SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act
March 20, 2002
Date of Report (Date of Earliest Reported)
FUTRONIX GROUP, INC.
(Exact name of registrant as specified in its charter)
NEVADA 0-29943 86-0979534
(State of (Commission (I.R.S. Employer
Incorporation) File Number) Identification Number)
1760 S. Dimensions Terrace, Homosassa, FL, 34448
(Address of Principal Executive Offices Including Zip Code)
(352) 628 1900
(Registrant's Telephone Number)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
As reported in the registrant's 10-QSB filed on May 20, 2002, on March 20, 2002
the registrant entered into a Stock Purchase Agreement purchasing all the issued
and outstanding shares in Futronix, Inc. from its shareholders. All pertinent
documents were attached as exhibits to the 8-K/A filed on April 18, 2002.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
Audited financial statements for the years ending December 31, 2001 and 2000 and
unaudited financial statements for the three months ended March 31, 2002 and
2001 of Futronix, Inc.
2
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: SEPTEMBER 5, 2002 FUTRONIX GROUP, INC.
BY: /s/ Nevin Jenkins
------------------------------------
Nevin Jenkins
Its: President and Chief Executive
Officer
BY: /s/ Tom Smith
------------------------------------
Tom Smith
Its: Chief Financial Officer,
Principal Financial Officer
3
FUTRONIX, INC.
CONTENTS
PAGE
----
FINANCIAL STATEMENTS
Report of Independent Public Accountants F-2
Report of Independent Public Accountants (to be filed by amendment) F-3
Balance Sheets for the year ended December 31, 2001
and March 31, 2002 (unaudited) F-4
Statements of Operations for the years ended December 31, 2001
and 2000 and for the three months ended March 31, 2002
and 2001 (unaudited) F-5
Statements of Changes in Stockholders' Equity for the years
ended December 31, 2001 and 2000 and the three months
ended March 31, 2002 (unaudited) F-6
Statements of Cash Flows for the years ended December 31, 2001
and 2000 and for the three months ended March 31, 2002 and
2001 (unaudited) F-7
Notes to Financial Statements F-9
F-1
JAMES C. MARSHALL, CPA, P.C.
14455 N. Hayden Rd, Suite 206
Scottsdale, AZ 85260
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS
Futronix, Inc.
Homosassa, Florida
We have audited the accompanying balance sheet of Futronix, Inc., as of December
31, 2001, and the related statements of income, changes in stockholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the financial position of Futronix, Inc. as of December
31, 2001 and the results of their operations and cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ James C. Marshall, CPA, P.C.
June 28, 2002
Scottsdale, Arizona
F-2
The year ended December 31, 2000 is subject to re-audit. The report of
independent accountants will be filed by amendment as soon as completed.
F-3
FUTRONIX, INC.
Balance Sheets
December 31, 2001 and March 31, 2002 (unaudited)
December 31, March 31,
2001 2002
----------- -----------
ASSETS (unaudited)
Current Assets:
Cash $ 710 $ 26,462
Restricted cash, available 47,592 77,734
Restricted cash, collateralizing cash advances 85,000 115,654
Accounts receivable, net 64,206 157,844
Accounts receivable used as collateral 708,330 963,780
Inventory 609,123 919,912
Other current assets 6,500 217,721
----------- -----------
Total Current Assets 1,521,461 2,479,107
Property, plant and equipment, net
of accumulated depreciation 753,524 729,962
Land held for sale 451,700 451,700
Other assets 32,590 31,939
----------- -----------
Total Assets $ 2,759,275 $ 3,692,708
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 933,530 $ 1,023,257
Accrued expenses 39,675 32,599
Accrued interest 63,466 --
Cash advances collateralized by accounts receivables 708,330 963,780
Current portion of long-term debt 507,230 491,559
Note payable - related party 1,325,000 --
----------- -----------
Total Current Liabilities 3,577,231 2,511,195
Long-term debt 977,221 968,861
Note payable - related party -- 182,568
----------- -----------
Total Liabilities 4,554,452 3,662,624
Stockholders' Equity (Deficit)
Common stock - authorized 1,000,000 shares;
par value $0.0001; issued and outstanding 1,000,000 100 100
Additional paid in capital 162,485 1,658,725
Accumulated deficit (1,957,762) (1,628,741)
----------- -----------
Total Stockholders' Equity (1,795,177) 30,084
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,759,275 $ 3,692,708
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
FUTRONIX, INC.
