SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2005
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ________ to ___________
Commission file number: 000-50754
SYNERTECK INCORPORATED
(Exact name of small business issuer as specified in its charter)
Delaware 20-0929024
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11585 South State Street, Suite 102
Draper, Utah 84020
------------ -----
(Address of principal executive offices) (Zip Code)
(801) 816-2505
--------------
(Issuer's telephone number)
(Former name or former address and former fiscal year, if changed since last
report.)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13, or 15(d) of the Exchange Act of 1934 after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of June 30, 2005, the Company had
outstanding 2,000,000 shares of common stock and 50,000 shares of preferred
stock, par value $0.001 per share.
Transitional Small Business Disclosure Format (check one) [ ] Yes [x ] No
2
PART I
FINANCIAL INFORMATION
The Financial Statements of the Company are prepared as of June 30, 2005.
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-QSB
CONTENTS
Condensed Balance Sheets...................................................... 4
Condensed Statements of Operations............................................ 5
Condensed Statements of Stockholders' Equity.................................. 7
Condensed Statements of Cash Flows............................................ 8
Notes to the Condensed Financial Statements.................................. 10
3
SYNERTECK INCORPORATED
Condensed Balance Sheets
ASSETS
------
June 30, December 31,
2005 2004
------------------ ----------------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 36,289 $ 36,376
Accounts receivable, net 14,131 16,769
------------------ -----------------
Total Current Assets 50,420 53,145
------------------ -----------------
PROPERTY AND EQUIPMENT, NET 16,524 20,008
------------------ -----------------
OTHER ASSETS
Marketable securities 48,543 -
------------------ -----------------
Total Other Assets 48,543 -
------------------ -----------------
TOTAL ASSETS $ 115,487 $ 73,153
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,675 $ 7,885
Accrued expenses 2,647 10,157
------------------ -----------------
Total Current Liabilities 9,322 18,042
------------------ -----------------
LONG TERM LIABILITIES
Notes payable - 15,000
Notes payable - related parties - 35,000
------------------ -----------------
Total Long Term Liabilities - 50,000
------------------ -----------------
TOTAL LIABILITIES 9,322 68,042
------------------ -----------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; 10,000,000 shares
authorized, 50,000 and -0- shares issued and
outstanding, respectively 50 -
Common stock, $0.001 par value; 100,000,000 shares
authorized, 2,000,000 and 500,000 shares issued and
outstanding, respectively 2,000 500
Additional paid-in capital 142,231 59,810
Accumulated deficit (38,116) (55,199)
------------------- ------------------
Total Stockholders' Equity 106,165 5,111
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 115,487 $ 73,153
================== =================
4
The accompanying notes are an integral part of these condensed financial
statements.
SYNERTECK INCORPORATED
Condensed Statements of Operations
(Unaudited)
For the Three Months Ended
June 30,
-------------------------------------
2005 2004
------------------ -----------------
NET REVENUES
Product revenue $ 1,168 $ 6,962
Service revenue 13,413 15,847
Product and service revenue - related parties 13,890 28,180
------------------ -----------------
Total Net Revenues 28,471 50,989
------------------ -----------------
OPERATING EXPENSES
Cost of sales-product 828 6,498
Cost of sales-service 1,164 1,664
Cost of sales-related parties 2,124 3,352
General and administrative 21,348 18,294
Selling and marketing 11,266 10,830
Research and development 4,960 4,570
------------------ -----------------
Total Operating Expenses 41,690 45,208
------------------ -----------------
INCOME (LOSS) FROM OPERATIONS (13,219) 5,781
------------------ -----------------
OTHER INCOME (EXPENSES)
Interest expense (811) (1,293)
Unrealized loss on marketable securities (17,586) -
Interest income - 67
------------------ -----------------
Total Other Expenses (18,397) (1,226)
------------------ -----------------
NET INCOME (LOSS) BEFORE INCOME TAXES (31,616) 4,555
PROVISION FOR INCOME TAXES - -
------------------ -----------------
NET INCOME (LOSS) $ (31,616) $ 4,555
================== =================
BASIC NET INCOME (LOSS) PER SHARE $ (0.04) $ 0.01
================== =================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 780,220 500,000
================== =================
5
The accompanying notes are an integral part of these condensed financial
statements.
