UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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:
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
As of September 30, 2005 there were 30,562,082 shares of common stock issued and
outstanding, $0.001 par value.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES [ ] NO [X]
NETWORK INSTALLATION CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
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Part I - Financial Information 2
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Item 1 - Financial Statements. 2
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Consolidated Balance Sheet as of September 30, 2005 2
------------------------------------------------------------------------
Consolidated Statements of Operations for the Three and Nine 3
Months Ended September 30, 2005 and September 30, 2004
------------------------------------------------------------------------
Consolidated Statements of Cash Flows for the Nine Months 4
Ended September 30, 2005 and September 30, 2004
------------------------------------------------------------------------
Consolidated Stockholders' Equity (Deficit) as of September 30, 2005 5
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Report on Review by Independent Public Accountant 6
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Notes to Consolidated Financial Statements 7
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Item 2 - Management's Discussion and Analysis or Plan of Operation. 12
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Item 3 - Controls and Procedures. 14
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Part II - Other Information 15
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Item 1 - Legal Proceedings. 15
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Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds. 15
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Item 3 - Defaults Upon Senior Securities. 16
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Item 4 - Submission of Matters to a Vote of Security Holders. 16
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Item 5 - Other Information. 16
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Item 6 - Exhibits and Reports on Form 8-K. 16
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1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Network Installation Corp.
Consolidated Balance Sheets
Septemeber 30, December 31,
2005 2004
(Unaudited)
------------- --------------
ASSETS
Current Assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,325,878 $ 1,732
Accounts Receivable . . . . . . . . . . . . . . . . . . 2,496,486 500,833
Allowance for Doubtful Accounts . . . . . . . . . . . . (501,809) (95,486)
Inventory . . . . . . . . . . . . . . . . . . . . . . . 1,429,206 -
Costs in Excess of Billings 408,900 -
Other current assets. . . . . . . . . . . . . . . . . . 20,220 595,812
------------- --------------
Total Current Assets . . . . . . . . . . . . . . . . 5,178,881 1,002,891
------------- --------------
Fixed Assets:
Vehicles. . . . . . . . . . . . . . . . . . . . . . . . 271,172 -
Equipment . . . . . . . . . . . . . . . . . . . . . . . 211,615 -
Leasehold improvements. . . . . . . . . . . . . . . . . 69,257 -
Software. . . . . . . . . . . . . . . . . . . . . . . . 71,838 -
Furniture and Fixtures. . . . . . . . . . . . . . . . . 213,671 46,098
------------- --------------
837,553 46,098
Less: Accumulated Depreciation. . . . . . . . . . . . . (461,517) (9,937)
------------- --------------
Total Fixed Assets . . . . . . . . . . . . . . . . . 376,036 36,161
------------- --------------
Other Assets:
Patents 2,500 -
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . 11,144,216 -
Security Deposits . . . . . . . . . . . . . . . . . . . 20,690 19,916
------------- --------------
Total Other Assets . . . . . . . . . . . . . . . . . 11,167,406 19,916
------------- --------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . $ 16,722,323 $1,058,968
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable & Accrued Expenses . . . . . . . . . . 2,432,859 1,148,428
Bank Line of Credit . . . . . . . . . . . . . . . . . . 120,384 -
Billings in excess of costs 705,607 -
Payroll taxes payable 405,418 -
Notes Payable . . . . . . . . . . . . . . . . . . . . . 844,302 85,075
Notes Payable - related parties . . . . . . . . . . . . . . 290,964 120,580
Convertible debts - current . . . . . . . . . . . . . . 301,333 -
Convertible debts - related parties . . . . . . . . . . . . . 452,000 -
------------- --------------
Total Current Liabilities. . . . . . . . . . . . . . 5,552,867 1,354,083
------------- --------------
Long-Term Debt:
Notes payable 1,266,943 -
Notes payable - related parties 202,539 -
Convertible Debentures . . . . . . . . 2,999,221 1,582,516
------------- --------------
Total Long-Term Debt. . . . . . . . . . . . . . . . . . 4,468,703 1,582,516
------------- --------------