Statements of Operations
for the years ended December 31, 2001 and 2000
and for the three months ended March 31, 2002 and 2001 (unaudited)
For the year ended For the three months ended
December 31, March 31,
-------------------------- --------------------------
2001 2000 2002 2001
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Sales, net of returns and allowances $ 5,434,230 $ 4,605,092 $ 1,896,091 $ 1,686,218
Cost of sales: 5,234,139 4,300,426 1,372,361 1,554,450
----------- ----------- ----------- -----------
Gross profit 200,091 304,666 523,730 131,768
Sales and marketing 15,355 44,597 3,830 204
General and administrative costs 440,893 553,961 135,290 109,896
Employee costs 534,370 562,207 130,117 159,744
Depreciation and amortization 6,000 18,000 1,500 1,500
Research and development costs 12,603 731 -- 93
Interest expense 230,911 177,573 (32,856) 37,843
----------- ----------- ----------- -----------
1,240,132 1,357,069 237,881 309,280
----------- ----------- ----------- -----------
Other Income:
Interest Income 787 17,072 8,172 614
----------- ----------- ----------- -----------
Gain on sale of assets 118,009 -- 35,000 --
----------- ----------- ----------- -----------
118,796 17,072 43,172 614
----------- ----------- ----------- -----------
Net Income (Loss) $ (921,245) $(1,035,331) $ 329,021 $ (176,898)
=========== =========== =========== ===========
Earnings per common share;
Basic earnings (loss) per share $ (0.92) $ (1.04) $ 0.33 $ (0.18)
=========== =========== =========== ===========
Weighted average shares outstanding 1,000,000 1,000,000 1,000,000 1,000,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
FUTRONIX, INC.
Statements of Stockholders' Equity
for the years ended December 31, 2001 and 2000
and for the three months ended March 31, 2002 (unaudited)
Common Stock
-------------------------- Additional Retained
At Par Paid-In Earnings
Shares Value Capital (Deficit) Total
----------- ----------- ----------- ----------- -----------
Balance, January 1, 2000 1,000,000 $ 100 $ 50,400 $ (1,186) $ 49,314
Net Loss (1,035,331) (1,035,331)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 1,000,000 100 50,400 (1,036,517) (986,017)
Contribution of capital 112,085 112,085
Net Loss (921,245) (921,245)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 1,000,000 100 162,485 (1,957,762) (1,795,177)
Conversion of debt to equity 1,325,000 1,325,000
Conversion of related party
debt to equity 171,240 171,240
Net Income (unaudited) 329,021 329,021
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2002 1,000,000 $ 100 $ 1,658,725 $(1,628,741) $ 30,084
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
FUTRONIX, INC.
Statements of Cash Flows
for the years ended December 31, 2001 and 2000
and for the three months ended March 31, 2002 and 2001 (unaudited)
For the year ended For the three months ended
December 31, March 31,
-------------------------- --------------------------
2001 2000 2002 2001
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Net income (Loss) $ (921,245) $(1,035,331) $ 329,021 $ (176,898)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 172,980 174,195 29,568 51,480
Accounts receivable 92,445 114,731 (349,088) (28,783)
Inventory 392,133 (408,652) (310,789) (9,377)
Other current assets (6,500) (211,221)
Other assets 3,845
Accounts payable (163,357) 477,196 89,727 (261,230)
Accrued expenses (11,499) (10,164) (7,076) 43,137
Accrued interest 52,154 11,312 (63,466) (11,312)
----------- ----------- ----------- -----------
Net cash used by operating activities (389,044) (676,713) (493,324) (392,983)
Cash flow used by investing activities:
Purchase of property and equipment (124,007) (84,757) (5,355) (11,484)
Proceeds of sale of equipment 41,500
Loan costs paid (39,038)
----------- ----------- ----------- -----------
Net cash used by investing activities (124,007) (82,295) (5,355) (11,484)
Cash flow from financing activities:
Working capital advances 600,000 725,000 600,000
Advances from stockholders 142,873 353,808
Proceeds of loans 384,699 262,028
Repayment of loans (192,161) (295,988) (30,609) (111,117)
Debt reclass to additional paid-in capital (387,010)
----------- ----------- ----------- -----------
Net cash provided by financing activities 407,839 569,574 585,227 488,883
----------- ----------- ----------- -----------
Net decrease in Cash (105,212) (189,434) 86,548 84,416
Cash - beginning of period 238,514 427,948 133,302 238,514
----------- ----------- ----------- -----------
Cash - end of period $ 133,302 $ 238,514 $ 219,850 $ 322,930
=========== =========== =========== ===========
Continued
F-7
Supplemental Cash Flow Information
For the year ended For the three months ended
December 31, March 31,
-------------------------- --------------------------
2001 2000 2002 2001
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Interest expense $ 230,911 $ 162,148 $ 32,856 $ 37,843
Transfer of loans to equity $ 124,386 $ 1,496,240
Assets and related liability transferred
to Company from stockholders
Property and building, at cost $ 729,800
Loan payable relieved $ 89,010
Liabilities $(1,116,810)
The accompanying notes are an integral part of these financial statements.
