UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
NETWORK INSTALLATION CORPORATION
(Name of small business issuer in its charter)
Nevada 000-25499 88-0390360
(State or Other Jurisdiction of (Commission file (I.R.S. Employer
Incorporation or Organization) Number) Identification Number)
15235 Alton Parkway, Suite 200
Irvine, CA 92618
(Address and telephone number of principal executive offices)
(949) 753-7551
--------------
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $0.001
par value.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [x] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Issuer's revenues for the fiscal year ended December 31, 2004 were
$1,889,739.
As of May 2, 2005 there were 21,057,813 shares of Common Stock issued and
outstanding.
As of May 2, 2005, there were 7,332,650 shares of Common Stock held by
non-affiliates. The aggregate market value of the Issuer's common stock held by
non-affiliates was $8,579,200 based on the closing price of the Issuer's common
stock on May 2, 2005 of $1.17.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
NETWORK INSTALLATION CORPORATION TABLE OF CONTENTS
PART I PAGE NO.
ITEM 1. DESCRIPTION OF BUSINESS. 2
ITEM 2. DESCRIPTION OF PROPERTY. 6
ITEM 3. LEGAL PROCEEDINGS. 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 7
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. 7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.7
ITEM 7. FINANCIAL STATEMENTS. 13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. 24
ITEM 8A. CONTROLS AND PROCEDURES. 24
ITEM 8B. OTHER INFORMATION. 24
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. 24
ITEM 10. EXECUTIVE COMPENSATION. 26
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS. 26
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 27
ITEM 13. EXHIBITS. 30
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. 31
PART I
ITEM 1. DECRIPTION OF BUSINESS.
OVERVIEW
We are a one-source solution company focusing on the design, installation, and
deployment of specialty communication systems for data, voice, video and
telecom. We first determine our clients' requirements by doing a needs analysis
and site audit. We then implement our specific design of the communication
system, which may include either Wired or Wireless Fidelity, also referred to as
Wi-Fi. We seek to exploit the growing demand for high-speed connectivity by
leveraging our extensive installation expertise into providing complete superior
network solutions across a vast majority of communication requirements.
We have distinguished ourselves from our peers by consolidating three
traditionally fragmented industries. Our technicians design the applications
required for network build-outs, structured cabling, deployment, security,
training, and technical support and we use the best available Wi-Fi, Voice over
Internet Protocol, or VoIP, and traditional telecom products. We earn revenue
for services rendered which include; (i) the installation of data, voice, video
and telecom networks; (ii) the resale of installed networking products, and
(iii) consulting services in the assessment of existing networks.
Since 1997 we have been servicing the communication needs of the Fortune 1000,
K-12, higher education, and local and regional municipalities. More recently, we
have expanded into new small and medium-sized business market segments where we
have a multi-faceted approach to our business model. One is the continued focus
on our core competency of project management in wired networking infrastructure,
design, installation and support of data, voice and video communications
solutions. Second, is to leverage that expertise in our pursuit of the
infrastructure build-out of Wi-Fi, Wireless Local Area Networks and VoIP
applications.
HISTORY
We incorporated in the State of Nevada as Color Strategies on March 24, 1998. On
October 1, 1999, we created a wholly-owned subsidiary named Infinite Technology
Holding, Inc. On December 23, 1999, we changed our name to Infinite Technology
Corporation. On May 4, 2000, we changed our name from Infinite Technology
Corporation to Network Installation Corporation. On the same date, we changed
the name of our wholly-owned subsidiary to Network Installation Holdings, Inc.
In May of 2000, we acquired Mardock, Inc., a designer, manufacturer and
distributor of apparel and promotional products. In August 2000, we acquired a
majority interest in North Texas Circuit Board Co., or NTCB, through the
acquisition of 67% of the common stock of Primavera Corporation, the parent
company of NTCB, in exchange for 195,000 shares of our common stock, valued at
$325,000, plus a contribution of $1,250,000 in cash to NTCB as additional
working capital. NTCB manufactures high quality printed circuit boards. In
September 2000, we acquired 80% of the outstanding stock of OpiTV.com. OpiTV.com
was an I-commerce technology company in the development stage with a business
plan to market and distribute a TV device. In November 2000, we acquired an
additional 13% of Primavera Corporation. This increase in equity brought our
indirect ownership of NTCB from 67% to 80%.
In late 2000, we determined that our capital and management resources were
spread too thin to properly address the needs of our three subsidiaries. As a
result, in July of 2001, we sold all of our common stock ownership in Mardock,
Inc. and OpiTV.com.
In July 2001, we acquired the remaining 20% of Primavera's common stock. On
August 20, 2002, we sold NTCB to a third party in exchange for cancellation of
debt of approximately $2,255,860 and retention by us of a 10% interest in the
after tax profit of NTCB for a period of five years subsequent to the
consummation of the transaction. On December 27, 2002, we disposed of 100% of
Flexxtech Holdings, Inc. Flexxtech Holdings was the parent corporation of
Primavera Corporation. After the sale of NTCB, Flexxtech Holdings had no
significant assets and was disposed of to Western Cottonwood Corp., an
affiliate, for nominal consideration of $10.
On October 1, 2002, we signed to acquire 80% of the outstanding common shares of
W3M, Inc., dba Paradigm Cabling Systems, a privately held California
corporation, in a stock for stock exchange. Paradigm is a full service computer
cabling, networking and telecommunications integrator contractor. As part of the
transaction, we agreed to use our best efforts to arrange for an infusion of
$250,000 in additional capital, either as debt or equity or some combination of
both, to Paradigm, in order to increase its working capital. However, we were
unable to arrange infusion of the capital per the agreement.
On April 8, 2003, we and Paradigm agreed that the transaction is void ab initio,
that is, at its inception, with the effect that Paradigm remains the owner of
all of its assets and the shares of our preferred stock are restored to the
status of authorized shares. The Purchase Agreement and all related documents
and all documents delivered in connection therewith were thereby terminated ab
initio and are of no force or effect whatsoever. In connection with funds
invested as working capital into Paradigm during the period from October 1, 2002
until April 1, 2003, we issued to Ashford Capital LLC and eFund Capital/Barrett
Evans, 5 year convertible debentures in the amount of $65,000 and $75,000
respectively. Ashford and eFund made investments directly into Paradigm under
the assumption that a merger between Paradigm and us would be consummated. As
part of the rescission negotiations, we agreed to issue the debentures to
Ashford and eFund. Michael Cummings, President of Paradigm also resigned as a
Director of our Board of Directors.
On April 9, 2003, we executed a Restructuring Agreement. The Agreement was
executed to restructure our balance sheet in order to more easily attract an
operating business to merge with or acquire. Pursuant to the Restructuring
Agreement, Western Cottonwood Corporation, a related party through a major
shareholder, agreed to forgive its notes receivable and interest receivable from
us as of December 31, 2002. The receivable totaling $1,984,850 was booked in
consideration for cash we received from Western Cottonwood. The receivable
totaling $1,984,850, was forgiven in exchange for shares of our common stock
totaling 4.9% of the total outstanding shares immediately following our first
merger or acquisition transaction. At the time of the transaction, the principal
shareholder of Western Cottonwood Corporation and Atlantis Partners, Inc. was
John Freeland, formerly our largest investor. Mr. Freeland was also formerly an
affiliate through his beneficial ownership of 23% of our total outstanding
shares through Western Cottonwood. To our knowledge, Mr. Freeland is no longer
an affiliate. Pursuant to the agreement, (i) Western Cottonwood and Atlantis
Partners shall maintain a combined ownership percentage of a non-dilutive 4.9%
and Greg Mardock, our former president, shall maintain a combined ownership
percentage of a non-dilutive 2% through our first merger or acquisition
transaction and (ii) Mr. Mardock resigned as President and Director(iii) three
nominees of Dutchess Private Equities Fund, LP were appointed directors.
In April 2003, we executed a Letter of Intent to merge with Irvine, CA- based
Network Installation Corporation. The transaction closed in May, 2003. The total
consideration and method of payment was $50,000 in cash and 7,382,000 shares of
our common stock. In addition, we issued a five year option to purchase an
additional 618,000 shares of our common stock to Mr. Cummings if our total
revenue exceeded $450,000 for the period beginning on June 1, 2003 and ending
August 31, 2003. The option is exercisable at a price equal to the closing bid
price of our common stock on August 29, 2003 which was $2.95. Since our total
revenues exceeded $450,000 for the period beginning on June 1, 2003 and ending
August 31, 2003, Mr. Cummings had the right to exercise the option to purchase
618,000 shares of our common stock, however in June 2004 he relinquished and
waived all future rights to exercise the option.
Network Installation was established in July 1997 as a California corporation as
a low voltage-cabling contractor and in 1999 changed its focus to provide
products, project management, design and installation within the networking and
communications sector.
On March 1, 2004, we acquired Del Mar Systems International, Inc., a
telecommunications solutions provider. We now have the ability to provide
integrated telecom solutions to customers ranging in size from 10 to 30,000
users. Del Mar provided Avaya Enterprise Class IP Solutions and Mitel IP
Solutions to customers as a way to capitalize on the benefits of IP (Internet
Protocol) Telephony. Avaya and Mitel offer complete communications architecture
that provides software, infrastructure and services to help enterprises stay
efficient. Del Mar Systems offers both onsite and remote administration of
systems equipped with remote access dial up lines.
INDUSTRY OVERVIEW (SPECIALTY COMMUNICATION SYSTEMS)
A structured cabling system is a set of cabling and connectivity products that
integrates the voice, data, video, and various management systems of a building,
such as safety alarms, security access and energy systems. These systems
typically consist of an open architecture, standardized media and layout,
standard connection interfaces, adherence to national and international
standards, and total system design and installation. Other than the structured
cabling system, voice, data, video, and building management systems have nothing
in common except similar transmission characteristics, such as analog or digital
data signals, and delivery methods such as conduit, cable tray, or raceway, that
support and protect the cabling investment.
Modern Ethernet networking equipment is designed around the concept that each
device in a building's network has a dedicated media connection to a central
"hub". In a standard hub the LAN bandwidth is shared among all the stations.
With dedicated hubs, also called switched technology, a given cable is allocated
for use by a single device.
This was not always the case. The original design of network systems assumed a
common, shared medium: coaxial cable. Structured cabling systems, while having
drawbacks with regards to absolute transmission performance, show considerable
cost savings to the owner by reducing the costs of moves, changes and additions.
These benefits far outweigh the cost of implementation, making structured
cabling the optimum choice for building wiring.
The industry had been dominated by thousands of proprietors with former
employment experience in telecommunications and electrical contracting. With the
boom in technological advances over the past fifteen years, the convergence of
data medium; text, voice, and video has placed a premium in obtaining such
information, faster, cheaper and now wireless. This paradigm shift in the
functionality of data transmission now mandates a more detailed insight into
computer science, project management and a thorough understanding of a potential
customer's total communications needs.
INDUSTRY OVERVIEW (WI-FI)
We believe, in the past two years, Wireless Fidelity, also known as Wi-Fi, has
emerged as the dominant standard for wireless local areas networks, or WLANS
worldwide. A Wi-Fi network can cover an area of typically 100-500 feet with
Internet access hundreds of times faster than a modem connection. Unlike other
broadband wireless technologies using regulated spectrum, Wi-Fi enjoys Universal
global acceptance and it has become a single networking standard for all
developers, equipment manufacturers, service providers and users.
Hundreds of equipment manufacturers are now flooding the market with millions of
Wi-Fi cards and access points. The single Wi-Fi standard ensures these devices
all interoperate with each other, so, for example, an access point made by
Netgear will communicate with a network card from Linksys.
Hundreds of new companies have begun setting up Wi-Fi access points called "hot
spots" in cafes, hotels, airports, book stores and other public spaces. These
hot spot operators install Wi-Fi access points and either sell high speed
wireless Internet access for a fee or offer it to the public for free.
Hot Spot Operators include Wayport, STSN, Surf and Sip, StayOnline, Pronto,
NetNearU, Deep Blue, Fatport, Air Portal, Ikano, Picopoint, TheCloud and Azure.
In the last year, major wireless carriers have thrown their hat in the ring,
including T-Mobile, which is building hot spots in Starbucks cafes, Borders book
stores, Kinko's stores and airline clubs, AT&T Wireless, British Telecom,
Swisscom, Telecom Italia and Sprint PCS.
Forces outside the industry are also rapidly arming users with Wi-Fi radios.
Consumers are also buying Wi-Fi-compatible hardware in their laptops and PDAs
for use in the office or home.
We believe Wi-Fi can be over 20 times faster than a standard modem connection.
Wi-Fi is also significantly faster than the wireless services provided by
cellular carriers which typically deliver throughput between 40k and 60k. The
actual speed experienced by hot spot users is determined by the hot spot's
connection to the Internet, which can range from low-end DSL (384k) to one or
more T1s (1.5Mb and up), but this still promises much faster speed than any
other available technology.