Stockholders Equity
Common stock, no par value, 100,000,000 shares. . . . . . 30,562 23,484
authorized, 30,562,082 shares issued and
outstanding as of 9/30/05, 23,483,873 shares
issued and outstanding as of 12/31/04
Additional Paid-in Capital . . . . . . . . . . . . . . . 26,316,746 7,617,181
Shares to be issued. . . . . . . . . . . . . . . . . . . 116,357 116,249
Accumulated Deficit. . . . . . . . . . . . . . . . . . . (19,762,912) (9,634,545)
------------- --------------
Total Stockholders' Equity (Deficit) . . . . . . . . 6,700,753 (1,877,631)
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . . . $ 16,722,323 $ 1,058,968
============= ==============
See Accountants Review Report
2
Network Installation Corp.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
2005 2004 2005 2004
---------- -------- ---------- ----------
Revenue:
Revenue $ 1,075,471 $ 760,835 $ 2,964,570 $ 2,000,762
Cost of Goods Sold 880,032 374,335 2,206,730 1,041,646
---------- -------- ---------- ----------
Gross Profit 195,439 386,500 757,840 959,116
Costs and Expenses:
Investor Relations 80,708 119,000 588,170 394,330
Office Salaries 396,421 252,243 871,680 640,576
Officer Compensation - - 6,575,426 -
Professional Fees 160,321 92,826 253,626 264,199
Telephone 20,332 19,171 54,108 96,887
Bad debt expense 198,695 10,648 198,695 170,647
Insurance 46,987 31,312 118,231 80,669
Consulting Fees 17,187 70,210 77,563 112,288
Rent 41,042 32,167 116,924 63,290
Payroll Taxes 19,635 20,895 49,009 53,063
Depreciation 5,529 538 12,044 1,787
Writeoff of goodwill 628,614 - 628,614 -
Other Operating Expenses 69,366 167,032 403,826 421,130
---------- -------- ---------- ----------
Total Expenses 1,684,837 816,042 9,947,916 2,298,866
Net Loss from Operations (1,489,398) (429,542) (9,190,076) (1,339,750)
Other Income/Expenses
Interest Income 1 1,860 1 3,210
Interest Expense (435,768) (119,425) (938,292) (320,640)
---------- -------- ---------- ----------
Total Other Income/Expense (435,767) (117,565) (938,291) (317,430)
Net Income (Loss) $ (1,925,165) $ (547,107) $ (10,128,367) $ (1,657,180)
============= ============ ============= ============
Basic and Diluted Loss per Common Share $ (0.11) $ (0.02) $ (0.49) $ (0.09)
============= ============ ============= ============
Basic and diluted weighted average
shares outstanding 17,764,338 23,168,012 20,606,252 18,641,574
See Accountants Review Report
3
Network Installation Corp.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
--------------------------------
2005 2004
------------- -------------
Cash Flows from Operating Activities:
Net Profit $ (10,128,367) $ (1,657,180)
Stock issued for services and debt reduction 6,655,110 195,000
Beneficial conversion feature expense 556,250 207,625
Stock rescinded (530,590) -
Stock warrants issued for debt inducement 585,430 -
Depreciation 12,044 107,883
Amortization of debt discount 176,084 -
Bad debt expense 198,695 -
Writeoff of goodwill 628,614 -
Debt conversion 165,000 -
Adjustments to reconcile net loss to net cash used
by operating activities
(Increase) decrease in assets
Accounts receivable (456,801) (434,946)
Inventory (463,279) 200,000
Costs in excess of billings 79,470 -
Other assets 577,917 (684,513)
Increase (decrease) in liabilities
Accounts payable and accrued expenses 195,593 59,722
Billings in excess of costs (207,029) -
Deferred revenues - (280,924)
------------- -------------
Net Cash Used in Operating Activities (1,955,859) (2,287,333)
------------- -------------
Cash Flows from Investing Activities
Cash received upon acquisition of subsidiary 930,828 3,233
Cash paid to acquire subsidiary (50,000) -
Purchase of property and equipment (11,011) -
------------- -------------
Net Cash Flows Provided by Investing Activities 869,817 3,233
------------- -------------
Cash Flows from Financing Activities:
Payments made on notes payable (298,706) (570,260)
Proceeds from notes Payable 5,850 -
Payments made on related party debt (120,580) -
Payments made on short term debts (19,826) (14,056)
Proceeds from convertible debt issuances 1,900,000 871,989
Issuance of stock for cash 943,450 2,235,000
------------- -------------
Net Cash Used for Financing Activities 2,410,188 2,522,673
------------- -------------
Net Increase in Cash & Cash Equivalents 1,324,146 238,573
Beginning Cash & Cash Equivalents 1,732 667
Ending Cash & Cash Equivalents $ 1,325,878 $ 239,240
============= ============
SUPPLEMENTAL DISCLOSUE OF CASH FLOW INFORMATION
Cash paid for interest $ 19,687 $ 20,800
Cash paid for Income Taxes $ - $ -
============= ============
NON-CASH TRANSACTIONS
Stock issued for services and debt reduction $ 6,655,110 $ 195,000
Beneficial conversion feature expense $ 556,250 $ 147,625
Stock rescinded $ (530,590) $ -
Writeoff of goodwill $ 628,614 $ -
Stock warrants issued for acquisition $ 10,232,101 $ 500,000
Stock warrants issued for debt inducement $ 585,430 $ -
============= ============
See Accountants Review Report
4
Network Installation Corp.