SYNERTECK INCORPORATED
Condensed Statements of Operations
(Unaudited)
For the Six Months Ended
June 30,
-------------------------------------
2005 2004
------------------ -----------------
NET REVENUES
Product revenue $ 7,024 $ 18,114
Service revenue 31,897 29,098
Product and service revenue - related parties 42,020 39,930
------------------ -----------------
Total Net Revenues 80,941 87,142
------------------ -----------------
OPERATING EXPENSES
Cost of sales-product 5,429 12,650
Cost of sales-service 5,278 8,278
Cost of sales-related parties 9,124 6,727
General and administrative 42,645 27,201
Selling and marketing 23,641 14,636
Research and development 10,340 6,101
------------------ -----------------
Total Operating Expenses 96,457 75,593
------------------ -----------------
INCOME (LOSS) FROM OPERATIONS (15,516) 11,549
------------------ -----------------
OTHER INCOME (EXPENSES)
Interest expense (1,797) (1,293)
Unrealized gain on marketable securities 34,396 -
Interest income - 134
------------------ -----------------
Total Other Income (Expenses) 32,599 (1,159)
------------------ -----------------
NET INCOME BEFORE INCOME TAXES 17,083 10,390
PROVISION FOR INCOME TAXES - (1,123)
------------------ -----------------
NET INCOME $ 17,083 $ 9,267
================== =================
BASIC NET INCOME PER SHARE $ 0.03 $ 0.02
================== =================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 640,884 500,000
================== =================
6
The accompanying notes are an integral part of these condensed financial
statements.
SYNERTECK INCORPORATED
Condensed Statements of Stockholders' Equity
Preferred Stock Common Stock Additional
-------------------------- ---------------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
----------- ---------- ------------ ----------- -------------- ----------------
Balance, December 31,
2003 - $ - 500,000 $ 500 $ (500) $ 8,572
Gain on forgiveness
of related party debt - - - - 60,310 -
Net income for the year ended
December 31, 2004 - - - - - (63,771)
----------- ---------- ------------ ----------- -------------- ----------------
Balance, December 31,
2004 - - 500,000 500 59,810 (55,199)
Issuance of preferred stock
for cash (unaudited) 50,000 50 - - 24,950 -
Common stock issued for
debt payment (unaudited) - - 1,500,000 1,500 57,471 -
Net income for the six
months ended June 30,
2005 (unaudited) - - - - - 17,083
----------- ---------- ------------ ----------- -------------- ----------------
Balance, June 30, 2005
(unaudited) 50,000 $ 50 2,000,000 $ 2,000 $ 142,231 $ (38,116)
=========== ========== ============ =========== ============== ================
7
The accompanying notes are an integral part of theses condensed financial
statements.
SYNERTECK INCORPORATED
Condensed Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
-------------------------------------
2005 2004
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,083 $ 9,267
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 3,484 1,308
Unrealized gain on marketable securities (34,396) -
Changes in operating assets and liabilities:
Accounts receivable 2,638 (8,349)
Due to/from related parties - (1,877)
Accounts payable (1,210) 10,533
Accrued expenses 1,461 3,362
----------------- -----------------
Net Cash Provided (Used) by Operating Activities (10,940) 14,244
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (14,147) -
Purchases of property & equipment - (18,321)
----------------- -----------------
Net Cash Used in Investing Activities (14,147) (18,321)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock 25,000 -
Proceeds from issuance of notes payable - 15,000
Proceeds from issuance of notes payable - related parties - 35,000
----------------- -----------------
Net Cash Provided by Financing Activities 25,000 50,000
----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (87) $ 45,923
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 36,376 7,940
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 36,289 $ 53,863
================= =================
8
The accompanying notes are an integral part of these condensed financial
statements.
SYNERTECK INCORPORATED
Condensed Statements of Cash Flows (Continued)
(Unaudited)
For the Six Months Ended
June 30,
-------------------------------------
2005 2004
----------------- -----------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest $ - $ -
Income taxes $ - $ -
Non-Cash Investing and Financing Activities:
Common stock issued to convert notes payable
and accrued interest and royalty fees $ 58,971 $ -
9
The accompanying notes are an integral part of these condensed financial
statements.