We are seeking to exploit the rapid build up of wireless networks by focusing
our marketing efforts on our currently installed base of universities, K-12,
municipalities and Fortune 1000 companies as well as new opportunities in
hospitality, real estate development, state and federal government and the U.S.
military.
In addition, we have increased our ability to take advantage of the rapid
acceptance and deployment of internet-based telephone communications. We now
provide traditional PBX telecommunications solutions as well as Voice over
Internet Protocol, or VoIP, which offers customers the ability to effect local
and long distance phone calls via the internet for flat monthly rates, in most
cases at a considerable cost savings from traditional per minute charges from
the major telecommunications providers. With the acquisition of Com Services we
have added a valuable franchise to our Company. Com Services' core markets of
K-12, Higher Education and Fortune 1000 companies fit seamlessly aside those of
NIC.
OUR BUSINESS
A company's communication network is critical in achieving the timely flow of
information. Typically, a company's network expands beyond its existing
headquarters to remote offices and remote users. The number of networking
applications continues to grow and the demand for high-speed connectivity to
move data back and forth is increasing dramatically. Until recently, a company's
primary alternative in obtaining high-speed connectivity was to contact the
telephone company and have a high-speed landline service installed so that
connectivity could be achieved between its locations. The issue today is that
these high-speed landlines take too much time to install, are not available in
all locations, do not solve remote application usage and are costly to use on a
monthly basis. In addition, large companies rarely provide the local customer
attention and responsiveness a company like Network Installation Corp provides.
We seek to exploit the growing demand in high-speed connectivity by providing
complete network solutions including best of breed wireless products,
engineering services for which our technicians design the applications required
for the network build out, structured cabling and deployment. We offer the
ability to integrate superior solutions across the vast majority of
communication requirements.
There are multiple products associated with the deployment of a wireless
solution including microwave equipment, free space optical equipment and
specialty components. There are also important services such as site design,
product integration, structured cabling, network security, training and
technical support. The integration of all these products and services is
critical in achieving the desired results for the customer. The specific
products used and services offered vary depending on the connection speed
required and distances between points. We provide specialty communication
systems, Wi-Fi deployment and WLANs to corporations, municipalities and
educational institutions.
We define wireless deployment as the internal and external design and
installation of a wireless solution to support connectivity between two or more
points without the utilization of landline infrastructure. End users turn to us
to design and integrate a wireless solution, as there are many components from
various technology providers. Wireless solutions can offer a user:
- High-speed connectivity;
- Immediate installation;
- Network ownership; and
- Low costs.
We also provide network security, train end users and provide on-going technical
support to insure a successful installation.
SUPPLIERS
While we are predominately a service company, we purchase and resell products
such as networking routers, cable, software and video equipment that are
involved in our project installations. We purchase our products from various
distributors. Should any of these distributors and vendors cease operations, our
business would not be adversely affected because these products are readily
available from multiple distributors locally, regionally or nationally.
We have agreements with Linksys, Motorola Inc., Aruba Wireless Networks,
Hewlett-Packard and Mitel that give us what we believe to be the finest suite of
products available for the installation of wireless solutions. Through our
Motorola agreement and the use of one of its flagship wireless products "The
Canopy," we have the ability to install point to point service directly for
Wireless Internet Service Providers or proprietors of WLANs or expanded 'Hot
Zones' with our Motorola agreement. Aruba's family of Wi-Fi switches deliver
centralized wireless security and management of all types of enterprise
environments.
SALES AND MARKETING
We utilize both inside and outside sales forces to address the market. We are
proactive and able to visit personally with our clients from time to time.
CUSTOMERS
We currently provide our products and services to the markets in K-12 education,
universities, municipalities and Fortune 1000 companies. Some of our current
customers include the University of California - Los Angeles, University of
Southern California, City of Barstow and Public Works of New Mexico.
COMPETITION
The network cabling market is very fragmented and highly competitive. In the
markets where we operate, we experience intense competition from other
independent providers of network solutions. Our competitors include regional,
privately-held companies including Sunglo Communications, Pacific Coast Cabling,
and Netversant. We are aware of only one publicly-traded competitor locally,
WPCS International Inc. There is no one dominant competitor. We believe that
success in the industry is based on maintenance of product quality, competitive
pricing, delivery efficiency, customer service and satisfaction levels,
maintenance of satisfactory dealer relationships, and the ability to anticipate
technological changes and changes in customer preferences. We believe our
competitive advantage lies in our ability to provide superior customer service
while offering a more diverse line of hard product offering than our
competitors.
EMPLOYEES
As of March 28, 2005, we employed 29 full time employees,5 are executives 3 are
in sales and marketing, 15 are project managers or technicians and 6 in
administration. We believe our relations with all of our employees are good.
ITEM 2. DESCRIPTION OF PROPERTY.
On June 29, 2004, we entered into a lease agreement with Alton Plaza Property
Inc. for office space located at 15235 Alton Parkway, Suite 200, Irvine, CA.
Our rent is approximately $13,475 and our lease runs for 51 months.
ITEM 3. LEGAL PROCEEDINGS.
On April 25, 2003, the Superior Court of the State of California, County of
Orange, entered a judgment in the amount of $46,120 against us and our former
management in favor of Insulectro Corp., a vendor of our former subsidiary,
North Texas Circuit Board. We believe that we were never issued proper service
of process for the complaint. In addition, on August 20, 2002, we sold North
Texas Circuit Board to BC Electronics Inc. Pursuant to terms of the share
purchase agreement, BC Electronics assumes all liabilities of North Texas
Circuit Board. In December 2003, we filed a motion to vacate the judgment for
lack of personal service. In February 2004, the Court ruled in our favor and the
judgment was vacated. In February 2004, the plaintiff re-filed the complaint. In
March 2005, the complaint was settled for the sum of $25,000. Commencing in
March 2005, we agreed to make five equal monthly installments of $5,000 to
Insulectro. Pursuant to the settlement terms, since March 2005 we have made
two installment payments of $5,000 each.
On January 24, 2005, we filed an action in the Superior Court of California,
County of Orange against Steve and Dorota Pearson for damages and injunctive
relief based on alleged fraud and breach of contract relating to our purchase of
Del Mar Systems International, Inc. from Steve and Dorota Pearson. The complaint
was amended on March 14, 2005 to seek rescission of our purchase of Del Mar
Systems from Steve and Dorota Pearson. The defendants have not yet filed
responsive pleadings in the case. The Defendant has recently filed a
cross-complaint in the above action seeking recovery under various employment
and contract theories for unpaid compensation, expenses and benefits totaling
approximately $90,000. Defendant also seeks payment of an outstanding balance
of a note related to the purchase by the Company of Del Mar Systems totaling
approximately $85,000. Further, Defendant is seeking injunctive relief for
enforcement of the stock purchase agreement of Del Mar Systems. Management is
vigorously opposing these claims and does not feel the claims have substantial
merit.
We may be involved in litigation, negotiation and settlement matters that may
occur in our day-to-day operations. Management does not believe the implication
of these litigations will, including those discussed above, have a material
impact on our financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Bid and ask quotations for our common shares are routinely submitted by
registered broker dealers who are members of the National Association of
Securities Dealers on the NASD Over-the-Counter Electronic Bulletin Board. These
quotations reflect inner-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. The high and low bid
information for our shares for each quarter for the last two years, so far as
information is reported, through the quarter ended December 31, 2003, as
reported by the Bloomberg Financial Network, are as follows:
Quarter Ended High Bid Low Bid
31-Mar-03 . . $ 2.00 $ 0.05
30-Jun-03 . . $ 0.35 $ 0.15
30-Sep-03 . . $ 5.35 $ 0.80
31-Dec-03 . . $ 3.50 $ 3.10
31-Mar-04 . . $ 5.30 $ 3.50
30-Jun-04 . . $ 5.50 $ 2.90
30-Sep-04 . . $ 3.06 $ 1.27
31-Dec-04 . . $ 2.29 $ 1.42
NUMBER OF SHAREHOLDERS
As of May 2, 2005, we had approximately 1,000 shareholders of record.
DIVIDEND POLICY
We have not paid any dividends since inception and presently anticipate that all
earnings, if any, will be retained for development of our business. We expect
that no dividends on the shares of common stock will be declared in the
foreseeable future. Any future dividends will be subject to the discretion of
our Board of Directors and will depend upon, among other things, our future
earnings, operating and financial condition, capital requirements, general
business conditions and other pertinent facts.
RECENT SALES OF UNREGISTERED SECURITIES
In the fiscal year ended December 31, 2004, we issued $2,045,100 of convertible
debentures to Dutchess Private Equities Fund, LP and Dutchess Private Equities
Fund, II, LP, collectively. There is a 20% discount to the face value on the
debenture. The debenture converts into common stock at the lesser of (i) 75% of
the lowest closing bid price during the fifteen trading days prior to the
Conversion Date or (ii) 100% of the average of the closing bid prices for the
twenty trading days immediately preceding the Closing Date of the Transaction.
The current balance on the debentures issued in 2004 is $1,867,718.
The sales set forth above were undertaken under Rule 506 of Regulation D under
the Securities Act of 1933, as amended, by the fact that:
- the sales were made to a sophisticated or accredited investors, as defined
in Rule 502;
- we gave each purchaser the opportunity to ask questions and receive
answers concerning the terms and conditions of the offering and to obtain
any additional information which we possessed or could acquire without
unreasonable effort or expense that is necessary to verify the accuracy of
information furnished;
- at a reasonable time prior to the sale of securities, we advised each
purchaser of the limitations on resale in the manner contained in Rule
502(d)2;
- neither we nor any person acting on our behalf sold the securities by any
form of general solicitation or general advertising; and
- we exercised reasonable care to assure that each purchaser of the
securities is not an underwriter within the meaning of Section 2(11) of the
Securities Act of 1933 in compliance with Rule 502(d).
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
You should read this section together with our consolidated financial statements
and related notes thereto included elsewhere in this report.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve risks and
uncertainties. We generally use words such as "believe," "may," "could," "will,"
"intend," "expect," "anticipate," "plan," and similar expressions to identify
forward-looking statements, including statements regarding our expansion plans.
You should not place undue reliance on these forward-looking statements. Our
actual results could differ materially from those anticipated in the
forward-looking statements for many reasons, including the risks described in
our "Risk Factor" section and elsewhere in this report. Although we believe the
expectations reflected in the forward-looking statements are reasonable, they
relate only to events as of the date on which the statements are made, and our
future results, levels of activity, performance or achievements may not meet
these expectations. We do not intend to update any of the forward-looking
statements after the date of this document to conform these statements to actual
results or to changes in our expectations, except as required by law.
CRITICAL ACCOUNTING POLICIES
We have identified the policies below as critical to our business operations and
the understanding of our results of operations. The impact and any associated
risks related to these policies on our business operations are discussed
throughout this section where such policies affect our reported and expected
financial results. Our preparation of our Consolidated Financial Statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of our financial statements, and the reported amounts of revenue and
expenses during the reporting period. Our actual results may differ from those
estimates.
Our accounting policies that are the most important to the portrayal of our
financial condition and results, and which require the highest degree of
management judgment relate to revenue recognition, the provision for
uncollectible accounts receivable, property and equipment, advertising and
issuance of shares for service.
Our revenue recognition policies are in compliance with all applicable
accounting regulations, including American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 81-1, Accounting for Performance
of Construction-Type and Certain Production-Type Contracts. Revenues from
installations, cabling and networking contacts are recognized using the
percentage-of-completion method of accounting. Accordingly, income is recognized
in the ratio that costs incurred bears to estimated total costs. Adjustments to
cost estimates are made periodically, and losses expected to be incurred on
contracts in progress are charged to operations in the period such losses are
determined. The aggregate of costs incurred and income recognized on uncompleted
contracts in excess of related billings is shown as a current asset, and the
aggregate of billings on uncompleted contracts in excess of related costs
incurred and income recognized is shown as a current liability.
Our revenue recognition policy for sale of network products is in compliance
with Staff accounting bulletin or (SAB) 104. Revenue from the sale of network
products is recognized when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed and collectibility is reasonably
assured. Generally, the Company extends credit to its customers and does not
require collateral. The Company performs ongoing credit evaluations of its
customers and historic credit losses have been within management's expectations.
We estimate the likelihood of customer payment based principally on a customer's
credit history and our general credit experience. To the extent our estimates
differ materially from actual results, the timing and amount of revenues
recognized or bad debt expense recorded may be materially misstated during a
reporting period.
Property and equipment is carried at cost. Depreciation of property and
equipment is provided using the declining balance method over the estimated
useful lives of the assets at five to seven years. Expenditures for maintenance
and repairs are charged to expense as incurred.
We expense advertising costs as incurred.
We account for the issuance of equity instruments to acquire goods and services
based on the fair value of the goods and services or the fair value of the
equity instrument at the time of issuance, whichever is more reliably
measurable.
