UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended February 28, 1999
Commission File Number: 17598
CONSYGEN, INC.
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(Exact name of Registrant as specified in its charter)
Texas 76-0260145
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 South 52nd Street, Tempe, Arizona 85281
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(602) 394-9100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has 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
registrant was required to file such reports) Yes [X] No [ ] and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
15,474,301 shares of Common Stock, $.003 par value, as of April 10, 1999.
CONSYGEN, INC.
INDEX
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements.
Consolidated Balance Sheets,
February 28, 1999 and May 31, 1998 2
Consolidated Statements of Operations - Nine and Three
Months Ended February 28, 1999 and February 28, 1998 3
Consolidated Statements of Cash Flows - Nine
Months Ended February 28, 1999 and February 28, 1998 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K. 12
SIGNATURES 13
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS REPORT AND IN DOCUMENTS
INCORPORATED BY REFERENCE HEREIN CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. FOR THIS PURPOSE, ANY STATEMENTS CONTAINED
HEREIN OR INCORPORATED BY REFERENCE HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL
FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE
FOREGOING, THE WORDS "BELIEVES," "PLANS," "ANTICIPATES," "EXPECTS," "ESTIMATES,"
AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS ON WHICH SUCH FORWARD-LOOKING
STATEMENTS ARE BASED ARE REASONABLE, THERE CAN BE NO ASSURANCE THAT SUCH
ASSUMPTIONS WILL PROVE TO BE ACCURATE, AND ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
MAY CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE SET FORTH UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSYGEN, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
February 28, May 31,
1999 1998
------------ ------------
Current Assets:
Cash and Cash Equivalents $ 1,479,276 $ 4,991,434
Accounts Receivable 436,426 338,192
Debt Issuance Expense - Net 62,601 62,601
Prepaid Expenses 16,311 40,000
Other Current Assets 19,975 7,135
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Total Current Assets 2,014,589 5,439,362
------------ ------------
Property and Equipment - Net 1,323,713 1,207,842
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Other Assets:
Debt Issuance Expense - Net of Current Portion 206,451 250,402
Other Assets 40,241 6,496
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Total Other Assets 246,692 256,898
------------ ------------
Total Assets $ 3,584,994 $ 6,904,102
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable $ 119,990 $ 134,157
Notes Payable 60,000 60,000
Capital Lease - Current portion 7,230
Accrued Liabilities 371,881 205,840
------------ ------------
Total Current Liabilities 559,101 399,997
Capital lease - Long Term Portion 41,645
Long-Term Debt 3,500,000 3,500,000
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Total Liabilities 4,100,746 3,899,997
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Commitments & Contingencies
Stockholders' Equity:
Common Stock, $.003 par Value, Authorized
40,000,000 Shares, Issued 15,474,301
Shares at February 28, 1999 and
15,407,653 Shares at May 31, 1998 46,423 46,223
Additional Paid-in Capital 25,395,761 25,306,532
Accumulated Deficit (25,557,936) (21,948,650)
Treasury Stock, at cost (70,000 shares) (400,000) (400,000)
------------ ------------
Total Stockholders' Equity (515,752) 3,004,105
------------ ------------
Total Liabilities and Stockholders' Equity $ 3,584,994 $ 6,904,102
============ ============
The accompanying notes are an integral part of the financial statements.