SYNERTECK INCORPORATED
Notes to the Condensed Financial Statements
June 30, 2005 and December 31, 2004
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have
been condensed or omitted in accordance with such rules and
regulations. The information furnished in the interim condensed
financial statements include normal recurring adjustments and reflects
all adjustments, which, in the opinion of management, are necessary
for a fair presentation of such financial statements. Although
management believes the disclosures and information presented are
adequate to make the information not misleading, it is suggested that
these interim condensed financial statements be read in conjunction
with the Company's audited financial statements and notes thereto for
the year ended December 31, 2004 included in its Form 10-KSB.
Operating results for the six months ended June 30, 2005 are not
necessarily indicative of the results to be expected for the year
ending December 31, 2005.
NOTE 2 - MATERIAL EVENTS
On April 8, 2005, the Company entered into a preferred stock purchase
agreement with an individual investor whereby the Company agreed to
issue 50,000 of its previously unissued Series A preferred stock for
cash of $25,000. The preferred shares will convert into common stock
of the Company during a three year period on a one for one basis.
On June 13, 2005, the Company issued 1,500,000 shares of its common
stock in satisfaction of notes payable and accrued interest and
royalty fees totaling $58,971.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
You should read the following discussion of the company's financial
condition and results of operations in conjunction with the audited financial
statements and related notes included in the filing of the company's annual
10-KSB. This discussion may contain forward-looking statements, including,
without limitation, statements regarding our expectations, beliefs, intentions,
or future strategies that are signified by the words "expects," "anticipates,"
"intends," "believes," or similar language. Actual results could differ
materially from those projected in the forward looking statements. You should
carefully consider the information set forth above under the caption "Risk
Factors" in addition to the other information set forth in this report. We
caution you that Synerteck's business and financial performance is subject to
substantial risks and uncertainties.
OVERVIEW
Synerteck is an integrator of business strategy with technology solutions.
We attempt to understand the business of our clients principally from their
customer's point of view, in order to properly position ourselves to advocate
and implement measures that achieve the client's organizational objectives. Our
clients consist of small to medium sized organizations, operating in North
America and Europe. Currently, we service eight clients on a continuous monthly
basis and average ten additional clients for one-time or intermittent projects
over the course of a year. You can learn more about our business at our website
located at www.synerteck.com.
RESULTS OF OPERATIONS
Following is our discussion of the relevant items affecting results of
operations for the periods ended June 30, 2005 and 2004.
REVENUES. Revenue is recognized upon completion of services or delivery of
goods. Advance customer payments are recorded as deferred revenue until such
time as they are recognized. Product sales are not warranted by the Company and
may be subject only to warranties that may be provided by the product
manufacturer. Therefore, product warranties have no effect on the financial
statements.
Synerteck generated net revenues of $28,471 during the three months ended
June 30, 2005, which represents a 44% decrease compared to $50,989 in net
revenues during the second quarter of 2004. For the six month period ended June
30, 2005, net revenues were $80,941, representing a 7% decrease compared to
$87,142 in net revenues during the first six months of 2004. This decrease was
mainly due to the reduction in systems support services provided to one large
client during the second quarter of 2005. During the second quarters of 2005 and
2004, we received $10,510 and $26,410, respectively, in gross revenues from
systems support. Although hardware sales revenues decreased, several new IT
service contracts were established in the first three months of 2005 which added
to the total net revenues recorded for the first six months of 2005. Other
sources of revenue were information technology services, hardware sales and
equipment leases. We anticipate that these three areas will constitute the
principal source of Synerteck's revenue for the foreseeable future.
COST OF SALES. Expenses which comprise cost of sales are the wholesale cost
of hardware, software, any accompanying licenses, product sales commissions, and
commissions paid in connection with information technology consulting contracts.
Also included in cost of sales are personnel and materials costs to administer
these information technology services. As more organizations utilize our
technology services, future expenses included in cost of goods sold will
increase as well as potential fee sharing expenses to organizations that assist
us in providing these services.
Cost of sales for the three months ended June 30, 2005 were $4,116, a 64%
decrease from $11,514 during the second quarter of 2004. For the six month
period ended June 30, 2005, cost of sales was $19,831, a 28% decrease from
$27,655 during the first six months of 2004. This decrease corresponds with the
decrease in revenues for the same period. Revenues for the six months ended June
30, 2005 were more heavily weighted towards service as opposed to hardware and
software sales when compared to the same period in the prior year. IT services
and systems support yield a higher margin than hardware and software sales. Cost
of sales is attributable to (i) expenses incurred pursuant to the delivery of
our information technology support,
11
and (ii) sales commissions paid in connection with technology consulting
projects.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative
expenses have been comprised of administrative wages and benefits; occupancy and
office expenses; outside legal, accounting and other professional fees; travel
and other miscellaneous office and administrative expenses. General and
administrative expenses for the three months ended June 30, 2005 were $21,348, a
17% increase from $18,294 during the second quarter of 2004. For the six month
period ended June 30, 2005, general and administrative expenses were $42,645, a
57% increase from $27,201 during the first six months of 2004. This increase was
primarily due to accounting and legal fees associated with the audit of the
financial statements and filings with the Securities and Exchange Commission.