GOING CONCERN OPINION
Our audited financial statements for the fiscal year ended December 31, 2004,
reflect a net loss of $4,167,705. These conditions raise substantial doubt about
our ability to continue as a going concern if we do not acquire sufficient
additional funding or alternative sources of capital to meet our working capital
needs. Without such external funding, we would have to materially curtail our
operations and plans for expansion.
TWELVE MONTH PERIOD ENDED DECEMBER 31, 2004 AS COMPARED TO TWELVE MONTH PERIODS
ENDED DECEMBER 31, 2003.
NET REVENUES
-------------
Net revenues for the year ended December 31, 2004 were $1,889,739 compared to
$1,233,908 for the year ended December 31, 2003 due to increased marketing and
contracts received. We also experienced an increase in Wi-Fi contracts during
the period ended December 31, 2004 versus same period 2003 due to increased
wireless capabilities acquired through our partnerships with our strategic
partners. Our year to date revenues are higher than the same period a year ago
due to an increase in the total amount of new contracts received.
COST OF REVENUES
------------------
Cost of revenues for the year ended December 31, 2004 was $1,705,562 compared
to $965,569 for the year ended December 31, 2003. Our Cost of Revenue increased
for the 12 months ended December 31, 2004 when compared to the same period in
2003 due to an increase in Revenues for the period.
OPERATING EXPENSES
-------------------
Operating Expenses for the year ended December 31, 2004 were $2,973,770 compared
to $2,306,744 for the year ended December 31, 2003 due to an increase in
salaries advertising, consulting, and professional expenses. The Company
incurred and allocated salary expense of $401,953 to operating expenses during
the year ended 2004. Other significant components of 2004's operating expenses
consisted of $1,143,058 of investor relations expenses, professional fees of
$318,243 and consulting fees of $324,179 expenses.
OTHER INCOME (EXPENSE)
------------------------
Other Income (Expense) for the year ended December 31, 2004 was ($1,377,312)
compared to ($1,394,602) for the year ended December 31, 2003. The decrease in
Other Expenses is primarily due to a decrease in interest expenses from the
conversion of debentures, and shares of common stock. This amount would have
been much lower if not for a write off of goodwill in the amount of $1,000,000
which was due to the acquisition of Del Mar Systems. We believe that the
acquisition of Del Mar Systems does not currently hold an amount of Goodwill
toward NIC, therefore was chosen to be written off.
NET LOSS
---------
Net Loss for the year ended December 31, 2004 was ($4,167,705) compared to
($3,434,607) for the year ended December 31, 2003 due to increased Other
Expenses, including that for the write off of Goodwill for Del Mar Systems, for
the year ended December 31, 2004 compared to the year ended December 31, 2003.
BASIC AND DILUTED LOSS PER SHARE
-------------------------------------
Our basic and diluted loss for the year ended December 31, 2004 was ($0.19)
compared to ($0.17) for the year ended December 31, 2003 due to an increase in
our Net Loss, as described above.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
As of December 31, 2004, our Current Assets were $1,002,891 and Current
Liabilities were $1,354,083. Cash and cash equivalents were $1,732. Our
Stockholder's Deficit at December 31, 2004 was ($1,877,631). We had a net usage
of cash due to operating activities in December 31, 2004 and 2003 of $3,066,297
and $747,380 respectively. We had net cash provided by financing activities of
$3,522,304 and $730,061 for the twelve month period ended December 31, 2004 and
2003, respectively. We had $1,429,710 from borrowings in the period ended
December 31, 2004 as compared to $303,399 in the corresponding period last year.
Historically, we have operated from a cash flow deficit funded by outside debt
and equity capital raised including funds provided by Dutchess Capital
Management LLC, our largest investor. Without the continued availability of
external funding, we would have to materially curtail our operations and
plans for expansion. Our plan to continue operations in relation to our going
concern opinion is to continue to secure additional equity or debt capital
although there can be no guarantee that we will be successful in our efforts.
COMMITMENTS
Our material commitments are:
$120,580 in loans from a major shareholder and officer. The amount is unsecured,
due on demand and non interest bearing.
In the fiscal year ended December 31, 2004, we issued $2,045,100 of convertible
debentures to Dutchess Private Equities Fund, LP and Dutchess Private Equities
Fund, II, LP, collectively. The debenture converts into common stock at the
lesser of (i) 75% of the lowest closing bid price during the fifteen trading
days prior to the Conversion Date or (ii) 100% of the average of the closing bid
prices for the twenty trading days immediately preceding the Closing Date of the
Transaction. The current balance on the debentures is $1,867,718.
We issued $568,000 in debentures in 2003, of which $403,000 were issued to
Dutchess Private Equities Fund, LP and Dutchess Private Equities Fund, II, LP,
collectively. The total $568,000 remained outstanding as of December 31, 2004.
The remaining $165,000 debentures were issued to unrelated parties. A total of
$75,000 of these debentures was converted to common stock in 2004, leaving a
balance of $90,000 as of December 31, 2004.
Payroll tax payable of $368,192 as of December 31, 2004 consists of payroll
taxes payable to the Federal Government for 2004 payroll tax liabilities. As of
the date these financial statements were issued, we were continuing negotiations
with the Internal Revenue Service to schedule periodic payments until the
liability is paid in full. We intend to commence installment payments on this
liability in 2005.
SUBSIDIARY
----------
As of December 31, 2004, we had two wholly-owned subsidiaries, Network
Installation Corp. and Del Mar Systems International, Inc. Network Installation
Corp. is the name of both the parent company incorporated in the state of Nevada
and the subsidiary incorporated in the state of California. On March 1, 2004, we
acquired Del Mar Systems International, Inc., a telecommunications solutions
provider.
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors, other information included in
this prospectus and information in our periodic reports filed with the SEC. If
any of the following risks actually occur, our business, financial condition or
results of operations could be materially and adversely affected, and you may
lose some or all of your investment.
RISKS ABOUT OUR BUSINESS
OUR INDEPENDENT ACCOUNTANTS HAVE ISSUED A GOING CONCERN OPINION.
Our audited financial statements for the fiscal year ended December 31, 2004,
reflect a net loss of $4,167,705. These conditions raised substantial doubt
about our ability to continue as a going concern. If we do not acquire
sufficient additional funding or alternative sources of capital to meet our
working capital, we may have to substantially curtail our operations and
business plan.
WE HAVE SUBSTANTIAL INDEBTEDNESS WHICH MAY AFFECT OUR ABILITY TO MAINTAIN OR
GROW OUR OPERATIONS.
We currently have $1,354,083 in current liabilities. As a result of our level of
debt and the terms of our debt instruments:
- our vulnerability to adverse general economic conditions is heightened;
- we will be required to dedicate a substantial portion of our cash flow from
operations to repayment of debt, limiting the availability of cash for other
purposes;
- we are and will continue to be limited by financial and other restrictive
covenants in our ability to borrow additional funds, consummate asset sales,
enter into transactions with affiliates or conduct mergers and acquisitions;
- our flexibility in planning for, or reacting to, changes in its business and
industry will be limited; and
- our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired.
Our ability to pay principal and interest on our indebtedness and to satisfy our
other debt obligations will partly depend upon our future operating performance,
which will be affected by prevailing economic conditions and financial, business
and other factors, some of which are beyond our control. If we are unable to
service our indebtedness, we will be forced to take actions such as reducing or
delaying capital expenditures, selling assets, restructuring or refinancing our
indebtedness, or seeking additional equity capital. We may not be able to affect
any of these remedies on satisfactory terms, or at all.
OUR OPERATING RESULTS WILL FLUCTUATE SIGNIFICANTLY FOR THE FORESEEABLE FUTURE,
WHICH MAY AFFECT OUR STOCK PRICE.
Our quarterly results of operations have varied in the past and are likely to
continue to vary significantly from quarter to quarter. Our operating expenses
are based on expected future revenues and are relatively fixed in the short
term. If our revenues are lower than expected, our results of operations could
be adversely affected. Additionally, we are unable to forecast our future
revenues with certainty because our business plan contemplates the acquisition
of new enterprises. Many factors can cause our financial results to fluctuate,
some of which are outside of our control. Quarter-to-quarter comparisons of our
operating results may not be meaningful and you should not rely upon them as an
indication of our future performance. In addition, during certain future periods
our operating results likely will fall below the expectations of public market
analysts and investors. In this event, the market price of our common stock
likely would decline.
WE NEED ADDITIONAL CAPITAL TO GROW OUR BUSINESS AND WE MAY NOT BE ABLE TO FIND
SUCH CAPITAL ON ACCEPTABLE TERMS.
Our business plan contemplates the acquisition of new enterprises and the
proceeds from our existing financing arrangements may not be sufficient to fully
implement our business plan. Additionally, we may not be able to generate
sufficient revenues from our existing operations to fund our capital
requirements. Accordingly, we may require additional funds to enable us to
operate profitably. Such financing may not be available on terms acceptable to
us. As of December 31, 2004 we had no bank borrowings or credit facilities, and
we may not be able to arrange any such debt financing. Additionally, we may not
be able to successfully consummate additional offerings of stock or other
securities in order to meet our future capital requirements. Historically, we
have operated from a cash flow deficit funded by outside debt and equity capital
raised including funds provided by Dutchess Capital Management LLC, our largest
investor. Without such external funding, we would have to materially curtail our
operations and plans for expansion. Our plan to continue operations in relation
to our going concern opinion is to continue to secure additional equity or debt
capital although there can be no guarantee that we will be successful in our
efforts.
OUR BUSINESS STRATEGY INCLUDES IDENTIFYING NEW BUSINESSES TO ACQUIRE, AND IF WE
CAN NOT INTEGRATE ACQUISITIONS INTO OUR COMPANY SUCCESSFULLY, WE MAY NOT BECOME
PROFITABLE.
Our success partially depends upon our ability to identify and acquire
undervalued businesses. Although we believe that there are companies available
for potential acquisition that are undervalued and might offer attractive
business opportunities, we may not be able to make any acquisitions, and if we
do make acquisitions, they may not be profitable.
WE DEPEND ON OUR KEY PERSONNEL AND IF THOSE PERSONNEL LEAVE THE COMPANY, OUR
BUSINESS MAY BE HARMED.
At this time, we are almost totally dependent upon Jeffrey R. Hultman and
Michael V. Rosenthal as our principal operating officers and on our directors,
our only business asset that is producing significant revenues. While we have an
employment agreement with Mssrs. Hultman and Rosenthal, it does not obligate
them to remain as officers. We do not maintain insurance on the lives of our
officers, directors or key employees; the loss of their services would have a
material adverse effect on our business. We elect our directors each year and
while we expect to reelect our directors currently on the Board, our directors
are not obligated to continue in their positions.
SOME OF OUR POTENTIAL FUTURE GROWTH DEPENDS ON INCREASING CUSTOMER ACCEPTANCE OF
WIRELESS NETWORKS, AND TO THE EXTENT THAT SUCH ACCEPTANCE FAILS TO INCREASE, WE
MAY NOT GROW OUR BUSINESS.
While the majority of our revenues are currently derived from the installation
of cable systems, we believe that improving wireless technology will eventually
make wireless systems an acceptable alternative to many of our potential
customers. We have begun to enter the wireless marketplace and believe this
technology could lead to future growth for our company. The wireless industry
has historically experienced a dramatic rate of growth both in the United States
and internationally. If the rate of growth should slow down and end users
continue to reduce their capital investments in wireless infrastructure or fail
to expand their networks, we may not be able to expand our business.
OUR INDUSTRY HAS RAPIDLY CHANGING TECHNOLOGY AND, IF WE DO NOT STAY CURRENT, WE
MAY LOSE CUSTOMERS AND OUR BUSINESS WILL BE HARMED.
The network installation industry and related technology business involve a
broad range of rapidly changing technologies. Our technologies may not remain
competitive over time, and others may develop technologies that are superior to
ours which may render our products non-competitive. Our business may depend on
trade secrets, know-how, continuing innovations and licensing opportunities to
develop and maintain our competitive position. Others may independently develop
equivalent proprietary information or otherwise gain access to or disclose our
information. Our confidentiality agreements on which we rely may not provide
meaningful protection of any trade secrets on which we may depend for success,
or provide adequate remedies in the event of unauthorized use or disclosure of
confidential information or prevent our trade secrets from otherwise becoming
known to or independently discovered by our competitors.
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Network Installation Corporation, Inc.
