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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended June 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from _______ to _______
Commission File No. 333-86000
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TECHNOLOGY CONNECTIONS, INC.
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(Exact name of small business issuer as specified in its charter)
North Carolina 56-2253025
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(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
15720 John J. Delanie, # 30B, Charlotte, North Carolina 28277
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(Address of principal executive offices)
(704) 752-0311
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Number of shares of common stock outstanding as of
September 23 , 2003: 26,957,860
Number of shares of preferred stock outstanding as of
September 23, 2003: -0-
INDEX TO FORM 10-QSB
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Page No.
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PART I
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Item 1. Financial Statements
Balance Sheet - June 30 , 2003 2
Statements of Operations - for the Three and Six Months Ended
June 30, 2003 and 2002 3
Statements of Cash Flows - Six Months Ended
June 30, 2003 and 2002 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 6-8
Item 3. Quantitative and Qualitative Analysis 9
Item 4. Controls and Procedures 10
PART II
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Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
TECHNOLOGY CONNECTIONS, INC.
Balance Sheet
June 30, 2003
(unaudited)
ASSETS
2003
CURRENT ASSETS
Cash and Cash Equivalents $ 364
Inventory 3,911
Accounts Receivable, net of allowance for doubtful
accounts of $31,564 8,502
Prepaid expenses 82,500
TOTAL CURRENT ASSETS 95,277
PROPERTY AND EQUIPMENT
Property and Equipment 33,788
Accumulated Depreciation (7,526)
Net Property and Equipment 26,262
TOTAL ASSETS $ 121,539
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 135,096
Current Portion of Notes Payable 15,000
Loans Payable to Stockholder 188,568
TOTAL CURRENT LIABILITIES 338,664
LONG-TERM DEBT
Notes Payable, less current portion 50,000
STOCKHOLDERS' DEFICIT
Preferred Stock ($.001 par value, 5,000,000 authorized:
none issued and outstanding)
Common Stock ($.001 par value, 100,000,000 shares authorized:
26,957,860 shares issued and outstanding) 26,958
Additional Paid-in-Capital 560,090
Retained Deficit (854,173)
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TOTAL STOCKHOLDERS' DEFICIT (267,125)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 121,539
The accompanying notes are an integral part of the financial statements
F-2
TECHNOLOGY CONNECTIONS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
Three Months ended June 30 Six months ended June 30
2003 2002 2003 2002
REVENUES AND COST OF SALES:
- ---------------------------------------
Sales . . . . . . . . . . . . . . . . $ 18,170 $ 71,409 $ 36,960 $ 182,805
Cost of sales . . . . . . . . . . . . ( 4,188) (74,850) (15,953) (142,234)
------------ ------------ ------------ ------------
Gross profit. . . . . . . . . . . . 13,982 (3,441) 21,007 40,571
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (44,964) (40,041) (156,633) (589,309)
------------ ------------- ----------- ------------
OPERATING LOSS (30,982) (43,482) (135,626) (548,738)
OTHER INCOME 22,593 22,593
OPERATING EXPENSE:
Loss on Sale of Asset (363) (363)
Interest Expense (6,399) (5,142) (15,001) (11,069)
------------ ------------ ------------ ------------
NET LOSS . . . . . . . . . . . . . $ (15,151) (48,624) (128,397) (559,807)
============ ============ ============ ============
Net income (loss) per common share -
basic & fully diluted . . . . . . . . (0.00) (0.00) (0.01) $ (0.02)
============ ============ ============ ============
Weighted average common
shares outstanding. . . . . . . . . . 25,310,193 24,502,383 25,310,193 24,502,383
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements
F-3
TECHNOLOGY CONNECTIONS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
- ----------------------------------------------------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $(128,397) $(559,807)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . 5,214 900
Stock issued for services. . . . . . . . . . . . . . . 201,000 469,430
Loss on sale of asset. . . . . . . . . . . . . . . . . (363)
(Increase) decrease in operating assets:
Accounts receivable. . . . . . . . . . . . . . . . . (4,706) (964)
Inventory. . . . . . . . . . . . . . . . . . . . . . 2,500 -
Prepaid Expenses . . . . . . . . . . . . . . . . . . (82,500)
Increase (Decrease) in operating liabilities:
Accounts payable and accrued expenses. . . . . . . . (96,122) 15,980
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NET CASH USED IN OPERATING ACTIVITIES. . . . . . . . (103,374) (74,461)
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CASH FLOWS FROM INVESTING ACTIVITIES:
- ----------------------------------------------------------
Purchases of property and equipment. . . . . . . . . . . - (16,113)