F-8
FUTRONIX, INC.
Notes to financial statements
for the years ended December 31, 2001 and 2000 and
for the three months ended March 31, 2002 and 2001
NOTE 1 - THE COMPANY
ORGANIZATION
Futronix, Inc. (the "Company") was incorporated in the state of Florida in 1988.
The Company is an ISO 9002-certified consignment and turnkey contract
electronics manufacturer. The Company provides engineering support, design,
production and in-circuit testing services, as well as full turnkey box build
manufacturing for both consumer products and commercial applications. The
Company has customers throughout the United States.
On February 20, 2002 the Company changed its par value of common stock to
$0.0001 from $1.00 per share, increased the authorized number of shares to
1,000,000 and declared a 10,000 for 1 stock split. This stock split has been
reflected as of the earliest period presented to show 1,000,000 shares
outstanding with an aggregate par value of $100.
On March 20, 2002 the Company entered into an agreement and plan of
reorganization with FourthCAI, Inc., a public shell corporation, whereby
FourthCAI, Inc. changed its name to Futronix Group, Inc., acquired all of the
outstanding stock of the Company, and entered into a recapitalization.
Thereafter, the Company is a wholly owned subsidiary of Futronix Group, Inc.
GOING-CONCERN CONSIDERATIONS
As shown in the accompanying financial statements, the Company has incurred an
accumulated deficit of $1,957,762 and has a deficit in working capital of
approximately $2,055,770 as of December 31, 2001. The ability of the Company to
continue as a going concern is dependent on obtaining additional capital and
financing and operating at a profitable level. The Company intends to seek
additional capital either through debt or equity offerings and to increase
operating margins and sales volume to achieve profitability. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Company prepares its financial statements on the accrual accounting basis.
Consequently, certain revenue and related assets are recognized upon completion
of the earning process rather than when received, and certain expenses are
recognized when the obligation is incurred or the asset consumed, rather than
when paid.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are composed of highly liquid investments with an
original maturity of less than three months. As a result of the Company's cash
management system, including the borrowing against receivables, certain payments
may create negative book cash balances. Such negative balances are included in
liabilities for each period end.
F-9
FUTRONIX, INC.
Notes to financial statements
for the years ended December 31, 2001 and 2000 and
for the three months ended March 31, 2002 and 2001
(continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
ACCOUNTS RECEIVABLE
Accounts receivable are stated net of allowances for doubtful accounts of
$38,451 and $55,117 at December 31, 2001 and March 31, 2002, respectively.
FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which include cash
equivalents, accounts receivable, accounts payable and short and long term debt,
approximates their fair value at the end of each period.
INVENTORIES
Inventories are stated at the lower of cost (determined on the first-in,
first-out basis) or market and consist of electronic parts, components and
finished goods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are stated on the basis of cost. Depreciation is
computed principally by the straight-line method. Estimated useful lives for
financial reporting purposes are as follows:
Buildings 31.5 years
Machinery and equipment 3-7 years
LAND HELD FOR SALE
Land not used by the Company for its manufacturing site is available for sale.
This land is carried at cost which is not in excess of its fair market value.