Professional fees accounted for approximately $18,456 of general and
administrative expenses during the six month period ended June 30, 2005, as
compared to $10,825 during the first six months of 2004. Although we endeavor to
decrease certain costs associated with personnel salaries and benefits,
professional fees, contract labor, and rent and occupancy-related expense, as
the business grows, these expenses will increase. Because we sublease our office
facilities from our former parent corporation, we do not anticipate any material
commitments for capital expenditures in the foreseeable future.
SELLING AND MARKETING EXPENSES. Our selling and marketing expenses include
selling/marketing wages and benefits; advertising and promotional expenses;
travel and other miscellaneous related expenses. Selling and marketing expenses
for the three months ended June 30, 2005 were $11,266, a 4% increase from
$10,830 during the second quarter of 2004. For the six month period ended June
30, 2005, selling and marketing expenses were $23,641, a 62% increase from
$14,636 during the first six months of 2004. This increase was primarily
attributable to increased salaries of sales personnel as well as additional
expenditures for advertising and marketing. We expect that our sales and
marketing expenditures will increase as we continue to develop our client base
and expand our efforts in computer hardware and software leasing.
PRODUCT DEVELOPMENT. Product research and development expenses for the
three months ended June 30, 2005 were $4,960, a 9% increase from $4,570 during
the second quarter of 2004. For the six month period ended June 30, 2005,
product development expenses were $10,340, a 69% increase from $6,101 during the
first six months of 2004. Our product development expenses relate primarily to
payroll and systems development for our programming and web site hosting
services. We believe that significant investments in product development are
required to remain competitive. Accordingly, we expect to incur increased
expenditures with respect to product development in future periods.
OTHER INCOME (EXPENSE). We incurred net other income of $32,599 for the six
months ended June 30, 2005 compared to net other expense of $1,159 during the
first six months of 2004. The income recorded in the first half of 2005 is the
result of stock options exercised by the Company which were received from a
client for services rendered. The increase in value of the stock of $34,396 has
been recorded as an unrealized gain on marketable securities. The expenses
incurred in this category were comprised primarily of interest expenses related
to the notes payable issued by the Company during the first half of 2004. Income
tax expense of $1,123 was also recorded during the first six months of 2004.
OFF-BALANCE SHEET ARRANGEMENTS
Synerteck is not subject to any off-balance sheet arrangements.
PERSONNEL
Synerteck has two full-time employees, two part-time employees, and
numerous project-based contract personnel that we utilize to carry out our
business. We utilize contract personnel on a continuous basis, primarily in
connection with service contracts which require a high level of specialization
for one or more of the service components offered. We expect to hire one more
full-time employee during 2005. Although competition for technology personnel in
the metropolitan Salt Lake City area is intense, because we offer competitive
compensation, maintain a productive and collegial work environment, and work
with internationally-based clients, we don't believe we will have significant
difficulty retaining additional employees or contract personnel in the future.
LIQUIDITY AND CAPITAL RESOURCES
12
Since inception, we have financed Synerteck's operations from its business
cash flows and the issuance of $50,000 of promissory notes. As of June 30, 2005,
Synerteck's primary source of liquidity consisted of $36,289 in cash and cash
equivalents. Because Synerteck is profitable, we do not expect to require
additional investment capital during the next twelve months to continue our
operations at their current level. Nevertheless, we may seek to secure
additional debt or equity capital to finance substantial business development
initiatives or acquire another information technology firm. At present, however,
we have no plans to seek any such additional capital or to engage in any
business development or acquisition activity.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
FORWARD LOOKING STATEMENTS
When used in this report, the words, "believes," "plans," "expects," and
similar expressions are intended by us to identify forward-looking statements
within the meaning of and Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements are subject to certain risks and uncertainties,
including those discussed below, that could cause actual results to differ
materially from those we have projected. These forward-looking statements speak
only as of the date hereof. All of these forward-looking statements are based on
our estimates and assumptions, which although we believe them to be reasonable,
are inherently uncertain and difficult to predict. We cannot assure you that the
benefits anticipated in these forward-looking statements will be achieved.
