convertible into shares of our common stock.
On February 10, 2005, we issued convertible debentures of $25,000 to Preston
Capital Partners, LLC. The holders of the debentures are entitled to convert the
face amount of these 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 8% cumulative interest, in cash or in shares of common stock, at our
option, at the time of each conversion. The debentures are payable in 2010. The
convertible debentures are convertible into shares of our common stock.
During the three months ended March 31, 2005, the Company agreed to issue
725,389 shares of common stock to individual investors for a total of $683,450.
A total of $652,850 was received from the individual investors during the three
months ended March 31, 2005. The remaining $30,600 is recorded as a stock
subscription receivable as of March 31, 2005 and was received in April 2005.
The securities issued in the foregoing transactions were offered and sold in
reliance upon exemptions from the Securities Act of 1933 ("Securities Act")
registration requirements set forth in Sections 3(b) and 4(2) of the Securities
Act, and any regulations promulgated thereunder, relating to sales by an issuer
not involving any public offering. No underwriters were involved in the
foregoing sales of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NOT APPLICABLE.
ITEM 5. OTHER INFORMATION.
NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
NUMBER DESCRIPTION
------------ -------------------
3.1 Articles of Incorporation, dated March 24, 1998 (included as exhibit 3.1 to
the Form 10-SB filed March 5, 1999, and incorporated herein by reference).
3.2 By-laws, dated March 24, 1998 (included as exhibit 3.2 to the Form 10-SB
filed March 5, 1999, and incorporated herein by reference).
3.3 Amendment to By-laws, dated May 6, 1999 (included as exhibit 3.2.2 to the
Form 10-SB filed May 14, 1999, and incorporated herein by reference).
3.4 Certificate of Amendment of Articles of Incorporation (included as exhibit
3.2 to the Form 8-K filed November 29, 2000, and incorporated herein by
reference).
3.5 Certificate of Amendment of Articles of Incorporation (included as exhibit
3.3 to the Form 8-K filed November 29, 2000, and incorporated herein by
reference).
3.6 Certificate of Amendment to Articles of Incorporation, dated January 10,
2003 (included as exhibit 3.3 to the Form 10-KSB filed April 15, 2003, and
incorporated herein by reference).
3.7 Certificate of Amendment to the Certificate of Incorporation, dated June
26, 2003 (included as exhibit 4.1 to the Form 10-QSB filed November 13, 2003,
and incorporated herein by reference).
4.1 Warrant #101 issued to C.C.R.I. Corp., dated September 29, 2003 (included as
exhibit 4.1 to the Form SB-2 filed October 16, 2003, and incorporated herein by
reference).
4.2 Warrant #102 issued to C.C.R.I. Corp., dated September 29, 2003 (included as
exhibit 4.2 to the Form SB-2 filed October 16, 2003, and incorporated herein by
reference).
4.3 Convertible Debenture Exchange Agreement between the Company and Dutchess
Private Equities Fund LP, dated February 27, 2004 (included as exhibit 4.1 to
the Form 10-QSB filed May 24, 2004, and incorporated herein by reference).
4.4 Form of Debenture between the Company and Dutchess Private Equities Fund
LP, dated March 1, 2004 (included as exhibit 4.2 to the Form 10-QSB filed May
24, 2004, and incorporated herein by reference).
4.5 Form of Debenture between the Company and Dutchess Private Equities Fund,
II, L.P., dated March 31, 2004 (included as exhibit 4.3 to the Form 10-QSB filed
May 24, 2004, and incorporated herein by reference).
4.6 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, II, dated March 31, 2004 (included as exhibit 4.8 to the Form
10-QSB filed August 23, 2004, and incorporated herein by reference).
4.7 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, II, dated April 8, 2004 (included as exhibit 4.9 to the Form
10-QSB filed August 23, 2004, and incorporated herein by reference).
4.8 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, II, dated April 13, 2004 (included as exhibit 4.10 to the Form
10-QSB filed August 23, 2004, and incorporated herein by reference).
4.9 Form of Warrant, dated May 18, 2004 (included as exhibit 4.6 to the Form
SB-2 filed July 27, 2004, and incorporated herein by reference).
