U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from _______ to _______
Commission File No. 333-86000
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TECHNOLOGY CONNECTIONS, INC.
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(Exact name of small business issuer as specified in its charter)
North Carolina 56-2253025
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(State or other jurisdiction of (IRS Employer identification No.)
incorporation or organization)
301C Verbena Street, Charlotte, North Carolina 28217
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(Address of principal executive offices)
(704) 400-9042
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(Issuer's 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 for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Number of shares of common stock outstanding as of
May 20, 2004: 2,468,901
Number of shares of preferred stock outstanding as of
May 20, 2004: -0-
INDEX TO FORM 10-QSB
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Page No.
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PART I
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Item 1. Financial Statements
Balance Sheet - March 31, 2004 (unaudited) 2
Statements of Operations - Three Months Ended
March 31, 2004 and 2003 (unaudited) 3
Statements of Cash Flows - Three Months Ended
March 31, 2004 and 2003 (unaudited) 4
Notes to Financial Statements (unaudited) 5-6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 7-10
PART II
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Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
ITEM 1.
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TECHNOLOGY CONNECTIONS, INC.
BALANCE SHEET
MARCH 31, 2004
(UNAUDITED)
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ASSETS
2004
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CURRENT ASSETS
Cash and Cash Equivalents $ 91
Inventory 3,000
Accounts Receivable, net of allowance for doubtful
accounts of $31,564 7,434
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TOTAL CURRENT ASSETS 10,525
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PROPERTY AND EQUIPMENT
Property and Equipment 33,787
Accumulated Depreciation (11,149)
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Net Property and Equipment 22,638
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TOTAL ASSETS $ 33,163
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LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Current Liabilities:
Accounts Payable and Accrued Expenses $ 168,219
Notes Payable 67,400
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TOTAL LIABILITIES 235,619
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STOCKHOLDERS' DEFICIT
Preferred Stock ($.001 par value, 5,000,000 authorized:
none issued and outstanding) -
Common Stock ($.001 par value, 100,000,000 shares authorized:
2,152,901 shares issued and outstanding) 2,153
Additional Paid-in-Capital 981,377
Retained Deficit (1,185,986)
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TOTAL STOCKHOLDERS' DEFICIT (202,456)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 33,163
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The accompanying notes are an integral part of the financial statements
TECHNOLOGY CONNECTIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
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2004 2003
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SALES AND COST OF SALES:
Sales $ 150 $ 18,956
Cost of Sales - 12,128
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Gross Profit (Loss) 150 6,828
OPERATING EXPENSES:
Selling, general and administrative 2,122 34,223
Consulting fees 153,001 77,250
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155,123 111,473
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OPERATING LOSS (154,973) (104,645)
OTHER EXPENSE:
Interest Expense 2,793 8,601
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NET LOSS $ (157,766) $ (113,246)
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Net Loss Per Common Share Basic &
Fully Diluted $ (0.09) $ (0.09)
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Weighted Average Common Shares Outstanding 1,750,397 1,312,893
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The accompanying notes are an integral part of the financial statements
TECHNOLOGY CONNECTIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
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2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (157,766) $ (113,246)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 1,681 2,710
Stock issued for services 190,002 201,000
(Increase) decrease in operating assets:
Accounts receivable - (1,699)
Inventory - 2,500
Prepaid expenses - (123,750)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (34,208) 18,616
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NET CASH USED IN OPERATING ACTIVITIES (291) (13,869)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment - (8,531)
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NET CASH USED IN INVESTING ACTIVITIES - (8,531)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stockholder loans - 1,471
Borrowings on notes payable - 10,200
Repayments of notes payable - (2,029)
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NET CASH PROVIDED BY FINANCING ACTIVITIES - 9,642
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NET INCREASE IN CASH AND CASH EQUIVALENTS (291) (12,758)
CASH AND CASH EQUIVALENTS:
Beginning of period 382 4,457
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End of period $ 91 $ (8,301)
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the quarter for interest $ - $ 6,070
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Stock issued for services $ 140,002 $ 201,000
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Stock issued for accounts payable $ 50,000 $ -
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The accompanying notes are an integral part of the financial statements
TECHNOLOGY CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004 (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments consisting only of normal recurring accruals
considered necessary to present fairly the Company's financial position at March
31, 2004, the results of operations for the three month periods ended March 31,
2004 and 2003, and cash flows for the three months ended March 31, 2004 and
2003. The results for the period ended March 31, 2004, are not necessarily
indicative of the results to be expected for the entire fiscal year ending
December 31, 2004.
