UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly report pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended August 31, 2001
Commission File Number: 17598
CONSYGEN, INC.
(Exact name of Registrant as specified in its charter)
Texas 76-0260145
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 South 52nd Street, Tempe, Arizona 85281
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(Address of principal executive offices) (Zip Code)
(480) 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.
49,607,318 shares of Common Stock, $.003 par value, as of September 28, 2001.
CONSYGEN, INC.
INDEX
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements.
Consolidated Balance Sheet,
August 31, 2001 2
Consolidated Statements of Operations - Three
Months Ended August 31, 2001 3
Consolidated Statements of Cash Flows - Three
Months Ended August 31, 2001 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 11
Item 3. Defaults on Senior Securities 12
Item 4. Submission of matters to a vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K. 13
SIGNATURES 13
EXHIBIT INDEX 14
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 SHEET
ASSETS
August 31,
2001
------------
Current Assets:
Cash and Cash Equivalents $ 6,120
Accounts Receivable 1,716
Inventory 122,248
Prepaid Expenses 24,547
Other Current Assets 22,882
------------
Total Current Assets 177,513
------------
Property and Equipment - Net 1,063,770
------------
Other Assets:
Debt Issuance Expense 21,280
Other Assets 188,988
------------
Total Other Assets 210,268
------------
Total Assets $ 1,451,551
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable $ 841,671
Notes Payable 1,861,849
Accrued Payroll and Related Liabilities 1,483,438
Deferred Revenue 705,200
Other Accrued Liabilities 917,785
Deposits on Common Stock to be issued 730,301
Capital Lease - Current portion 18,792
Mortgage - Current portion 907,061
------------
Total Current Liabilities 7,466,097
Capital Lease - Long Term Portion 17,748
Mortgage - Long Term Portion 504,760
------------
Total Liabilities 7,988,605
------------
Commitments & Contingencies
Stockholders' Equity :
Common Stock, $.003 par Value, Authorized
69,000,000 Shares, Issued and outstanding
53,019,125 Shares at August 31, 2001 159,057
Additional Paid-in Capital 36,181,223
Subscriptions Receivable 0
Accumulated Deficit (42,461,609)
Treasury Stock, at cost (90,000 shares) (415,725)
------------
Total Stockholders' Equity (6,537,054)
------------
Total Liabilities and Stockholders' Equity $ 1,451,551
============
The accompanying notes are an integral part of the financial statements.
2
CONSYGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months
Ended August 31,
---------------------------
2001 2000
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Revenue $ 3,415 $ 39,629
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Costs and Expenses:
Cost of Sales 675 22,063
Selling, General and Administrative Expenses 689,824 1,208,838
Interest Expense 60,666 157,986
Depreciation and Amortization 42,121 41,861
------------ ------------
Total Costs and Expenses 793,286 1,430,748
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Loss from Operations (789,871) (1,391,119)
Interest Income -- --
Other Income -- 275
Other Expenses -- --
------------ ------------
Net Loss $ (789,871) $ (1,390,844)
============ ============
Weighted Average Common Shares Outstanding 52,924,845 15,416,201
============ ============
Net Loss per Common Share $ (0.01) $ (0.09)
============ ============
The accompanying notes are an integral part of the financial statements.