2
CONSYGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Three Months For The Nine Months
Ended February 28, Ended February 28,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Revenues $ 217,267 $ 237,942 $ 689,606 $ 358,942
Cost and Expenses:
Cost of Conversion Services 213,809 93,246 651,096 130,160
Software Development 171,836 256,748 523,396 834,580
Selling, General and
Administrative Expenses 970,851 565,489 2,941,160 1,605,677
Interest Expense 52,500 (38,500) 159,000 166,454
Depreciation and Amortization 49,161 104,878 141,889 159,842
------------ ------------ ------------ ------------
Total Costs and Expenses 1,458,157 981,861 4,416,541 2,896,713
------------ ------------ ------------ ------------
Loss from Operations (1,240,890) (743,919) (3,726,935) (2,537,771)
Interest Income 21,965 58,310 117,649 97,898
Net Loss $ (1,218,925) $ (685,609) $ (3,609,286) $ (2,439,873)
============ ============ ============ ============
Weighted Average Common
Shares Outstanding 15,434,860 15,208,380 15,419,339 14,664,930
============ ============ ============ ============
Net Loss Per Common Share $ (0.08) $ (0.05) $ (0.23) $ (0.17)
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
3
CONSYGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
Novmber 30,
-------------------------
1999 1998
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Cash Flows from Operating Activities:
Net Loss $(3,609,286) $(2,439,873)
Adjustments to Reconcile Net Loss to
Net Cash (Used) by Operating Activities:
Depreciation 99,605 65,398
Stock issued for Services 106,400
Amortization of Debt Issuance Expense 94,444
Loan Interest - Additional Paid-in Capital 12,840
Changes in Operating Assets and Liabilities:
Accounts Receivable (98,234) (84,942)
Prepaid Expenses and Other Assets 21,055 (47,800)
Accounts Payable (14,167) (13,492)
Accrued Liabilities 166,041 (142,551)
----------- -----------
Net Cash (Used) by Operating Activities (3,434,986) (2,449,576)
----------- -----------
Cash Flows from Investing Activities:
Purchases of Furniture and Equipment (166,601) (314,989)
----------- -----------
Net Cash (Used) by Investing Activities (166,601) (314,989)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from Sale of Common Stock 89,429 7,238,750
Commissions on Sale of Common Stock (326,267)
Expenses of Offering (125,000)
Payments of Loans and Notes Payable (247,890)
Proceeds of Loans payable - Related Parties 23,190
Payments of Loans payable - Related Parties (92)
----------- -----------
Net Cash Provided by Financing Activities 89,429 6,562,691
----------- -----------
Net Increase in Cash and Cash Equivalents (3,512,158) 3,798,126
Cash and Cash Equivalents - Beginning of Period 4,991,434 21,483
----------- -----------
Cash and Cash Equivalents - End of Period $ 1,479,276 $ 3,819,609
=========== ===========
Supplemental Cash Flow Information:
Cash Paid for Interest -- $ 104,371
=========== ===========
Non-Cash Financing and Investing Activities:
Equipment Acquired under Capital Lease $ 49,969 --
=========== ===========
Issuance of Common Stock as Payment of Debt-
Related Parties -- $ 162,275
=========== ===========
Issuance of Common Stock as Payment of Debt -- $ 88,300
=========== ===========
Issuance of Common Stock as Commissions on Sale of
Common Stock -- $ 206,269
=========== ===========
Issuance of Common Stock upon Conversion of Debt -- $ 1,000,000
=========== ===========
The accompanying notes are an integral part of the financial statements.
4
CONSYGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of ConSyGen,
Inc., a Texas corporation ("ConSyGen-Texas") and its wholly-owned subsidiary,
ConSyGen, Inc., an Arizona corporation ("ConSyGen-Arizona"). Significant
intercompany accounts and transactions have been eliminated.
ConSyGen-Texas and its wholly-owned subsidiary ConSyGen-Arizona are
hereafter collectively referred to as the "Company."
In the opinion of the Company, the accompanying unaudited consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the results of operations and
cash flows for the periods presented.
Results of operations for interim periods are not necessarily indicative of
the results of operations for a full year due to external factors that are
beyond the control of the Company.
NOTE 2 - STOCKHOLDERS' EQUITY (DEFICIT)
STOCK OPTIONS
During June 1998, the Company granted to certain officers options to
purchase an aggregate of 210,000 shares of Common Stock pursuant to the
Company's 1997 Amended and Restated Non-Qualified Stock Option Plan. The options
had a term of 10 years, exercise prices of 2.875 per share, and were exercisable
as follows: 25% were immediately exercisable and the remaining 75% became
exercisable in 24 equal monthly installments commencing one month from the date
of grant.
During June 1998, the Company granted to certain directors options to
purchase an aggregate of 20,000 shares of Common Stock pursuant to the Company's
1997 Amended and Restated Non-Qualified Stock Option Plan. The options had a
term of 10 years, exercise prices of 2.875 per share, and were exercisable as
follows: 50% were immediately exercisable and the remaining 50% became
exercisable in 12 equal monthly installments commencing one month from the date
of grant.
Mr. Ronald I. Bishop resigned as president, chief executive officer and a
member of the board of directors of ConSyGen-Texas and ConSyGen-Arizona on June
30, 1998. He received $75,000 in severance compensation, and the exercise period
of his vested options to purchase 669,205 shares was extended from three months
to three years.
