FORM 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ...............June 30, 1996....................
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D)
OF THE EXCHANGE ACT
For the transition period from .................... to .........................
Commission file number...................1-12856................................
...........................SYNERGISTIC HOLDINGS CORP............................
(Name of Small Business Issuer)
.............Delaware...................................42-1358036........
(State of Incorporation) (IRS Employer Identification Number)
......405 Sixth Avenue, Suite 200, Des Moines, Iowa 50309......
......(515) 247-8100......
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........
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: ........5,949,535 common
shares as of August 5, 1996........
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYNERGISTIC HOLDINGS CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
(Unaudited) (Audited)
----------- ------------
ASSETS
Cash and cash equivalents $ 330,263 $ 264,427
Receivables from brokers, dealers and clearing organizations 863,360 1,190,345
Securities owned, at market value 678,082 1,689,637
Investment in Electronic Designs, Inc., at cost 1,000,000 1,300,000
Investment in Salex Holding Corp., at cost 2,000,000 1,500,000
Receivables from officers and employees 261,034 283,444
Furniture, fixtures and equipment, net 395,080 462,799
Deferred income taxes 889,000 889,000
Other assets 164,857 275,122
----------- -----------
TOTAL $ 6,581,676 $ 7,854,774
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, but not yet purchased, at market value 144,989 337,502
Long-term debt 1,000,000 2,909,690
Accounts payable and accrued expenses 1,480,549 2,183,191
----------- -----------
2,625,538 5,430,383
----------- -----------
Excess of fair value of assets acquired over cost 717,341 798,549
----------- -----------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; authorized, 1,000,000 shares;
none issued or outstanding
Common stock, $.01 par value; authorized, 10,000,000 shares;
issued and outstanding, 5,949,535 shares at June 30, 1996
and 3,085,000 shares at December 31, 1995 59,495 30,850
Treasury stock, 15,440 shares, at cost (20,802) (20,802)
Additional paid-in capital 6,481,694 4,576,809
Accumulated deficit (3,281,590) (2,877,201)
Common stock and warrants owned by subsidiary, at cost;
No common shares or warrants and 21,622 common shares
and 68,815 warrants, respectively (83,814)
----------- -----------
Total stockholders' equity 3,238,797 1,625,842
----------- -----------
TOTAL $ 6,581,676 $ 7,854,774
----------- -----------
----------- -----------
See notes to consolidated financial statements.
2
SYNERGISTIC HOLDINGS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarter Ended Six Months Ended
------------------------ -------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
----------- ----------- ---------- -----------
REVENUES
Principal transactions $ 1,770,256 $ 2,272,726 $3,282,731 $ 4,161,910
Commissions 1,377,569 2,025,536 2,495,473 3,630,531
Investment banking 167,550 165,536 248,990 253,221
Interest and dividends 39,401 58,940 72,030 123,932
Other 416,371 562,955 832,532 1,185,726
----------- ----------- ---------- -----------
Total revenues 3,771,147 5,085,693 6,931,756 9,355,320
----------- ----------- ---------- -----------
EXPENSES
Employee compensation and
benefits 2,144,967 3,620,788 4,179,120 6,819,364
Commissions and floor brokerage 283,069 552,874 577,082 1,035,889
Communications 368,100 709,767 717,377 1,405,166
Interest 18,409 10,930 84,738 18,778
Occupancy and equipment 473,667 604,719 915,715 1,196,325
Promotional 45,799 114,449 87,964 233,655
Litigation and legal costs,
net of recoveries 344,241 272,876 494,552 402,936
Other 149,097 239,376 279,597 520,944
----------- ----------- ---------- -----------
Total expenses 3,827,349 6,125,779 7,336,145 11,633,057
----------- ----------- ---------- -----------
Loss before income taxes (56,202) (1,040,086) (404,389) (2,277,737)
Benefit for income taxes (430,000)
----------- ----------- ---------- -----------
Net loss ($56,202) ($1,040,086) ($404,389) ($1,847,737)
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
LOSS PER SHARE
AND EQUIVALENT SHARE
Net loss per share ($.01) (.34) ($.09) ($.60)
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
Weighted average shares and share
equivalents outstanding 5,949,535 3,085,000 4,517,268 3,085,000
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
See notes to consolidated financial statements.