We undertake no obligation to update any forward-looking statements,
but you are advised to consult any further disclosures by the Synerteck on this
subject in its subsequent filings pursuant to the Securities Exchange Act of
1934. Furthermore, we are providing these cautionary statements identifying risk
factors, listed below, that could cause our actual results to differ materially
from expected and historical results. It is not possible for our management to
foresee or identify all such factors. Consequently, this list should not be
considered an exhaustive statement of all potential risks, uncertainties and
inaccurate assumptions.
RISK FACTORS
OPERATING RISKS
WE ARE HEAVILY DEPENDENT UPON OUR KEY PERSONNEL. Synerteck's success
depends, in large part, upon the talents and skills of its management and key
personnel. In addition, to the extent that any of our key personnel are unable
or refuse to continue their association with Synerteck, a suitable replacement
would have to be found. The competition for qualified personnel in the computer
networking is intense, and there are limited numbers of such qualified personnel
in the metropolitan Salt Lake City area. We cannot assure you that we would be
able to find suitable replacements for our existing management personnel or
technical personnel, or that we could retain such replacements for an affordable
amount.
YOU MAY NOT AGREE WITH THE DECISIONS OF OUR MANAGEMENT TEAM. Although
Synerteck's directors and officers will endeavor to make decisions as they
reasonably deem consistent with their fiduciary duties under Delaware corporate
law, you may disagree with these decisions. Synerteck's management has
significant control over stockholder matters, which may affect the ability of
minority stockholders to influence our activities.
WE ARE HEAVILY DEPENDENT UPON A FEW KEY CLIENTS. Three client accounts
comprise a substantial majority of Synerteck's monthly revenues, one of which is
serviced on an oral agreement on a month-to-month basis. If we lost one or all
of these clients, we would be required to immediately replace these clients with
similar sized accounts, or dramatically cut our operating costs to remain in
business. If Synerteck were to cease its operations, you would likely lose the
entire value of your investment.
OUR BUSINESS IN INHERENTLY RISKY. Service based businesses in the computer
networking and hosting industries are inherently risky. If our services do not
generate enough cash flow to meet our operating expenses (such as debt service,
capital expenditures, and legal and accounting fees), our ability to develop and
expand our business and become profitable will be adversely affected.
13
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY MANY FACTORS. Income from
outsourced networking, hosting, and programming services may be adversely
affected by a number of factors, including, but not limited to:
o the general economic climate (such as too much supply or too little
demand for information technology services, as well as changes in
market rates);
o the increasing tendency of medium sized businesses to rely on internal
personnel to service and maintain computer networks, even if such
personnel are not properly trained to perform the tasks required;
o intense competition and rapid and significant technological change in
the information technology industry;
o increasing competition from outsourced lowre overhead firms in India,
Russia, and other rapidly developing technology sectors around the
world; or
o damage from fire, earthquakes, prolonged power outages, or other
natural or man-made disasters. o
WE WILL REQUIRE ADDITIONAL FINANCING FOR EXPANSION AND OTHER FUNCTIONS. We
will likely require substantial additional capital in the future for expansion,
business development, marketing, computer software and systems, overhead,
administrative, and other expenses. We cannot assure you that we will be able to
raise additional funds or that financing will be available to Synerteck on
acceptable terms. Lack of additional funds could significantly affect our
business. Further, funds raised through future equity financing could be
substantially dilutive to you and other existing shareholders.
WE COMPETE WITH SUBSTANTIALLY LARGER COMPANIES. In attempting to market our
services to medium and larger organizations, we compete with substantially
larger companies which have greater name recognition and financial resources to
price their services and, in particular, computer products which are purchased
through them. Accordingly, we may not be able to effectively compete for larger
outsourcing and purchasing contracts unless and until we possess additional
financial, marketing, and technical resources.