4.10 Form of Warrant, dated May 26, 2004 (included as exhibit 4.7 to the Form
SB-2 filed July 27, 2004, and incorporated herein by Reference).
4.11 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, II, dated September 25, 2004 (included as exhibit 4.11 to the
Form 10-QSB filed November 22, 2004, and incorporated herein by
reference).
4.12 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, II, dated October 21, 2004 (included as exhibit 4.12 to
the Form 10-KSB filed May 6, 2005, and incorporated herein by reference).
4.13 Form of Warrant, dated October 21, 2004 (included as exhibit 4.13 to the
Form 10-KSB filed May 6, 2005, and incorporated herein by reference).
4.14 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, II, L.P., dated November 2, 2004 (included as exhibit 4.14 to the
Form 10-KSB filed May 6, 2005, and incorporated herein by reference).
4.15 Form of Warrant, dated November 2, 2004 (included as exhibit 4.15 to the
Form 10-KSB filed May 6, 2005, and incorporated herein by reference).
4.16 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, II, L.P., dated November 9, 2004 (included as exhibit 4.16
to the Form 10-KSB filed May 6, 2005, and incorporated herein by reference).
4.17 Form of Warrant, dated November 9, 2004 (included as exhibit 4.17
to the Form 10-KSB filed May 6, 2005, and incorporated herein by reference).
4.18 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, L.P., dated December 1, 2004 (included as exhibit 4.18 to
the Form 10-KSB filed May 6, 2005, and incorporated herein by reference).
4.19 Form of Warrant, dated December 1, 2004 (included as exhibit 4.19
to the Form 10-KSB filed May 6, 2005, and incorporated herein by reference).
4.20 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, L.P., dated December 9, 2004 (included as exhibit 4.20 to the
Form 10-KSB filed May 6, 2005, and incorporated herein by reference).
4.21 Form of Warrant, dated December 9, 2004 (included as exhibit 4.21
to the Form 10-KSB filed May 6, 2005, and incorporated herein by reference).
4.22 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, L.P., dated December 22, 2004 (included as exhibit 4.22 to
the Form 10-KSB filed May 6, 2005, and incorporated herein by reference).
4.23 Form of Warrant, dated December 22, 2004 (included as exhibit 4.23
to the Form 10-KSB filed May 6, 2005, and incorporated herein by reference).
4.24 Form of Debenture between the Company and Dutchess Private Equities Fund,
II, LP, dated January 6, 2005 (filed herewith).
4.25 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP dated January 6, 2005 (filed herewith).
4.26 Form of Debenture between the Company and Dutchess Private Equities Fund,
II, LP, dated January 21, 2005 (filed herewith).
4.27 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP dated January 21, 2005 (filed herewith).
4.28 Form of Debenture between the Company and Preston Capital Partners, LLC,
dated February 3, 2005 (filed herewith).
4.29 Form of Debenture between the Company and Preston Capital Partners, LLC,
dated February 10, 2005 (filed herewith).
10.1 Reseller Agreement between the Company and Vivato, Inc., dated August 14,
2002 (included as exhibit 10.1 to the Form 10-QSB filed November 13, 2003, and
incorporated herein by reference).
10.2 Short Term Rental Agreement between the Company and Vidcon Solutions
Group, Inc., dated February 5, 2003 (included as exhibit 10.3 to the Form 10-QSB
filed November 13, 2003, and incorporated herein by reference).
10.3 Consulting Agreement between the Company and Dutchess Advisors, LLC, dated
April 1, 2003 (included as exhibit 10.3 to the Form 8-K filed April 23, 2003,
and incorporated herein by reference).
10.4 Restructuring and Release Agreement between the Company, Dutchess Advisors
LLC, Dutchess Capital Management LLC, Michael Novielli, Western Cottonwood
Corporation, Atlantis Partners, Inc., John Freeland, Greg Mardock, and VLK
Capital Corp., dated April 9, 2003 (included as exhibit 10.2 to the Form 8-K
filed April 23, 2003, and incorporated herein by reference).