3
CONSYGEN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
August 31,
--------------------------
2001 2000
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Cash Flows from Operating Activities:
Net Loss $(789,871) $(1,390,844)
Adjustments to Reconcile Net Loss to
Net Cash (Used) by Operating Activities:
Depreciation and amortization 42,121 41,861
Changes in Operating Assets and Liabilities:
Accounts Receivable 3,814 36,120
Inventories 675 22,062
Prepaid Expenses and Other Assets (9,489) 148,535
Accounts Payable 88,732 (15,740)
Deferred Revenue 1,200 704,000
Accrued Liabilities 379,488 179,446
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Net Cash (Used) by Operating Activities (283,330) (274,560)
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Cash Flows from Investing Activities:
Advances on note receivable -- (34,200)
Purchases of Furniture and Equipment (6,788) (21,843)
Investment in joint venture -- (20,000)
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Net Cash (Used) by Investing Activities (6,788) (76,043)
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Cash Flows from Financing Activities:
Proceeds from Sale of Common Stock 48,000 305,080
Payments of principal on loans (2,500) (4,165)
Proceeds of Loans payable - Related Parties -- 83,694
Proceeds on other notes payable 107,333 --
Purchase of treasury stock -- (15,725)
Collection of stock subscriptions receivable 148,000 --
Payments of principal on capital lease obligations (6,085) (18,938)
--------- -----------
Net Cash Provided by Financing Activities 294,748 349,946
--------- -----------
Net Increase/(Decrease) in Cash and Cash Equivalents 4,630 (657)
Cash and Cash Equivalents - Beginning of Period 1,490 3,605
--------- -----------
Cash and Cash Equivalents - End of Period $ 6,120 $ 2,948
========= ===========
Supplemental Cash Flow Information:
Cash Paid for Interest $ 18,666 $ 49,470
========= ===========
Non-Cash Financing and Investing Activities:
Issuance of Common Stock as Loan Incentive $ -- $ --
========= ===========
Conversion of debt to common stock $ -- $ 651,190
========= ===========
Issuance of common stock for prepaid professional fees $ -- $ 287,505
========= ===========
Issuance of common stock for equipment $ -- $ 283,500
========= ===========
The accompanying notes are an integral part of the financial statements.
4
CONSYGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2001 (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
inter-company 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
As of August 31, 2001, we had outstanding options to purchase 497,500
shares of our common stock at a weighted average exercise price of $0.50. In
September 2001, we requested forfeitures of stock options from employees,
directors and an investor, due to the limitation on our number of authorized
common shares. The employees and directors collectively agreed to forfeit
1,932,725 options and the investor agreed to forfeit 110,500 options. We have
agreed to grant the employees and directors 2,125,998 options upon the approval
of the increase of the authorized limit on its common shares. The 110,500
options are to be replaced with the same number of options but at a reduced
exercise price, which is anticipated to be higher than the trading price of the
stock at August 31, 2001. As of September 28, 2001 we had outstanding options to
purchase 483,230 shares of our common stock at a weighted average exercise price
of $0.50 per share. We have filed Form S-8 registration statements under the
Securities Act registering an aggregate of 10,500,000 shares of common stock
issueable under our stock option plans, including the 483,230 options currently
outstanding.
Following the above agreements with certain staff, directors, and investors
to voluntarily return certain of their shares, options and warrants to the
Company, we issued stock option agreements to Messrs. Robert Reisch, Tony Perre,
and Bruce Shirey for 1,000,000 immediately-exercisable options each. On October
19, 2001, the stock option agreements for Messrs. Reisch and Perre were
effectively terminated by the resignations of these officers.
COMMON STOCK
See under Part II. Other Information, Item 2: "Changes in Securities" in
this Form 10-QSB.
LOSS PER SHARE
Net loss per share is calculated using the weighted average number of
shares of common stock outstanding during the reporting period. The weighted
average number of shares of common stock excludes 90,000 shares of treasury
stock. As of August 31, 2001, we had issued 4,450,000 shares to a prospective
financier, which shares are the subject of litigation for their return (see
under Part II. Other Information, Item 1: "Legal Proceedings") of this Form
10-QSB, and we had issued 4,000,000 shares to a consultant in anticipation of
their issue as part of a private placement. The 4,000,000 shares are to be
returned to us, and we have received advice of counsel that we have an extremely
high likelihood the 4,450,000 shares will be recovered fully by us as the result
of our pending litigation. Both of these share issues have been excluded from
the reported shares issued and outstanding at August 31, 2001, and have also
been excluded from the calculation of the weighted average number of shares of
common stock outstanding during the three months ended August 31, 2001.
5
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."
OVERVIEW
Historically, we have developed pre-packaged software and proprietary
products and services. However, we have recently moved our specific emphasis to
identifying developing software-related business opportunities and technologies
and providing timely and effective software-based solutions for these
opportunities, while still maintaining our traditional emphasis on high-quality
proprietary products and services.
In 1998, as part of our planning for new products and revenue
opportunities, we introduced a non-software product, the "COUNTERFEIT COP(TM)".