OUR COMPUTER SYSTEMS MAY FAIL. Synerteck's success is substantially
dependent upon our ability to deliver our clients high quality, uninterrupted
access to their websites, their networks, their e-mail systems, and technology
applications, which requires that we actively maintain our computer hardware and
software systems, as well as the data and information stored therein. Our
systems are vulnerable to damage by fire, natural disaster, power loss,
telecommunications failures, unauthorized intrusion, and other catastrophic
events. Any substantial interruption in our systems would have a material
adverse effect on our business, operating results, and financial condition. In
addition, our systems may be vulnerable to computer viruses, physical or
electronic break-ins, sabotage, or other problems caused by third parties which
could lead to interruptions, delays, loss of data, or cessation in service to
persons desiring to access their networks and internet properties. The
occurrence of any of these risks could have a material adverse effect upon
Synerteck's business, results of operations, and financial condition.
INVESTMENT RISKS
A PURCHASE OF SYNERTECK SHARES IS A SPECULATIVE INVESTMENT. Synerteck's
shares are a speculative investment. To date, Synerteck has generated a modest
amount of profits and we cannot guarantee that it will continue to do so or that
the level of profits will increase in the future. If Synerteck were to lose one
or more of its principal customers, it would likely generate losses, and we
would be forced to scale down Synerteck's operations or raise investment capital
to continue operations. If Synerteck were to generate losses and we were
unsuccessful at decreasing Synerteck's operating costs or raising investment
capital, it is unlikely that Synerteck would be able to meet its financial
obligations and you could lose your entire investment.
YOU MAY LACK LIQUIDITY IN YOUR SHARES. Our stockholders may have greater
difficulty in selling
14
their shares when they want and for the price they want. The over-the-counter
bulletin board is separate and distinct from the Nasdaq stock market. The
bulletin board does not operate under the same rules and standards as the Nasdaq
stock market, including, for example, order handling rules. The absence of these
rules and standards may make it more difficult for a stockholder to obtain
execution of an order to trade and to obtain the price they wanted for a trade.
This means our shareholders may not be able to sell their shares when they want
for a price they want. In addition, because stocks traded on the bulletin board
are usually thinly traded, highly volatile, have fewer market makers and are not
followed by analysts, our stockholders may have greater difficulty in selling
their shares when they want and for the price they want. Investors' orders may
be filled at a price much different than expected when an order is placed.
Trading activity in general is not conducted as efficiently and effectively as
with Nasdaq-listed securities. Bulletin board transactions are conducted almost
entirely manually. Because there are no automated systems for negotiating trades
on the bulletin board, they are conducted via telephone. In times of heavy
market volume, the limitations of this process may result in a significant
increase in the time it takes to execute investor orders. Therefore, when
investors place market orders - an order to buy or sell a specific number of
shares at the current market price - it is possible for the price of a stock to
go up or down significantly during the lapse of time between placing a market
order and getting execution. Because bulletin board stocks are usually not
followed by analysts, there may be lower trading volume than for Nasdaq-listed
securities.
WE HAVE NEVER ISSUED A DIVIDEND AND DON'T ANTICIPATE ANY DIVIDENDS IN THE
FUTURE. Synerteck has never issued a dividend and we do not anticipate paying
dividends on our common stock in the foreseeable future. Furthermore, we may
also be restricted from paying dividends in the future pursuant to subsequent
financing arrangements or pursuant to Delaware law.
WE HAVE LIMITED THE LIABILITY OF OUR MANAGEMENT. Synerteck has adopted
provisions in its Certificate of Incorporation which limit the liability of our
officers and directors and provisions in our bylaws which provide for
indemnification by Synerteck of our officers and directors to the fullest extent
permitted by Delaware corporate law. Synerteck's Certificate of Incorporation
generally provide that its directors shall have no personal liability to
Synerteck or its stockholders for monetary damages for breaches of their
fiduciary duties as directors, except for breaches of their duties of loyalty,
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, acts involving unlawful payment of dividends or
unlawful stock purchases or redemptions, or any transaction from which a
director derives an improper personal benefit. Such provisions substantially
limit your ability to hold directors liable for breaches of fiduciary duty.
YOU COULD BE DILUTED FORM THE ISSUANCE OF ADDITIONAL COMMON AND PREFERRED
STOCK. Synerteck is authorized to issue up to 100,000,000 shares of common stock
and 10,000,000 shares of preferred stock. To the extent of such authorization,
the Synerteck board of directors will have the ability, without seeking
shareholder approval, to issue additional shares of common stock in the future
for such consideration as the board may consider sufficient. The issuance of
additional common stock in the future may reduce your proportionate ownership
and voting power.