3
SYNERGISTIC HOLDINGS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional Common Stock and
--------------------- Paid-In Accumulated Treasury Warrants owned by Stockholders
Shares Amount Capital Deficit Stock Subsidiary, at cost Equity
--------- ------- ---------- ----------- -------- ------------------- -------------
Balanaces,
January 1, 1996 3,085,000 30,850 4,576,809 ($2,877,201) ($20,802) ($83,814) $1,625,842
Sale of common stock and
warrants by subsidiary,
at cost -- -- 23,840 -- -- 83,814 107,654
Conversion of long-term debt 2,864,535 28,645 1,881,045 -- -- -- 1,909,690
Net loss -- -- -- (404,389) -- -- (404,389)
--------- ------- ---------- ----------- -------- -------- ----------
Balances,
June 30, 1996 5,949,535 $59,495 $6,481,694 ($3,281,590) ($20,802) -- $3,238,797
--------- ------- ---------- ----------- -------- -------- ----------
--------- ------- ---------- ----------- -------- -------- ----------
See notes to consolidated financial statements.
4
SYNERGISTIC HOLDINGS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
------------------------
June 30, June 30,
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($404,389) ($1,847,737)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization (81,208) (81,209)
Depreciation 67,719 66,463
Benefit for deferred income taxes (430,000)
Changes in:
Receivables from brokers, dealers and
clearing organizations 326,985 1,966
Securities owned, at market value 1,011,555 1,642,289
Receivables from officers and employees, net 22,410 31,077
Other assets 110,265 (9,581)
Securities sold, but not yet purchased,
at market value (192,513) 11,770
Accounts payable and accrued expenses (702,642) 97,476
--------- -----------
Total adjustments 562,571 1,330,251
--------- -----------
Net cash provided by (used in) operating
activities 158,182 (517,486)
--------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of common stock of Salex Holding Corp. (500,000)
Sale of common stock of Electronic Designs, Inc. 300,000
Purchase of furniture, fixtures and equipment (108,460)
--------- -----------
Net cash used in investing activities (200,000) (108,460)
--------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Purchase of treasury stock (16,559)
Sale of common stock and warrants
owned by subsidiary 107,654 405,800
--------- -----------
Net cash provided by financing
activities 107,654 389,241
--------- -----------
Net change in cash and cash equivalents 65,836 (236,705)
Cash and cash equivalents at beginning of period 264,427 350,918
--------- -----------
Cash and cash equivalents at end of period $ 330,263 $ 114,213
--------- -----------
--------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In connection with the conversion of $1,909,690 in long-term debt, the Company
issued 2,864,535 shares of $.01 par value common stock.
See notes to consolidated financial statements.
5
SYNERGISTIC HOLDINGS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995; AND FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying Unaudited Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
of Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for interim periods are not necessarily indicative of the results that may
be expected for the entire year. For further information, refer to the
consolidated financial statements and notes thereto of Synergistic Holdings
Corp. and Subsidiary for the years ended December 31, 1995 and 1994, as
included within Form 10-KSB filed with the Securities and Exchange
Commission on March 28, 1996.
Per share data is determined based on the weighted average number of common
shares and common share equivalents assumed to be outstanding for the
period. Common shares issued during the period are treated as outstanding
from the trade date of issuance. Common stock equivalents relating to
stock options and warrants have been excluded in determining per share data
as they are antidilutive.
2. SECURITIES OWNED AND SECURITIES SOLD, BUT NOT YET PURCHASED
Securities owned and securities sold, but not yet purchased are valued at
quoted market prices or fair value (primarily using dealer quotes or market
prices of comparable securities), as appropriate. Securities owned valued
at fair value, for which market quotations are not readily available,
totaled approximately $31,000 at December 31, 1995. At December 31, 1995
and June 30, 1996, the Company owned securities approximating $157,000 and
$56,000, respectively, (all of which were corporate stocks, options and
warrants) which it considered thinly traded. Securities owned that may be
thinly traded are reviewed periodically to determine if their valuation
should be less than at market. As of December 31, 1995 and June 30, 1996,
no valuations below market were considered necessary.