This device uses an Ultra-Violet light to provide effective protection against
multiple forms of counterfeiting, including the paper consistency of all forms
of U.S. domestic currency, hidden emblems on credit cards, drivers' licenses,
travelers' checks, event tickets, casino chips, and various governmental
documents. We have been extensively marketing this product in all areas where
the potential for counterfeiting exists, based on the product's accuracy, speed,
and ease of use.
To market this product, we created a Business Products Division, and we
have created master distributor relationships with First Data Corporation, GMS
Auditing, and CardService International, Inc. Although this product has not yet
met our early sales predictions, we remain confident that it will become a
profitable adjunct to our other business operations.
We have also incorporated ConSyGen s.r.o. in the Czech Republic to market
the product in Europe. European CE certification has been secured, and we began
shipping units of the Counterfeit Cop to Europe during the 2001 fiscal year. We
have recently received encouraging interest in the product, and we are currently
increasing our CE-certified inventory to respond to sales opportunities.
On August 21, 2000, we announced the formation of our MultiMedia
Productions Group, a new division focusing specifically on the production and
sale of multimedia presentations built around the most recent computer animation
technology. We believe that we will be able to reduce materially, or even to
eliminate, our overhead in the web development area, and eventually to grow this
business as a profitable adjunct to our existing services. This service does not
represent a change of direction or emphasis from our concentration on the
COUNTERFEIT COP and the BIZPAY SUITE(TM). Due to the need to concentrate our
staff resources on the completion and release of the BIZPAY(TM) software, most
of the MultiMedia division's resources have been re-directed to BIZPAY, with a
resultant negative impact on MultiMedia revenues. We have effectively ceased
activity in this division until our financial position improves sufficiently to
re-commence its operations.
After a very substantial development effort, we released the first version
of our BIZPAY SUITE of software - our new "e-commerce" product - to Internet
merchants and consumers on July 16, 2001, and we are currently working with the
early subscribers to the service.
6
We have incorporated a new company (BizPay International, Inc.) to hold our
interests in various BIZPAY businesses around the world except for the U.S.A. In
the U.S.A., we will operate through a separate entity (BizPay USA, Inc.). We
have signed several Memorandums of Understanding (MOUs) with strategic partners
to introduce the product in Europe and several other locations around the world.
Because of the time constraints and the demands of our domestic partners, in
addition to certain recent management changes within the Company, and the
inability of our foreign partners to fund the different roll-outs, we have
focused all of our efforts in the last six months on preparing the software for
our domestic roll-out. The international opportunities still exist for BIZPAY,
but we believe that the opportunities will grow exponentially following a
successful launch in the United States.
We will continue to attempt to implement our business plan and strategic
direction - that is, the marketing and distribution of the COUNTERFEIT COP and
the development and introduction of new products related to e-commerce. We will
require additional capital to move forward on these product lines and new
ventures. We believe that partnerships are highly desirable for accelerating
market penetration and for establishing market dominance, and we are currently
negotiating with several other international parties to extend this approach.
We report performance by segment, in accordance with SFAS 131, using
estimates based on our assessment of the relative expenses for our operating
divisions. We intend to begin capitalizing certain software development costs
when proprietary software products have reached technological feasibility. The
COUNTERFEIT COP division lost $169,041 during the quarter ended August 31, 2001
on revenues of $3,415, compared with a loss of $262,581 on revenues of $39,629
for the comparable period in 2000. We continue to invest in the development of
the BIZPAY software, although the BIZPAY division had no revenue during the
quarter ended August 31, 2000. Expenses for the BIZPAY division were $517,368
for the quarter ended May 31, 2001, compared with expenses of $906,629 for the
comparable period in 2000. We are concentrating on the generation of revenues
through the BIZPAY division and the COUNTERFEIT COP division.
Legal Proceedings - see under Part II. Other Information, Item 1: "Legal
Proceedings" of this Form 10-QSB.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
NET LOSSES. For the three months ended August 31, 2001, we incurred a net
loss of approximately $789,871, compared with a net loss of $1,390,844 for the
three months ended August 31, 2000, a decrease of approximately $600,973. An
explanation of these losses is set forth below.