Consolidated Stockholders' Equity (Deficit)
September 30, 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 $- $(5,466,840) $(2,594,707)
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 on convertible
Debenture - - 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 - - - - - - (4,167,705) (4,167,705)
Balance
December 31, 2004 23,483,873 23,484 7,617,181 - 116,249 - (9,634,545) (1,877,631)
Beneficial conversion
feature expense - - 556,250 - - - - 556,250
Issuance of stock
warrants for inducement - - 585,430 - - - - 585,430
Issuance of stock for
acquisition - - 199,892 - 108 - - 200,000
Stock issued for services 100,000 100 98,900 - - - - 99,000
Issuance of stock warrants
for officer compensation - - 6,476,085 - - - - 6,476,085
Rescinding of investor's
stock (685,517) (685) (529,905) - - - - (530,590)
Issuance of stock for
Cash 1,460,692 1,460 941,990 - - - - 943,450
Issuance of stock for
debt conversion 18,939 19 (19) - - - - -
Issuance of stock for
services 55,000 55 79,970 - - - - 80,025
Rescinding of founders
stock (7,887,482) (7,887) 7,887 - - - - -
Debt conversion 65,000 65,000
Issuance of stock for
acquisition 14,016,577 14,016 10,218,085 10,232,101
Net Loss for Period - - - - - - (10,128,367) (10,128,367)
---------- -------- ----------- ------- ----------- ---------- -------------- ------------
Balance -
September 30, 2005 30,562,082 $ 30,562 $26,316,746 $ - $ 116,357 $ - $ (19,762,912) $6,700,753
========== ======== =========== ======= =========== ========== ============== ============
See Accountants Review Report
5
JASPERS + HALL, PC
CERTIFIED PUBLIC ACCOUNTANTS
------------------------------
9175 E. KENYON AVENUE, SUITE 100
DENVER, CO 80237
303-796-0099
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Network Installation Corporation
Irvine, California
We have reviewed the accompanying consolidated balance sheet of Network
Installation Corporation as of September 30, 2005, and the related consolidated
statement of operations for the three-month and nine-month period ended
September 30, 2005, and cash flows and stockholders' equity (deficit) for the
nine-months ended September 30, 2005. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards of the Public Company
Accounting Oversight Board (United States). The 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 standards of the Public Company Accounting Oversight Board
(United States), the objective of which is the expression of an opinion
regarding the consolidated financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated 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 3, conditions
exist which raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The financial statements for the year ended December 31, 2004 were audited by
other accountants, whose report dated May 6, 2005, expressed an unqualified
opinion on those statements. They have not performed any auditing procedures
since that date. In our opinion, the information set forth in the accompanying
balance sheet as of September 30, 2005 is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.
Jaspers + Hall, PC
Denver, CO
November 21, 2005
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. DESCRIPTION OF BUSINESS AND SEGMENTS
OVERVIEW
Network Installation Corporation (NIC) was incorporated on July 18, 1997 under
the laws of the state of California.
The Company is a one-source solution business focusing on the design, project
management, installation, and deployment of data, voice, video, audio/visual,
security and surveillance systems, entertainment and special effects, and
telecom systems. The Company first determines its clients' requirements by doing
a needs analysis and site audit. The Company then implements its specific design
of the product to meet each customer's needs. The Company seeks to exploit the
growing demand for high-speed connectivity by leveraging our extensive design,
installation, and audio/visual expertise into providing complete superior
network solutions across a vast majority of communication requirements, for
several high growth customer segments, including gaming, defense, education,
homeland security, and multiple dwelling units ("MDU"s).
The Company has distinguished itself from its peers by employing a highly
capable and talented design team, offering one-stop shopping for our customer
needs, and building on long-standing customer relationships and referrals.
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 are hereby referenced. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 2005 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005.
ACQUISITION OF KELLEY COMMUNICATIONS COMPANY, INC.
--------------------------------------------------
Pursuant to an acquisition agreement, the Company acquired 100% of the
outstanding shares of common stock of Kelley Communications Company, Inc., a
Nevada corporation, on September 22, 2005 for $10,232,101 in common stock.
Goodwill of $11,144,216 was recorded upon the acquisition and is valued based on
Kelley's customer pipeline and current customer backlog. Kelley is a Las Vegas,
Nevada-based businesses focusing on the design, project management,
installation, and deployment of data, voice, video, audio/visual, security and
surveillance systems, entertainment and special effects, and telecom systems.
Mike Kelley, the 100% owner of Kelley prior to the acquisition, received
14,061,577 shares of the Company's common stock. Kelley's results of operations
for the period from September 22, 2005 through September 30, 2005 are included
in these interim financial statements.
The audit of Kelley as of September 22, 2005 has not yet been completed.
However, the Company's preliminary financial analysis and due diligence related
to the acquisition is complete. Kelley's unaudited balance sheet as of the date
of acquisition is as follows.
Cash $ 930,828
Accounts receivable 1,234,668
Inventory 965,927
Costs in excess of billings 488,370
Other assets 5,599
Fixed assets 713,220
Accumulated depreciation (407,534)
Goodwill 11,144,216
Accounts payable 879,995
Notes payable 3,050,560
Billings in excess of earnings 912,638
-------------
Total $ 10,232,101
=============
7
The following pro forma information is presented as though the Company had
completed the acquisition of Kelley as of the beginning of the year, on January
1, 2005. Revenues represent total revenues and net loss represents total net
loss of the Company for the three and nine months ended September 30, 2005 if
Kelley had been acquired as of January 1, 2005.
Three Months Ended Nine Months Ended
September 30, 2005 September 30, 2005
------------------- -------------------
Revenues $ 2,823,861 $ 4,959,875
Net loss $ (2,498,739) $ (11,055,873)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
-----------------------------
The accompanying financial statements include the accounts of Network
Installation Corp. ("NIC") and its 100% owned subsidiaries, Network Installation
Corporation, Kelley Communications Company, Inc.("Kelley"), 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, COM, and DMSI for the three months
ended September 30, 2005 and Kelley from the date of acquisition, September 22,
2005 through September 30, 2005. The historical results for the three months
ended September 30, 2004 include NIC and DMSI only.
CASH & CASH EQUIVALENTS
-----------------------
The Company considers all highly liquid debt instruments, purchased with an
original maturity at date of purchase of three months or less, to be cash
equivalents. Cash and cash equivalents are carried at cost, which approximates
market value
PROPERTY & EQUIPMENT
--------------------
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets, e.g.
computers (5 years), software (3 years), office furniture and equipment (3-7
years), tenant improvements (life of the lease-approximately 60 months.
ACCOUNTS RECEIVABLE
-------------------
The Company maintains an allowance for doubtful accounts for estimated losses
that may arise if any of its consumers are unable to make required payments.