10.5 Stock Purchase Agreement between the Company and Michael Cummings, dated
May 16, 2003 (included as exhibit 2.1 to the Form 8-K filed June 13, 2003, and
incorporated herein by reference).
10.6 Consulting Agreement between the Company and Marketbyte, LLC, dated July
24, 2003 (included as exhibit 10.8 to the Form SB-2 filed July 27, 2004, and
incorporated herein by reference).
10.7 Motorola Reseller Agreement between the Company and Motorola, Inc., dated
August 18, 2003 (included as exhibit 10.2 to the Form 10-QSB filed November 13,
2003, and incorporated herein by reference).
10.8 Investment Agreement between the Company and Preston Capital Partner, LLC,
dated January 21, 2004 (included as exhibit 10.7 to the Form SB-2 filed January
21, 2004, and incorporated herein by reference).
10.9 Registration Rights Agreement between the Company and Preston Capital
Partners, LLC, dated January 21, 2004 (included as exhibit 10.8 to the Form SB-2
filed January 21, 2004, and incorporated herein by reference).
10.10 Placement Agent Agreement between the Company and Park Capital
Securities, LLC, dated January 21, 2004 (included as exhibit 10.9 to the Form
SB-2 filed January 21, 2004, and incorporated herein by reference).
10.11 Premier Reseller Agreement between the Company and Aruba Wireless
Networks, Inc., dated January 29, 2004 (included as exhibit 10.10 to the Form
SB-2/A filed February 9, 2004, and incorporated herein by reference).
10.12 Investor Relations Service Agreement between the Company and Eclips
Ventures International, dated February 2, 2004 (included as exhibit 10.9 to the
Form SB-2 filed July 27, 2004, and incorporated herein by reference).
10.13 XO Communications, Inc. Agent Agreement between the Company and XO
Communications, Inc., dated March 8, 2004 (included as exhibit 10.13 to the Form
SB-2 filed July 27, 2004, and incorporated herein by reference).
10.14 Mpartner Independent Agent Agreement between the Company and Mpower
Communications Corp., dated March 23, 2004 (included as exhibit 10.10 to the
Form SB-2 filed on July 27, 2004, and incorporated herein by reference).
10.15 Sales Agent Agreement between the Company and PAETEC Communications,
dated March 23, 2004 (included as exhibit 10.11 to the Form SB-2 filed July 27,
2004, and incorporated herein by reference).
10.16 Qwest Services Corporation Master Representative Agreement between the
Company and Qwest Services Corp., dated March 23, 2004 (included as exhibit
10.12 to the Form SB-2 filed July 27, 2004, and incorporated herein by
reference).
10.17 Lease Agreement - Las Vegas location between the Company and HQ Global
Workplaces, dated January 2, 2004 (included as exhibit 10.8 to the Form SB-2
filed July 27, 2004, and incorporated herein by reference).
10.18 Lease Agreement - Los Angeles location between the Company and HQ Global
Workplaces, dated March 1, 2004 (included as exhibit 10.15 to the Form SB-2
filed July 27, 2004, and incorporated herein by reference).
10.19 Lease Agreement - Gold River location between the Company and HQ Global
Workplaces, dated May 20, 2004 (included as exhibit 10.16 to the Form SB-2 filed
July 27, 2004, and incorporated herein by reference).
10.20 Lease Agreement - Scottsdale location between the Company and HQ Global
Workplaces, dated June 1, 2004 (included as exhibit 10.17 to the Form SB-2 filed
July 27, 2004, and incorporated herein by reference).
10.21 Lease Agreement - Seattle location between the Company and HQ Global
Workplaces, dated June 1, 2004 (included as exhibit 10.18 to the Form SB-2 filed
July 27, 2004, and incorporated herein by reference).
10.22 Promissory Note Agreement between the Company and Stephen Pearson, for
the acquisition of Del Mar Systems, Inc., dated March 1, 2004 (included as
exhibit 10.19 to the Form SB-2 filed July 27, 2004, and incorporated herein by
reference).
10.23 Promissory Note between the Company and Dutchess Private Equities Fund,
dated December 17, 2003 (included as exhibit 10.20 to the Form SB-2 filed July
27, 2004, and incorporated herein by reference).