5
NOTE 2 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Mr. Thomas S. Dreaper joined the Company as President and Chief Executive
Officer effective July 17, 1998. In connection with his employment, the Company
agreed to grant to Mr. Dreaper an option to purchase 1,000,000 shares of the
Company's common stock at $2.8125 per share and on terms which provide for
vesting to the extent of 500,000 shares if and when the Company's stock price
closes at $5.00, and to the extent of the remaining 500,000 shares if and when
the Company's stock price closes at $10.00. Subject to the foregoing provisions,
Mr. Dreaper's options are to be exercisable at any time prior to July 18, 2008.
See Note 6, below.
Mr. Jeffery Richards resigned as Vice President and Director of Sales and
Marketing-International effective July 20, 1998. He received $19,750 in
severance compensation, and the exercise period of his vested options to
purchase 125,000 shares was extended from three months to one year.
Mr. J. Stephen Kelly resigned as Executive Vice President, Chief
Administrative Officer, Secretary of the Corporation and member of the Board of
Directors of ConSyGen-Texas and ConSyGen-Arizona on October 5, 1998. He received
one-month's salary in severance compensation, and the exercise period of his
vested options to purchase 60,935 shares was extended from three months to one
year.
Mr. James F. Vittera resigned as Vice President Marketing effective
November 13, 1998. He received one-month salary in severance compensation, and
the exercise period of his vested options to purchase 32,500 shares was extended
from three months to one year.
On December 17, 1998, the Board of Directors restructured and repriced
stock options exercise price based on that day's closing price. The stock
options for all the current employees with exercise price above $1.50 were
adjusted to $1.50 per share.
During December 1998, the Company granted to certain officers options to
purchase an aggregate of 130,000 shares of Common Stock pursuant to the
Company's 1997 Amended and Restated Non-Qualified Stock Option Plan. The options
had a term of 10 years, exercise prices of $1.50 per share, and were exercisable
as follows: 25% were immediately exercisable and the remaining 75% became
exercisable in 24 equal monthly installments commencing one month from the date
of grant
During December 1998, the Company granted to a certain officer options to
purchase an aggregate of 100,000 shares of Common Stock pursuant to the
Company's 1997 Amended and Restated Non-Qualified Stock Option Plan. The options
had a term of 10 years, exercise prices of $.875 per share, and were exercisable
as follows: 50,000 shares if and when the Company's stock price closes at $5.00,
and to the extent of the remaining 50,000 shares if and when the Company's stock
price closes at $10.00.
6
NOTE 3 - NET LOSS PER SHARE
The computation of diluted net loss per share is not presented because
conversion, exercise or contingent issuance of securities that would have an
antidilutive effect on loss per share.
NOTE 4 - LEGAL PROCEEDINGS
On December 3, 1998, the three holders of the Company's outstanding
Convertible Debentures, Sovereign Partners Limited Partnership, a Delaware
limited partnership, Dominion Capital Fund, Ltd., a Bahamian Corporation, and
Canadian Advantage Limited Partnership, an Ontario, Canada, Limited Partnership,
commenced an action (Case No. 98CIV.8457 in the United States District Court for
the Southern District of New York) against the Company for specific performance
of the provisions of the Debentures which permit the holders to convert the debt
evidenced by the Debentures into shares of the Company's Common Stock. The
Debentures are described on page 10 of the Company's Registration Statement on
Form S-3, filed with the Securities and Exchange Commission, effective September
29, 1998.
On December 28, 1998, the Company filed an answer in that action denying
that, under the pertinent circumstances, the Company is obligated to effect any
such conversion. The Company also filed a counterclaim against the holders, and
new claims against certain agents of the holders, in the same action, alleging
that the holders and the agents made material misrepresentations in connection
with the purchase and sale of the Debentures and made unlawful short sales of
the Company's common stock.
On February 1, 1999, Stephen M. Hicks, general partner of Sovereign Account
and two of the three holders of the Company's outstanding Convertible
Debentures, Sovereign Partners Limited Partnership, a Delaware limited
partnership and Dominion Capital Fund Ltd., a Bahamian Corp. served an action
which was filed in the United States District Court for the Southern District of
New York against the Company and Thomas S. Dreaper, its former president and
Chief executive officer, to recover damages for alleged intentional and
calculated defamation. The Plaintiffs seek compensation from ConSyGen and
Dreaper each in the amount of $1,000,000 or in such sum as the Court shall
determine, together with exemplary or punitive damages.