REVENUE. For the quarter ended August 31, 2001, we had revenues of $3,415,
compared to $39,629 for the same quarter in the previous year. The $36,214
decrease in revenue reflects a continued failure on the part of our Counterfeit
Cop master distributors to achieve significant revenue growth. We have
implemented changes in our marketing and sales approach to seek to correct this
failure, particularly in view of the potential new opportunities arising from
heightened awareness of the need to security and immigration controls.
During the year ended May 31, 2001, we received $704,000 from a customer
for the sale of 11,000 units of the Counterfeit Cop. The customer has stored the
units in the same warehouse where the Company stores its inventory. In order to
obviate any need for financial adjustments from returns, we will not recognize
the revenue effect of this transaction until shipment and acceptance are
completed. The amount is reported as Deferred Revenue at August 31, 2001.
COST OF SALES. For the quarter ended August 31, 2001, we incurred cost of
sales of $675, compared with $22,063 for the same quarter in the previous year.
This decrease of $21,388 is directly attributable to the diminished revenue
results noted above. The primary cost of sales expense is the cost of obtaining
COUNTERFEIT COP units from our supplier.
7
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $689,824 for the quarter ended August 31, 2001,
compared with $1,208,838 for the same quarter in the previous year, a decrease
of $519,014. The decrease in selling, general and administrative expenses is
primarily attributable to the very deliberate steps that have been taken by
management to contain costs. In addition, our deficiency in operating capital
has substantially limited our ability to incur even necessary expenses, and our
inability to meet committed expenses has led to an expansion of Accounts Payable
by approximately $522,000 over the same period.
INTEREST EXPENSE. For the three months ended August 31, 2001, interest
expense was $60,666, compared with $157,986 for the same quarter in the previous
year, a decrease of $97,320. The decrease in interest expense is primarily due
to the elimination of the interest component related to the
previously-outstanding Convertible Debentures, which were eliminated prior to
the May 31, 2001. For the quarter ended August 31, 2001, the major component of
interest expense is approximately $56,000 interest on the re-structured loan on
our property, compared with approximately $43,000 for the comparable quarter
last year. The amount payable for interest on the re-structured loan is
approximately $15,000 per month.
DEPRECIATION AND AMORTIZATION EXPENSE. For the quarter ended August 31,
2001, depreciation and amortization expense was $42,121, compared with $41,861
for the previous year, an increase of $260. The marginal increase indicates that
there has been no major growth in depreciable items, primarily due to a shortage
of operating capital. As we have retired some depreciable assets, we have
primarily replaced them with leased assets. The development of the BIZPAY
products has required a minor investment in hardware and software. For the most
part, the necessary equipment has been leased at prevailing market rates.
MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
We have continued to suffer material operating losses and are experiencing
difficulties meeting our current obligations, including regular payroll
obligations. Although we are generated some revenue from sales of the
COUNTERFEIT COP and we are confident that the newly-released BIZPAY technology
will soon generate revenue, current revenue levels are still inadequate to meet
all of our obligations. We are attempting to raise sufficient equity capital to
meet current obligations and to implement our business plan. However, we have
experienced difficulty in doing so and there can be no assurance that we will be
successful in raising capital or implementing our business plan.
We have utilized significant resources in software development, research
and marketing efforts. These efforts must continue in order for us to be
successful in the implementation of our strategic direction. We will require
additional capital, most likely from private placement equity, in order to meet
our obligations and to implement our strategic direction.
As of August 31, 2001, we had $6,120 in cash and cash equivalents compared
with approximately $1,490 at May 31, 2001, representing an aggregate increase in
cash of $4,630 for the period. This was primarily composed of:
Operating Activities: during the three months ended August 31, 2001, we
used approximately $283,000 in cash for operating activities, primarily in
selling, general and administrative expenses.
Investing Activities: during the three months ended August 31, 2001, we
used approximately $6,788 in the purchase of furniture and equipment.