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NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . - (16,113)
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CASH FLOWS FROM FINANCING ACTIVITIES:
- ----------------------------------------------------------
Proceeds from sales of common stock . . . . . . . . . . - 61,000
Proceeds from stockholder loans. . . . . . . . . . . . . 99,281 34,348
Repayments on notes payable . . . . . . . . . . . . . . - (5,000)
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NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . . . 99,281 90,348
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NET DECREASE IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . (4,093) (226)
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CASH AND CASH EQUIVALENTS:
- ----------------------------------------------------------
Beginning of period. . . . . . . . . . . . . . . . . 4,457 1,190
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End of period. . . . . . . . . . . . . . . . . . . . $ 364 $ 964
============ ==========
SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH FINANCING:
- ----------------------------------------------------------
Cash paid during the period for interest . . . . . . . . $ 6,070 $ 4,741
============ ==========
The accompanying notes are an integral part of the financial statements
F-4
TECHNOLOGY CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2003
NOTE 1 - BASIS OF PRESENTATION
The accompanying interim consolidated financial statements
are unaudited; however, in the opinion of management, the
interim statements include all adjustments necessary for a
fair presentation of the results for interim periods. The
preparation of financial statements in conformity with
accounting principles generally accepted in the United Sates
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
The results of operations for the six months ended June 30,
2003 are not necessarily indicative of the results to be
expected for the year ended December 31, 2003.
The interim unaudited consolidated financial statements
should be read in conjunction with the Company's annual
report on Form 10-KSB as filed with the Securities and
Exchange Commission.
NOTE 2 - GOING CONCERN AND LIQUIDITY
The Company's continued existence is dependent upon its
ability to resolve its liquidity problems, principally by
obtaining equity, increasing sales and achieving profitable
operations. The Company has experienced a history of net
losses, has a stockholders' deficit of $267,125 and a net
working capital deficiency of $243,387. These factors raise
substantial doubt about the Company's ability to continue as
a going concern.
Management's plans in regard to this matter are to implement
cost reduction policies and develop an aggressive sales
strategy. The Company believes these efforts in conjunction
with raising equity, will improve liquidity and sustain
continuing operations. The eventual outcome, however, of
management's plans cannot be ascertained with any degree of
certainty. The accompanying interim financial statements do
not include any adjustments that might result from the
outcome of these risks and uncertainties.
NOTE 3 - COMMON STOCK ISSUANCES
During the quarter ended March 31, 2003, the Company issued
1,800,000 shares of common stock to subcontractors for
services. The stock was valued at the closing price on the
date of issuance which resulted in an aggregate expense of
$201,000. The contracts provide for services over the next
year which resulted in a prepaid expense of $123,750 as of
March 31, 2003 and a first quarter expense of $77,250 that is
included in the interim financial statements.
F-5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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Technology Connections, Inc. is hereby providing cautionary statements
identifying important factors that could cause our actual results to differ
materially from those projected in forward looking statements made in this
quarterly report on Form 10-QSB. Any statements that express, or involve
discussions as to, expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "likely will result," "are expected to," "will continue," "is
anticipated," "estimated," "intends," "plans" and "projection") are not
historical facts and may be forward looking statements and involve estimates and
uncertainties which could cause actual results to differ materially from those
expressed in the forward looking statements. Accordingly, any such statements
are qualified in their entirety by reference to, and are accompanied by, the
following key factors that have a direct bearing on our results of operations:
the absence of contracts with customers or suppliers; our ability to maintain
and develop relationships with customers and suppliers; our ability to
successfully integrate acquired businesses or new brands; the impact of
competitive products and pricing; supply constraints or difficulties; changes in
the construction industry; the retention and availability of key personnel; and
general economic and business conditions.