Management specifically analyzes the age of customer balances, historical bad
debt experience, customer credit-worthiness and changes in customer payment
terms when making estimates of the uncollectibility of the Company's trade
accounts receivable balances. If the Company determines that the financial
conditions of any of its customers have deteriorated, whether due to customer
specific or general economic issues, increase in the allowance may be made.
Accounts receivable are written off when all collection attempts have failed.
INVENTORY
---------
Inventory consists of a networking materials and equipment in the process of
being installed at years end. Work in progress is stated at the lower of cost,
determined by the first-in, first-out ("FIFO") method, or market. The Company
has reviewed its inventory for obsolescence on a quarterly basis since
operations began and has not written-off any inventory for obsolescence.
FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities are carried at
cost, which approximates their face value, due to the relatively short maturity
of these instruments. As of September 30, 2005 and 2004, the Company's notes
payable have stated borrowing rates that are consistent with those currently
available to the Company and, accordingly, the Company believes the carrying
value of these debt instruments approximates their fair value.
ACCOUNTING FOR IMPAIRMENTS IN LONG-LIVED ASSETS
------------------------------------------------
Long-lived assets and identifiable intangibles are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amounts
of assets may not be recoverable. Management periodically evaluates the carrying
value and the economic useful life of its long-lived assets based on the
Company's operating performance and the expected future undiscounted cash flows
and will adjust the carrying amount of assets which may not be recoverable.
USE OF ESTIMATES
----------------
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Significant estimates made in preparing these financial
statements include the allowance for doubtful accounts, deferred tax asset
valuation allowance and useful lives for depreciable and amortizable assets.
Actual results could differ from those estimates.
REVENUE RECOGNITION
--------------------
In the third quarter of 2004, the Company continued to utilize a different
revenue recognition method, the completed contracts approach. This approach was
changed with the 10KSB/A reporting submitted for the year ended December 31,
2004 to the percentage-of-completion method, which the Company believes better
represents business activity. However, when comparing third 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.
The Company estimates the likelihood of customer payment based principally on a
customer's credit history and the Company's general credit experience. To the
extent the Company's 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.
8
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 nine months ended September 30, 2005 and 2004.
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. For all periods, all of the Company's common stock equivalents were
excluded from the calculation of diluted loss per common share because they were
anti-dilutive, due to the Company's net losses.
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 September 30, 2005 and 2004, 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
$19,762,912, 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 in the near term. Management devoted
considerable effort toward obtaining additional equity financing through various
private placements, raised funds through convertible debentures, and has
endeavored to improve operational performance using marketing methods, cost
cutting and the like.
9
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses is comprised of the following:
September 30, 2005
------------------
Accounts payable $ 2,262,859
Litigation accrual. 170,000
------------------
$ 2,432,859
==================
5. WRITEOFF OF GOODWILL
Throughout 2005, the Company has witnessed declining profits within its Com
Services division. Upon the completion of an impairment review of the division's
assets, the Company decided to write-off goodwill of $628,614, which had been
generated from the acquisition of Com Services, Inc., on January 17, 2005.
6. PAYROLL TAX LIABILITY
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.
7. BANK LINE OF CREDIT AND NOTES PAYABLE
The Company assumed a $100,000 revolving line of credit with a Bank with a
balance of $100,538 in connection with the COM acquisition. This note bears
interest at a variable rate, 9.75% as of September 30, 2005 and was called due
as a result of the acquisition of Kelley, which was determined to be a
significant change in control of the Company. The balance outstanding as of
September 30, 2005 was $103,446. As of the date of these financial statements,
the balance on this debt is approximately $81,000. The Company is in
negotiations with the Bank to make payment on this debt in full or to determine
an appropriate installment plan.
The Company assumed credit card liabilities in connection with the COM
acquisition. The balance outstanding as of September 30, 2005 was $16,938.
Upon the acquisition of Kelley, the Company assumed a note payable to a Bank
dated August 30, 2005, and carrying interest at a variable rate,2% over the
Prime Rate, or 8.50% as of September 30, 2005. Principal payments of $20,834 are
due on this note through September 15, 2008. The balance of $755,599 remaining
outstanding as of September 30, 2005, and included a current portion of $255,583
as of September 30, 2005.
Upon the acquisition of Kelley, the Company assumed a note payable to a Bank
dated September 20, 2005 and carrying interest at a fixed rate of 7.50%.
Principal and interest payments of $32,672 are payable through September 20,
2008. The balance of $1,050,961 remained outstanding as of September 30, 2005,
and included a current portion of $326,589 as of September 30, 2005.
Upon the acquisition of Kelley, the Company assumed a note payable to a Bank,
secured by an automobile, carrying interest at a fixed rate of 5.75%. Principal
and interest payments of $371 are payable through May 5, 2009. The balance of
$14,655 remained outstanding as of September 30, 2005.
Upon the acquisition of Kelley, the Company assumed a note payable to a Bank,
secured by an automobile, carrying interest at a fixed rate of 5.75%. Principal
and interest payments of $369 are payable through May 5, 2009. The balance of
$14,589 remained outstanding as of September 30, 2005.
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
September 30, 2005 was $85,075. The company plans to make payments of
approximately $7,000 per month for the next twelve months.
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 September 30, 2005 was $4,312.