10.24 Promissory Note between the Company and Dutchess Private Equities Fund,
dated January 9, 2004 (included as exhibit 10.21 to the Form SB-2 filed July 27,
2004, and incorporated herein by reference).
10.25 Promissory Note between the Company and Dutchess Private Equities Fund,
dated February 2, 2004 (included as exhibit 10.22 to the Form SB-2 filed July
27, 2004, and incorporated herein by reference).
10.26 Promissory Note between the Company and Dutchess Private Equities Fund,
dated February 5, 2004 (included as exhibit 10.23 to the Form SB-2 filed July
27, 2004, and incorporated herein by reference).
10.27 Employment Agreement between the Company and Robert W. Barnett, dated
January 19, 2004 (included as exhibit 10.25 to the Form SB-2 filed July 27,
2004, and incorporated herein by reference).
10.28 Promissory Note between the Company and Michael Cummings, dated December
30, 2003 (included as exhibit 10.26 to the Form SB-2 filed July 27, 2004, and
incorporated herein by reference).
10.29 Promissory Note between the Company and Michael Cummings, dated March 15,
2004 (included as exhibit 10.27 to the Form SB-2 filed July 27, 2004, and
incorporated herein by reference).
10.30 Territory License Agreement between the Company and 5G Wireless
Communications, Inc., dated February 2004 (included as exhibit 10.27 to the
Form 10-QSB filed August 23, 2004, and incorporated herein by reference).
10.31 Lease Agreement between the Company and Alton Plaza Property, Inc., dated
June 29, 2004 (included as exhibit 10.28 to the Form 10-QSB filed August 23,
2004, and incorporated herein by reference).
10.32 Stock Purchase Agreement between the Company, Raymond Mallory, and Will
Stice, dated January 17, 2005 (included as exhibit 2.1 to the Form 8-K filed
January 24, 2005, and incorporated herein by reference).
10.33 Employment Agreement between the Company and Jeffrey R. Hultman, dated
March 7, 2005 (included as exhibit 99.2 to the Form 8-K filed March 9, 2005, and
incorporated herein by reference).
10.34 Employment Agreement between the Company and Michael V. Rosenthal, dated
March 14, 2005 (included as exhibit 99.2 to the Form 8-K filed March 14,
2005, and incorporated herein by reference).
14.1 Code of Ethics (included as exhibit 14.1 to the Form 10-KSB filed April 9,
2004, and incorporated herein by reference).
21.1 List of Subsidiaries (filed herewith)
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of the 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.
(b) Reports Filed on Form 8-K
On January 24, 2005, the Company filed an 8-K reflecting a Stock Purchase
Agreement with Raymond Mallory and Will Stice to acquire California-based
networking services firm Com Services, Inc. for $430,000 in cash and stock.
On January 28, 2005, the Company filed an 8-K reflecting Michael Novielli's
interview with Larry Isen of Marketbyte, LLC.
On February 18, 2005, the Company filed an 8-K reflecting the dismissal by the
Board of Directors of Rose, Snyder & Jacobs as our principal accountant and the
appointment by the Board of Directors of Michael Johnson & Co., LLC to serve as
our independent public accountants for the fiscal year ending December 31, 2004.
On March 9, 2005, the Company filed an 8-K reflecting acceptance by the Board of
Directors of Michael Cummings' resignation as Chief Executive Officer and the
appointment by the Board of Directors of Jeffrey Hultman to serve as our new
Chief Executive Officer.
On March 17, 2005, the Company filed an 8-K reflecting Michael Rosenthal
becoming our new Chief Financial Officer.
On May 11, 2005, the Company filed an 8-K reflecting acceptance by the Board of
Directors of Michael Cummings' resignation as Director.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NETWORK INSTALLATION CORPORATION
(Registrant)
Date: May 24, 2005 By: /s/ Jeffrey R. Hultman
--------------------------------
Jeffrey R. Hultman
President & Chief Executive Officer
By: /s/ Michael V. Rosenthal
---------------------------------
Michael V. Rosenthal
Chief Financial Officer