We caution that the factors described herein could cause actual results to
differ materially from those expressed in any forward-looking statements such
that the investors should not place undue reliance on any such forward-looking
statements. Further, any forward-looking statement speaks only as of the date on
which such statement is made, and we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events or circumstances. Consequently, no forward-looking statement can be
guaranteed.
New factors emerge from time to time, and it is not possible for us to
predict all such factors. Further, we cannot assess the impact of each such
factor on our results of operations or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
Overview
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We were incorporated in North Carolina on May 23, 2001, to engage in the
business of installing structured wiring capacities into newly constructed homes
and retrofitting existing homes with the same integrated technology components
and systems. Such integrated technology and systems include security systems,
Internet technology, satellite television delivery systems, indoor/outdoor
lighting, solar energy systems and entertainment/communication technology.
We are authorized to issue common and
preferred stock. Our total authorized common stock consists of 100,000,000
shares, with a par value of $.001 per share, of which 26,957,860 shares are
issued and outstanding. Our total authorized preferred stock consists of
5,000,000 shares, with a par value of $.001 per share, of which no shares are
issued and outstanding.
6
RESULTS OF OPERATIONS
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For the three and six months ended June 30, 2003 and 2002 (unaudited).
Sales.
Sales for the three months ended June 30, 2003 and 2002 were
$18,170 and $71,409, respectively, a decrease of $53,239 or 75%.
Sales for the six months ended June 30, 2003 and 2002 were $36,960,
and $182,805, respectively, a decrease of $145,845 or 80%.
Sales decreased as a result of a general reduction in sales from
existing customers and a lack of significant new sales to home builders.
All revenues were from unrelated third parties and were made primarily from
new
home buyers.
Cost of Sales.
The cost of sales includes the purchase price for equipment plus other
direct costs associated with completing the installing, such as subcontractors
and permits. It is customary to experience variations in the cost of sales as a
percentage of net sales based on the types of products installed at any given
location and the related cost of labor to complete installation.
The cost of sales for the three months ended June 30, 2003 and
2002 were $4,188 and $74,850, respectively, a decrease of $70,662.
Cost of sales as a percentage of sales for the periods ended June 30, 2003 and
2002 were 23% and 105%, respectively.
The cost of sales for the six months ended June 30, 2003 and
2002 were $15,953 and $142,234, respectively, a decrease of $126,281.
Cost of sales as a percentage of sales for the periods ended June 30, 2003 and
2002 were 43% and 77%, respectively.
We expect cost of sales as a percentage of sales to decrease to around 50% of
total sales for fiscal year 2003 as we pursue larger installation
projects. In addition, volume discounts will be available to us if we
are successful in achieving sales growth in the future which will further
reduce our cost of sales as a percentage of sales.
Expenses
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Total expenses for the three months ended June 30, 2003 and 2002
were $44,964 and $40,041, respectively.
Total expenses for the six months ended June 30, 2003 and 2002
were $156,633 and $589,309, respectively.
Notable expense accounts included the following:
Subcontractors' fees were $77,250. This was primarily associated with the
1,800,000 shares of our common stock we paid to several subcontractors during
the first quarter of 2003 for expenses to develop our business that were not
related to actual projects. The stock was valued at the closing price on the
date of issuance which resulted in an aggregate expense of $201,000. The
contracts provide for services over the next year which resulted in a prepaid
expense of $82,500 as of June 30, 2003 and a first quarter expense of $77,250.
We expect increases in expenses through the year 2003 as the Company
moves toward developing its business plan. We expect the increase to be
primarily in sales related expenses such as advertising and salespersons'
salaries.