On February 4, 1999, Thomson Kernaghan & Co. Limited and Mark E. Valentine
served an action which was filed in the Ontario Court (General Division) against
the Company, Thomas S. Dreaper, its former president and Chief executive
officer, and Raj Kapur its chief financial officer to recover damages for
alleged defamation. The Plaintiffs seek compensation from ConSyGen, Dreaper and
Kapur jointly and severally each in the amount of $2,000,000 for general
damages, cost of the action, applicable taxes and other relief as the Court
shall determine.
7
NOTE 5 - ORGANIZATION
On January 31, 1999, Robert L. Stewart resigned as chairman and director of
the Company. Mr. Thomas S. Dreaper, chief executive officer and director of the
Company was elected chairman of the board on January 31, 1999. See note 6,
below.
NOTE 6 - SUBSEQUENT EVENTS
On March 24, 1999, Thomas S. Dreaper, resigned as President, Chief
Executive Officer, Director and Chairman of the Board of Directors of the
Company. Mr. A. Lewis Burridge, was elected President of the Company on March
24, 1999. Mr. Burridge has been a Director of the Company since June 26, 1998.
Mr. Robert L. Stewart was elected as a Director to succeed Mr. Dreaper on the
board on March 24, 1999.
On April 6, 1999, the Company raised $550,000 through a 15 year building
mortgage loan secured by the Company's present office building. The loan
proceeds will be utilized for Company's working capital.
(This space intentionally left blank)
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto appearing
elsewhere in the Report. The Company and its wholly-owned subsidiary,
ConSyGen-Arizona, are herein collectively referred to as the "Company."
MATERIAL CHANGES IN RESULTS OF OPERATIONS
NET LOSSES. For the quarter ended February 28, 1999, the Company incurred
net losses of $1,219,000, compared with net losses of $686,000 for the
comparable prior quarter, an increase of $533,000. For the nine months ended
February 28, 1999, the Company incurred net losses of $3,609,000, compared with
net losses of $2,440,000 for the comparable prior period, an increase of
$1,169,000. An explanation of these losses is set forth below.
REVENUES. For the quarter ended and nine months ended February 28, 1999,
the Company had operating revenue of $217,000 and $690,000, respectively,
compared with $238,000 and $359,000 operating revenue for the comparable prior
periods. The revenue was related to several completed and in process conversion
service contracts.
COST OF CONVERSION SERVICES. Cost of conversion services consists primarily
of personnel costs directly related to the performance of conversion services by
the Company. Before the commencement of revenue generating operations, the
personnel currently dedicated to the provision of conversion services were
dedicated to software development, and, accordingly, the costs directly related
to such personnel were previously included in software development expense. For
the three and nine months ended February 28, 1999, cost of conversion services
were $214,000 and $651,000, respectively, compared with $93,000 and $130,000 for
the comparable prior periods. The increase in cost of conversion services is
primarily attributable to the redeployment of personnel, from software
development to the provision of conversion services, as noted above, and the
hiring of additional personnel. The cost of conversion as a percentage of sales
is high due to unabsorbed costs attributable to low sales volume
SOFTWARE DEVELOPMENT EXPENSES. For the three and nine months ended February
28, 1999, software development expenses were $172,000 and $523,000,
respectively, compared with $257,000 and $835,000, respectively for the
comparable prior periods. The decrease in software development expenses is
primarily attributable to the transfer of certain personnel, from software
development to the production department.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the quarter ended
February 28, 1999, selling, general and administrative expenses were $971,000,
compared with $565,000 for the quarter ended February 28, 1998, an increase of
approximately $406,000. The increase in selling, general and administrative
expenses is primarily attributable to the increase in selling payroll expenses
9
of $300,000, an increase in advertising expenses of $50,000 and all other
expenses of $56,000. For the nine months ended February 28, 1999, selling,
general and administrative expenses were $2,941,000, compared with $1,605,000
for the quarter ended February 28, 1998, an increase of approximately
$1,336,000. The increase in selling, general and administrative expenses is
primarily attributable to the increase in payroll expenses of $1,000,000, an
increase in advertising expenses of $109,000 and all other expenses of $227,000.