Financing Activities: during the three months ended August 31, 2001, we
received an aggregate of approximately $295,000 from financing activities,
including $48,000 from an investor in our 2001 private placement, and $148,000
from subscriptions receivable prior to May 31, 2001. In addition, we received
approximately $107,000 for notes payable, including approximately $5,000 from
related parties.
8
We had a working capital deficit of approximately $7,288,584 at August 31,
2001, compared with a working capital deficit of approximately $6,675,123 at May
31, 2001, an increase in our working capital deficit of approximately $613,461.
The increase in the working capital deficit reflects the increase in our
accumulated deficit of approximately $790,000 during the three months ended
August 31, 2001. Specifically, the working capital deficit increase is
identified in the following: an increase of $89,000 in Accounts Payable; an
increase of $380,000 in Accrued Payroll and Other Liabilities; the
re-structuring of part of our mortgage debt to Current Liabilities, representing
approximately $150,000; and an increase of $196,000 in deposits on common stock
to be issued. These items have been partially offset by a reduction of
approximately $193,000 in Notes Payable.
As part of the above, we have accrued unpaid payrolls for our staff. At
August 31, 2001, we owed approximately $552,000 to our staff, representing
unpaid salaries and vacations, employee business expenses, and some amounts
owing to certain former employees.
We have continued to incur losses, primarily due to the failure to meet
revenue expectations for sales of the COUNTERFEIT COP, and to the expenses
associated with the ongoing development of BIZPAY. During the quarter ended
August 31, 2000, our operations used approximately $283,000 in cash, an average
of approximately $94,000 per month. Our liquidity has already been materially
and adversely affected by our history of losses; if we continue to incur
significant losses, our liquidity could be further affected. We do not currently
have any established bank credit facility, and there can be no assurance that we
will be able to obtain the additional capital in the form of debt or equity
financing necessary to continue our operations if no significant sales of the
COUNTERFEIT COP or revenues from the BIZPAY technology are realized. We do not
intend to require material capital expenditures in the short term. However, as
discussed above, we will require cash to continue to implement our strategic
direction and to adapt our direction as necessary to respond to changing market
and technology requirements.
IMPACT OF INFLATION
Increases in the inflation rate are not expected to affect our operating
expenses. Although we have no current plans to borrow additional funds, if we
were to do so at variable interest rates, any increase in interest rates would
increase our borrowed funds.
SEASONALITY
Our operations are not affected by seasonal fluctuations, although our cash
flows may at times be affected by fluctuations in the timing of cash receipts
from large contracts. Management believes that the cash-flow of the two major
product lines in our strategic direction will not be impacted by large purchases
or seasonal factors.
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We have been involved in litigation with a former officer and director
relating to his claims for indemnification and reimbursement of legal expenses
in connection with the Defamation Litigation, and for breach of an employment
agreement with respect to stock options. The former executive was seeking
damages, including substantial exemplary and punitive damages, and an order
requiring us to honor stock options. We believe that the claims for exemplary
and punitive damages relating to both the indemnity and stock option claims were
wholly without merit, however the cost of litigating the claim would have far
exceeded the cost to settle. Therefore, in March 2001, we reached a settlement
with the former executive. The terms of the settlement are confidential. At the
current time, we have not executed our obligations under the settlement
agreement. Failure to do so in a timely manner may lead to a breach of the
agreement and the potential for damages.
We have been involved in litigation with a former customer who has alleged
that we breached an agreement to provide software conversion services and to
test its software for the ability to function in the year 2000 and beyond. While
we believe that the outcome of any litigation would have been favorable, our
analysis indicated the potential cost of trying the case would have been greater
than the settlement offer on the table. We settled the case during December 2000
for $125,000 to be paid over the next fifteen months. We have been unable to
meet our payment commitments since the settlement date, although we have
conveyed to the former customer our willingness to meet the settlement terms as
soon as sufficient financing is available. To date, the former customer has
taken no further action.