3. SALEX
On May 1, 1996, the Company executed a letter of intent with Salex Holding
Corp.("Salex") with respect to the acquisition of the balance of the
outstanding shares of Salex in exchange for a 51% interest in the Company
and a $1 million, 2 year promissory note payable to the majority
shareholder in Salex. On June 28, 1996, the Company executed a definitive
stock purchase agreement. In connection with the stock purchase agreement,
the Company has agreed to exchange 100% of the shares in its wholly-owned
subsidiary, Dickinson & Co., and 400,000 shares of Electronic Designs, Inc.
("Electronic Designs") for approximately one million shares of Company
stock owned by Dickinson Holding Corp.("DHC") and the assumption by DHC of
liabilities under certain promissory notes in the aggregate principal
amount of $1 million. DHC is owned and controlled by management of the
Company. Closing of the stock purchase agreement is subject to completion
of due diligence.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Total revenues for the three months ended June 30, 1996 were $3,771,147, a
decrease of $1,314,546, or 25.9%, compared to total revenues of $5,085,693 for
the three months ended June 30, 1995. Revenues from principal transactions
decreased to $1,770,256 for the three months ended June 30, 1996, compared to
$2,272,726 for the prior comparable period. The decrease is mainly
attributable to the closing and consolidation of certain branch offices during
the second and third calendar quarter of 1995. Revenues from commissions
decreased to $1,377,569 for the three months ended June 30, 1996, compared to
$2,025,536 for the prior comparable period primarily for the same reasons.
Revenues from investment banking activities increased to $167,550 for the three
months ended June 30, 1996, compared to $165,536 for the prior comparable
period. Interest and dividends decreased to $39,401 for the three months ended
June 30, 1996, compared to $58,940 for the prior comparable period as a result
of a decrease in funds available for investing. Other revenue decreased to
$416,371 for the three months ended June 30, 1996, compared to $562,955 for the
prior comparable period primarily as a result of a decrease in fees charged to
customers for postage, handling and transfer fees. Postage, handling and
transfer fees vary with the level of principal transactions and commissions.
Total expenses for the three months ended June 30, 1996 were $3,827,349, a
decrease of $2,297,430 or 37.5%, compared to total expenses of $6,125,779 for
the three months ended June 30, 1995. Employee compensation and benefits
decreased to $2,144,967 for the three months ended June 30, 1996, compared to
$3,620,788 for the prior comparable period, as a result of the decrease in the
number of registered representatives, the decrease in revenues and related
commissions paid to registered representatives and overrides paid to branch
office managers. Commissions and floor brokerage decreased to $283,069 for the
three months ended June 30, 1996, compared to $552,874 for the prior comparable
period also as a result of a decrease in corresponding revenues. Commissions
and floor brokerage expenses reflect per ticket charges paid to clearing
brokers which are directly related to the level of principal transactions and
commissions. Communications expense decreased to $368,100 for the three months
ended June 30, 1996, compared to $709,767 for the prior comparable period
primarily as a result of branch office closings and consolidations. Occupancy
and equipment expenses decreased to $473,667 for the three months ended June
30, 1996, compared to $604,719 for the prior comparable period, primarily as a
result of branch office closings and consolidations. Promotional expenses
decreased to $45,799 for the three months ended June 30, 1996, compared to
$114,449 for the comparable prior period, primarily as a result of a decrease
in travel and advertising. Litigation and legal costs, net of recoveries
increased to $344,241 for the three months ended June 30, 1996, compared to
$272,876 for the prior comparable period. Other expenses decreased to $149,097
for the three months ended June 30, 1996, compared to $239,376 for the prior
comparable period, primarily as a result of branch office closings and
consolidations.
At June 30, 1996, the Company had net operating loss carryforwards of
approximately $4,026,000 which expire between the years 2006 and 2011. The
Company has recorded an income tax benefit of $1,519,000 and has established a
reserve against that asset in the amount of $686,000 in accordance with
Financial Accounting Standard No. 109 entitled "Accounting for Income Taxes."
The unreserved portion of the net operating loss carryforward before tax effect
at June 30, 1996 therefore approximates $2,324,000 (Approximately 60% of the
total benefit).