7
Income/ Losses.
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Net loss for the three months ended June 30, 2003 was $15,151 versus
a net loss of $48,624 in the same period in 2002, a decrease of $33,473.
The decrease is due primarily due to the company's continuing efforts
to reduce overhead and general expenses.
Net loss for the six months ended June 30, 2003 was $128,397 versus
a net loss of $559,807 in the same period in 2002, a decrease of $431,410.
The decrease is due primarily to the company's continuing efforts
to reduce overhead and general expenses and the expenses incurred to
become a public company.
We expect to continue to incur losses at least through the year 2003.
In addition, there can be no assurance that we will achieve or maintain
profitability or that our revenue growth can be sustained in the future.
Impact of Inflation.
We believe that inflation has had a negligible effect on operations since
inception. We believe that we can offset inflationary increases in the cost of
labor by increasing sales and improving operating efficiencies.
Liquidity and Capital Resources.
Cash flows used in operations were $103,374 and $74,461 for the six months
ended June 30, 2003 and 2002, respectively. The cash flows use in operations
were primarily atributed to Subcontractors' fees we paid to several
subcontractors during the first quarter of 2003 for expenses to develop our
business that were not related to actual projects.
Cash flows used in investing activities were $0 and $16,113 for
the six months ended June 30, 2003 and 2002, respectively. We had no
purchases of furniture or equipment for the period ending June 30, 2003.
Cash flows generated by financing activities were $99,281 and
$90,348 for the six months ended June 30, 2003 and 2002. Cash flows for
the period included $99,281 in proceeds from stockholder loans.
Proceeds were used for working capital and general expenses.
The stockholder loan was made by our CEO, Kevin Kyzer.
The stockholder loan bears interest at 6% per annum and is due on demand.
The loan is not evidenced by a written promissory note, but rather is an oral
agreement between the Company and the stockholder.
Overall, we have funded our cash needs from inception through
June 30, 2003 with a series of debt and equity transactions, including
those with related parties as described above. If we are unable to receive
additional cash from our related parties, we may need to rely on financing from
outside sources through debt or equity transactions. Our related parties are
under no legal obligation to provide us with capital infusions. Failure to
obtain such financing could have a material adverse effect on operations and
financial condition.
We had cash on hand of $364 and a working capital deficit of
$243,387 as of June 30, 2003 which is not sufficient to fund our operations
through the next twelve months. Our working capital deficit is primarily due to
current obligations in account payable and loans from stockholders. We will
substantially rely on the existence of revenue from our business; however, we
have no current or projected capital reserves that will sustain our business for
the next 12 months. Also, if the projected revenues fall short of needed
capital we may not be able to sustain our capital needs for the next twelve
months. We will then need to obtain additional capital through equity or debt
financing to sustain operations for an additional year. A lack of significant
revenues beginning in the first half of 2003 will significantly affect our cash
position and move us towards a position where the raising of additional funds
through equity or debt financing will be necessary. Our current level of
operations would require capital of approximately $150,000 to sustain operation
through year 2003 and approximately $200,000 per year thereafter. Modifications
to our business plans or additional property acquisitions may require additional
capital for us to operate. There can be no assurance that additional capital
will be available to us when needed or available on terms favorable to the
Company.
8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk of loss that may result from the
potential change in value of a financial instrument as a result of fluctuations
in interest rates and market prices. The Company has not traded or otherwise
transacted in derivatives nor does it expect to do so in the future. The Company
has established policies and internal processes related to the management of
market risks which are used in the normal course of its business operations.
The fair value of long-term debt is subject to interest rate risk. While changes
in market interest rates may affect the fair value of a company's fixed-rate
long-term debt, if any, the Company believes that a change in interest rates
would not have a material impact on its financial condition, future results of
operations or cash flows.