On May 31, 2001, a complaint was filed against us in the Superior Court of
the State of Arizona in Maricopa County (Case No. CV 2001-001579) by Steve
Fischer ("Fischer"). In the complaint, Fischer alleged that he had been induced
to settle an existing judgment with a third party, Scott Miller ("Miller") for a
consideration of 3,600,000 shares of our common stock, to be registered by us no
later than February 15, 2001. Miller, as the principal of Beacon Capital
Partners LLP, had been issued 4,450,000 shares of our common stock as part of an
arrangement with the Company intended to generate up to $1,000,000 of financing
for the Company, based on the sale of up to 11,111,111 shares. We have since
responded with a counter-suit claiming the recovery of the issued shares for
non-performance. We have been awarded a Default Judgment against Miller,
including a specification for the return of 850,000 shares. We expect the case
against Fischer will go to litigation before the end of 2001. We have received
advice of counsel that we have an extremely high likelihood that the full number
of 4,450,000 shares will be recovered fully by us.
On August 15, 2001, a complaint was filed against us the Superior Court of
the State of Arizona in Maricopa County (Case No. CV 2001-014095) by Richard
Highland ("Highland"). The complaint alleges that Highland, a former employee,
has wages unpaid by us for a period when he contends he was a continuing
employee. The complaint seeks payment of the alleged wages, interest and costs,
in addition to triple damages, interest and costs for failure to pay wages, as
provided for in the Arizona Revised Statutes. An Application for entry of
default was filed by Highland on September 7, 2001. We believe that this
complaint is without merit, and intend to file a counter-suit in a timely
fashion.
10
ITEM 2. CHANGES IN SECURITIES
During the year ended May 31, 2001, we issued 4,450,000 shares of our
common stock to an organization that was to conduct an offering of our common
stock. The offering never occurred and we have filed a lawsuit to recover the
shares. It is the opinion of the Company and its legal counsel that we will
recover these shares. The 4,450,000 shares are not included in the total issued
and outstanding shares at August 31, 2001. These shares are also excluded from
the computation of the weighted average shares outstanding for the three months
ended August 31, 2001.
On June 1, 2001, we issued 4,000,000 shares, valued at $440,000, to a
consultant for purposes of negotiating financing as part of a private placement.
The proposed financing has not been completed, and the 4,000,000 shares are to
be returned to us to reduce our total number of issued and outstanding shares.
The 4,000,000 shares are not included in the total issued and outstanding shares
at August 31, 2001. These shares are also excluded from the computation of the
weighted average shares outstanding for the three months ended August 31, 2001.
As of September 28, 2001, 4,693,747 shares relating to an aggregate
subscription of $368,600 as part of our May 2001 private placement had not yet
been issued to eighteen accredited investors, six of whom had previously
invested in the May 2001 private placement.
In September 2001, we requested certain investors to surrender certain
issued or entitled shares, unexercised stock options, and unexercised warrants
to the Company to enable us to use the underlying shares, if required, for issue
under a future private placement. The aggregate shares involved in these
agreements were 3,838,975, comprised of 2,988,475 shares, 110,500 options, and
740,000 warrants. As consideration for the surrender of issued and entitled
shares, we agreed to issue an aggregate of 3,211,334 replacement shares or, for
two of the investors, to pay compensation at the rate of $0.10 per surrendered
share. As consideration for the surrender of options and warrants, we agreed to
grant the same number of replacement options and warrants at a reduced exercise
price. In all cases, the subject replacement shares, options and warrants will
only be available or exercisable when the Company has increased its authorized
capital to 125,000,000 shares.
In addition to the surrendered warrants referenced above, we also have
3,758,000 warrants outstanding for the purchase of our common stock under our
January 2000 private offering, at an exercise price of $1.50 per share.
11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There have been no defaults upon senior securities during the three months
ended August 31, 2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
three months ended August 31, 2001.
ITEM 5. OTHER INFORMATION
In September 2001, we accepted the resignation of Mr. A. Lewis Burridge as
President, Chief Executive Officer, and Chairman of the Board. At the same time,
we appointed Mr. Howard R. Baer as Chairman; Mr. Burridge remains as a Director
and has been appointed as Vice-Chairman. Other resignations from the Board
include: Mr. Luther H. Hodges (January, 2001), Mr. Andrew Lee (September, 2001),
Mr. Russell B. Stevenson (February, 2001), and Mr. Robert L. Stewart (June,
2001). In March 2001, Mr. Ben H. Gregg and Mr. Joseph A. Grimes were appointed
to the Board, and in September 2001, Mr. Anthony R. Perre and Mr. Robert D.
