8-K 1 e-7904.txt CURRENT REPORT DTD. 12/21/2001 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act December 21, 2001 Date of Report (Date of Earliest Reported) Circuit Source International, Inc. (Exact name of registrant as specified in its charter) NEVADA 0-30913 86-0985427 (State of (Commission (I.R.S. Employer Incorporation) File Number) Identification Number) 1930 East Third Street, Suite 15, Tempe, Arizona 85281 (Address of Principal Executive Offices Including Zip Code) (480) 967 7090 (Registrant's Telephone Number) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS As reported in the registrant's 10-QSB filed on November 19, 2001, on October 31, 2001 the registrant entered into a Stock Purchase Agreement purchasing all the issued and outstanding shares in Avanti Circuits, Inc. from its sole shareholder. The consideration was $500,000 in cash and a Promissory Note for $2,000,000 with 10% interest payable on or before January 31, 2002. The shares of stock will be held in escrow and not released until the balance is fully paid. A Security Agreement securing all the assets of Avanti Circuits secures the Promissory Note. The closing of the transaction occurred on October 31, 2001 with an effective date of October 1, 2001. The majority shareholder of the registrant assumed the position of president of Avanti and the existing directors of Avanti resigned subsequent to the appointment of James Keaton and Ron Conquest to Avanti's board of directors. All pertinent documents were attached as exhibits to the 10-QSB filed on November 19, 2001. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements of business acquired. Audited financial statements for the years ending September 2000 and 2001. (c) Exhibits 2. Stock Purchase Agreement between Circuit Source International Inc., the acquiring corporation, Avanti Circuits, Inc., the acquired corporation and William C Malone the sole shareholder of Avanti Circuits, Inc filed with the Form 10-QSB on November 19, 2001 and incorporated by reference. 10.1 Security Agreement dated October 1, 2001 between the registrant, (debtor) Avanti Circuits, Inc. (corporation) and William Malone (secured party) with an effective date of October 31, 2001 securing all the assets of Avanti filed with the Form 10-QSB on November 19, 2001 and incorporated by reference. 10.2 A Promissory Note dated October 1, 2001 for $2,000,000 plus 10% interest payable to the shareholder of Avanti by the registrant due on January 31, 2002 filed with the Form 10-QSB on November 19, 2001 and incorporated by reference. 10.3 A Security Agreement, dated October 1, 2001 by and between the registrant as the Pledgor and William Malone as Pledgee pledging the Avanti stock as security for payment of the note filed with the Form 10-QSB on November 19, 2001 and incorporated by reference. 2 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant caused this registration statement to be signed on its behalf by the undersigned thereunto duly authorized. Date: December 21, 2001 CIRCUIT SOURCE INTERNATIONAL, INC. By: /s/ James Keaton --------------------------------- James Keaton Its: President and CEO 3 [LETTERHEAD OF JOEL H. WOLDORF CERTIFIED PUBLIC ACCOUNTANT] INDEPENDENT AUDITOR'S REPORT TO AVANTI CIRCUITS, INC. 17650 N. 25TH AVE. PHOENIX ARIZONA 85023 DEAR STOCKHOLDERS I HAVE AUDITED THE ACCOMPANYING STATEMENTS OF FINANCIAL POSITION OF AVANTI CIRCUITS, INC. INC. AS OF SEPTEMBER 30, 2000 AND 2000, THE RELATED STATEMENTS 0P INCOME, STOCKHOLDER'S EQUITY AND CASH FLOWS FOR THE YEARS THEN ENDED. THESE FINANCIAL STATEMENTS ARE THE RESPONSIBILITY OF THE COMPANY'S MANAGEMENT. MY RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL STATEMENTS BASED ON MY AUDIT. I CONDUCTED MY AUDIT IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS, THESE STANDARDS REQUIRE THAT I 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 DISCLOSURE 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. I BELIEVE THAT MY AUDIT PROVIDE A REASONABLE BASIS FOR MY OPINION. IN MY OPINION, THE FINANCIAL STATEMENTS REFERRED TO ABOVE PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF AVANTI CIRCUITS, INC. AS OF SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000. AND THE RESULTS OF ITS OPERATIONS, AND THEIR CASH FLOWS FOR THE YEAR THEN ENDED IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. /s/ JOEL WOLDORF JOEL WOLDORF C.P.A. SCOTTSDALE ARIZONA 85260 DECEMBER 5, 2001 5 AVANTI CIRCUITS, INC. BALANCE SHEETS SEPTEMBER 30, 2001 AND 2000

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 6 LIABILITIES AND STOCKHOLDERS' EQUITY

