UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
FUTRONIX GROUP, INC.
(Name of Small Business Issuer)
June 30, 2002 0-29943
(For the Quarter Ended) (Commission File Number)
Nevada 86-0979534
(State of Incorporation) (I.R.S. Employer Identification Number)
1760 S. Dimensions Terrace, Homasassa, FL 34448
Address of Principal Executive Offices Including Zip Code)
(352) 628-1900
(Issuers Telephone Number)
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 such shorter
period that the registrant was required to file such reports), and (2) has been
subject to filing requirements for the past 90 days. [X] YES [ ] NO
Number of shares outstanding of each of the issuer's classes of common equity,
as of August 1, 2002: 9,999,500
Transitional Small Business Disclosure Format: [ ] Yes [X] No
FUTRONIX, GROUP, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
Balance Sheet at June 30, 2002 3
Statement of Operations for the six months and
three months ended June 30, 2002 and 2001 4
Statement of Stockholders' Equity for the six months
ended June 30, 2002 and 2001 5
Statement of Cash Flows for the six months and three
months ended June 30, 2002 and 2001 6
Notes to Financial Statements 7
Item 2 - Management's Discussion and Analysis 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Default Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
CERTIFICATES 21
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FUTRONIX GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheet
June 30, 2002 (unaudited)
June 30,
2002
-----------
ASSETS (unaudited)
Current Assets:
Cash $ 1,616
Restricted cash, available 69,056
Restricted cash, collateralized cash advances 92,431
Accounts receivable, net 125,844
Accounts receivable used as collateral 770,260
Inventory 1,055,335
Other current assets 127,057
-----------
Total Current Assets 2,241,599
Property, plant and equipment, net
of accumulated depreciation 706,998
Land held for sale 451,700
Other assets 31,288
-----------
Total Assets $ 3,431,585
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 948,925
Accrued expenses 69,125
Cash advances collateralized by accounts receivable 770,260
Current portion of long-term debt 473,051
-----------
Total Current Liabilities 2,261,361
Long-term debt 956,861
Debentures payable 122,000
-----------
Total Liabilities 3,340,222
===========
Stockholders' Equity
Cumulative convertible 7.0% $1.00 stated value
preferred stock - authorized 2,000,000 shares;
par value $0.0001; shares outstanding 900,000 90
Common stock - authorized 100,000,000 shares; par
value $0.0001; issued and outstanding 9,999,500 1,000
Additional paid in capital - preferred stock 1,324,910
Additional paid in capital - common stock 332,825
Accumulated deficit (1,567,462)
-----------
Total Stockholders' Equity 91,363
-----------
Total Liabilities and Stockholders' Equity $ 3,431,585
===========
The accompanying notes are an integral part of these financial statements.
3
FUTRONIX GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
for the six months and three months ended June 30, 2002 and 2001 (unaudited)
For the six months ended For the three months ended
June 30, June 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Sales, net of returns and
allowances $ 3,723,755 $ 3,211,909 $ 1,827,664 $ 1,525,691
Cost of sales: 2,819,953 3,061,404 1,449,403 1,510,751
----------- ----------- ----------- -----------
Gross profit 903,802 150,505 378,261 14,940
----------- ----------- ----------- -----------
Sales and marketing 8,079 14,321 3,391 10,217
General and administrative costs 189,854 219,852 86,632 125,345
Employee costs 259,085 278,789 128,969 119,045
Depreciation and amortization 3,000 3,000 1,500 1,500
Research and development costs -- 93 -- --
Interest expense 61,008 130,043 60,192 76,913
----------- ----------- ----------- -----------
521,026 646,098 280,684 333,020
----------- ----------- ----------- -----------
Other Income:
Interest Income 9,530 788 1,358 1,73
Gain on sale of assets 35,394 -- 394 --
----------- ----------- ----------- -----------
44,924 788 1,752 173
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes 427,700 (494,805) 99,329 (317,907)
Provision for income taxes 37,400 37,400
----------- ----------- ----------- -----------
Net Income (Loss) $ 390,300 $ (494,805) $ 61,929 $ (317,907)
=========== =========== =========== ===========
Earnings per common share;
Basic earnings (loss) per share $ 0.04 $ (0.05) $ 0.01 $ (0.03)
=========== =========== =========== ===========
Weighted average shares
outstanding 9,999,500 9,999,500 9,999,500 9,999,500
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
FUTRONIX GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