Reisch were appointed to the Board. Following their resignations on October 19,
2001, Messrs. Reisch and Perre were removed from the Board and the Executive
Committee. At October 31, 2001, Messrs. Burridge and Gregg comprise the Board's
Executive Committee, and Messrs. Caldwell and Knode comprise both the Audit
Committee and the Compensation Committee.
Also in September 2001, we appointed Mr. Anthony Perre as President and Mr.
Robert D. Reisch as CEO, and we commenced the recruitment of a team of senior
management with extensive backgrounds and skills in the specific areas for which
we believe our future products and technical directions will be developed.
On October 19, 2001, the Board accepted the resignations of Mr. Tony Perre
and Mr. Robert Reisch from the positions of President and Chief Executive
Officer, respectively, and from their positions as Directors and members of the
Executive Committee. On October 24, 2001, Mr. Bruce Shirey, currently the Chief
Technical Officer, was appointed as President and Chief Executive Officer.
Mr. Shirey's background is in computer hardware services, corporate
management, financial business development, and consulting. He served from 1999
to 2000 as Senior Vice President, Internet & Payment Solutions for CardService
International, Inc. (CSI), where he created key merchant relationships and
developed CSI's first secure Internet Payment Gateway and related online
merchant account applications. From 2000 until he joined the Company, he was a
Principal of the Rinaldi Group (TRG), a high-performance consulting service,
concentrating on strategic Internet, wireless and commercial payment
integration. He is a graduate of California State University at Fullerton.
Effective immediately, a review has been commenced of our current business
directions, our specific technology capabilities, and our product readiness and
directions. It is the goal of management to ensure that our newly-developed
technologies should be used to provide an effective penetration to a
clearly-defined and thoroughly-prepared market opportunity, and that the Company
undertakes the development of complementary products that will both support the
existing technologies and facilitate the introduction of new products. We
believe that, if we are able to obtain the necessary financing, we will be able
to continue the development and to enhance the effectiveness of our BIZPAY
products, and also to initiate new products based on leading-edge technologies
and business opportunities.
On December 11, 2000, the Company's annual meeting of stockholders approved
the increase of its authorized capital from 40,000 to 69,000,000 shares. Since
that time, our serious shortage of operating capital has obliged us to issue
many more shares than we had anticipated, and the Company is now substantially
constrained in its financing activities by the limited amount of unissued shares
available from its authorized capital limit of 69,000,000 shares. Accordingly,
the company will issue a recommendation to the forthcoming annual meeting of
stockholders to increase its authorized capital to a limit of 125,000,000 shares
of common stock.
12
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.
There were no filings on Form 8-K during the three months ended August 31,
2001.
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: October 30, 2001 By: /s/ Eric J. Strasser
------------------------------------
Eric J. Strasser
Chief Financial Officer
13
EXHIBIT INDEX
2 Plan of Acquisition between the Registrant and the stockholders of
ConSyGen, Inc., an Arizona corporation, dated August 28, 1996, filed as
Exhibit 2 to the Registrant's Current Report on Form 8-K dated September
5, 1996 and incorporated herein by reference.
3.1 Articles of Incorporation of the Registrant, as amended. (1)
3.2 Amended and Restated By-Laws of the Registrant. (4)
4.1 Specimen common stock certificate, filed as Exhibit 4.B to the
Registrant's Registration Statement on Form S-18, File No. 33-22900 - FW,
and incorporated herein by reference.
4.2 Form of Common Stock Purchase Warrant used in connection with issuance of
warrants to purchase an aggregate of 1,000,000 shares of the Registrant's
Common Stock, $.003 par value. (2)
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). (5)
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.
(5)
4.5 Form of Subscription Agreement used in connection with Rule 506 sale of
120,000 shares for gross proceeds of $1,080,000. (1)
4.6 Form of Subscription Agreement used in connection with Rule 506 sale of
152,000 shares for gross proceeds of $882,500. (1)
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)
4.9 Subscription Agreement used in connection with Rule 506 sale of 900,000
shares for gross proceeds of $5,276,250. (3)
4.10 Form of Subscription Agreement used in connection with issuance of 30,747
shares in payment of indebtedness in the aggregate amount of $250,575.