Irvine, CA
We have audited the accompanying consolidated balance sheets of Network
Installation Corporation, Inc., as of December 31, 2004, and the related
statements of operations, 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 standards of the Public Company
Accounting Oversight Board (United States)" as outlined in PCAOB Auditing
Standard No. 1. 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 Network Installation
Corporation, Inc., as of December 31, 2004, and the results of their operations
and their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
The financial statements for the year ended December 31, 2003, were audited by
other accountants, whose report dated April 14, 2004, expressed an unqualified
opinion on those statements. They have not performed any auditing procedures
since that date.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 3 to the
financial statements, conditions exist which raise substantial doubt about the
Company's ability to continue as a going concern unless it is able to generate
sufficient cash flows to meet its obligations and sustain its operation. The
Company lost $9,634,545 from operations through December 31, 2004. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Jaspers Hall & Johnson
Denver, Colorado
May 6, 2005
NETWORK INSTALLATION CORP. INC
Consolidated Balance Sheets
December 31, 2004
2004 2003
------------ ------------
ASSETS:
CURRENT ASSETS:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,732 $ 667
Accounts Receivable . . . . . . . . . . . . . . . . . . . 500,833 432,428
Allowance for Doubtful Accounts . . . . . . . . . . . . . (95,486) (79,309)
Work in Progress. . . . . . . . . . . . . . . . . . . . . - 200,000
Other Current Assets. . . . . . . . . . . . . . . . . . . - 2,289
Prepaid Expenses. . . . . . . . . . . . . . . . . . . . . 595,812 -
------------ ------------
Total Current Assets . . . . . . . . . . . . . . . . . 1,002,891 556,075
------------ ------------
FIXED ASSETS:
Furniture & Fixtures . . . . . . . . . . . . . . . . . . 46,098 10,262
------------ ------------
Total Fixed Assets. . . . . . . . . . . . . . . . . . 46,098 10,262
Less: Accumulated Depreciation. . . . . . . . . . . . (9,937) (3,364)
------------ ------------
Net Fixed Assets. . . . . . . . . . . . . . . . . 36,161 6,898
------------ ------------
OTHER ASSETS:
Security Deposits . . . . . . . . . . . . . . . . . . . . 19,916 -
------------ ------------
Total Other Assets . . . . . . . . . . . . . . . . . . 19,916 -
------------ ------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . $ 1,058,968 $ 562,973
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable . . . . . . . . . . . . . . . . . . . . $ 1,148,428 $ 1,532,893
Notes Payable. . . . . . . . . . . . . . . . . . . . . . 85,075 59,556
Notes Payable - related party. . . . . . . . . . . . . . 120,580 163,691
Deferred Revenue . . . . . . . . . . . . . . . . . . . . - 280,924
Convertible Debentures - current . . . . . . . . . . . . - 517,616
------------ ------------
Total current liabilities. . . . . . . . . . . . . . 1,354,083 2,554,680
------------ ------------
LONG-TERM DEBT
Convertible Debentures - Long Term . . . . . . . . . . . 1,582,516 603,000
------------ ------------
Total long-term debt . . . . . . . . . . . . . . . . 1,582,516 603,000
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock, $.001 par value; 100,000,000 shares authorized
23,483,873 shares issued and outstanding in 2004 . . . . 23,484 12,616
shares issued and outstanding in 2003
Additional paid-in Capital . . . . . . . . . . . . . . . . . 7,617,181 2,743,222
Shares to be Issued. . . . . . . . . . . . . . . . . . . . . 116,249 116,295
Accumulated Deficit. . . . . . . . . . . . . . . . . . . . . (9,634,545) (5,466,840)
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . (1,877,631) (2,594,707)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . $ 1,058,968 $ 562,973
============ ============
NETWORK INSTALLATION CORP., INC.
Consolidated Statements of Operations
Year Ended
December, 31
----------------------------
2004 2003
-------------- ------------
REVENUE:
Sales. . . . . . . . . . . . . . . . 1,889,739 1,233,908
-------------- ------------
Total Revenue . . . . . . . . . . 1,889,739 1,233,908
-------------- ------------
Cost of Goods Sold . . . . . . . . . 1,705,562 965,569
-------------- ------------
NET REVENUE . . . . . . . . . . . . . . 184,177 268,339
-------------- ------------
EXPENSES:
Operating Expenses. . . . . . . . . 2,973,770 2,306,744
-------------- ------------
Total Expenses. . . . . . . . . 2,973,770 2,306,744
-------------- ------------
LOSS FROM OPERATIONS. . . . . . . . . . (2,789,593) (2,038,405)
-------------- ------------
OTHER INCOME/EXPENSES:
Interest Income. . . . . . . . . . . 3,877 -
Other Income . . . . . . . . . . . . 278,911 -
Interest Expense . . . . . . . . . . (660,100) (1,394,602)
Write-off of Goodwill. . . . . . . . (1,000,000) -
-------------- ------------
Total Other Income/Expense. . . . (1,377,312) (1,394,602)
-------------- ------------
LOSS BEFORE INCOME TAXES. . . . . . . . (4,166,905) (3,433,007)
-------------- ------------
Provision for income taxes. . . . . 800 1,600
-------------- ------------
NET LOSS. . . . . . . . . . . . . . . . (4,167,705) (3,434,607)
============== ------------
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.19) $ (0.17)
============== ============
NETWORK INSTALLATION CORP., INC.
Consolidated Stockholder's Equity (Deficit)
December 31, 2004
Additional Shares Retained
Paid-In To Be Earnings
Common Stock Capital Issued (Deficit) Total
------------------------ ----------- ------------ ---------- -----------
# of Shares Amount
------------- ---------
Balance - December 31, 2003 . . . . . . . . 12,616,330 12,616 2,743,222 116,295 (5,466,840) (2,594,707)
------------- --------- ----------- ------------ ------------ ------------
Recapitalization of stock for Reverse Merger (2,149,500) (2,150) 2,185 (35) - -
Issuance of stock for services. . . . . . . 372,383 372 365,778 - - 366,150
Issuance of stock for cash. . . . . . . . . 745,001 745 2,234,258 - - 2,235,003
Conversion on convertible debenture. . . . - - 511,275 - - 511,275
Issuance of stock for Acquisition . . . . . 130,549 131 499,869 - - 500,000
Conversion on convertible debenture. . . . 188,365 189 706,044 (11) - 706,222
Issuance of stock warrants. . . . . . . . . - - 466,790 - - 466,790
Issuance of stock warrants Advisory Board . - - 99,341 - - 99,341
Forward stock split . . . . . . . . . . . . 11,580,745 11,581 (11,581) - - -
Net Loss for Year . . . . . . . . . . . . . - - - (4,167,705) (4,167,705)
------------- --------- ----------- ------------ ------------
Balance - December 31, 2004 . . . . . . . . 23,483,873 $ 23,484 $7,617,181 $ 116,249 $(9,634,545) $(1,877,631)
============= ========= =========== ============ ============ ============
NETWORK INSTALLATION CORP., INC.
Consolidated Statements of Cash Flows
Indirect Method
Year Ended
December 31,
----------------------------
2004 2003
-------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss . . . . . . . . . . . . . . . . . . . . . . $ (4,167,705) $(3,434,607)
Stock issued for services & debt reduction . . . . 366,150 2,089,250
Stock warrants issued for debt inducement. . . . . 466,790 289,967
Beneficial conversion feature expense. . . . . . . (511,275) (134,000)
Depreciation . . . . . . . . . . . . . . . . . . . 6,573 3,364
Bad Debt Expense . . . . . . . . . . . . . . . . . 171,627 -
Write-off of Goodwill. . . . . . . . . . . . . . . 1,000,000 -
Reversal of prior year discontinued operations . . (278,911) -
Loss on conversion of debt . . . . . . . . . . . . - 91,110
Adjustments to reconcile net loss to net cash used
by operating activities
Changes in operating assets and liabilities:
(Increase) in accounts receivable . . . . . . . . (52,228) (353,119)
Decrease (Increase) Work in Progress. . . . . . . 200,000 (200,000)
Decrease (Increase) in other assets . . . . . . . 2,289 (969)
(Increase) Prepaid expenses. . . . . . . . . . . . (528,000) -
(Increase) in deposits. . . . . . . . . . . . . . (19,916) -
Increase (Decrease) accounts payable and accruals (321,195) 901,624
-------------- ------------
NET CASH FLOWS USED BY OPERATING ACTIVITIES. . . . . (3,665,801) (747,380)
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid to acquire subsidiary. . . . . . . . . . - -
Purchase of property and equipment . . . . . . . . (32,138) -
Cash received in acquisition of subsidiary. .. . . - 667
-------------- ------------
NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES. . . (35,836) 667
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party debt. . . . . . . . . 41,964 264,691
Proceeds from issuance of stock . . . . . . . . . 2,235,003 -
Payment on notes payable - related. . . . . . . . (3,975) -
Payments on long-term debt. . . . . . . . . . . . - -
Proceeds from factor. . . . . . . . . . . . . . . - 14,056
Proceeds from long-term borrowing . . . . . . . . 1,429,710 303,399
Proceeds from shares to be issued . . . . . . . . - 147,915
-------------- ------------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES. . . 3,702,702 730,061
-------------- ------------
NET INCREASE (DECREASE) IN CASH. . . . . . . . . . . 1,065 (16,652)
-------------- ------------
CASH AT BEGINNING OF PERIOD. . . . . . . . . . . . . 667 17,319
-------------- ------------
CASH AT END OF PERIOD. . . . . . . . . . . . . . . . $ 1,732 $ 667
============== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest . . . . . . . . . . . . . $ 22,918 $ -
============== ============
Cash paid for taxes. . . . . . . . . . . . . . . $ 1,600 $ -
============== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Stock issued for services. . . . . . . . . . . . $ 321,665 $ 2,245,217
============== ============
NETWORK INSTALLATION CORPORATION, INC.
Notes to Consolidated Financial Statements
December 31, 2004
Note 1 - Description of Business and Segments:
-----------------------------------------
Organization:
-------------
Network Installation Corp. (NIC) was incorporated on July 18, 1997, under the
laws of the State of California. NIC is a full service computer cabling,
networking and telecommunication integrator contractor, providing networks from
stem to stem in house. NIC participates in the worldwide network infrastructure
market to end users, structured cabling market and the telephony services. NIC,
Flexxtech Corporation ("Flexxtech") and Del Mar Systems International, Inc.
("DMSI") are together referred the Company.
Pursuant to a purchase agreement on May 23, 2003, NIC acquired 100% of the
issued and outstanding common stock of Flexxtech. The purchase price consisted
of $50,000 cash, 7,382,000 shares of Flexxtech's common stock and five year
option to purchase an additional 618,000 shares of Flexxtech stock if NIC's
total revenue exceeds $450,000 for the period beginning on June 1, 2003 and
ending August 31, 2003. The option is exercisable at a price equal to the
closing bid price of the stock on August 31, 2003.
According to the terms of the share exchange agreement, control of the combined
companies (the "Company") passed to the former shareholders of NIC. This type
of share exchange has been treated as a capital transaction accompanied by
recapitalization of NIC in substance, rather than a business combination, and is
deemed a "reverse acquisition" for accounting purposes, since the former owners
of NIC controlled majority of the total common shares outstanding immediately
following the acquisition.
On March 1, 2004, NIC acquired 100% of the outstanding shares of common stock of
DMSI, telecommunication solutions provider. The operations of DMSI have been
consolidated with the operations of the Company, since March 1, 2004.
Flexxtech was organized on March 24, 1998, under the State of Nevada, as Color
Strategies. On December 20, 1999, Flexxtech changed its name to Infinite
Technology Corporation. Flexxtech changed its name to Flexxtech Corporation in
April 2000.
A certificate of amendment was filed on July 10, 2003 to change the parent
company's name from Flexxtech Corporation to Network Installation Corporation,
Inc.
The audited financial statements for the two years ended December 31, 2003 and
2002 were filed on April 9, 2004 with the Securities and Exchange Commission and
are hereby referenced. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
------------------------------
The accompanying financial statements include the accounts of Network
Installation Corporation, formerly Flexxtech Corporation (legal acquirer, the
"Parent"), and its 100% owned subsidiaries, Network Installation Corporation and
Del Mar Systems International, Inc. All significant inter-company accounts and
transactions have been eliminated in consolidation. The results include the
accounts of NIC and Flexxtech for the year ended December 31, 2004, and the
results of DMSI from the date of acquisition, March 1, 2004 through December 31,
2004. The historical results for the year ended December 31, 2003 include NIC
and Flexxtech only.
Cash and Cash Equivalents:
----------------------------
The Company considers all highly liquid debt instruments, purchased with an
original maturity at date of purchase of three months or less, to be cash
equivalents. Cash and cash equivalents are carried at cost, which approximates
market value
Use of Estimates:
-------------------
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Significant estimates made in preparing these financial
statements include the allowance for doubtful accounts, deferred tax asset
valuation allowance and useful lives for depreciable and amortizable assets.
Actual results could differ from those estimates.
Prepaid Advertising Services:
-------------------------------
During the year ended December 31. 2004, the Company issued 250,000 shares of
common stock valued at $263,750 for advertising services to be rendered during
the next 12 months. Retainer fees of $45,000 were payable in relation to these
services. The Company expensed $195,938 during the year ended December 31,
2004, leaving a prepaid balance outstanding of $67,812 at December 31, 2004.
During the year ended December 31, 2004 the Company made deposits totaling
$528,000 for an investor relations services to be consummated in 2005.