OTHER ASSETS
The prepaid assets is subject to amortization as loan-closing costs, these costs
are being amortized over the term of the loan.
INCOME TAXES
The Company and its stockholders elected at incorporation under the Internal
Revenue Code to be taxed as an S corporation. In lieu of corporate income taxes,
the stockholders are taxed on their proportionate share of the Company's net
income. Accordingly, no provision or liability for income taxes has been made in
the accompanying financial statements. As a result of the reorganization on
March 20, 2002, the subchapter S election was terminated and will be subject to
taxation as a C corporation subsequent to that date.
F-10
FUTRONIX, INC.
Notes to financial statements
for the years ended December 31, 2001 and 2000 and
for the three months ended March 31, 2002 and 2001
(continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred.
EARNINGS PER SHARE
Earnings per common share are calculated under the provisions of SFAS No. 128,
"Earnings per Share," which established new standards for computing and
presenting earnings per share. SFAS No. 128 requires the Company to report both
basic earnings per share, which is based on the weighted average number of
common shares outstanding, and diluted earnings per share, which is based on the
weighted average number of common shares outstanding plus all potential dilutive
common shares outstanding. There were no potentially dilutive instruments
outstanding. Therefore, basic and dilutive earnings per share are the same for
each period.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121"). SFAS 121 requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the book value of the
asset may not be recoverable. The Company evaluates on each balance sheet date
whether events or circumstances have occurred that indicate a possible
impairment. In accordance with SFAS 121, the Company uses an estimate of the
future undiscounted net cash flows of the related asset or asset group over the
remaining life in measuring whether the assets are recoverable.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-11
FUTRONIX, INC.
Notes to financial statements
for the years ended December 31, 2001 and 2000 and
for the three months ended March 31, 2002 and 2001
(continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement establishes accounting and reporting standards for
goodwill and intangibles for years commencing after December 15, 2001. Whether
already acquired or subsequently acquired after the effective date, companies
are required to identify intangibles with finite lives and those with indefinite
lives. Those intangibles with finite lives are to be amortized over the
estimates useful lives of the assets while those with indefinite lives are not
to be amortized. Goodwill is not be amortized. Each intangible or goodwill asset
should be analyzed at least annually for impairment where the carrying value is
in excess of the fair value of the intangibles and in excess of the implied fair
value in the case of goodwill assets. The asset's carrying value is to be
reduced by a charge to income if the fair value is lower than the carrying
value. The Company has no amortizing intangibles or goodwill, therefore, the
impact of implementation of SFAS No. 142 is not material.
NOTE 3 - ACCOUNTS RECEIVABLE AND ACCOUNTS RECEIVABLE USED AS COLLATERAL
The Company has recorded a bad debt reserve against its accounts receivable of
$38,451 and $55,117 as of December 31, 2001 and March 31, 2002, respectively.
The Company has pledged with recourse certain accounts receivable in exchange
for cash advances received by the Company on a revolving basis. The outstanding
advances were $708,330 and $963,780 as of December 31, 2001 and March 31, 2002,
respectively. The lender maintains the restricted cash balance as additional
collateral against the collection of the receivables. The interest rate on these
factored receivables is the prime rate plus 2%.
NOTE 4 - INVENTORY
Components of inventory are as follows at December 31, 2001 and March 31, 2002:
December 31, 2001 March 31, 2002
----------------- --------------
Raw materials $517,726 $779,961
Work-in progress 89,700 139,877
Finished goods 1,697 74
-------- --------
$609,123 $919,912
======== ========
F-12
FUTRONIX, INC.
Notes to financial statements
for the years ended December 31, 2001 and 2000 and
for the three months ended March 31, 2002 and 2001
(continued)
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31, 2001 and
March 31, 2002:
December 31, 2001 March 31, 2002
----------------- --------------
Land $ 25,000 $ 25,000
Building 357,701 357,701
Furniture and equipment 1,988,561 1,993,916
Vehicles 18,319 18,319
---------- ----------
2,389,581 2,394,936
Accumulated depreciation 1,636,057 1,664,974
---------- ----------
$ 753,524 $ 729,962
========== ==========
Depreciation expense for the years ended December 31, 2001 and 2000 was $179,980
and $174,195, and for the three months ended March 31, 2002 and 2001 was $28,917
and $51,480, respectively.