The Company contracted a $126,000 note payable in January 2005 in connection
with the COM acquisition. This note bears interest at 6.00% and is payable in
monthly installments of $5,250, maturing in January 2007. The balance
outstanding as of September 30, 2005 was $106,250.
The Company contracted a $54,000 note payable in January 2005 in connection with
the COM acquisition. This note bears interest at 6.00% and is payable in monthly
installments of $2,250, maturing in January 2007. The balance outstanding as of
September 30, 2005 was $37,249.
Upon the acquisition of Kelley, the Company assumed a note payable to a Bank,
secured by three automobiles, carrying interest at a fixed rate of 6.25%.
Principal and interest payments of $1,536 are payable through March 7, 2008. The
balance of $42,555 remained outstanding as of September 30, 2005.
During the three months ended September 30, 2005, the Company issued $1,032,000
in convertible debentures to certain shareholders of the Company. The
convertible debentures carry an interest rate of 6% and 8% per annum, and are
due in July, August and September of 2010. These debentures were issued with a
discounted price from the face value of $147,000. The Holder is entitled to
convert the face amount of the Debentures, 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 September 30, 2005
has been recorded in the amount of $27,500. Additionally, the Company issued
warrants to purchase 882,000 shares of the Company's common stock at $.86 per
share. These warrants were valued at $227,331 and will be amortized as interest
expense through the maturity date of the convertible debentures.
Upon the acquisition of Kelley, the Company issued $360,000 in convertible
debentures to an officer of the Company. The convertible debentures carry an
interest rate of 0.00% and are due in September of 2006. These debentures were
issued with a discounted price from the face value of $60,000. The Holder is
entitled to convert the face amount of the Debentures, 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
September 30, 2005 has been recorded in the amount of $90,000. Additionally, the
Company issued warrants to purchase 90,000 shares of the Company's common stock
at a purchase price equal to 120% of the fair market value on the date of
issuance. These warrants were valued at $14,160 and will be amortized as
interest expense through the maturity date of the convertible debentures.
10
8. RELATED PARTY TRANSACTIONS
RELATED PARTY NOTES PAYABLE
------------------------------
Upon the acquisition of Kelley, the Company assumed $540,000 in convertible
debentures due to an officer of the Company. The convertible debentures carry an
interest rate of 0.00% and are due in September of 2006. These debentures were
issued with a discounted price from the face value of $90,000. The Holder is
entitled to convert the face amount of the Debentures, 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
September 30, 2005 has been recorded in the amount of $135,000. Additionally,
the Company issued warrants to purchase 135,000 shares of the Company's common
stock at a purchase price equal to 120% of the fair market value on the date of
issuance. These warrants were valued at $21,239 and will be amortized as
interest expense through the maturity date of the convertible debentures.
Upon the acquisition of Kelley, the Company assumed $492,856 in various notes
payable to an officer, carrying interest at a fixed rate of 5.00%. These notes
payable were refinancing on October 7, 2005 with a $492,856 note payable
carrying interest at 6.00% and requiring 24 monthly payments of $17,412 in
principal and interest through September 2007. The balance of $493,503,
including a current portion of $290,964, remained outstanding as of September
30, 2005.
9. INCOME TAXES
No provision was made for Federal income tax since the Company has significant
net operating loss. Through September 30, 2005, the Company incurred net
operating losses for tax purposes of approximately $19,762,912. 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 carry-forwards
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.
10. 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 re-filed 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 subsidiaries.
Management does not believe implication of these litigations will have any
material impact on the Company's financial statements.
11. STOCKHOLDERS' EQUITY
EQUITY
------
During the three months ended September 30, 2005, the Company issued common
stock as follows:
Pursuant to an acquisition agreement, the Company acquired 100% of the
outstanding shares of common stock of Kelley Communications Company, Inc., a
Nevada corporation, on September 22, 2005 for $10,232,101 in common stock. Mike
Kelley, the 100% owner of Kelley prior to the acquisition, received 14,061,577
shares of the Company's common stock.
12. BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share for the three-month period ended September
30, 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.
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
The Company paid income taxes of $0 during the three months ended September 30,
2005 and 2004, respectively.
14. SUBSEQUENT EVENTS
The Company purchased 100% of the outstanding shares of common stock of Spectrum
Communications Cabling Services, Inc., ("Spectrum") a California corporation,
for $14,000,000, paid in common stock on the date of closing, November 1, 2005.
The shareholders of Spectrum received 18,567,639 shares of the Company's common
stock.
The audit of Spectrum as of November 1, 2005 has not yet been completed.
However, the Company's preliminary financial analysis and due diligence related
to the acquisition is complete. The Company currently anticipates allocating the
$14,000,000 purchase price as follows.
Cash $ 1,342,179
Investments 416,386
Accounts receivable 4,594,549
Inventory 381,695
Costs in excess of billings 295,537
Other assets 59,420
Fixed assets 1,551,559
Accumulated depreciation (1,364,590)
Goodwill 10,486,079
Accounts payable 1,915,776
Customer deposits 195,629
Billings in excess of earnings 1,621,602
Other liabilities 29,807
-------------
Total $ 14,000,000
=============
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The discussion and financial statements contained herein are for the three
months ended September 30, 2005 and September 30, 2004. The following discussion
should be read in conjunction with our financial statements and notes included
herewith.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Report on Form 10-QSB/A 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.