for the six months ended June 30, 2002 and 2001 (unaudited)
Preferred Stock Common Stock Additional Paid-In Capital
---------------------- ------------------------ -------------------------- Retained
Shares Par Value Shares Par Value Preferred Common Earnings Total
--------- --------- ---------- ---------- ----------- ----------- ----------- -----------
Balance, January
1, 2001 1,000,000 $ 100 $ 50,400 $(1,036,517) $ (986,017)
Recapitalization 8,999,500 900 (900)
Net Loss for the
six months ended
June 30, 2001 (494,805) (494,805)
--------- --------- ---------- ---------- ----------- ----------- ----------- -----------
Balance, June 30,
2001 9,999,500 $ 1,000 $ 49,500 $(1,531,322) $(1,480,822)
========= ========= ========== ========== =========== =========== =========== ===========
Balance, January
1, 2002 9,999,500 $ 1,000 $ 161,585 $(1,957,762) $(1,795,177)
Conversion of debt
to equity 900,000 $ 90 $ 1,324,910 1,325,000
Contribution of
capital 171,240 171,240
Net Income for the
six months ended
June 30, 2002 390,300 390,300
--------- --------- ---------- ---------- ----------- ----------- ----------- -----------
Balance, June 30,
2002 900,000 $ 90 9,999,500 $ 1,000 $ 1,324,910 $ 332,825 $(1,567,462) $ 91,363
========= ========= ========== ========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
FUTRONIX GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
for the six months and three months ended June 30, 2002 and 2001 (unaudited)
For the six months ended For the three months ended
June 30, June 30,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Net income (Loss) $ 390,300 $ (494,805) $ 61,929 $ (317,907)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 59,136 91,980 29,568 40,500
Accounts receivable (123,568) 80,392 225,520 109,175
Inventory (446,212) 236,475 (135,423) 223,851
Other current assets (120,557) (27,500) 29,664 (27,500)
Accounts payable 15,395 (311,308) (73,900) (29,996)
Accrued expenses (34,016) 27,007 36,526 (4,818)
----------- ----------- ----------- -----------
Net cash used by operating activities (259,522) (397,759) 173,884 (6,695)
Cash flow used by investing activities:
Purchase of property and equipment (12,610) (27,947) (6,603) (14,544)
----------- ----------- ----------- -----------
Net cash used by investing activities (12,610) (27,947) (6,603) (14,544)
Cash flow from financing activities:
Working capital advances 600,000 --
Proceeds of loans 202,762 11,955 11,955
Repayment of loans (254,637) (229,111) (224,028) (117,994)
Advances from stockholders 353,808 --
----------- ----------- ----------- -----------
Net cash provided by financing
activities 301,933 382,844 (224,028) (106,039)
----------- ----------- ----------- -----------
Net increase (decrease) in Cash 29,801 (42,862) (56,747) (127,278)
Cash - beginning of period 133,302 238,514 219,850 322,930
----------- ----------- ----------- -----------
Cash - end of period $ 163,103 $ 195,652 $ 163,103 $ 195,652
=========== =========== =========== ===========
Supplemental Cash Flow Information
Interest expense $ 32,856
Transfer of loans to equity $ 1,496,240
The accompanying notes are an integral part of these financial statements.
6
FUTRONIX GROUP, INC. and SUBSIDIARY
Notes to consolidated financial statements
for the six months and three months ended June 30, 2002 and 2001
NOTE 1 - THE COMPANY
ORGANIZATION
Futronix Group Inc. (the "Company") was incorporated in the state of Nevada on
September 3, 1999 as FourthCAI, Inc.. On March 20, 2002 Futronix, Inc. 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 Futronix, Inc., and entered into
a recapitalization.
FourthCai originally had 5,040,000 shares outstanding, in conjunction with its
reverse acquisition it cancelled 4,340,000 shares of common stock and issued
9,299,500 shares of its common stock to the holders of Futronix, Inc. common
stock in exchange for all 1,000,000 shares outstanding of Futronix, Inc. This
transaction is accounted for as a reverse acquisition in which Futronix, Inc. is
the acquirer and retains its original basis in all assets and liabilities.
The Company's wholly-owned subsidiary, Futronix, Inc. (the "Subsidiary"), is an
ISO 9002-certified consignment and turnkey contract electronics manufacturer.
The Subsidiary 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 Subsidiary has customers
throughout the United States.
GOING-CONCERN CONSIDERATIONS
As shown in the accompanying financial statements, the Company has an
accumulated deficit of $1,567,462 and has a deficit in working capital of
approximately $19,762 as of June 30, 2002. 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned Subsidiary. All intercompany accounts and transactions were
eliminated.