Although the Company believes that sufficient taxable income will be generated
during the expiration period of the net operating loss carryforward to utilize
the entire income tax benefit, uncertainties surrounding realization of the
entire deferred tax asset exist which prompted management to establish a
partial reserve. Factors that management considered in evaluating the need for
and amount of the valuation allowance are as follows:
Positive evidence considered by management at June 30, 1996:
The investment in Electronic Designs is currently valued at cost ($2.50 per
share). The market value at June 30, 1996
7
was $4.125 resulting in an unrealized profit of $650,000. The
Subordinated Notes contain a profit sharing provision requiring a
distribution of 50% of the profits from the sale of the EDIX Shares,
leaving a net unrealized profit to the Company of $325,000 at June 30,
1996.
In connection with it's underwriting activities, Dickinson has purchased
underwriters warrants from certain issuers at nominal costs. Certain
warrants are in the money (i.e., the exercise price was lower than the
market price as reported on the NASDAQ system as of June 30, 1996). No
value is carried for them on the balance sheet.
Falstaff converted its note in the principal amount of $1,909,690 on March
31, 1996 which eliminated annual interest expense approximating $190,000.
During June and July 1995, the Company closed or sold 9 of its unprofitable
or marginally profitable branches. Selected producers located in those
branches were relocated. In May 1995 salaries of the management team were
reduced and certain staff positions were eliminated. This consolidation
and downsizing reduced the Company's fixed overhead, eliminated
unprofitable retail branch locations and enhanced the profits of existing
successful retail locations. Although the Company has not reported a
profitable quarter since the restructuring, operating results have
improved. The quarterly pre-tax losses for the quarters ending March 31,
1995, June 30, 1995, September 30, 1995, December 31, 1995, March 31, 1996
and June 30, 1996 were $1,237,651, $1,040,086, $231,502, $437,378, $348,187
and $56,202. The Company anticipates generating modest profits during this
fiscal year with results continuing to improve over time.
Negative evidence considered by management:
Certain shares underlying the underwriters warrants are restricted
securities and may only be sold by the Company pursuant to a registration
statement under the Securities Act or pursuant to an exemption under the
Securities Act. Although the Company has certain registration rights with
respect to some of the underlying shares, there can be no assurance that
the Company will exercise the warrants, that the underlying shares will be
registered and the shares will be sold at the price and in the quantity
that the Company intends.
Management of the Company believes that it has taken the appropriate steps
to eliminate unnecessary overhead while preserving an acceptable level of
revenue to generate future profits. There can be no assurance, however,
that costs will continue to be contained and revenues will continue to be
generated at a level resulting in future operating profits sufficient to
utilize the existing net operating loss carryforward. The Company also
incurred net losses of $2,480,617 and $296,400 during the years ended
December 31, 1995 and 1994, respectively.
As provided by FAS 109, a deferred tax asset should be reduced by valuation
allowances if, based on the weight of available evidence, it is more likely than
not (a likelihood of more than 50%) that some portion or all of the deferred tax
will not be realized. The net operating losses expire between the years 2006
and 2011. The Company, therefore, must generate average taxable income of
$166,000 per year in order to recognize the unreserved portion of the income tax
benefit. In the opinion of management, it is more likely than not than the
unreserved portion of the deferred tax will be realized in the future.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, Dickinson had net capital of approximately $294,000,
which was approximately $194,000 in excess of the minimum required net capital
at such date. The Company currently does not have any material commitments for
capital expenditures.
Net cash provided by operating activities for the six months ended June
30, 1996 was $158,571, as compared to cash used in operating activities of
$517,486 for the six months ended June 30, 1995. The difference of $675,668 is
primarily the result of a smaller loss during the six months ended June 30,
1996 compared to the six months ended June 30, 1995.
Net cash used in investing activities for the six months ended June 30,
1996 increased by $91,540 as a result of an additional investment in Salex
Holding Corp.
8
Net cash provided by financing activities for the six months ended June
30, 1996 was $107,654 compared to $389,241 for the six months ended June 30,
1995. The decrease is primarily a result of a decrease in the sale of common
stock and warrants owned by subsidiary during the six month period ended June
30, 1996.