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2005 AS COMPARED TO THREE MONTH PERIOD
ENDED SEPTEMBER 30, 2004
CHANGE IN REVENUE RECOGNITION POLICY
We changed our revenue recognition policy with the 10KSB/A report submitted for
the year ended December 31, 2004 to the percentage-of-completion method, which
we believe better represents our business activity. However, when comparing
third quarter numbers for 2005 to those for 2004, the comparison involves
numbers calculated using differing methods of revenue recognition.
RESULTS OF OPERATIONS
NET REVENUE
------------
We generated consolidated net revenues of $1,075,471 for the three months ended
September 30, 2005, as compared to $760,835 for the three month period ended
September 30, 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 GOODS SOLD
-----------------
We incurred Cost of Goods Sold of $880,032 for the three months ended September
30, 2005, as compared to $374,335 for the three month period ended September 30,
2004. Our Cost of Goods Sold increase is due to an increase in the expansion of
business from the prior quarter which were expensed in the period ended
September 30, 2005.
GROSS PROFIT
-------------
We generated gross profit of $195,439 for the three month period ended September
30, 2005, as compared to $386,500 for the three month period ended September 30,
2004. The decrease in gross profit is due to higher project costs incurred for
specific jobs in progress as of September 30, 2005.
COSTS AND EXPENSES
---------------
We incurred costs of $1,684,837 for the three month period ended September 30,
2005 as compared to $816,042 for the three month period ended September 30,
2004, respectively. The increase in costs resulted from increased office
salaries, professional fees and bad debts and goodwill write-offs during the
three months ended September 30, 2005.
NET INCOME (LOSS)
-------------------
We had a loss before taxes of ($1,925,165) for the three month period ended
September 30, 2005 as compared to a loss of ($547,107) for the three month
period ended September 30, 2004. The increase in our total loss is due to the
factors described above.
BASIC AND DILUTED INCOME (LOSS) PER SHARE
-----------------------------------------------
Our basic and diluted income (loss) per share for the three month period ended
September 30, 2005 was ($0.11) as compared to ($0.02) for the period ended
September 30, 2004. The increase in our loss per share is due to the factors
described above.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
As of September 30, 2005, our Current Assets were $5,178,881 and Current
Liabilities were $5,552,867. Cash and cash equivalents were $1,325,878. Our
Stockholder's equity at September 30, 2005 was $6,700,753.
We had a net usage of cash due to operating activities for the nine month period
ended September 30, 2005 of ($1,955,859) compared to a ($2,287,333), for the
nine month period ended September 30, 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 nine month period ended
September 30, 2005 and 2004 of $2,410,188 and $2,529,139, respectively. The
increase is due to an increase in proceeds from Notes Payable and Long Term
Borrowings.
12
FINANCING ACTIVITIES
---------------------
On September 14, 2005, we issued convertible debentures of $132,000 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 September 14, 2005, we issued a
warrant to purchase 132,000 shares of our common stock to Dutchess at $0.86.
On September 22, 2005, we issued convertible debentures of $750,000 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 September 22, 2005, we issued a
warrant to purchase 750,000 shares of our common stock to Dutchess at $0.86.
On July 20, 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 6% 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 August 17, 2005, we issued convertible debentures of $100,000 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 6% 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.
SUBSIDIARIES
As of September 30, 2005, we had four wholly-owned subsidiaries, Network
Installation Corp., Del Mar Systems International, Inc., Kelley Communication
Company, Inc, and Com Services, Inc.
13
ITEM 3. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
----------------------------------
Our management evaluated, with the participation of our Chief Executive Officer
and our Interim Chief Financial Officer, the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this Quarterly
Report on Form 10-QSB. Based on this evaluation, our Chief Executive Officer and
our Interim Chief Financial Officer have concluded that our disclosure controls
and procedures are effective to ensure that information we are required to
disclose in reports that we file or submit under the Securities Exchange Act of
1934 (i) is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms, and (ii) is
accumulated and communicated to our management, including our Chief Executive
Officer and our Interim Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure. Our disclosure controls and procedures
are designed to provide reasonable assurance that such information is
accumulated and communicated to our management. Our disclosure controls and
procedures include components of our internal control over financial reporting.
Management's assessment of the effectiveness of our internal control over
financial reporting is expressed at the level of reasonable assurance that the
control system, no matter how well designed and operated, can provide only
reasonable, but not absolute, assurance that the control system's objectives
will be met.
Changes in Internal Controls over Financial Reporting
-----------------------------------------------------
There were no changes in our internal control over financial reporting that
occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(c) Recent Sales of Unregistered Securities
On July 20, 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 6% 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 August 17, 2005, we issued convertible debentures of $100,000 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 6% 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 September 14, 2005, we issued convertible debentures of $132,000 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.
On September 22, 2005, we issued convertible debentures of $750,000 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 financing on September 14, 2005 and September 22, 2005
with Dutchess, we issued warrants to purchase 882,000 shares of our common stock
at $.86 per share. These warrants were valued at $227,331 and will be amortized
as interest expense through the maturity date of the convertible debentures.
On September 22, 2005, we issued warrants to purchase 90,000 shares of our
common stock at a purchase price equal to 120% of the fair market value on the
date of issuance. These warrants were valued at $14,160 and will be amortized as
interest expense through the maturity date of the convertible debentures.
On September 22, 2005, we issued warrants to purchase 135,000 shares of our
common stock at a purchase price equal to 120% of the fair market value on the
date of issuance. These warrants were valued at $21,239 and will be amortized as
interest expense through the maturity date of the convertible debentures.