Statement of Financial Accounting Standard ("SFAS") No.128 requires dual
presentation of basic and diluted EPS with a reconciliation of the numerator and
denominator of the EPS computations. Basic earnings per share amounts are based
on the weighted average shares of common stock outstanding. If applicable,
diluted earnings per share would assume the conversion, exercise, or issuance of
all potential common stock instruments such as options, warrants and convertible
securities, unless the effect is to reduce a loss or increase earnings per
share. Accordingly, this presentation has been adopted for the years presented.
There were no adjustments required to net loss for the years presented in the
computation of diluted earnings per share.
The interim unaudited consolidated financial statements should be read in
conjunction with the Company's annual report on Form 10-KSB as filed with the
Securities and Exchange Commission.
NOTE 2 - GOING CONCERN AND LIQUIDITY
The Company has experienced losses from operations of $157,766 and $113,246
during the three ended March 31, 2004 and 2003, respectively, has yet to
generate an internal cash flow, has negative working capital, has a
stockholders' deficit and has outstanding and delinquent payables including
payroll taxes as of March 31, 2004. These factors raise substantial doubt about
the Company's ability to continue as a going concern. The Company's continued
existence is dependent upon its ability to resolve its liquidity problems,
principally by obtaining equity funding, increasing sales and achieving
profitable operations. In regard to management's plans in these matters, the
Company entered into a "Merger Agreement" dated February 19, 2004, whereby the
Company is expected that its operations will become a business segment in the
merged entity and that certain liabilities will be paid by the merged entity
(See Note J Subsequent Events in the Form 10-KSB for 2003).
The eventual outcome, however, of management's plans cannot be ascertained with
any degree of certainty. The accompanying financial statements do not include
any adjustments that might result from the outcome of these risks and
uncertainties.
NOTE 3 - 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,
disclosures of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 4 - COMMON STOCK ISSUANCES
During the quarter ended March 31, 2004, the Company issued 805,008 shares of
common stock to consultants for services which were expensed at fair value. The
interim financial statements for the three months ended March 31, 2004 include
an expense associated with this of $190,002.
NOTE 5 - SUBSEQUENT EVENT
On February 19, 2004, we executed an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which an unrelated company will merge with and into the
Company, with the unrelated company's stockholders receiving 27,288,732 shares
of common stock and 1,000,000 shares of Class A Convertible Preferred. Our
common stock will be exchanged for the shares of the unrelated company. In
addition, pursuant to this agreement, we agreed to change its corporate name
from "Technology Connections, Inc." to "HouseRaising, Inc." prior to the
closing. The merger closing will be on the second business day following
satisfaction or waiver of all conditions to the obligations of the Parties as
stated in the Merger Agreement. As of May 20, 2004, the merger has not closed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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Technology Connections, Inc. is hereby providing cautionary statements
identifying important factors that could cause our actual results to differ
materially from those projected in forward looking statements made in this
quarterly report on Form 10-QSB. Any statements that express, or involve
discussions as to, expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "likely will result," "are expected to," "will continue," "is
anticipated," "estimated," "intends," "plans" and "projection") are not
historical facts and may be forward looking statements and involve estimates and
uncertainties which could cause actual results to differ materially from those
expresses in the forward looking statements. Accordingly, any such statements
are qualified in their entirety by reference to, and are accompanied by, the
following key factors that have a direct bearing on our results of operations:
the absence of contracts with customers or suppliers; our ability to maintain
and develop relationships with customers and suppliers; our ability to
successfully integrate acquired businesses or new brands; the impact of
competitive products and pricing; supply constraints or difficulties; changes in
the construction industry; the retention and availability of key personnel; and
general economic and business conditions.
We caution that the factors described herein could cause actual results to
differ materially from those expressed in any forward-looking statements such
that the investors should not place undue reliance on any such forward-looking
statements. Further, any forward-looking statement speaks only as of the date on
which such statement is made, and we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events or circumstances. Consequently, no forward-looking statement can be
guaranteed.
New factors emerge from time to time, and it is not possible for us to predict
all such factors. Further, we cannot assess the impact of each such factor on
our results of operations or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
Overview
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We were incorporated in North Carolina on May 23, 2001, to engage in the
business of installing structured wiring capacities into newly constructed homes
and retrofitting existing homes with the same integrated technology components
and systems. Such integrated technology and systems include security systems,
Internet technology, satellite television delivery systems, indoor/outdoor
lighting, solar energy systems and entertainment/communication technology.