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 7 AVANTI CIRCUITS, INC. STATEMENTS OF INCOME FOR THE YEARS ENDED SEPTEMBER 30,2001 AND 2000 2001 2000 ----------- ----------- SALES $ 3,190,565 $ 3,381,438 ----------- ----------- COST OF SALES: Inventory-Beginning 534,043 429,710 Materials 405,929 566,936 Freight Ira, 10,009 14,640 Direct Labor 786,393 888,624 Indirect Manufacturing Costs 912,999 950,886 ----------- ----------- 2,649,373 2,850,796 Inventory-Ending (196,550) (534,043) 2,452,823 2,316,753 ----------- ----------- GROSS PROFIT 737,742 1,064,685 OPERATING EXPENSES: Advertising 4,152 12,611 Bad Debt 21,865 1,011 Depreciation And Amortization 27,164 28,165 Dues And Subscriptions 6,425 5,105 Employee Benefits 4,757 7,440 Insurance 36,867 37,308 Miscellaneous Expense 16,342 53,879 Officers Salaries 346,119 334,430 Office Salaries 244,588 199,254 Payroll Taxes 34,411 30,523 Office Expense 71,259 63,135 Professional Fees 37,358 9,373 Sales Commissions 100,665 186,089 Taxes and Licenses 16,537 10,000 Telephone 31,414 31,169 Training 4,108 3,538 Travel And Entertainment 1,035 4,351 Vehicle Expense 17,917 31,233 ----------- ----------- 1,022,983 1,048,614 ----------- ----------- INCOME (LOSS) FROM OPERATIONS (285,241) 16,071 OTHER INCOME (EXPENSE) (27,999) (51,512) ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (373,240) (35,441) ----------- ----------- INCOME TAX EXPENSE 0 (8,330) ----------- ----------- NET INCOME (LOSS) $ (313,240) $ (43,771) =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 8 AVANTI CIRCUITS, INC. STATEMENT OF RETAINED EARNINGS FOR THE YEARS ENDED SEPTEMBER 30,2001 AND 2000 2001 2000 --------- --------- RETAINED EARNINGS -BEGINNING $ 823,780 $ 867,551 (LOSS) (313,240) (43,771) --------- --------- RETAINED EARNINGS- ENDING $ 510,540 $ 823,780 ========= ========= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 9 AVANTI CIRCUITS, INC, STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 10 AVANTI CIRCUITS, INC. Notes to Financial Statements September 30, 2001 and 2000 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activities The Company is engaged in the manufacturing of electronic circuit boards for commercial and governmental customers. The company is engaged in consumer and defense electronic products throughout the United States. The Company is a Corporation established under the laws of the state of Arizona. Cash The Company considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents. Inventories The company values its material inventories at the lower of cost (first-in, first-out method) or market. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Property and Equipment Property and equipment is recorded at cost. Depreciation and amortization is provided principally on the straight-- line method and accelerated methods over the estimated lives of the assets. Depreciation and amortization fox the years ended September 30, 2001 and 2000 was $158,897 and $ 130,509 respectively. Repairs and maintenance expend expenditures are capitalized if they are considered material in relation to the value of the asset worked on, otherwise they are expensed as incurred. 11 AVANTI CIRCUITS, INC. Notes to Financial Statements September 30, 2001 and 2000 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Taxes Deferred income taxes are provided for the temporary differences in, the reporting of income for financial statement and tax purposes and arise mainly from differences in the methods of accounting in reporting the results of operations for income tax and financial accounting purposes. Advertising Advertising costs, which are principally included in operating expenses, are expensed as incurred. Advertising expense was $4,152 and $12,611 for the years ended September 30, 2001 and 2000 respectively. NOTE 2 - CONCENTRATIONS OF CREDIT RISKS Financial instruments that subject the Company to potential concentrations of credit risk consist principally of cash and trade accounts receivable. the Company has no policy requiring collateral or other security to support its deposits, although all demand deposits with banks are federally insured up to $ 100,000 under FDIC protection. Management is aware of the risk of uninsured cash balance and is in the process of reviewing opportunities to reduce risk in this area. Concentrations of credit risk with respect to accounts receivable are limited due to the financial strength of the customer base. the company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. NOTE 3 - ADVANCES TO OFFICERS The Company periodically advances funds to its officers. These advances are due on demand and accrue interest at 6%. Interest income from these advances were $1,0452 and $3,862 for the years ended September 30, 2001 and 2000, respectively. 