7
FUTRONIX GROUP, INC. and SUBSIDIARY
Notes to consolidated financial statements
for the six months and three months ended June 30, 2002 and 2001
(continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
ACCOUNTS RECEIVABLE
Accounts receivable are stated net of allowances for doubtful accounts of
$55,117 and $38,452 at June 30, 2002 and 2001, 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.
8
FUTRONIX GROUP, INC. and SUBSIDIARY
Notes to consolidated financial statements
for the six months and three months ended June 30, 2002 and 2001
(continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
Prior to April, 2002, the Company and its stockholders elected 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 for any period prior to April 1, 2002. As a result of the
reorganization on March 20, 2002, the subchapter S election was terminated and
the Company is subject to taxation as a C corporation subsequent to that date.
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.
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.
9
FUTRONIX GROUP, INC. and SUBSIDIARY
Notes to consolidated financial statements
for the six months and three months ended June 30, 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
The Company has recorded a bad debt reserve against its accounts receivable of
$55,117 and $38,451 as of June 30, 2002 and 2001, respectively.
The Company has pledged with recourse certain accounts receivables in exchange
for cash advances received by the Company on a revolving basis. The outstanding
advances were $770,260 as of June 30, 2002. 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 June 30, 2002:
June 30, 2002
-------------
Raw materials $ 764,730
Work-in progress 289,184
Finished goods 1,421
-----------
$ 1,055,335
===========
10
FUTRONIX GROUP, INC. and SUBSIDIARY
Notes to consolidated financial statements
for the six months and three months ended June 30, 2002 and 2001
(continued)
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of June 30, 2002:
June 30, 2002
-------------
Land $ 25,000
Building 357,701
Furniture and equipment 2,001,171
Vehicles 18,319
-----------
2,402,191
Accumulated depreciation 1,695,193
-----------
$ 706,998
===========
Depreciation expense for the six months ended March 31, 2002 and 2001 was
$59,136 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 $98,216 as of June 30, 2002.
NOTE 7 - NOTES PAYABLE
June 30, 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. $ 710,312
Note payable to a financial institution, 10% annual
interest rate, maturity date of November, 2002,
monthly payments of $3,000 with a balloon payment
due November, 2002. Secured by production equipment. 397,250
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. 162,524
Note payable to an individual, 10% annual interest rate,
maturity date of May 2030, monthly payments of $878.
Secured by real estate. 91,408
11
FUTRONIX GROUP, INC. and SUBSIDIARY
Notes to consolidated financial statements
for the six months and three months ended June 30, 2002 and 2001
(continued)
NOTE 7 - NOTES PAYABLE (continued)
June 30, 2002
-------------
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. 34,255
Note payable to an individual, 10% annual interest rate,
maturity date of May 2030, monthly payments of $219.
Secured by real estate. 22,855
Note payable to a corporation, 12% annual Interest rate,
maturity date of November 2002, monthly payments of $2,190. 11,308
------------
1,429,912
Less: current portion 473,051
------------
$ 956,861
============
Maturities of long-term debt are as follows:
2003 $ 473,051
2004 41,273
2005 180,094
2006 39,813
2007 44,295
Thereafter 651,386
------------
$ 1,429,912
============
12
FUTRONIX GROUP, INC. and SUBSIDIARY
Notes to consolidated financial statements
for the six months and three months ended June 30, 2002 and 2001
(continued)
NOTE 8 - CONVERTIBLE DEBENTURES
At June 30, 2002, the Company had convertible dentures payable in the amount of
$122,000. The debentures are payable at 10% interest per annum and are due on
March 31, 2004. The debentures are convertible at the option of the holder into
one share of common stock for each $1.00 of principal.
NOTE 9 - INCOME TAXES
Prior to the 2nd quarter of 2002, ending June 30, 2002, the Company was a
pass-through entity for tax purposes and no tax provision has been provided for
any prior period. The components of the provision for income taxes are as
follows:
For the period ended
June 30, 2002
-------------
Current:
U.S. Federal $ 31,900
State 5,500
---------
$ 37,400
=========
There are no deferred items.
The following is a reconciliation of the statutory federal income tax rate
applied to pre-tax accounting earnings compared to the provision for income tax
in the consolidated statements of operations:
Income tax expense at the statutory rate $ 33,772
Increase resulting from State income taxes,
net of federal income tax 3,628
---------
$ 37,400
=========
NOTE 10 - 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 June 30, 2002, the
Company had no cash deposits in excess of federally insured limits.