Property & Equipment:
-----------------------
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets, e.g.
computers (5 years), software (3 years), office furniture and equipment (3-7
years), tenant improvements (life of the lease-approximately 60 months.
Accounts Receivable:
---------------------
The Company maintains an allowance for doubtful accounts for estimated losses
that may arise if any of its consumers are unable to make required payments.
Management specifically analyzes the age of customer balances, historical bad
debt experience, customer credit-worthiness and changes in customer payment
terms when making estimates of the uncollectabilty of the Company's trade
accounts receivable balances. If the Company determines that the financial
conditions of any of its customers deteriorated, whether due to customer
specific or general economic issues, increase in the allowance may be made.
Accounts receivable are written off when all collection attempts have failed.
Work in Progress:
-------------------
Work in progress consists of a networking materials and equipment in the process
of being installed at years end. Work in progress is stated at the lower of
cost, determined by the first-in, first-out ("FIFO") method, or market. The
Company has reviewed its inventory for obsolescence on a quarterly basis since
operations began and has not written-off any inventory for obsolescence.
Fair Value of Financial Instruments:
----------------------------------------
The Company's financial instruments, including cash and cash equivalents,
accounts receivable. Accounts payable and accrued liabilities are carried at
cost, which approximates their face value, due to the relatively short maturity
of these instruments. As of December 31, 2004 and December 31, 2003, the
Company's notes payable have stated borrowing rates that are consistent with
those currently available to the Company and, accordingly, the Company believes
the carrying value of these debt instruments approximates their fair value.
Revenue Recognition & Deferred Revenue:
-------------------------------------------
The Company's revenue recognition policies are in compliance with all applicable
accounting regulations, including American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 81-1, Accounting for Performance
of Construction-Type and Certain Production-Type Contracts. Revenues from
installations, cabling and networking contracts are recognized when the
contracts are completed (Completed-Contract Method). The completed-contract
method is used because the contracts are short-term in duration or the Company
is unable to make reasonably dependable estimates of the costs of the contracts.
Under the Completed-Contract Method, revenues and expenses are recognized when
services have been performed and the projects have been completed. For
projects, which have been completed but not yet billed to the customers, revenue
is recognized based on management's estimates of the amounts to be realized.
When such projects are billed, any difference between the initial estimates and
the actual amounts billed are recorded as increases or decreases to revenue.
Expenses are recognized in the periods in which the corresponding liability is
incurred.
The Company's revenue recognition policy for sale of network products is in
compliance with Staff Accounting Bulletin (SAB) 104. Revenue from the sale of
network products is recognized when a formal arrangement exists, the price is
fixed or determinable, the delivery is completed and collectibility is
reasonably assured. Generally, the Company extends credit to its customers and
does not require collateral. The Company performs ongoing credit evaluation of
its customers and historic credit losses have been within management's
expectations.
Stock Based Compensation:
---------------------------
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" amended by SFAS No. 148, "Accounting for Stock Based Compensation
Transition and Disclosure". SFAS Bo. 123 prescribes accounting and reporting
standards for all stock-based compensation plans, including employee stock
options, restricted stock, employee stock purchase plans and stock appreciation
rights. SFAS No. 123 requires compensation expense to be recorded (i) using the
new fair value method or (ii) using the existing accounting rules prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for stock issued to
employees" (APB 25) and related interpretations with proforma disclosure of what
net income and earnings per share would have been had the Company adopted the
new fair value method. The Company uses the intrinsic value method prescribed
by APB 25 and has opted for the disclosure provisions of SFAS No. 123. No
options were issued during the year ended December 31, 2004 and 2003,
respectively.
Basic and Diluted Net Loss per Share:
-------------------------------------------
Net loss per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS 128), "Earnings per share". SFAS No. 128
superseded Accounting Principles Board Opinion No. 15 (APB 15). Net loss per
share for all periods presented has been restated to reflect the adoption of
SFAS No. 128. Basic net loss per share is based upon the weighted average
number of common shares outstanding. Diluted net loss per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method.
Under this method, options and warrants are assumed to be exercised at the
beginning of the period (or at the time of issuance, if later), and as if funds
obtained thereby were used to purchase common stock at the average market price
during the period.
Note 3 - Going Concern:
---------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has accumulated deficit of
$9,634,545, and is generating losses from operations. The continuing losses
have adversely affected the liquidity of the Company. The Company faces
continuing significant business risks, including but, not limited, to its
ability to maintain vendor and supplier relationships by making timely payments
when due.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to raise additional capital, obtain
financing and to succeed in its future operations. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. Management devoted considerable effort
toward obtaining additional equity financing through various private placements
and evaluation of its distribution and marketing methods.
Note 4 - Accounts Payable and Accrued Expenses:
------------------------------------------
Accounts payable and accrued expenses are comprised of the following as of:
December 31, December 31,
2004 2003
---- ----
Accounts Payable $ 379,841 $ 655,334
Accrued Payroll 12,355 -0-
Payroll Tax Payable 368,192 122,749
Accrued Expenses 388,040 754,810
----------- ------------
$1,148,428 $1,532,893
=========== ============
Note 5 - Note Payable:
--------------
The Company contracted a $500,000 note payable in March 2004 in connections with
the DMSI acquisition. This note bears interest at 5% and is payable in monthly
installments of $42,804, maturing in April 2005. The balance outstanding as of
December 31, 2004 is $85,075.
Note 6 - Related Party Transactions:
-----------------------------
The Company has an unsecured, non-interest bearing note, due on demand, to an
officer. The balance outstanding as of December 31, 2004 and 2003, is $120,580
and $163,691, respectively.
Note 7 - Federal Income Taxes:
-----------------------
No provision was made for Federal income tax since the Company has significant
net operating loss. Through December 31, 2004, the Company incurred net
operating losses for tax purposes of $2,600,000 approximately. The net
operating loss carry forward may be used to reduce taxable income through the
year 2023. The availability of the Company's net operating loss carry forwards
are subject to limitation if there is a 50% or more positive change in the
ownership of the Company's stock. The provision for income taxes consists of
the state minimum tax imposed on corporations.
Note 8 - Commitments & Contingencies:
------------------------------
Litigation:
-----------
On April 25, 2003 the Superior Court of the State of California, County of
Orange, entered a judgment in the amount of $46,120 against the Company and its
former management in favor of a vendor of the Company's former subsidiary, North
Texas Circuit Board, or NTCB. On August 20, 2002 the Company sold NTCB to BC
Electronics, Inc. Pursuant to terms of the share purchase agreement, BC
Electronics assumed all liabilities of NTCB. In December 2003 the Company filed
a motion to vacate the judgment for lack of personal services. In February
2004, the Court ruled in favor of the Company and the judgment was vacated.
Although the Company was the guarantor on the loan, NTCB is the principal debtor
(i) the Company will bring action against NTCB to seek relief or (ii) because
partial payment was made by NTCB, it could affect the legal status of the
guarantee, which the Company believes may absolve it of liability. In February
2004, the plaintiff refiled the complaint. Although the Company will continue
to oppose the action the Company and its current management have begun
settlement discussions with the plaintiff.
On April 29, 2003 a suit was brought against the Company by an investor,
alleging breach of contract pursuant to a settlement agreement executed between
the Company and investor dated
November 20, 2002. The suit alleges that the Company is delinquent in its
repayment of a $20,000 promissory note, of which $5,000 has been repaid to date.
Although, management of the Company intends to oppose the claims, the Company's
current management plans to begin settlement discussions with the plaintiff.
The Company may be involved in litigation, negotiation and settlement matters
that may occur in the day-to-day operations of the Company and its subsidiary.
Management does not believe implication of these litigations will have any other
material impact on the Company's financial statements.
Note 9 - Stockholder's Equity:
----------------------
During the year ended December 31, 2004, the Company issued shares of its common
stock, as described per the following. The stocks were valued at the average
fair market value of the freely trading shares of the Company as quoted on OTCBB
on the date of issuance.
130,549 shares of common stock valued at $500,000 were issued for the
acquisition of its subsidiary Del Mar Systems International, Inc.
The Company issued 8,000 shares of common stock to a shareholder for conversion
of a Promissory Note amounting to $40,003.
The Company issued 138,106 shares of common stock valued at $421,949 for
conversion of debenture amount of $430,900. The difference of the value of the
stock issued and debenture amount of $8,951 was charged as a loss on conversion.
The Company was to issue 11,462 shares of common stock valued a5 $32,094 for
conversion of debenture amount of $32,552 to a related party, a major
shareholder of the Company. The difference of the value of the stock to be
issued and debenture amount of $458 was charged as a loss on conversion.
The Company issued 50,000 shares of common stock to a consultant for services
rendered valued at $195,004. The Company issued 6,410 shares of common stock for
a consideration of $24,362.
On September 30, 2004, the Company announced a 2 for 1 forward stock split of
its common stock. The Company's authorized shares remain the same. The
financial statements have been retroactively restated for the effects of the
stock split.
Note 10 - Convertible Debentures:
------------------------
During the period ended March 31, 2004, the Company issued $570,500 debentures
to a majority of shareholder of the Company. $160,500 carrying an interest rate
of 8% per annum, due 2009. $410,000 carry an interest rate of 6% per annum due
in 2008 and 2009. Holder is entitled to convert the face amount of this
Debenture, plus accrued interest, anytime following the Closing date, at the
lesser of (i) 75% of the lowest closing bid price during the fifteen (15)
trading days prior to the Conversion Date or (ii) 100% of the closing bid price
for the twenty (20) trading days immediately preceding the Closing Date ("Fixed
Conversion Price each being referred to as the "Conversion Price". No fractional
shares or scrip representing fractions of shares will be issued on conversion,
but the number of shares issuable shall be rounded up or down, as the case may
be, to the nearest whole share. Principle payments on these debentures of
$52,382 were made in 2004.
During the period ended June 30, 2004, the Company issued $100,000 debentures to
a majority shareholder of the Company. Each debenture carries an interest rate
of 8% per annum, due in March 2009. Holder is entitled to convert the face
amount of this Debenture, plus accrued interest, anytime following the Closing
Date, at the lesser of (i) 75% of the lowest closing bid price during the
fifteen (15) trading days prior to the Conversion Date or (ii) 100% of the
closing bid prices for the twenty (20) trading days immediately preceding the
Closing Date ("Fixed Conversion Price"), each being referred to as the
"Conversion Price". No fractional shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be
rounded up or down, as the case may be to the nearest whole share. These
debentures were paid in full in 2004.
During the period ended September 30, 2004, the Company issued $240,000
debentures to a majority shareholder of the Company. Each debenture carries an
interest rate of 8% per annum, due in 2009. Holder is entitled to convert the
face amount of this Debenture, plus accrued interest, anytime following the
Closing Date, at the lesser of (i) 75% of the lowest closing bid price during
the fifteen (15) trading days prior to the Conversion Date or (ii) 100% of the
closing bid prices for the twenty (20) trading days immediately preceding the
Closing Date ("Fixed Conversion Price"), each being referred to as the
"Conversion Price". No fractional shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be
rounded up or down, as the case may be to the nearest whole share. A principle
payment of $25,000 was made on these debentures in 2004.
During the period ended December 31, 2004, the Company issued $1,134,600
debentures to a majority shareholder of the Company. Each debenture carries an
interest rate of 8% per annum, due in 2009. Holder is entitled to convert the
face amount of this Debenture, plus accrued interest, anytime following the
Closing Date, at the lesser of (i) 75% of the lowest closing bid price during
the fifteen (15) trading days prior to the Conversion Date or (ii) 100% of the
closing bid prices for the twenty (20) trading days immediately preceding the
Closing Date ("Fixed Conversion Price"), each being referred to as the
"Conversion Price". No fractional shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be
rounded up or down, as the case may be to the nearest whole share.
Note 11 - Basic and Diluted Net Loss Per Share:
------------------------------------------
Basic and diluted net loss per share for the twelve-month period ended December
31, 2004 and 2003 were determined by dividing net loss for the periods by the
weighted average number of basic and diluted shares of common stock outstanding.
Weighted average number of shares used to compute basic and diluted loss per
share is the same since the effect of dilutive securities is anti-dilutive.
Note 12 - Supplemental Disclosures of Cash Flows:
-------------------------------------------
The Company paid interest of $22,918 during the year ended December 31, 2004.
The Company paid income taxes of $1,600 during the year ended December 31, 2004.
Note 13 - Acquisition of Del Mar Systems International, Inc.:
-----------------------------------------------------------
Pursuant to an acquisition agreement, the Company acquired 100% of the
outstanding shares of San Diego area based telecommunications solutions firm Del
Mar Systems International, Inc. on March 1, 2004 for $1 million structured as a
(i) $500,000 12 month 5% note consisting of 12 equal monthly installments of
$42,804 and (ii) $500,000 in shares of the Company's restricted common stock.