We currently have two full-time employees. We are authorized to issue common and
preferred stock. Our total authorized common stock consists of 100,000,000
shares, with a par value of $.001 per share, of which 2,152,901 shares are
issued and outstanding. Our total authorized preferred stock consists of
5,000,000 shares, with a par value of $.001 per share, of which no shares are
issued and outstanding.
The most important items for evaluating our financial condition and operating
performance are cash and cash flows from operations, respectively. Liquidity and
capital resources relate to these two items. We make our business decisions
based upon our cash position and the cash that is either generated from our used
in operating activities.
Revenue recognition is a critical accounting policy of ours since it represents
the majority of our entire financial statements taken as a whole. It is also
important in light of the Staff Accounting Bulletins published by the Securities
and Exchange Commission over the past few years.
RESULTS OF OPERATIONS
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For the three months ended March 31, 2004 and 2003(unaudited).
Sales.
Sales for the three months ended March 31, 2004 and 2003 were $150 and $18,956,
respectively, a decrease of $18,806 or 99%. Sales decreased due to a bad economy
and a lack of capital to sustain operations in a proper manner. Sales consisted
primarily of setup and installation of the following:
Security systems
Outdoor landscape lighting
Audio systems
Central home wiring centers
Video and monitoring systems
Home theater installation
Computer networks
Central vacuum systems
Indoor lighting
Home automation systems, including remote appliance capabilities
All revenues were from unrelated third parties and were made primarily from new
home buyers.
Cost of Sales.
The cost of sales includes the purchase price for equipment plus other direct
costs associated with completing the installing, such as subcontractors and
permits. It is customary to experience variations in the cost of sales as a
percentage of net sales based on the types of products installed at any given
location and the related cost of labor to complete installation.
The cost of sales for the three months ended March 31, 2004 and 2003 were
$-0- and $12,128, respectively, a decrease of $12,128. Cost of sales as a
percentage of sales for the three month periods ended March 31, 2004 and 2003
were -0-% and 64%, respectively. This imbalance was caused by initial product
offerings and loss leading sales intended to assist us with entering the home
wiring market.
To date we have seen a decrease in the cost of sales as a percentage of
sales as we have decreased sales. We expect cost of sales as a percentage of
sales to continue in this trend but we will pursue larger installation projects.
In addition, volume discounts will be available to us if we are successful in
achieving sales growth in the future which will further reduce our cost of sales
as a percentage of sales.
Expenses.
Total expenses for the three months ended March 31, 2004 and 2003 were
$155,123 and $111,473, respectively. The increase in expenses is attributable to
professional fees incurred via payment of common stock in lieu of cash. We
issued shares of common stock to professionals and consultants to assist us in
having our common stock continue to be publicly traded. Common stock was paid as
we curtailed operations due to a cash shortage.
All of our accounts payable are trade payables in connection within the course
of business.
We expect stability in expenses through the year 2004 as the Company moves
toward developing its business plan.
Income / Losses.
Net loss for the three months ended March 31, 2004 was $(157,766) versus net
loss of $(113,246) in the same period in 2003, an increase of $44,520. Our net
loss for the three months ended March 31, 2004 was primarily due to $190,002 in
common stock issued for professional services in connection with financial
advisory and consulting services. Of this, $140,002 was for expenses and $50,000
was for payment of accounts payable. We expect to continue to incur losses at
least through the year 2004.
Impact of Inflation.
We believe that inflation has had a negligible effect on operations since
inception. We believe that we can offset inflationary increases in the cost of
labor by increasing sales and improving operating efficiencies.
Liquidity and Capital Resources.
Cash flows used in operations were $291 and $13,869 for the three months ended
March 31, 2004 and 2003, respectively. Cash flows used in operations were
primarily attributable to our $157,766 net loss for the period partially offset
by $190,002 in common stock issued for services.
Cash flows used in investing activities were $ -0- and $8,531 for the three
months ended March 31, 2004 and 2003, respectively, which were attributable to
purchases of furniture and equipment for our administrative offices in 2003.
Cash flows generated by financing activities were $ -0- and $9,642,
respectively, for the three months ended March 31, 2004 and 2003. Cash flows for
the 2003 period included $1,471 in proceeds from a stockholder loan. The loan
bears interest at 6% per annum and is due on demand. The loan is not evidenced
by a written promissory note, but rather is an oral agreement between the
Company and the stockholder. We received $10,200 in notes payable proceeds in
2003.