(3)
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. (5)
4.13 Agreement entitled "Transfer of Complete Rights in Software Program
between ConSyGen, Inc. and FAM Investments, LLC", filed as Exhibit 4.13
to the Registrant's Current Report on Form 8-K dated July 2, 1999 and
incorporated herein by reference.
4.14 Amendment dated August 13, 1998, to 6% Convertible Debenture Subscription
Agreement and related Registration Rights Agreement dated May 29, 1998,
filed as Exhibit 4.13 to the Registrant's Registration Statement on Form
S-3, File No. 333-61869, and incorporated herein by reference.
4.15 Form of Subscription Agreement used in connection with private placement
of 4,498,000 units, each consisting of one share of the Registrant's
common stock and a warrant to purchase one share of common stock, for
total cash consideration of $1,124,500. (6)
14
4.16 Form of Common Stock Purchase Warrant used in connection with issuance of
warrants to purchase an aggregate of 4,498,000 shares of Registrant's
common stock, $0.003 par value. (6)
4.17 Option Agreement dated April 17, 2000, for 1,000,000 shares of the
Registrant's common stock, issued to consultant, Howard R. Baer. (6)
4.18 Agreement dated as of December 18, 2000 between the Registrant and Beacon
Capital Partners, LLP relating to the Rule 506 sale of up to 11,111,111
shares for gross proceeds of up to $1,000,000. (9)
4.19 Form of Subscription Agreement used in connection with Rule 506 sale of
6,073,218 shares for gross proceeds of $540,142. (9)
4.20 Form of Agreement used in connection with the surrender of unexercised
stock options to the Registrant by Registrant's employees. (9)
4.21 Form of Agreement used in connection with the surrender of issued shares
and unexercised stock options and warrants to the Registrant by certain
of the Registrant's investors. (9)
10.7 Registrant's 1996 Non-Qualified Stock Option Plan. (2)
10.8 Registrant's Amended and Restated 1997 Non-Qualified Stock Option Plan.
(3)
10.10 Form of Indemnification Contract between the Registrant and each
executive officer and director of the Registrant. (3)
10.12 Settlement Term Sheet between the Registrant and the Debenture Parties
dated March 8, 2000, filed as Exhibit 10.12 to the Registrant's Current
Report on Form 8-K dated March 22, 2000, and incorporated herein by
reference.
10.13 Settlement Agreement and Conditional Release between the Registrant and
the Debenture Parties dated April 20, 2000. (6)
10.14 Agreement dated January 11, 2000, between the Registrant and Saviar and
Spaeth. (7)
10.15 Registrant's 2000 Combination Stock Option Plan. (8)
10.16 5 Year Lease with Option to Purchase agreement between the Registrant and
Corporate Fiducial Services, Inc., dated April 1, 2001. *
11 Net Loss per Share calculations. See Part I, Note 2 of this Form 10-QSB.
*
16 Letter dated September 24, 1998 from Wolinetz, Gottlieb & Lafazan, PC to
the Securities and Exchange Commission, filed as Exhibit 16 to the
Registrant's Current Report on Form 8-K dated September 22, 1998 and
incorporated herein by reference.
24 Power of Attorney. *
27 Financial Data Schedule - not required.
----------
(1) 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, 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
by reference. (4) Filed as an Exhibit, with the same Exhibit number, to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1998, and incorporated herein by reference.
(5) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Annual Report on Form 10K for the year ended May 31, 1998, and
incorporated herein by reference.
15
(6) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Annual Report on Form 10K for the year ended May 31, 2000, and
incorporated herein by reference.
(7) 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, 2000,
and incorporated herein by reference.
(8) Filed as an Exhibit, with the Exhibit number 99.1, to the Registrant's
Registration Statement on Form S-8, dated May 4, 2000, and incorporated
herein by reference.
(9) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Annual Report on Form 10K for the year ended May 31, 2001, and
incorporated herein by reference.
* Filed herewith
16