Note 14 - Accounting Change:
-------------------
During 2004, the Company changed its method of accounting for long-term
contracts from the completed-contract method to the percentage-of-completion
method. The Company believes that the percentage-of-completion method more
accurately reflects periodic results of operation. The effect of this change was
to decrease the net loss for 2004 by approximately $45,000. The Company believes
this change in its accounting policies has an immaterial effect on the financial
statements taken as a whole, for the year ended December 31, 2004, and as such,
has determined that retroactive restatement of the results of operations for
2003 is unnecessary due to materiality considerations.
Note 15 -Subsequent Events:
-------------------
The Company purchased 100% of the outstanding shares of Com Services, Inc., a
California corporation, on January 17, 2005. Com Services, Inc. provided
similar services as the Company and maintained a solid customer list. The
purchase price was $430,000, of which $50,000 was paid in cash, $200,000 was
paid in Company stock, issued at market value, and $180,000 in promissory notes
payable over a two year period, with interest at 6%. Below is the unaudited
condensed balance sheet of Com Services, Inc. as of January 17, 2005, which is
prepared only to present the major asset captions for which the Company has
applied the purchase price of $430,000 towards.
Accounts receivable $ 142,073
Fixed Assets 56,032
Goodwill 331,895
Bank Line of Credit (100,000)
-------
Total assets and liabilities $ 430,000
==========
On March 7, 2005, Jeffrey R. Hultman replaced Michael Cummings as CEO.
Additionally, Michael Rosenthal assumed the CFO position on March 7, 2005.
Note 16 - Financial Accounting Developments:
------------------------------------
Recently issued Accounting Pronouncements
In February 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 150, "Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity". SFAS 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. This
statement establishes new standards of how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. SFAS 150 requires that an issuer classify a financial instrument that
is within the scope of this statement as a liability because the financial
instrument embodies an obligation of the issuer. This statement applies to
certain forms of mandatorily redeemable financial instruments including certain
types of preferred stock, written put options and forward contracts. SFAS 150
did not materially effect the financial statements.
In December 2003, the FASB issued FASB Interpretation No. 146, (revised
December 2003) "Consolidation of Variable Interest Entities" (FIN 146) which
addresses how a business enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting rights and
accordingly should consolidate the entity. FIN No. 146R replaces FASB
Interpretation No. 146, "Consolidation of Variable Interest Entities", which was
issued in January 2003. Companies are required to apply FIN No. 146R to
variable interests in variable interest entities ("VIEs") created after December
31, 2003. For variable interest in VIEs created before January 1, 2004, the
Interpretation is applied beginning January 1, 2005. For any VIEs that must be
consolidated under FIN No. 146R that were created before January 1, 2004,the
assets, liabilities and non-controlling interests of the VIE initially are
measured at their carrying amounts with any difference between the net amount
added to the balance sheet and any previously recognized interest being
recognized as the cumulative effect of an accounting change.
If determining the carrying amounts is not practicable, fair value at the date
FIN No. 146R first applies may be used to measure the assets, liabilities and
non-controlling interest of the VIE. The Company doe not have any interest in
any VIE.
In March 2003, the FAS issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS 149 is effective for
contracts entered into or modified after June 30, 2003. This statement amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 149did
not materially effect the financial statements.
In December 2004, the FASB issued SFAS No. 123(R)(revised 2004), "Share Based
Payment" which amends FASB Statement No. 123 and will be effective for public
companies for interim or annual periods after January 15, 2005. The new
standard will require entities to expense employee stock options and other
share-based payments. The new standard may be adopted in one of three ways -
the modified prospective transition method, a variation of the modified
prospective transition method or the modified retrospective transition method.
The Company is to evaluate how it will adopt the standard and evaluate the
effect that the adoption of SFAS 123(R) will have on our financial position and
results of operations.
In November 2004, the FASB issued SFAS NO. 151, "Inventory Costs, an amendment
of ARB No 43, Chapter 4". This statement amends the guidance in ARB No. 43,
Chapter 4 Inventory Pricing, to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling cost, and wasted material (spoilage).
Paragraph 5 of ARB No. 43, Chapter 4, previously stated that, "under some
circumstances, items such as idle facility expense, excessive spoilage, double
freight and rehandling costs may be so abnormal as to require treatment as
current period charges." SFAS No. 151 requires that those items be recognized
as current-period charges regardless of whether they meet the criterion of "so
abnormal". In addition, this statement requires that allocation of fixed
production overheads to the costs of conversion be based on the prospectively
and are effective for inventory costs incurred during fiscal years beginning
after June 5, 2005, with earlier application permitted for inventory costs
incurred during fiscal years beginning after the date this Statement was issued.
The adoption of SFAS No. 151 is not expected to have a material impact on the
Company's financial position and results of operations.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary
Assets, an amendment of APB Opinion No. 29. The guidance in APB Opinion 29,
Accounting for Non-monetary Transactions, is based on the principle that
exchange of non-monetary assets should be measured based on the fair value of
assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. This Statement amends Opinion 29 to eliminate the
exception for non-monetary exchanges of similar productive assets that do not
have commercial substance. A non-monetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly as a
result of the exchange. SFAS No. 153 is effective for non-monetary exchanges
occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS
No. 153 is not expected to have a material impact on the Company's financial
position and results of operations.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 8A. CONTROLS AND PROCEDURES.
As required by Rule 13a-15(b) under the Exchange Act, we conducted an
evaluation, under the supervision and with the participation of our management,
including the current Chief Executive Officer and the Chief Financial Officer,
both of whom were appointed in March of 2005, of the effectiveness and the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this report. Based on the foregoing, it was determined
that our internal controls over revenue recognition for certain of our contracts
was deficient.
This deficiency in our internal controls related to improper recognition of
revenue prior to final completion of certain contracts and recognizing revenue
in amounts greater than the proportion of project completion, and included
ineffective controls to monitor compliance with existing policies and procedures
and insufficient training of accounting personnel on complex accounting
standards related to revenue recognition. The first deficiency related to
revenue recognition of partially complete projects when the accounting approach
to revenue recognition then in place only allowed recognition after the project
was complete. The second deficiency related to revenue recognition on a number
of accounts, whereby the company had generated an invoice in its accounting
software for more than it was eligible to bill, recognizing revenues and A/R in
the process. These invoices were not sent to the customer. Rather, when the
project reached a percent complete where the company was eligible for progress
billing, a smaller invoice was generated which was actually sent to the customer
for these accounts. These progress billings were not captured in the accounting
software as revenue or A/R as the larger one already had been captured. It
should be noted that this occurred beginning in May of 2004, through the end of
the year, and was not done on all accounts, but selectively.
The majority of the improper revenue recognition was detected in the review
process and was not included in our financial statements filed with the SEC or
otherwise publicly disclosed. We are in the process of improving our internal
controls over financial reporting regarding these contracts in an effort to
remediate this deficiency providing additional training on complex revenue
recognition principles for our accounting staff and establishing additional
policies and procedures related to revenue recognition. We have already
implemented personnel changes and added a new Chief Financial Officer. In
addition, access to the company's accounting software has been limited, a review
process has been added for all invoices prior to their release, functional
responsibility and accountability for employees has been clarified, and
redundancy of accounting functions has been eliminated. Additional work is
needed to fully remedy this deficiency and we intend to continue our efforts to
improve and strengthen our control processes and procedures.
Other than as described above, there has been no change in our internal control
over financial reporting during the fiscal quarter ended December 31, 2004 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. In addition, other than as described
above, since the most recent evaluation date, there have been no significant
changes in our internal control structure, policies, and procedures or in other
areas that could significantly affect out internal control over financial
reporting.
ITEM 8B. OTHER INFORMATION.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table sets forth the name, age, positions, and offices or
employments for the past five years as of March 1, 2004, of our executive
officers and directors.
NAME AGE POSITION
Jeffrey R. Hultman 65 Chief Executive Officer,
Director
Michael A. Novielli 40 Chairman of the Board of
Directors
Michael V. Rosenthal 44 Chief Financial Officer
Douglas H. Leighton 36 Director
Theodore Smith 28 Director
Michael Cummings 41 Director
BIOGRAPHIES OF OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES
Set forth below is a brief description of the background of our officers and
directors based on information provided by them to us.
MICHAEL A. NOVIELLI has served as our director and Chairman since April 2003.
Mr. Novielli is a Managing Partner of Boston-based venture capital firm Dutchess
Capital Management, LLC and affiliate Dutchess Advisors, LLC. A co-founder of
Dutchess in 1996, Mr. Novielli advises the senior management of companies in the
portfolios of Dutchess Private Equities Funds LP and Dutchess Private Equities
Fund LP II. His areas of expertise include; business development, finance,
legal, accounting and regulatory compliance. Mr. Novielli received his B.S. in
Business from the University of South Florida in 1987. Mr. Novielli also serves
as a director for several other publicly traded companies.
JEFFREY R. HULTMAN joined our Advisory Board in December 2004. In March 2005,
Mr. Hultman was appointed Chief Executive Officer and director. From 1987 to
1991, Mr. Hultman served as Chief Executive Officer of Pac Tel Cellular where he
managed Pac Tel cellular properties in the United States and oversaw operations
and business development . In 1991 Mr. Hultman became CEO of Dial Page, Inc. a
wireless provider throughout the Southeast, offering paging and digital mobile
telephone services. Ultimately, Mr. Hultman converted a series of limited
partnerships into a corporation and took Dial Page public leading four public
offerings. In August 1995, he negotiated the sale of the paging business to
MobileMedia Communication, Inc. and a merger of subsidiary Dial Call with Nextel
Communications, Inc. in February 1996. Mr. Hultman attained his Bachelor of
Science Degree in Agricultural Economics in 1961 and Master of Science Degree,
in Business Management in 1962, at the University of California, Davis. He
currently serves a director on the board of several organizations including
Comarco Inc., an Irvine, CA-based wireless performance engineering and publicly
traded company.
MICHAEL V. ROSENTHAL has served as our Chief Financial Officer since March 2005.
From 2003 to 2004 Mr. Rosenthal served as Chief Financial Officer for EdgeFocus,
Inc., a start-up broadband company, which offers high-speed Wi-Fi internet
access to apartment residents. Mr. Rosenthal was General Manager of the Texas
Region for Cellular One from 2000 to 2002 and was Executive Director, overseeing
the prcing and roaming functions for Cellular One from 1998 to 2000 From
1989-1998 Mr. Rosenthal served in several positions including Executive Director
with Primco PCS JV and Airtouch Cellular (both now Verizon Wireless) where he
was responsible for coverage strategy, affiliate and roaming partner
negotiations, capital allocation strategy, and evaluation of resale. Mr.
Rosenthal received a M.B.A. in Finance from The W.P. Carey School at Arizona
State University and a M.A. in Telecommunications from George Washington
University. In addition, he received a B.S. in Economics at Arizona State
University. He also successfully completed the Stanford University Executive
Program in Advanced Management.
DOUGLAS LEIGHTON has served as our director since April, 2003Mr. Leighton
is a Managing Partner of Boston-based venture capital firm Dutchess Capital
Management, LLC and affiliate Dutchess Advisors, LLC. A co-founder of Dutchess
in 1996, Mr. Leighton oversees trading and portfolio risk management of
investments made on behalf of Dutchess Private Equities Fund LP and Dutchess
Private Equities Fund LP II. Prior to co-founding Dutchess, Mr. Leighton was
founder and president of Boston-based Beacon Capital from 1990-1996, which
engaged in money management. Mr. Leighton holds a BS/BA in Economics & Finance
from the University of Hartford. Mr. Leighton also serves as a director for
several other publicly traded companies.
THEODORE SMITH has served as our director since April 2003. Mr. Smith serves as
Executive Vice President of Dutchess Advisors LLC, whom he joined in 1998 and is
a liaison between Dutchess Capital Management, LLC on behalf of Dutchess Private
Equities Fund, LP, Dutchess Private Equities Fund LP II and senior management of
companies in the Fund's portfolio. Prior to joining Dutchess in 1998, Mr. Smith
was a principal at Geneva Atlantic Capital, LLC where he focused on assisting
corporate clients with SEC compliance matters, business plan preparation and
presentation and capital markets financing. Mr. Smith received his BS in Finance
and Marketing from Boston College. Mr. Smith also serves as a director of
several public as well as private companies.
MICHAEL CUMMINGS was a founder of Network Installation Corp and served as our
Chief Executive Officer from May 2003 until March 2005. He has served as a
director since May 2003. He previously founded and served as President of
Network Installation Corp. from 1997 to 2003. During the period from 1999-2001,
Mr. Cummings purchased a controlling interest in Tri-City Datatel, Inc., a
designer and installer of networking systems. Mr. Cummings sold his interest in
2001. In 1983, Mr. Cummings attended Goldenwest College for Business Law.
BOARD OF DIRECTORS
We currently have five members of our Board of Directors, who are elected to
annual terms and until their successors are elected and qualified. Executive
officers are appointed by the Board of Directors on an annual basis and serve
until their successors have been duly elected and qualified. There are no family
relationships among any of our directors, officers or key employees.