Pursuant to an acquisition agreement, we acquired 100% of the outstanding shares
of common stock of Kelley Communications Company, Inc., a Nevada corporation, on
September 22, 2005 for $10,232,101 in common stock. Mike Kelley, the 100% owner
of Kelley prior to the acquisition, received 14,061,577 shares of our common
stock.
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.
15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
We assumed a $100,000 revolving line of credit with a Bank with a balance of
$100,538 in connection with the COM acquisition. This note bears interest at a
variable rate, 9.75% as of September 30, 2005 and was called due as a result of
the acquisition of Kelley, which was determined to be a significant change in
control of the Company. The balance outstanding as of September 30, 2005 was
$103,446. As of the date of these financial statements, the balance on this debt
is approximately $81,000. The Company is in negotiations with the Bank to make
payment on this debt in full or to determine an appropriate installment plan.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NOT APPLICABLE.
ITEM 5. OTHER INFORMATION.
On June 1, 2005, our Board of Directors dismissed Michael Johnson & Co., LLC as
our principal accountant. The Board had appointed Michael Johnson & Co. on
February 11, 2005. From April 29, 2004 through February 11, 2005, Rose, Snyder &
Jacobs was our principal accountant, as filed on a Form 8-K on February 18,
2005.
On the same date, the Board of Directors appointed the firm Jaspers + Hall, PC
to serve as our independent public accountants for the fiscal year ending
December 31, 2005. The decision to change accountants was recommended and
approved by the Board of Directors.
From February 11, 2005 through the date hereof, there were no disagreements with
Michael Johnson & Co. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to Michael Johnson & Co.'s satisfaction, would have caused them to make
reference to the subject matter of such disagreements in connection with their
report on our consolidated financial statements for such year.
During the year ended December 31, 2004 and through the date hereof, we did not
consult with Jaspers + Hall, PC with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our financial statements.
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits
NUMBER DESCRIPTION
------------ -------------------
2.1 Plan of Reorganization between the Company and Michael Kelley, dated
September 22, 2005 (included as exhibit 2.1 to the Form 8-K filed October 6,
2005, and incorporated herein by reference).
2.2 Acquisition Agreement and Plan of Reorganization between the Company and
Robert and Sherry Rivera dated November 1, 2005 (included as exhibit 10.1 to the
Form 8-K filed November 7, 2005, and incorporated herein by reference).
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 (included as exhibit 4.24 to the Form 10-QSB filed
May 24, 2005, and incorporated herein by reference).
4.25 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP, dated January 6, 2005 (included as exhibit 4.25 to the Form 10-QSB filed
May 24, 2005, and incorporated herein by reference).
4.26 Form of Debenture between the Company and Dutchess Private Equities Fund,
II, LP, dated January 21, 2005 (included as exhibit 4.26 to the Form 10-QSB
filed May 24, 2005, and incorporated herein by reference).
4.27 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP, dated January 21, 2005 (included as exhibit 4.27 to the Form 10-QSB
filed May 24, 2005, and incorporated herein by reference).
4.28 Form of Debenture between the Company and Preston Capital Partners, LLC,
dated February 3, 2005 (included as exhibit 4.28 to the Form 10-QSB filed May
24, 2005, and incorporated herein by reference).
4.29 Form of Debenture between the Company and Preston Capital Partners, LLC,
dated February 10, 2005 (included as exhibit 4.29 to the Form 10-QSB filed May
24, 2005, and incorporated herein by reference).
4.30 Form of Debenture between the Company and Dutchess Private Equities Fund,
II, LP, dated April 22, 2005 (included as exhibit 4.30 to the Form 10-QSB filed
July 29, 2005, and incorporated herein by reference).
4.31 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP, dated April 22, 2005 (included as exhibit 4.31 to the Form 10-QSB filed
July 29, 2005, and incorporated herein by reference).
4.32 Form of Debenture between the Company and Dutchess Private Equities Fund,
II, LP, dated May 12, 2005 (included as exhibit 4.32 to the Form 10-QSB filed
July 29, 2005, and incorporated herein by reference).
4.33 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP, dated May 12, 2005 (included as exhibit 4.33 to the Form 10-QSB filed
July 29, 2005, and incorporated herein by reference).
4.34 Form of Debenture between the Company and Preston Capital Partners, dated
May 26, 2005 (included as exhibit 4.34 to the Form 10-QSB filed July 29, 2005,
and incorporated herein by reference).
4.35 Form of Debenture between the Company and Dutchess Private Equities Fund,
II, LP, dated May 27, 2005 (included as exhibit 4.35 to the Form 10-QSB filed
July 29, 2005, and incorporated herein by reference).
4.36 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP, dated May 27, 2005 (included as exhibit 4.36 to the Form 10-QSB filed
July 29, 2005, and incorporated herein by reference).
4.37 Form of Debenture between the Company and Dutchess Private Equities Fund,
II, LP, dated June 6, 2005 (included as exhibit 4.37 to the Form 10-QSB filed
July 29, 2005, and incorporated herein by reference).
4.38 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP, dated June 6, 2005 (included as exhibit 4.38 to the Form 10-QSB filed
July 29, 2005, and incorporated herein by reference).
4.39 Form of Debenture between the Company and Preston Capital Partners, dated
June 20, 2005 (included as exhibit 4.39 to the Form 10-QSB filed July 29, 2005,
and incorporated herein by reference).