12 AVANTI CIRCUITS, INC. Notes to Financial Statements September 30, 2001 and 2000 NOTE 4 - RELATED PARTY TRANSACTIONS. The Company entered into a note receivable with Avanti Enterprises Arizona, LLC (A related LLC consisting of owners,officers, and key employees of the company). The note is due in 100 monthly installments of 506.98, including interest at 9.75 The Balance of $ 12,205. will be paid by October 31, 2001 The company leases its business facility from Avanti Enterprises Arizona, LLC a related entity. The Company has a 10 (ten) year lease, expiring October 2008. Under provisions of the lease, the Company's base rent is $ 8,630 per month. In addition, the Company is responsible fox all property taxes, utilities and insurance. Rent expense for the years ended September 30,2001 and 20019 were $ 107,1270 and $103,560, respectively. Subsequent to year-end, this lease was re negotiated with rent expiring October 2008. The new rental amount will be $ 10,000. per month. NOTE 5 - INVENTORIES Inventories at September 30, consist of the following 2001 2000 -------- -------- Raw materials $178,706 $492,552 Work in Process 17,844 41,491 -------- -------- TOTAL INVENTORIES $196,550 $534,043 ======== ======== NOTE 6 - CASH SURRENDER VALUE OF LIFE INSURANCE The Company is the owner and beneficiary of life insurance policies with a combined face value of $ 250,000 on the lives of three of its officers. The cash surrender value as of September 30, 2001 and 2000 was $31,059 and $28,284, respectively. The company is also the collaterally assigned beneficiary with respect to two life insurance policies owned by and and insuring the lives of the majority stockholder. The cross collateral assignment is for a maximum of $1,000,000 (one million) (see note 7) NOTE 7 - REVOLVING LINE OF CREDIT The company maintains a revolving line of credit with a bank, permitting maximum borrowing of $300,000, interest payable monthly at the bank's prime rate of interest plus 1.5 percent, maturing September 30, 2001. The note is secured by the Company's accounts receivable, inventories, property and equipment. the loan is guaranteed by the company's majority stockholder. A life insurance policy owned by and covering the majority stockholder have been assigned as collateral on the bank's note. Certain restrictions and covenants are stated in the debt agreement. Under these restrictions, the Company must maintain certain levels of working capita. and net worth anal maintain. certain financial ratios. The note was re negotiated expiring November 2006. 13 AVANTI CIRCUITS, INC. Notes to Financial Statements September 30, 2001 and 2000 NOTE 8 - LONG TERM DEBT At September 30, 2001 and 2000, long-term debt consisted of the following;

Future minimum principal payments are as follows: Year Ending September 30, ------------------------- 2002 $115,998 14 AVANTI CIRCUITS, INC. Notes to Financial Statements September 30, 2001 and 2000 NOTE 9 - LEASE COMMITMENTS The Company leases certain equipment under several non-cancelable operating leases requiring 36 to 60 monthly payments, raging from $202 to $ 705 per month and expiring between January 25, 1999 and August 31, 2002. Under provisions of the leases, the Company is responsible for all insurance, taxes and repairs on the equipment. Rent expense on the equipment for the years ended September 30, 2001 and 2000 was $4,100 and $4,300, respectively. Future minimum rental payments under these operating leases as of September 30, 2001 are as follows; Year Ending September 30, ------------------------- 2002 $8,630 NOTE 10 - INCOME TAXES Deferred income taxes are provided far the temporary differences in the reporting of income for financial statement and tax purposes and arise mainly from tax deferral attributable to the allowance for doubtful accounts, section 263A adjustments for inventory and accrued payroll items. NOTE 11-MAJOR CUSTOMERS During the years ended September 30, 2001 and 2000 respectively,the Company had no concentration in any one customer. NOTE 12 - EMPLOYEE RETIREMENT PLAN The employees of the Company are covered under a 401(k) plan that was established January 1, 1996. Substantially all employees who have completed one year of service are eligible to participate in the plan. The company is currently matching employee contributions. the plan was established in the Internal Revenue Code. NOTE 13 - SUBSEQUENT EVENTS Subsequent to the Balance Sheet date, the Company agreed to be acquired . The contract date June 26, 2001. 'the Buyer will purchase all of the existing and outstanding Shares of Common Stock of the Company. At closing Mr. Bill Malone agrees to assume any and all liability associated with the promissory notes then due from the Company to Jim Malone, Scott Malone, Kira Malone. The leased business facility has been amended at the closing. The terms of the new lease is for 7 (seven) years. The monthly payments will be $ 10,000 per month. The Buyer has an option to purchase or renew the lease. The close of the sale will take place the October 1, 2001. The purchase price of $ 2,500,000 (Two and half million) will, paid with $ 500,000 due October 1, 2001. The balance of $ 2,000,000 (Two million) to be paid January 31, 2002. The interest will accrued at the rate of 10% per annum. The company has re negotiated the outstanding Bank agreement fox the outstanding principle balance of all outstanding loans into a term loan .The monthly payment of $ 9,666.67 for 59 equal payments starting December 2001 and ending November 2006. The rate of interest The Prime Rate plus 2% per annum. 15

CIRCUIT SOURCE INTERNATIONAL INC 8-K