AUDIT COMMITTEE
We do not have an Audit Committee. Our full board performs the functions
usually delegated to an Audit Committee. Mr. Novielli, the Chairman of the
Board of Directors qualifies as an "audit committee financial expert" under the
rules of the Securities and Exchange Commission.
SECTION 16(a)BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers and persons who beneficially own more than ten percent of our
common stock, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission. Executive officers,
directors and greater than ten percent beneficial owners are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they file. To
our knowledge, based solely on a review of the copies of such reports furnished
to us and written representations from our executive officers and directors, all
required reports were filed during the fiscal year ended December 31, 2004. Four
Form 3s were filed late. The purpose of the Form 3s was to disclose initial
reports of ownership for Douglas Leighton, Michael Novielli, Michael Cummings
and Theodore Smith. The Form 3s did not report any transactions. Except for
these four late filings, we believe that all other Section 16(a) filing
requirements applicable to the executive officers, directors and greater than
ten percent beneficial owners were complied with.
CODE OF ETHICS
We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. Our Code of Ethics is
attached to our Report on Form 10-KSB for the year ended December 31, 2003 as
Exhibit 14.1.
ITEM 10. EXECUTIVE COMPENSATION.
The following table presents a summary of the compensation paid to our Chief
Executive Officer. No other executive officer received compensation in excess of
$100,000 during 2004. Except as listed below, there were no bonuses,
other
annual compensation, restricted stock awards or stock options/SARs or any
other compensation paid to the executive officers.
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------- -----------------------
AWARDS PAYOUTS
----------- -------------------
NAME AND PRINCIPAL YEAR(1) SALARY BONUS OTHER RESTRICTED SECURITIES LTIP ALLOTHER
POSITION ($) ($) ANNUAL STOCK UNDERLYING PAYOUT($) COMP.($)
COMP ($) AWARDS OPTIONS/SARS
Michael Cummings, Chief 2003 $100,000 0 152,700 (2)
Executive Officer(1)
2004 $192,000 0
(1) Mr. Cummings became our Chief Executive Officer in May 2003.
(2) Mr. Cummings received 100,000 shares of common stock valued at $1.527 per
share as compensation for serving on the Board of Directors.
We appointed Jeff Hultman as our Chief Executive Officer on March 8, 2005. We
executed an employment agreement with Mr. Hultman in March 2005. The employment
agreement shall continue in effect for a period of two years and can be renewed
upon mutual agreement between Mr. Hultman and us. We may terminate the
employment agreement at our discretion during the initial term, provided that we
shall pay Mr. Hultman an amount equal to payment at Mr. Hultman's base salary
rate for six months. We can also terminate the employment agreement for cause
with no financial obligations to Mr. Hultman. Mr. Hultman currently earns a
gross salary of $16,000 per month and retains a warrant to purchase 2.5 million
shares of our common stock at .10 per share. subject to a vesting schedule and
leakout agreement. Additionally, Mr. Hultman received a warrant to purchase
55,000 shares at .10 per share,subject to a vesting period and leakout
agreement, pursuant to a consulting agreement in December 2004, prior to his
appointment as CEO.
DIRECTORS COMPENSATION
We do not have a formal plan to compensate directors. None of our directors have
been compensated for the duties in 2004.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth, to our knowledge, certain information concerning
the beneficial ownership of our common stock as of December 31, 2004 by each
stockholder known by us to be (i) the beneficial owner of more than 5% of the
outstanding shares of common stock, (ii) each current director, (iii) each of
the executive officers named in the Summary Compensation Table who were serving
as executive officers at the end of the 2002 fiscal year and (iv) all of our
directors and current executive officers as a group:
Unless otherwise indicated below, to our knowledge, all persons listed below
have sole voting and investment power with respect to their shares of common
stock except to the extent that authority is shared by spouses under applicable
law.
NAME AND ADDRESS
OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED OWNED OF CLASS(2)
Michael A. Novielli 5,465,162 (3) (2)23.27%
Douglas Leighton 5,465,162 (3) 23.27%
Theodore Smith 0 (3)
Michael Cummings 10,760,000 45.82%
Dutchess Private Equities, L.L.P, 312 Stuart Street, 3rd Floor, Boston, MA 02116. 5,465,162 (3) 23.27%
Dutchess Advisors, Ltd., 312 Stuart Street, 3rd Floor, Boston, MA 02116 5,465,162 (3) 23.27%
All directors and current executive officers as a group (4 Persons) 16,225,162 69.09%
(1) The address of all individual directors and executive officers is c/o
Network Installation Corporation, 15235 Alton Parkway, Suite 200 Irvine, CA
92618
(2) The number of shares of common stock issued and outstanding on December 31,
2004 was 23,483,873 shares. The calculation of percentage ownership for each
listed beneficial owner is based upon the number of shares of common stock
issued and outstanding on December 31, 2004, plus shares of common stock subject
to options held by such person on December 31,2004 and exercisable within 60
days thereafter.
(3) Two of our directors, Michael Novielli, who is also our Interim Chief
Financial Officer, and Douglas Leighton, are the principals of Dutchess
Advisors. Messrs. Novielli and Leighton are also the principals of Dutchess
Capital Management LLC, which is the general partner to Dutchess Private
Equities Fund. Our director, Theodore Smith, is the Executive Vice President of
Dutchess Advisors, LLC. Dutchess Advisors owns 1,400,000 shares of our common
stock. Dutchess Private Equities Fund owns 4,065,162 shares of our common stock.
Messrs. Novielli and Leighton share voting and dispositive power over the shares
of our common stock held by Dutchess Advisors and Dutchess Private Equities
Fund.
No options, warrants or other stock rights have been issued to the officers
other than as disclosed above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On February 27, 2004, we issued convertible debentures of $260,000 to Dutchess
Private Equities Fund for forgiveness of Promissory Notes on December 17, 2003
($35,000), January 9, 2004 ($125,00), February 2, 2004 ($75,000), and February
5, 2004 ($25,000) due and payable on their respective dates. The debentures
face value was discounted by 20%. The holders of the debentures are entitled to
convert the face amount of these debentures, plus accrued interest at the lesser
of (i) 75% of the lowest closing bid price during the 15 trading days prior to
the conversion date or (ii) 100% of the average of the closing bid prices for
the 20 trading days immediately preceding the closing date. The convertible
debentures shall pay 6% cumulative interest, in cash or in shares of common
stock, at Dutchess' option, at the time of each conversion. The convertible
debentures are convertible into shares of our common stock.
On March 1, 2004, we issued convertible debentures of $155,500 to Dutchess
Private Equities Fund. The debentures face value was discounted by 20%. The
holders of the debentures are entitled to convert the face amount of these
debentures, plus accrued interest at the lesser of (i) 75% of the lowest bid
price during the 15 trading days prior to the conversion date or (ii) 100% of
the lowest bid prices for the 20 trading days immediately preceding the closing
date. The convertible debentures shall pay 6% cumulative interest, in cash or in
shares of common stock, at our option, at the time of each conversion. The
convertible debentures are convertible into shares of our common stock.
On March 31, 2004, we contracted the issuance for convertible debentures of
$155,000 to Dutchess Private Equities Fund, II, which were funded on April 1,
2004. The debentures face value was discounted by 20%. The holders of the
debentures are entitled to convert the face amount of these debentures, plus
accrued interest at the lesser of (i) 75% of the lowest closing bid price during
the 15 trading days prior to the conversion date or (ii) 100% of the average of
the closing bid prices for the 20 trading days immediately preceding the closing
date. The convertible debentures shall pay 8% cumulative interest. The
convertible debentures are convertible into shares of our common stock. The
debentures were funded on April 1, 2004. To date the company owes $58,365.
On April 8, 2004, we issued convertible debentures of $50,000 to Dutchess
Private Equities Fund. The debentures face value was discounted by 20%. The
holders of the debentures are entitled to convert the face amount of these
debentures, plus accrued interest at the lesser of (i) 75% of the lowest bid
price during the 15 trading days prior to the conversion date or (ii) 100% of
the lowest bid prices for the 20 trading days immediately preceding the closing
date. The convertible debentures shall pay 6% cumulative interest, in cash or in
shares of common stock, at our option, at the time of each conversion. The
convertible debentures are convertible into shares of our common stock.
The debenture has been paid off in full and there is no further obligation for
this debenture.
On April 13, 2004, we issued convertible debentures of $50,000 to Dutchess
Private Equities Fund. The debentures face value was discounted by 20%. The
holders of the debentures are entitled to convert the face amount of these
debentures, plus accrued interest at the lesser of (i) 75% of the lowest bid
price during the 15 trading days prior to the conversion date or (ii) 100% of
the lowest bid prices for the 20 trading days immediately preceding the closing
date. The convertible debentures shall pay 6% cumulative interest, in cash or in
shares of common stock, at our option, at the time of each conversion. The
convertible debentures are convertible into shares of our common stock.
The debenture has been paid off in full and there is no further obligation for
this debenture.
On September 24, 2004, we issued convertible debentures of $240,000 to Dutchess
Private Equities II. The debentures face value was discounted by 20%. The
debentures convert into common stock at the lesser of (i) 75% of the lowest
closing bid price during the fifteen trading days prior to the Conversion Date
or (ii) 100% of the average of the closing bid prices for the twenty trading
days immediately preceding the Closing Date of the Transaction. The convertible
debentures shall pay 8% cumulative interest. On September 24, 2004, in
conjunction with the financing, Dutchess Private Equities II issued 200,000
warrants with a strike price at $1.75.
On October 21, 2004, we issued convertible debentures of $45,600 to Dutchess
Private Equities Fund. The debentures face value was discounted by 20%. The
debentures convert into common stock at the lesser of (i) 75% of the lowest
closing bid price during the fifteen trading days prior to the Conversion Date
or (ii) 100% of the average of the closing bid prices for the twenty trading
days immediately preceding the Closing Date of the Transaction. The convertible
debentures shall pay 8% cumulative interest.
On November 2, 2004, we issued convertible debentures of $120,000 to Dutchess
Private Equities II. The debentures face value was discounted by 20%. The
debentures convert into common stock at the lesser of (i) 75% of the lowest
closing bid price during the fifteen trading days prior to the Conversion Date
or (ii) 100% of the average of the closing bid prices for the twenty trading
days immediately preceding the Closing Date of the Transaction. The convertible
debentures shall pay 8% cumulative interest.On November 2, 2004, in conjunction
with the financing, Dutchess Private Equities II issued 120,000 warrants with a
strike price at $1.75.
On November 9, 2004, we issued convertible debentures of $36,000 to Dutchess
Private Equities Fund. The debentures face value was discounted by 20%. The
debentures convert into common stock at the lesser of (i) 75% of the lowest
closing bid price during the fifteen trading days prior to the Conversion Date
or (ii) 100% of the average of the closing bid prices for the twenty trading
days immediately preceding the Closing Date of the Transaction. The convertible
debentures shall pay 8% cumulative interest. On November 9, 2004, in
conjunction with the financing, Dutchess Private Equities II issued 36,000
warrants with a strike price at $1.75.
On December 1, 2004, we issued convertible debentures of $540,000 to Dutchess
Private Equities Fund. The debentures face value was discounted by 20%.The
debentures convert into common stock at the lesser of (i) 75% of the lowest
closing bid price during the fifteen trading days prior to the Conversion Date
or (ii) 100% of the average of the closing bid prices for the twenty trading
days immediately preceding the Closing Date of the Transaction. The convertible
debentures shall pay 8% cumulative interest. On December 1, 2004, in
conjunction with the financing, Dutchess Private Equities Fund issued 540,000
warrants with a strike price at $1.73.
On December 9, 2004, we issued convertible debentures of $240,000 to Dutchess
Private Equities Fund. The debentures face value was discounted by 20%.The
debentures convert into common stock at the lesser of (i) 75% of the lowest
closing bid price during the fifteen trading days prior to the Conversion Date
or (ii) 100% of the average of the closing bid prices for the twenty trading
days immediately preceding the Closing Date of the Transaction. The convertible
debentures shall pay 8% cumulative interest. On December 9, 2004, in
conjunction with the financing, Dutchess Private Equities Fund issued 240,000
warrants with a strike price at $1.90.
On December 22, 2004, we issued convertible debentures of $153,000 to Dutchess
Private Equities Fund. The debentures face value was discounted by 20%. The
debentures convert into common stock at the lesser of (i) 75% of the lowest
closing bid price during the fifteen trading days prior to the Conversion Date
or (ii) 100% of the average of the closing bid prices for the twenty trading
days immediately preceding the Closing Date of the Transaction. The convertible
debentures shall pay 8% cumulative interest. On December 22, 2004, in
conjunction with the financing, Dutchess Private Equities Fund issued 150,000
warrants with a strike price at $1.83.
ITEM 13. EXHIBITS.
NUMBER DESCRIPTION
3.1 Articles of Incorporation, dated March 24, 1998 (included as exhibit 3.1 to
the Form 10-SB filed March 5, 1999, and incorporated herein by reference).