INTEREST EXPENSE. For the quarter ended February 28, 1999, interest expense
was $52,000, compared with $(38,500) for the comparable prior period. For the
nine months ended February 28, 1999, interest expense was $159,000, compared
with $166,454 for the comparable prior period The current year interest expense
is primarily composed of interest accrual on $3,5000,000 principal amount of the
Company's 6% Convertible Debentures.
DEPRECIATION EXPENSE. For the quarter ended February 28, 1999, depreciation
expense was approximately $38,000, compared with $27,000 for the comparable
prior period. For the nine months ended February 28, 1999, depreciation expense
was approximately $99,600, compared with $65,000 for the comparable prior
period. The increase is primarily due to purchases of additional computers,
furniture and building.
AMORTIZATION EXPENSE. For the quarter ended February 28, 1999, amortization
expense was $11,000, compared with $78,000for the quarter ended February 28,
1998, an decrease of $67,000. For the nine months ended February 28, 1999,
amortization expense was $42,000, compared with $95,000 for the nine months
ended February 28, 1998, a decrease of $53,000. The FY 1999 debt issuance
expenses are attributable to the amortization of debt issuance expense
associated with the Company's 6% Convertible Debentures and FY1998 debt expenses
are primarily due to $1,000,000 debt converted to Equity.
MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 1999, the Company had $1,479,000 in cash and cash
equivalents, compared with approximately $4,991,000 at May 31, 1998. The Company
had working capital of approximately $1,455,000 at February 28, 1999, compared
with a working capital of approximately $5,000,000 at May 31, 1998, a decrease
in working capital of approximately $3,545,000. The decrease in working capital
is primarily attributable to the net loss for nine months of $3,600,000. The
Company had long-term debt of $3,500,000 at February 28, 1999 and at May 31,
1998.
The Company continues to incur significant losses. During the quarter ended
February 28, 1999, the Company's operations used approximately $1.2 million in
cash, an average of approximately $400,000 per month. The decrease in Company's
cash expenditures due to decrease in sales and marketing personnel are being
offset by increase in litigation expenses. If the Company continues to incur
significant losses, the Company's liquidity could be materially and adversely
affected. The Company does not currently have any established bank credit
facility, and there can be no assurance that the Company will be able to obtain
the additional capital in the form of debt or equity financing necessary to
continue its operations beyond approximately June 30, 1999 if no significant
sales are realized. Current liabilities have increased to $559,000 at February
28, 1999 as compared to $400,000 at May 31, 1998 due to accrued interest payable
on convertible debentures and accrued legal fees related to the same.
10
Due to the Company's dispute with its debenture holders, scheduled interest
payments have been accrued but not paid. The non-payment of interest represent a
technical default under the terms of the debenture. If the Company's common
stock is delisted from Nasdaq SmallCap, it would constitute another event of
default. A remedy of default includes the holders declaring the debt immediately
payable. The Company believes that it has substantial claims against the
debenture holders but can not be certain that these claims will be awarded by
court. The Company believes that due to the dispute, the remedies for default
are also uncertain and the debt remains classified as long-term.
The Company plans to introduce a new product called Counterfeit Cop - a
detection device to detect fraudulent currency, etc. in the fourth quarter of
the current fiscal year. Relative to the new product, the Company secured a
letter of credit of $259,000 from a bank and has provided, as collateral, a
certificate of deposit of the same amount. This credit facility was arranged in
December 1998. The Company believes it has adequate funds to maintain
appropriate inventories of this new product. In addition to establishing an
internet sales mechanism, the Company is in the process of establishing a sales
organization in various regions of the U.S. to market this product In the short
term, the personnel costs associated with the increased sales efforts may
adversely affect operations and liquidity.
The Company expects to spend approximately $75,000 out of its available
cash for computer and telephone equipment during the fourth fiscal quarter.
IMPACT OF INFLATION
Increases in the inflation rate are not expected to effect the Company's
operating expenses. Although the Company has no current plans to borrow
additional funds, if it were to do so at variable interest rates, any increase
in interest rates would increase the Company's borrowed funds.
SEASONALITY
The Company's operations are not affected by seasonal fluctuations,
although the Company's cash flows may at times be affected by fluctuations in
the timing for large contracts.