NOTE 6 - ACCOUNTS PAYABLE
Under the Company's working relationship with a financial institution it
routinely maintains an overdraft position in its bank balance. Included in
accounts payable are bank overdrafts of $70,198 and $121,014 as of December 31,
2001 and March 31, 2002, respectively.
NOTE 7 - NOTES PAYABLE
December 31, 2001 March 31, 2002
----------------- --------------
Note payable to a financial institution,
10.75% annual interest rate, maturity
date of February 2015, monthly payments of $8,684.
Secured by real estate. $ 733,612 $ 719,280
Note payable to a financial institution, 10%
annual interest rate, maturity date of November
2002, monthly payment of $3,000 with a balloon due
November, 2002. Secured by production equipment. 400,250 400,250
Note payable to a financial institution, 9.25%
annual interest rate, maturity date and balloon
payment due October 2004, monthly payments
of $759 plus interest. Secured by real estate. 165,999 165,158
F-13
FUTRONIX, INC.
Notes to financial statements
for the years ended December 31, 2001 and 2000 and
for the three months ended March 31, 2002 and 2001
(continued)
NOTE 7 - NOTES PAYABLE (continued)
December 31, 2001 March 31, 2002
----------------- --------------
Note payable to an individual, 10% annual
interest rate, maturity date of May 2030,
monthly payments of $878. Secured by real
estate. 92,083 91,749
Note payable to a financial institution, 9.5%
annual interest rate, maturity date of April
2002, monthly payments of $409 plus
interest. Secured by real estate. 38,981 35,776
Note payable to an individual, 10% annual
interest rate, maturity date of May 2030,
monthly payments of $219. Secured by real
estate. 22,994 22,912
Note payable to a corporation, 12% annual
Interest rate, maturity date of November 2002,
monthly payments of $2,190. 21,654 17,277
Credit line to a financial institution, 16.5%
interest rate minimum monthly payment of
$100 required. 4,595 3,986
Credit card from a financial institution, 12.5%
interest rate, minimum monthly payment of
$200 required. 4,273 4,032
----------- -----------
1,484,451 1,460,420
Less: current portion 507,230 491,559
----------- -----------
$ 977,221 $ 968,861
=========== ===========
Maturities of long-term debt are as follows:
2002 $ 507,230 $ 491,559
2003 40,427 41,273
2004 182,626 182,728
2005 38,766 39,813
2006 43,130 44,295
Thereafter 672,272 660,752
----------- -----------
$ 1,484,451 $ 1,460,420
=========== ===========
F-14
FUTRONIX, INC.
Notes to financial statements
for the years ended December 31, 2001 and 2000 and
for the three months ended March 31, 2002 and 2001
(continued)
NOTE 8 - NOTE PAYABLE - RELATED PARTY
At March 31, 2002, the Company had notes payable to its parent company, Futronix
Group, Inc., in the amount of $182,568. There are no repayment terms.
NOTE 9 - CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and trade accounts
receivable.
The Company maintains cash and cash equivalents and short and long-term
investments with various financial institutions. The Company performs periodic
evaluations of the relative credit standing of those financial institutions that
are considered in the Company's investment strategy. The Company does not
require collateral on these financial instruments. As of December 31, 2001 and
March 31, 2002, the Company had no cash deposits in excess of federally insured
limits.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the relatively large size of the individual entities comprising
the Company's customer base and the evaluation of the entities credit
worthiness. However, as of December 31, 2001 and March 31, 2002, the Company's
net receivables from companies were approximately $772,536 and $1,121,623,
respectively. The Company does not require collateral for trade accounts
receivable, and, therefore, the Company could record losses up to this amount if
these customers fail to pay.
Sales to the Company's three major customers accounted for approximately 54% for
the year ended December 31, 2001 and the three months ended March 31, 2002. The
individual customers comprised 25%, 16% and 13% of net sales. The Company
anticipates that significant customer concentration will continue for the
foreseeable future, although the companies which constitute the Company's
largest customers may change.
NOTE 10 - RELATED PARTY TRANSACTIONS
An owner and officer of the Company was paid royalties on sales of certain
products. Royalty expenses for the years ending December 31, 2001 and 2000
totaled approximately $5,040 and $52,000, respectively. There were no royalty
payments during the quarter ended March 31, 2002.