3.2 By-laws, dated March 24, 1998 (included as exhibit 3.2 to the Form 10-SB
filed March 5, 1999, and incorporated herein by reference).
3.3 Amendment to By-laws, dated May 6, 1999 (included as exhibit 3.2.2 to the
Form 10-SB filed May 14, 1999, and incorporated herein by reference).
3.4 Certificate of Amendment of Articles of Incorporation (included as exhibit
3.2 to the Form 8-K filed November 29, 2000, and incorporated herein by
reference).
3.5 Certificate of Amendment of Articles of Incorporation (included as exhibit
3.3 to the Form 8-K filed November 29, 2000, and incorporated herein by
reference).
3.6 Certificate of Amendment to Articles of Incorporation, dated January 10,
2003 (included as exhibit 3.3 to the Form 10-KSB filed April 15, 2003, and
incorporated herein by reference).
3.7 Certificate of Amendment to the Certificate of Incorporation, dated June
26, 2003 (included as exhibit 4.1 to the Form 10-QSB filed November 13, 2003,
and incorporated herein by reference).
4.1 Warrant #101 issued to C.C.R.I. Corp., dated September 29, 2003 (included as
exhibit 4.1 to the Form SB-2 filed October 16, 2003, and incorporated herein by
reference).
4.2 Warrant #102 issued to C.C.R.I. Corp., dated September 29, 2003 (included as
exhibit 4.2 to the Form SB-2 filed October 16, 2003, and incorporated herein by
reference).
4.3 Convertible Debenture Exchange Agreement between the Company and Dutchess
Private Equities Fund LP, dated February 27, 2004 (included as exhibit 4.1 to
the Form 10-QSB filed May 24, 2004, and incorporated herein by reference).
4.4 Form of Debenture between the Company and Dutchess Private Equities Fund
LP, dated March 1, 2004 (included as exhibit 4.2 to the Form 10-QSB filed May
24, 2004, and incorporated herein by reference).
4.5 Form of Debenture between the Company and Dutchess Private Equities Fund,
II, L.P., dated March 31, 2004 (included as exhibit 4.3 to the Form 10-QSB filed
May 24, 2004, and incorporated herein by reference).
4.6 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, II, dated March 31, 2004 (included as exhibit 4.3 to the Form
10-QSB filed May 24, 2004).
4.7 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, II, dated April 8, 2004 (included as exhibit 4.9 to the Form
10-QSB filed August 23, 2004).
4.8 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, II, dated April 13, 2004 (included as exhibit 4.10 to the Form
10-QSB filed August 23, 2004).
4.9 Form of Warrant, dated May 18, 2004 (included as exhibit 4.6 to the Form
SB-2 filed July 27, 2004, and incorporated herein by reference).
4.10 Form of Warrant, dated May 26, 2004 (included as exhibit 4.7 to the Form
SB-2 filed July 27, 2004, and incorporated herein by Reference).
4.11 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, II, dated September 25, 2004 (included as exhibit 4.11 to the
Form 10-QSB filed November 22, 2004).
4.12 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, II, dated October 21, 2004 (filed herewith).
4.13 Form of Warrant, dated October 21, 2004 (filed herewith)
4.14 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund dated November 2, 2004 (filed herewith).
4.15 Form of Warrant, dated November 2, 2004 (filed herewith)
4.16 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, dated November 9, 2004 (filed herewith).
4.17 Form of Warrant, dated November 9, 2004 (filed herewith)
4.18 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, dated December 1, 2004 (filed herewith).
4.19 Form of Warrant, dated December 1, 2004 (filed herewith)
4.20 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, dated December 9, 2004 (filed herewith).
4.21 Form of Warrant, dated December 9, 2004 (filed herewith)
4.22 Convertible Debenture Agreement between the Company and Dutchess Private
Equities Fund, dated December 22, 2004 (filed herewith).
4.23 Form of Warrant, dated December 22, 2004 (filed herewith)
10.1 Reseller Agreement between the Company and Vivato, Inc., dated August 14,
2002 (included as exhibit 10.1 to the Form 10-QSB filed November 13, 2003, and
incorporated herein by reference).
10.2 Short Term Rental Agreement between the Company and Vidcon Solutions
Group, Inc., dated February 5, 2003 (included as exhibit 10.3 to the Form 10-QSB
filed November 13, 2003, and incorporated herein by reference).
10.3 Consulting Agreement between the Company and Dutchess Advisors, LLC, dated
April 1, 2003 (included as exhibit 10.3 to the Form 8-K filed April 23, 2003,
and incorporated herein by reference).
10.4 Restructuring and Release Agreement between the Company, Dutchess Advisors
LLC, Dutchess Capital Management LLC, Michael Novielli, Western Cottonwood
Corporation, Atlantis Partners, Inc., John Freeland, Greg Mardock, and VLK
Capital Corp., dated April 9, 2003 (included as exhibit 10.2 to the Form 8-K
filed April 23, 2003, and incorporated herein by reference).
10.5 Stock Purchase Agreement between the Company and Michael Cummings, dated
May 16, 2003 (included as exhibit 2.1 to the Form 8-K filed June 13, 2003, and
incorporated herein by reference).
10.6 Consulting Agreement between the Company and Marketbyte, LLC, dated July
24, 2003 (included as exhibit 10.8 to the Form SB-2 filed July 27, 2004, and
incorporated herein by reference).
10.7 Motorola Reseller Agreement between the Company and Motorola, Inc., dated
August 18, 2003 (included as exhibit 10.2 to the Form 10-QSB filed November 13,
2003, and incorporated herein by reference).
10.8 Investment Agreement between the Company and Preston Capital Partner, LLC,
dated January 21, 2004 (included as exhibit 10.7 to the Form SB-2 filed January
21, 2004 and incorporated herein by reference).
10.9 Registration Rights Agreement between the Company and Preston Capital
Partners, LLC, dated January 21, 2004 (included as exhibit 10.8 to the Form SB-2
filed January 21, 2004, and incorporated herein by reference).
10.10 Placement Agent Agreement between the Company and Park Capital
Securities, LLC, dated January 21, 2004 (included as exhibit 10.9 to the Form
SB-2 filed January 21, 2004, and incorporated herein by reference).
10.11 Premier Reseller Agreement between the Company and Aruba Wireless
Networks, Inc., dated January 29, 2004 (included as exhibit 10.10 to the Form
SB-2/A filed February 9, 2004, and incorporated herein by reference).
10.12 Investor Relations Service Agreement between the Company and Eclips
Ventures International, dated February 2, 2004 (included as exhibit 10.9 to the
Form SB-2 filed July 27, 2004, and incorporated herein by reference).
10.13 XO Communications, Inc. Agent Agreement between the Company and XO
Communications, Inc., dated March 8, 2004 (included as exhibit 10.13 to the Form
SB-2 filed July 27, 2004, and incorporated herein by reference).
10.14 Mpartner Independent Agent Agreement between the Company and Mpower
Communications Corp., dated March 23, 2004 (included as exhibit 10.10 to the
Form SB-2 filed on July 27, 2004, and incorporated herein by reference).
10.15 Sales Agent Agreement between the Company and PAETEC Communications,
dated March 23, 2004 (included as exhibit 10.11 to the Form SB-2 filed July 27,
2004, and incorporated herein by reference).
10.16 Qwest Services Corporation Master Representative Agreement between the
Company and Qwest Services Corp., dated March 23, 2004 (included as exhibit
10.12 to the Form SB-2 filed July 27, 2004, and incorporated herein by
reference).
10.17 Lease Agreement - Las Vegas location between the Company and HQ Global
Workplaces, dated January 2, 2004 (included as exhibit 10.8 to the Form SB-2
filed July 27, 2004, and incorporated herein by reference).
10.18 Lease Agreement - Los Angeles location between the Company and HQ Global
Workplaces, dated March 1, 2004 (included as exhibit 10.15 to the Form SB-2
filed July 27, 2004, and incorporated herein by reference).
10.19 Lease Agreement - Gold River location between the Company and HQ Global
Workplaces, dated May 20, 2004 (included as exhibit 10.16 to the Form SB-2 filed
July 27, 2004, and incorporated herein by reference).
10.20 Lease Agreement - Scottsdale location between the Company and HQ Global
Workplaces, dated June 1, 2004 (included as exhibit 10.17 to the Form SB-2 filed
July 27, 2004, and incorporated herein by reference).
10.21 Lease Agreement - Seattle location between the Company and HQ Global
Workplaces, dated June 1, 2004 (included as exhibit 10.18 to the Form SB-2 filed
July 27, 2004, and incorporated herein by reference).
10.22 Promissory Note Agreement between the Company and Stephen Pearson, for
the acquisition of Del Mar Systems, Inc., dated March 1, 2004 (included as
exhibit 10.19 to the Form SB-2 filed July 27, 2004, and incorporated herein by
reference).
10.23 Promissory Note between the Company and Dutchess Private Equities Fund,
dated December 17, 2003 (included as exhibit 10.20 to the Form SB-2 filed July
27, 2004, and incorporated herein by reference).
10.24 Promissory Note between the Company and Dutchess Private Equities Fund,
dated January 9, 2004 (included as exhibit 10.21 to the Form SB-2 filed July 27,
2004, and incorporated herein by reference).
10.25 Promissory Note between the Company and Dutchess Private Equities Fund,
dated February 2, 2004 (included as exhibit 10.22 to the Form SB-2 filed July
27, 2004, and incorporated herein by reference).
10.26 Promissory Note between the Company and Dutchess Private Equities Fund,
dated February 5, 2004 (included as exhibit 10.23 to the Form SB-2 filed July
27, 2004, and incorporated herein by reference).
10.27 Employment Agreement between the Company and Robert W. Barnett, dated
January 19, 2004 (included as exhibit 10.25 to the Form SB-2 filed July 27,
2004, and incorporated herein by reference).
10.28 Promissory Note between the Company and Michael Cummings, dated December
30, 2003 (included as exhibit 10.26 to the Form SB-2 filed July 27, 2004, and
incorporated herein by reference).
10.29 Promissory Note between the Company and Michael Cummings, dated March 15,
2004 (included as exhibit 10.27 to the Form SB-2 filed July 27, 2004, and
incorporated herein by reference).
10.30 Territory License Agreement between the Company and 5G Wireless
Communications, Inc., dated February 2004 (included as exhibit 10.27 to the
Form 10-QSB filed August 23, 2004, and incorporated herein by reference).
10.31 Lease Agreement between the Company and Alton Plaza Property, Inc., dated
June 29, 2004 (included as exhibit 10.28 to the Form 10-QSB filed August 23,
2004, and incorporated herein by reference).
10.32 Stock Purchase Agreement between the Company, Raymond Mallory, and Will
Stice, dated January 17, 2005 (included as exhibit 2.1 to the Form 8-K filed
January 24, 2005, and incorporated herein by reference).
10.33 Employment Agreement between the Company and Jeffrey R. Hultman, dated
March 7, 2005 (included as exhibit 99.2 to the Form 8-K filed March 9, 2005, and
incorporated herein by reference).
10.34 Employment Agreement between the Company and Michael V. Rosenthal, dated
March 14, 2005 (included as exhibit 99.2 to the Form 8-K filed March 14,
2005,
and incorporated herein by reference).
14.1 Code of Ethics (included as exhibit 21.1 to the Form 10-KSB filed April 9,
2004, and incorporated herein by reference).
21.1 List of Subsidiaries (included as exhibit 21.1 to the Form 10-KSB filed
April 9, 2004, and incorporated herein by reference).
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
The Company incurred fees to our auditors, Kabani & Co. and Rose, Snyder and
Jacobs, for professional services rendered for the audit of the Company's annual
financial statements for the year ended December 31, 2003 and, for the reviews
of the financial statements included in the Company's quarterly reports on Form
10-QSB during the fiscal year ended December 31, 2004 were $75,589.
TAX FEES
None
ALL OTHER FEES
Kabani & Company, Inc. billed us $5,000 related to a registration statement on
Form SB-2.
The Board of Directors Pre-approval Policy and Procedures
The Board has considered whether the provision of the services described above
under the caption "All Other Fees" is compatible with maintaining Kabani &
Company, Inc.'s independence.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Irvine, State of
California on May 9, 2005.
Network Installation Corporation
/s/ Jeffrey R. Hultman
By: Jeffrey R. Hultman
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company
Signature
Name Title Date
/s/ Jeffrey R. Hultman
Jeffrey R. Hultman Director and May 9, 2005
Chief Executive Officer
/s/ Michael V. Rosenthal
Michael V. Rosenthal Chief Financial Officer May 9, 2005
/s/ Douglas Leighton
Douglas Leighton Director May 9, 2005
/s/ Theodore Smith
Theodore Smith Director May 9, 2005
/s/ Michael A. Novielli
Michael A. Novielli Director May 9, 2005
/s/ Michael Cummings
Michael Cummings Director May 9, 2005