ITEM 3. CONTROLS AND PROCEDURES
The Company's principal executive officer and principal financial officer,
based on their evaluation of the Company's disclosure controls and procedures
(as defined in Rules 13a-14 (c) and 15d-14 (c) of the Securities Exchange Act of
1934) as of June 30, 2005 have concluded that the Company's disclosure controls
and procedures are adequate and effective to ensure that material information
relating to the Company and its consolidated subsidiaries are recorded,
processed, summarized and reported within the time periods specified by the
SEC's rules and forms, particularly during the period in which this annual
report has been prepared.
The Company's principal executive officer and principal financial officer
have concluded that there were no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls for
the quarter ended June 30, 2005, the date of their most recent evaluation of
such controls, and that there were no significant deficiencies or material
weaknesses in the Company's internal controls.
15
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 8, 2005, the Company entered into a Preferred Stock Purchase
Agreement with David Ross, an individual investor. Subject to the terms and
conditions of this Agreement, at the closing the investor agreed to purchase and
the Company agreed to sell and issue Investor shares of the Company's Series A
Preferred Stock, par value $0.001 per share, which will convert into Common
Stock of the Company during a three-year period commencing on April 8, 2005 on a
1-for-1 basis. The total consideration paid by the Investor for this stock was
$25,000. The Series A Preferred Stock bought is free and clear of all pledges,
liens, encumbrances and restrictions. The Company shall only be able to
consummate any stock dividend stock split (whether a forward split or reverse
split), recapitalization, share capital consolidation with written consent from
the investor. The investor is a "sophisticated" investor as defined under Rule
501. No solicitation was made and no underwriting discounts were given or paid
in connection with this transaction. The Company believes that this transaction
was exempt from registration with the Securities and Exchange Commission
pursuant to Sections 3(a)(11) and 4(2) of the Securities Act of 1933. The
Company has used the proceeds received from the investor for working capital.
On June 13, 2005, the Company converted into common stock certain
promissory notes issued by the Company to certain individual investors on March
1, 2004. Subject to the terms and conditions of the conversion agreements, the
Company agreed to convert an aggregate amount of $50,000 in principal, plus
interest, as accrued, with respect to these notes into an aggregate of 1,500,000
shares of Common Stock of the Company. The Common Stock delivered to the
Investors was free and clear of all pledges, liens and encumbrances, but is
considered "restricted securities" under the Securities Act of 1933. The
investors were "accredited investors" or "sophisticated" investors as defined
under Rule 501. No solicitation was made and no underwriting discounts were
given or paid in connection with this transaction. The Company believes that
these transactions were exempt from registration with the Securities and
Exchange Commission pursuant to Section 4(2) of the Securities Act of 1933. The
Company has used the proceeds received from the investors for working capital.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS:
The following documents are filed as exhibits to this Form 10-QSB:
INDEX TO EXHIBITS
EXHIBIT
NUMBER TITLE OF DOCUMENT
------ -----------------
3.1 Certificate of Incorporation of Synerteck Incorporated, a Delaware corporation. (1)
3.2 Bylaws of Synerteck Incorporated, a Delaware corporation. (1)
10.1 Services Agreement between the Registrant and Healthcare Enterprise Group PLC.(1)
10.2 Summary of Services Agreement between the Registrant and Moore, Clayton & Co.
Inc. (1)
10.3 Services Agreement between the Registrant and SportsNuts, Inc. (1)
10.4 Management and Business Development Agreement between the Registrant and
SportsNuts, Inc. (1)
10.5 Sublease Agreement between the Registrant and SportsNuts, Inc. (1)
10.6 Preferred Stock Purchase Agreement dated April 8, 2005 (2)
99.1 Certification by Chief Executive Officer, Clayton Barlow, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification by Chief Financial Officer, Chene Gardner, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
99.3 Certification by Chief Executive Officer Clayton Barlow, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.4 Certification by Chief Financial Officer Chene Gardner, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(1) Filed as an Exhibit to Amendment Number 2 to the Company's registration
statement on Form 10-SB, filed with the Commission on September 15, 2004.
(2) Filed as an Exhibit to Form 8-K, filed with the Commission on April 11,
2005.
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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.
SYNERTECK INCORPORATED
Date: _________________________________ BY: /S/ Chene Gardner
----------------------------
Chene Gardner
Chief Financial Officer
18