13
FUTRONIX GROUP, INC. and SUBSIDIARY
Notes to consolidated financial statements
for the six months and three months ended June 30, 2002 and 2001
(continued)
NOTE 10 - CONCENTRATION OF CREDIT RISK (continued)
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 June 30, 2002, the Company's receivables from
customers was approximately $896,104. 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 six months ended June 30, 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 11 - RELATED PARTY TRANSACTIONS
At December 31, 2001, an owner and officer converted the remaining principal of
$112,085 to additional paid in capital. Additionally, during the first quarter
of 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.
NOTE 12 - 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, 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 13 - UNRECORDED BUSINESS COMBINATION AND LITIGATION
Effective May 2000, the Subsidiary 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 Subsidiary'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 Subsidiary
14
FUTRONIX GROUP, INC. and SUBSIDIARY
Notes to consolidated financial statements
for the three months ended March 31, 2002 and 2001
(continued)
NOTE 13 - UNRECORDED BUSINESS COMBINATION AND LITIGATION (continued)
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 Subsidiary. 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
Subsidiary 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 Subsidiary.
In connection with the above described Merger Agreement, Salient filed a lawsuit
against the Subsidiary and its shareholders alleging its ownership of the
Subsidiary and alternatively, seeking the return of the capital advances of
$1,325,000, paid to the Subsidiary, 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
the Company. As a result of these settlement negotiations 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 Subsidiary, 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.
A condition of the settlement would require the necessary disclosures with the
Securities and Exchange Commission to authorize the new class of preferred
stock, distribution to the stockholders and the majority vote by the current
stockholders of the Company to approve the new class. The management of the
Company intend to vote for the amendment. Their holding constitute a majority of
the outstanding common stock entitled to vote on the matter. The stock becomes
convertible at a rate of 225,000 each six month period after issuance. The
convertible preferred stock is convertible at a price of 85% of the last five
trading day's average of the common stock with a credit of the stated value of
$1.00 per share of preferred stock. The maximum number of shares issuable under
this agreement is 4,000,000 shares of common stock. There is no assurance that
the common stock of the Company will become publicly traded for the purposes of
establishing a conversion price. At the option of the Company, the Company may
redeem the preferred stock at any time prior to conversion at a rate of $1.20
per share.
15
FUTRONIX GROUP, INC. and SUBSIDIARY
Notes to consolidated financial statements
for the six months and three months ended June 30, 2002 and 2001
(continued)
NOTE 14 - COMMON STOCK
The Company's par value of common stock is $0.0001 with the authorized number of
shares of 100,000,000. In conjunction with the recapitalization (the reverse
acquisition) the Company issued 8,999,500 shares of its common stock to the
holders of Futronix, Inc. and FourthCai, Inc.
NOTE 15 - EARNINGS (LOSS) PER SHARE
Earnings and loss per share of common stock has been computed based on the
weighted average number of shares outstanding. As a result or the reorganization
the common stock has been restated to the earliest period presented and
therefore, the outstanding shares were 9,999,500 for all periods. The preferred
stock does not become convertible until there is a public market for the
Company's stock and the passage of certain amounts of time. There were no
outstanding stock options. Therefore, there were no dilutive items outstanding;
and basic and diluted loss per share are the same.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-QSB contains certain statements that are not related to historical
results, including, without limitations, statements regarding the company's
business strategy and objectives and future financial position, are forward
looking statements within the meaning of section 27A of the securities act and
section 21E of the Exchange Act and involve risks and uncertainties. Although
the company believes that the assumptions on which these forward looking
statements are based are reasonable, there can be no assurance that such
assumptions will prove to be accurate and actual results could differ materially
from those discussed in the forward looking statements. Factors that could cause
or contribute to such differences include but are not limited to, those set
forth in the preceding paragraph, as well as those discussed elsewhere in this
report. All forward-looking statements contained in this report are qualified in
their entirety by this cautionary statement.
Futronix Group, Inc. was incorporated in the state of Nevada in September, 1999.
Futronix, Inc., the wholly-owned subsidiary, was incorporated in the state of
Florida in 1989. The Company's year end is December 31.