4.40 Collateral Agreement between the Company and Dutchess Private Equities
Fund, II, L.P., dated September 19, 2005 (included as exhibit 4.1 to the Form
8-K filed October 6, 2005, and incorporated herein by reference).
4.41 Form of Debenture between the Company and Dutchess Private Equities Fund,
II, L.P., dated September 22, 2005 (included as exhibit 4.2 to the Form 8-K
filed October 6, 2005, and incorporated herein by reference).
4.42 Debenture Registration Rights Agreement between the Company and Dutchess
Private Equities Fund L.P., Dutchess Private Equities Fund, II, L.P., Dutchess
Capital Management, LLC, dated September 22, 2005 (included as exhibit 4.3 to
the Form 8-K filed October 6, 2005, and incorporated herein by reference).
4.43 Subscription Agreement between the Company and Dutchess Private Equities
Fund L.P., Dutchess Private Equities Fund, II, L.P., Dutchess Capital
Management, LLC, dated September 22, 2005 (included as exhibit 4.4 to the Form
8-K filed October 6, 2005, and incorporated herein by reference).
4.44 Warrant between the Company and Dutchess Private Equities Fund, II, L.P.,
dated September 22, 2005 (included as exhibit 4.5 to the Form 8-K filed October
6, 2005, and incorporated herein by reference).
4.45 Promissory Note between the Company and Michael Kelley, dated September 22,
2005 (included as exhibit 4.6 to the Form 8-K filed October 6, 2005, and
incorporated herein by reference).
4.46 Promissory Note between the Company and Robert Unger, dated September 22,
2005 (included as exhibit 4.7 to the Form 8-K filed October 6, 2005, and
incorporated herein by reference).
4.47 Security Agreement between the Company and Dutchess Private Equities Fund
L.P. and Dutchess Private Equities Fund, II, L.P., dated September 22, 2005
(included as exhibit 4.8 to the Form 8-K filed October 6, 2005, and incorporated
herein by reference).
4.48 Promissory Note between the Company and Robert and Sherry Rivera, dated
November 1, 2005 (included as exhibit 10.2 to the Form 8-K filed November 7,
2005, and incorporated herein by reference).
4.49 Security Agreement between the Company and Spectrum Communication Cabling
Services, Inc., dated November 1, 2005 (included as exhibit 10.3 to the Form 8-K
filed November 7, 2005, and incorporated herein by reference).
4.50 Form of Debenture between the Company and Preston Capital Partners,
dated July 20, 2005 (filed herewith).
4.51 Form of Debenture between the Company and Preston Capital Partners,
dated August 17, 2005 (filed herewith).
4.52 Form of Debenture between the Company and Dutchess Private Equities Fund,
II, LP, dated September 14, 2005 (filed herewith).
4.53 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP, dated September 14, 2005 (filed herewith).
4.54 Form of Debenture between the Company and Dutchess Private Equities Fund,
II, LP, dated September 19, 2005 (filed herewith).
4.55 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP, dated September 19, 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).
10.35 Intercreditor Agreement between the Company and Nottingham Mayport, LLC,
Dutchess Private Equities Fund L.P., Dutchess Private Equities Fund II, L.P.,
and Robert Unger, dated September 22, 2005 (included as exhibit 10.1 to the Form
8-K filed October 6, 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 (included as exhibit 21.1 to the Form 10-QSB filed
November 21, 2005, and incorporated herein by reference).
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of the Interim Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Reports Filed on Form 8-K
On September 29, 2005, we filed a Form 8-K regarding Departure of Directors or
Principal Officers; Election of Directors; Appointment of Principal Officers.
Our Board of Directors accepted the resignation of Michael Novielli as Chairman
and Director, Douglas Leighton as Director, and Theodore Smith as Director.
Additionally, our Board of Directors appointed Jeffrey R. Hultman, our current
Chief Executive Officer and a Director, as the new Chairman of the Board. On the
same date, our Board of Directors appointed Michael V. Rosenthal, our current
Chief Financial Officer, and Michael Kelley to the Board of Directors.
On October 6, 2005, we filed a Form 8-K regarding Entry into a Material
Definitive Agreement; Completion of Acquisition or Disposition of Assets; and
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a Registrant. We entered into an agreement with Michael
Kelley, the record owner and holder of one-hundred percent of the issued and
outstanding common stock of Kelley Communication Company, Inc., a Nevada
corporation, to acquire one-hundred percent of the outstanding shares of Las
Vegas-based Kelley Communications Company, Inc. d/b/a Kelley Technologies, Inc.
On November 7, 2005, we filed a Form 8-K regarding Entry into a Material
Definitive Agreement; Completion of Acquisition or Disposition of Assets; and
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a Registrant. We entered into an Acquisition Agreement and
Plan of Reorganization with Robert and Sherry Rivera, as the stockholders of
Spectrum Communication Cabling Services, Inc., a California Corporation, to
acquire Spectrum Communications. Spectrum Communications provides network
design, installation and maintenance of voice and data network systems.
On November 9, 2005, we filed a Form 8-K regarding Departure of Directors or
Principal Officers; Election of Directors; Appointment of Principal Officers.
Our Board of Directors appointed Kurt F. Jensen and William G. Sullivan to the
Board of Directors.
17
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: November 22, 2005 By: /s/ Jeffrey R. Hultman
--------------------------------
Jeffrey R. Hultman
President & Chief Executive Officer
By: /s/ Michael V. Rosenthal
---------------------------------
Michael V. Rosenthal
Interim Chief Financial Officer
18