Overall, we have funded our cash needs from inception through March 31,
2004 with a series of debt and equity transactions, including those with related
parties as described above. If we are unable to receive additional cash from our
related parties, we may need to rely on financing from outside sources through
debt or equity transactions. Our related parties are under no legal obligation
to provide us with capital infusions. Failure to obtain such financing could
have a material adverse effect on operations and financial condition.
We had cash on hand of $91 and a working capital deficit of $225,094 as of
March 31, 2004 which is not sufficient to fund our operations through the next
twelve months. Our working capital deficit is primarily due to current
obligations in account payable and loans from stockholders. We will
substantially rely on the existence of revenue from our business; however, we
have no current or projected capital reserves that will sustain our business for
the next 12 months. Also, if the projected revenues fall short of needed capital
we may not be able to sustain our capital needs for the next twelve months. We
will then need to obtain additional capital through equity or debt financing to
sustain operations for an additional year. A lack of significant revenues
beginning in the first half of 2004 will significantly affect our cash position
and move us towards a position where the raising of additional funds through
equity or debt financing will be necessary. Our current level of operations
would require capital of approximately $150,000 to sustain operation through
year 2004 and approximately $200,000 per year thereafter. Modifications to our
business plans or additional property acquisitions may require additional
capital for us to operate.
On a long-term basis, liquidity is dependent on continuation and expansion
of operations, receipt of revenues, and additional infusions of capital and debt
financing. Our current capital and revenues are insufficient to fund such
expansion. If we choose to launch such an expansion campaign, we will require
substantially more capital. If necessary, we will raise this capital through an
additional stock offering. The funds raised from this offering will be used to
market our products and services as well as expand operations and contribute to
working capital. If we are unable to raise additional capital, our growth
potential will be adversely affected and we will have to significantly modify
our plans. For example, if we unable to raise sufficient capital to develop our
business plan, we may need to:
- - Seek projects that are less in value or that may be projected to be less
Profitable
- - Seek smaller projects, which are less capital intensive, in lieu of larger
contract projects, or
- - Seek projects that are outside our immediate area to secure terms favorable
to the Company.
Demand for the products and services will be dependent on, among other
things, market acceptance of our products, the real estate market in general,
and general economic conditions, which are cyclical in nature. Inasmuch as a
major portion of our activities is the receipt of revenues from the sales of our
new home products, our business operations may be adversely affected by our
competitors and prolonged recession periods.
Our success will be dependent upon implementing our plan of operations and the
risks associated with our business plans. We operate a home product sales and
installation business in the Charlotte, North Carolina area. We also provide
installation services to various unrelated developers and builders. We plan to
strengthen our position in these markets. We plan to expand our operations
through aggressively marketing our products and Company concept.
ITEM 3. CONTROLS AND PROCEDURES
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(a) On March 31, 2004, we made an evaluation of our disclosure controls and
procedures. In our opinion, the disclosure controls and procedures are
adequate because the systems of controls and procedures are designed to
assure, among other items, that 1) recorded transactions are valid; 2)
valid transactions are recorded; and 3) transactions are recorded in the
proper period in a timely manner to produce financial statements which
present fairly the financial condition, results of operations and cash
flows for the respective periods being presented. Moreover, the evaluation
did not reveal any significant deficiencies or material weaknesses in our
disclosure controls and procedures.
(b) There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls since the last
evaluation.
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On February 18, 2004, we held a special meeting of our security holders to vote
and approve the commencement of entering into an Agreement and Plan of Merger as
discussed in Item 6 below.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(1) Under a Form 8-K filed on February 19, 2004, we disclosed that we had
entered into an Agreement and Plan of Merger, pursuant to which an
unrelated company will merge with and into us, with the unrelated company's
stockholders receiving 27,288,732 shares of common stock and 1,000,000
shares of Class A Convertible Preferred. Our common stock will be exchanged
for the shares of the unrelated company.
(2) A Form S-8 that was previously filed on January 27, 2004 is incorporated by
reference herein.
(3) A Form 14C that was previously filed on January 2, 2004 is incorporated by
reference herein.
(4) A Form 14C that was previously filed on January 12, 2004 is incorporated by
reference herein.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TECHNOLOGY CONNECTIONS, INC.
(Registrant)
/s/ Kevin Kyzer
Date: May 20, 2004 ---------------
Kevin Kyzer
President, Principal/
Chief Executive Officer,
Principal/ Chief Financial Officer