An owner of the Company received payments on a loan to the Company totaling
approximately $13,864 and $54,000 during the years ending December 31, 2001 and
2000, respectively. At December 31, 2001, the owner converted the remaining
principal of $112,085 to additional paid in capital. Additionally, during the
quarter ended March 31, 2002 the owners converted notes payable of $171, 240 to
additional paid in capital
The owners of the Company transferred ownership of the land and building used in
the Company's operations to the Company during the year ended December 31, 2000.
The Company had previously leased the property. The property was transferred at
the owners' book value of $729,800. Liabilities associated with the property
totaling $1,116,810 were transferred to the Company and the owners forgave debt
and related interest owed to them by the Company in the amount of $387,010.
F-15
FUTRONIX, INC.
Notes to financial statements
for the years ended December 31, 2001 and 2000 and
for the three months ended March 31, 2002 and 2001
(continued)
NOTE 11 - COMMITMENTS AND CONTINGENCIES
A financial institution is suing the Company for an alleged covenant violation
on an equipment loan. In 2002 the Company has subsequently settled this matter
at an additional cost of $32,000 by making total payments due, including
interest, to the financial institution of $467,885 by November 19, 2002.
A vendor is suing the Company for payment on inventory that the Company has not
received. The Company does not believe there will be a material adverse effect
from this.
NOTE 12 - UNRECORDED BUSINESS COMBINATION AND LITGATION
Effective May 2000, the Company entered into an agreement to be acquired by
Salient Cybertech, Inc. ("Salient") pursuant to an Agreement and Plan of
Reorganization (the "Merger Agreement"). The Merger Agreement called for
consideration to be paid to the Company's shareholders in the form of shares of
Salient's common and preferred stock. The Merger Agreement also called for
working capital totaling $3,000,000 to be infused into the Company by Salient.
The Company believes that the terms of the Merger Agreement were not fulfilled
by Salient because the aggregate required funding was never received by the
Company. Additionally, no articles of merger were filed with the Florida
Department of State. Therefore, the Company does not believe a change in
ownership occurred. In March 2001, Salient entered into an agreement to sell the
Company to Trident Systems International, Inc. ("Trident"). It is the Company's
belief that this transaction was not completed and Trident did not acquire an
interest in the Company.
In connection with the above described Merger Agreement, Salient filed a lawsuit
against the Company and its shareholders alleging its ownership of the Company
and alternatively, seeking the return of the capital advances of $1,325,000,
paid to the Company, plus additional damages. The Company has taken the position
that it is not liable to Salient for the full return of the cash advances it
received from Salient. Subsequent to December 31, 2001, the parties have been
involved in settlement negotiations. Although the Company anticipates settling
this litigation in the near future, no settlement agreement has been finalized.
The proposed terms of the settlement require the issuance of 900,000 shares of
preferred convertible stock, stated value $1.00 per share of Futronix Group,
Inc. ("Futronix"), the parent company of the Company. As a result of these
settlement negotiations and subsequent to December 31, 2001, the Company has
capitalized the advances as additional paid in capital of $1,325,000. In the
event that the settlement negotiations fail and the lawsuit is decided against
the Company, the Company could be liable to Salient for some or all of the
advances, plus applicable interest, and possibly other damages, all of which
would likely have a material adverse impact on the Company and Futronix.
NOTE 13 - COMMON STOCK
On February 20, 2002 the Company changed its par value of common stock to
$0.0001 from $1.00 per share, increased the authorized number of shares to
1,000,000 and declared a 10,000 for 1 stock split. This stock split has been
reflected as of the earliest period presented to show 1,000,000 shares
outstanding with an aggregate par value of $100.
F-16
FUTRONIX, INC.
Notes to financial statements
for the years ended December 31, 2001 and 2000 and
for the three months ended March 31, 2002 and 2001
(continued)
NOTE 14 - EARNINGS (LOSS) PER SHARE
Earnings and loss per share of common stock has been computed based on the
weighted average number of shares outstanding after giving effect to the stock
split. For all periods, the outstanding shares were 1,000,000. There were no
outstanding stock options and there were no other dilutive items outstanding;
therefore, basic and diluted loss per share are the same.
F-17