10
ITEM 4. CONTROLS AND PROCEDURES
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(a) On June 30, 2003, we made an evaluation of our disclosure controls and
procedures. In our opinion, the disclosure controls and procedures are adequate
because the systems of controls and procedures are designed to assure, among
other items, that 1) recorded transactions are valid; 2) valid transactions are
recorded; and 3) transactions are recorded in the proper period in a timely
manner to produce financial statements which present fairly the financial
condition, results of operations and cash flows for the respective periods being
presented. Moreover, the evaluation did not reveal any significant deficiencies
or material weaknesses in our disclosure controls and procedures.
(b) There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls since the last
evaluation.
Item 4. Controls and Procedures
Within 90 days prior to the date of filing of this report, we carried out
an evaluation, under the supervision and with the participation of our
management, including the Chief Executive Officer (who also effectively serves
as the Chief Financial Officer), of the design and operation of our disclosure
controls and procedures. Based on this evaluation, our Chief Executive Officer
concluded that our disclosure controls and procedures are effective for
gathering, analyzing and disclosing the information we are required to disclose
in the reports we file under the Securities Exchange Act of 1934, within the
time periods specified in the SEC's rules and forms. There have been no
significant changes in our internal controls or in other factors that could
significantly affect internal controls subsequent to the date of this
evaluation.
11
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
We issued 1,800,000 shares of common stock to several subcontractors during the
first quarter of 2003 for expenses to develop our business that were not related
to actual projects. The stock was valued at the closing price on the date of
issuance which resulted in an aggregate expense of $201,000.
Item 3. Default upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
12
(a) Exhibits
Exhibit
Number Description of Exhibits
- ------ -----------------------
3(i)(a) Articles of Incorporation of Technology Connections, Inc.(1)
3(ii) Bylaws of Technology Connections, Inc.(1)
3(iii) Articles of Amendment to the Articles of Incorporation of
Technology Connections, Inc. (1)
4.1 Form of Common Stock Certificate of Technology
Connections, Inc. (1)
99.1 Certification of President and Chief Executive Officer
(1) Previously filed with Technology Connections's filing of Form SB-2 and
subsequent amendments thereto (File No. 333-86000).
(b) Reports on Form 8-K- None.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TECHNOLOGY CONNECTIONS, INC.
(Registrant)
/s/ Kevin Kyzer
Date: September 23, 2003 __________________________
Kevin Kyzer
President, Chief Executive Officer,
Chief Financial Officer
CERTIFICATIONS
I, Kevin Kyzer, certify that:
1.I have reviewed this quarterly report on Form 10-QSB of Technology
Connections, Inc.;
2.Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact, or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3.Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial position, results of operations, and cash
flows of the issuer as of, and for, the periods presented in this quarterly
report.
4.I am responsible for establishing and maintaining disclosure controls and
procedures for the issuer and have:
(i) Designed such disclosure controls and procedures to ensure that
material information relating to the issuer is made known to me,
particularly during the period in which the periodic reports are being
prepared;
(ii) Evaluated the effectiveness of the issuer's disclosure controls and
procedures as of June 30, 2003 ["Evaluation Date"]; and
(iii) Presented in the report our conclusions about the effectiveness of
the disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5.I have disclosed, based on my most recent evaluation, to the issuer's
auditors and the audit committee of the board of directors (or persons
fulfilling the equivalent function):
(i) All significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record,
process, summarize and report financial data and have identified for the
issuer's auditors any material weaknesses in internal controls (none
were so noted); and
(ii) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the issuer's internal
controls (none were so noted); and
6.I have indicated in the report whether or not there were significant
changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: September 23, 2003
/s/ Kevin Kyzer
CEO and Principal Financial Officer
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report of Technology Connections, Inc.
(the "Company") on Form 10-QSB for the period ending June 30, 2003, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Kevin Kyzer, acting in the capacity as the Chief Executive Officer
and Chief Financial Officer of the Company, certify to the best of our
knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Kevin Kyzer
Kevin Kyzer
Chief Executive Officer and Chief Financial Officer
September 23, 2003