SIX MONTHS ENDED JUNE, 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Total revenues for the six months ended June 30, 1996 were $6,931,756, a
decrease of $2,423,564, or 25.9%, compared to total revenues of $9,355,320 for
the six months ended June 30, 1995. Revenues from principal transactions
decreased to $3,282,731 for the six months ended June 30, 1996, compared to
$4,161,910 for the prior comparable period. The majority of the decrease was
experienced during the first quarter of 1995 and was due to decreased brokerage
activity, decreased number of registered representatives and realized and
unrealized losses in firm trading accounts. Revenues from commissions
decreased to $2,495,473 for the six months ended June 30, 1996, compared to
$3,630,531 for the prior comparable period for the same reasons. Revenues from
investment banking activities decreased to $248,990 for the six months ended
June 30, 1996, compared to $253,221 for the prior comparable period. Interest
and dividend revenues decreased to $72,030 for the six months ended June 30,
1996, compared to $123,932 for the prior comparable period, as a result of a
decrease in funds available for investing. Other revenue decreased to $832,532
for the six months ended June 30, 1996, compared to $1,185,726 for the prior
comparable period, primarily as a result of a decrease in fees charged to
customers for postage, handling and transfer fees. Postage, handling and
transfer fees vary with the level of principal transactions and commissions.
Total expenses for the six months ended June 30, 1996 were $7,336,145, a
decrease of $4,296,912, or 36.9%, compared to total expenses of $11,633,057 for
the six months ended June 30, 1995. Employee compensation and benefits
decreased to $4,179,120 for the six months ended June 30, 1996, compared to
$6,819,364 for the prior comparable period, as a result of the decrease in
revenues and corresponding decreases in commissions paid to registered
representatives and overrides paid to branch office managers. Commissions and
floor brokerage decreased to $577,082 for the six months ended June 30, 1996,
compared to $1,035,889 for the prior comparable period as a result of a
decrease in corresponding revenues. Communications expense decreased to
$717,377 for the six months ended June 30, 1996, compared to $1,405,166 for the
prior comparable period, primarily as a result of branch office closings and
consolidations. Interest expense increased to $84,738 for the six months ended
June 30, 1996, compared to $18,778 for the prior comparable period as a result
of interest accrued on long-term debt. Occupancy and equipment expenses
decreased to $915,715 for the six months ended June 30, 1996, compared to
$1,196,325 for the prior comparable period primarily as a result of branch
office closings and consolidations. Promotional expenses decreased to $87,964
for the six months ended June 30, 1996, compared to $233,655 for the comparable
prior period, primarily as a result of a decrease in travel and advertising.
Litigation and legal expenses, net of recoveries increased to $494,552 for the
six months ended June 30, 1996, compared to $402,936 for the prior comparable
period. Other expenses decreased to $279,597 for the three months ended June
30, 1996, compared to $520,944 for the prior comparable period primarily as a
result of branch office closings and consolidations.
An income tax benefit was recorded in the six months ended June 30, 1995.
The recording of the benefit and the related reserve was explained in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three months ended June 30, 1996 and 1995.
ANALYSIS OF FINANCIAL CONDITION
At June 30, 1996, the Company's total assets were $6,581,676 and
stockholder's equity was $3,238,797, a decrease of 16.2% and an increase of
99.2%, respectively, from December 31, 1995.
Securities owned, at market value decreased by $1,011,555 during the first
six months of 1996. Amounts due from brokers, dealers and clearing
organizations, which the Company considers highly liquid, are subject to change
from time to time depending upon levels of open securities positions and the
timing of securities transactions. This account decreased by $326,985 during
the first six months of 1996.
Accounts payable and accrued expenses decreased by $702,642. The Company
paid down it's trade payables with the
9
cash generated by liquidating certain assets during the six months ended June
30, 1996. Long-term debt decreased by $1,909,690 and stockholder's equity
increased by $1,612,955 during the first six months of 1995 primarily as a
result of the conversion of the Falstaff, Ltd. convertible note.
10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
Exhibit 11 Statement Re Computation of Per Share Earnings --
Page 13.
(b) REPORTS ON FORM 8-K.
No reports were filed on Form 8-K during the quarter ended
June 30, 1996.
11
***SIGNATURES***
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.
SYNERGISTIC HOLDINGS CORP.
Registrant
Date: August 12, 1996 /s/ Elizabeth R. Ring
------------------------ -------------------------------------
Elizabeth R. Ring
Chief Financial Officer and Treasurer
Date: August 12, 1996 /s/ Elizabeth R. Ring
------------------------ -------------------------------------
Elizabeth R. Ring
Principal Accounting Officer
12