On March 20, 2002, FourthCAI, Inc., a public shell corporation, in a capital
transaction accompanied by a stock recapitalization acquired the stock of
Futronix, Inc. FourthCAI, Inc. was incorporated on September 3, 1999 and had
only limited operations until its Plan of Reorganization with Futronix, Inc. In
conjunction with the plan, FourthCAI, Inc. cancelled 4,340,000 shares of the
5,040,000 shares then outstanding and issued 9,299,500 shares to the
stockholders of Futronix, Inc. for all of the issued and outstanding stock of
that company. As part of this reverse acquisition, FourthCAI, Inc. changed its
name to Futronix Group, Inc. and owns subsidiary, Futronix, Inc. (collectively
the "Company").
OVERVIEW
Futronix, Inc. manufactures and assembles custom electronic components and
finished products for a variety of customers. The Company is located in Florida
and all production is done in Florida.
The financial statements include the accounts of the Company and its wholly
owned subsidiary, Futronix, Inc.
RESULTS OF OPERATIONS
The company had a gross profit for the six months ended June 30, 2002 of
$903,802 compared to $150,505 at June 30, 2001.
The company's net income of $390,300 for the six months ended June 30, 2002
increased from a loss of $494,805 for the same three month period ending in
2001.
The company's earnings per share, on a fully diluted basis was $.04 for the six
months ending June 30, 2002 and a loss of $(0.05) for the six months ended June
30, 2001.
The Company expects to face many operating and industry challenges and is doing
business in a highly competitive industry.
17
Capital reserves at June 30, 2002 were positive and the company has adequate
working capital to continue its operations at its present level. The Company
plans to increase working capital through the sale of stock, debentures and
strategic mergers or acquisitions in the industry.
LIQUIDITY AND CAPITAL RESOURCES
The Company has various loans and lines of credit with interest rates ranging
from 9.25% to 16.5%. The Company's receivables are financed on a revolving
basis. Substantially all of the Company's trade receivables are pledged to the
cash advance line under this agreement. At June 30, 2002, the outstanding
balance under this arrangement was $770,260 which is all due within one year.
The Company has other secured and unsecured borrowing with scheduled monthly
payments through 2030. The current portion of the loans and cash advances is
$1,243,311. The Company believes that it has sufficient resources available to
meet its operating needs.
The Company owns its manufacturing and office facilities, all of which is
unencumbered. The Company believes that additional borrowing power is available
to the Company based on the fair market value of the equipment and machinery of
approximately $3,600,000 and its manufacturing facilities of approximately
$2,200,000.
The Company maintains equipment under long-tern operating leases. The rental
expense is charged to operations as paid over the lease term. Total lease
expense for the six months ended June 30, 2002 and 2001 was $16,908 and $2,748,
respectively.
SEASONALITY
The Company's operations are not affected by seasonal fluctuation. However, cash
flows may at times be affected by fluctuations in the timing of cash receipts
from large contracts.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Additional Financing. The Company will require additional financing to achieve
growth in operations. The company is in the process of raising additional
capital through the private placement of common stock and debentures to
accredited investors. The purpose is to raise additional working capital.
Technological Change. The Company has been able to keep pace with technological
changes through an on going educational process in the industry.
Competition. The Company faces competition from many sources, most of which are
larger and have significantly more resources than the Company.
Concentration of Customers. In excess of 50% of the Company' sales volume is
concentrated in three customers at the present time. Customer relations are good
but customers, economics and product mix could have a significant impact on the
operations of the Company.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any litigation and to its knowledge, no action,
suit or proceedings against it has been threatened by any person or entity other
than normal trade issues.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There was one report filed on Form 8-K dated April 16, 2002 indicating a
change of name, address and control and an Agreement and Plan of Reorganization.
Said 8K is incorporated by reference 10
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SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOURTHCAI, INC.
SEPTEMBER 5, 2002 /s/ NEVIN JENKINS
----------------------------------------
Nevin Jenkins, President and Chief
Executive Officer, Principal Executive
Officer
SEPTEMBER 5, 2002 /s/ TOM SMITH
----------------------------------------
Tom Smith, Chief Financial Officer,
Principal Financial Officer
20
CERTIFICATION
I, Nevin Jenkins, President and Principal Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Futronix Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: September 5, 2002
/s/ Nevin Jenkins
- ----------------------------------
Nevin Jenkins, President and Chief
Executive Officer, Principal Executive Officer
21
CERTIFICATION
I, Tom Smith, Chief Financial Officer, Principal Financial Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-QSB of Futronix Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: September 5, 2002
/s/ Tom Smith
- ----------------------------------
Tom Smith, Chief Financial Officer, Principal Financial Officer
22