YEAR 2000 COMPLIANCE
The Company's review of its own operating systems does not indicate any
Year 2000 problems. There can be no assurance that the Year 2000 issue can be
resolved by third parties such as banks, electric, water and phone utility
companies prior to the upcoming change in century. Although the Company may
incur costs resulting from increased charges by such third party service
providers resulting from the impact of Year 2000 issues and related corrective
efforts, the likelihood or amount of such costs is too speculative to estimate
at this time.
11
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On December 21, 1998, the Company received a written notice from the
National Association of Securities Dealers ("NASD") informing the Company that
the Company's securities will be delisted from The Nasdaq SmallCap Stock Market,
effective with the close of business on Tuesday, December 29, 1998. The
delisting is due to not meeting any one of the three requirements which are net
tangible assets value over $2 million, market capitalization over $35 million
and net income for one of the past three years. The Company attended NASD oral
hearing in March 1999. The company's stock continues to trade during the appeal
process.
The outcome of the NASD hearing may be the delisting of the Company's
common stock from the Nasdaq SmallCap Market, which could have a material
adverse effect upon the Company and the price of, and trading market for, the
Company's common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The list of Exhibits which are filed with this report or incorporated by
reference herein is set forth in the Exhibit Index that appears following the
signature page, which Exhibit Index is incorporated herein by this reference.
(b) Reports on Form 8-K.
The Company filed a Form 8-K on 12/30/98, which reported a legal action
against the Company, on December 3, 1998, for specific performance of the
provisions of the Debentures which permit the holders to convert the debt
evidenced by the debentures into shares of the Company's common stock. On
December 28, 1998, the Company filed an answer in that action denying that,
under the pertinent circumstances, the Company is obligated to effect any such
conversion. The Company also filed a counterclaim against the holders, and new
claims against certain agents of the holders, in the same action, alleging that
the holders and the agents made material misrepresentations in connection with
the purchase and sale of the Debentures and made unlawful short sales of the
Company's common stock.
12
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.
CONSYGEN, INC.
Date: April 13, 1999 By: /s/ A. Lewis Burridge
-------------------------
A. Lewis Burridge, President
(Principal Executive Officer)
Date: April 13, 1999 By: /s/ Rajesh K. Kapur
-------------------------
Rajesh K. Kapur, Vice President
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
13
EXHIBIT INDEX
4.3 Subscription Agreement used in connection with the Rule 506 sale of
Convertible Debentures in the aggregate principal amount of $3,500,000
(including form of Convertible Debenture, form of Warrant, and form of
Registration Rights Agreement, attached as Exhibits A, B and D,
respectively, to the Subscription Agreement). (4)
4.4 Form of Common Stock Purchase Warrant to purchase an aggregate of 10,000
shares issued in partial payment of finders' fees in connection with sale
of Convertible Debentures in aggregate principal amount of $3,500,000. (4)
4.7 Form of Common Stock Purchase Warrant to purchase 200,000 shares issued to
consultant, Howard R, Baer, on August 1, 1997. (1)
4.8 Form of Common Stock Purchase Warrant to purchase 100,000 shares issued to
Howard R, Baer's designee, Kevin C. Baer, on August 1, 1997. (1)
4.11 Common Stock Purchase Warrant to purchase 100,000 shares issued to a
consultant's designee, Irvington International Limited, as of November 10,
1997. (3)
4.12 Agreement dated as of July 17, 1998 between the Registrant and Tom S.
Dreaper relating to employment and grant of options to purchase 1,000,000
shares of common stock of the Registrant. (6)
10.7 Registrant's 1996 Non-Qualified Stock Option Plan. (2)
10.8 Registrant's Second Amended and Restated 1997 Non-Qualified Stock Option
Plan. (5)
27 Financial Data Schedule.*
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(1) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1997 and
incorporated herein by reference.
(2) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1996 and
incorporated herein by reference.
(3) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Registration Statement on Form S-1, File No. 333-40649, and incorporated
herein by reference.
(4) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Annual Report on Form 10-K for the year ended May 29, 1998, and
incorporated herein by reference.
(5) Filed as an Exhibit No. 10.8 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended August 31, 1998, and incorporated herein by
reference.
(6) Filed as an Exhibit No. 4.12 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended August 31, 1998, and incorporated herein by
reference.
* Filed herewith