AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 2004.
AN EXHIBIT LIST CAN BE FOUND ON PAGE II-1.
REGISTRATION NO. 333-118578
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SYNDICATION NET.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 8742 57-2218873
------ ---- ----------
(State of Incorporation) (Primary Standard (IRS Employer
Industrial Code No.) Identification No.)
1250 24th Street, NW
Suite 300
Washington, D.C. 20037
(202) 467-2788
(Address and telephone number of principal executive offices)
Brian Sorrentino, Chief Executive Officer
Syndication Net.com, Inc.
1250 24th Street, NW
Suite 300
Washington, D.C. 20037
(202) 467-2788
(Name, address and telephone number of agent for service)
Copies to:
Gregory Sichenzia, Esq.
Stephen M. Fleming, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Floor.
New York, New York 10018
(212) 930-9700
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. / /
CALCULATION OF REGISTRATION FEE
======================================================= ================= ==================== ===================== ==============
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES SHARES TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED SECURITY(1) PRICE FEE
- ------------------------------------------------------- ----------------- -------------------- --------------------- --------------
Common Stock, $.0001 par value (2) 43,500,000 $0.25 $10,875,000.00 $1,377.86
Common Stock, $.0001 par value (3) 5,250,000 $0.25 $1,312,500.00 $166.30
Common Stock, $.0001 par value (4) 1,200,000 $0.25 $300,000.00 $38.01
- ------------------------------------------------------- ----------------- -------------------- --------------------- --------------
Total 49,950,000 $12,487,500.00 $1,582.17*
======================================================= ================= ==================== ===================== ==============
*Previously paid.
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of
1933, using the average of the high and low price as reported on the
Over-The-Counter Bulletin Board on August 24, 2004, which was $0.25 per
share.
(2) Represents shares underlying Standby Equity Distribution Agreement.
(3) Represents shares underlying convertible debenture. In addition to the
shares set forth in the table, the amount to be registered includes an
indeterminate number of shares issuable upon conversion of the debentures,
as such number may be adjusted as a result of stock splits, stock
dividends and similar transactions in accordance with Rule 416. The number
of shares of common stock registered hereunder represents a good faith
estimate by us of the number of shares of common stock issuable upon
conversion of the debentures. For purposes of estimating the number of
shares of common stock to be included in this registration statement, we
calculated a good faith estimate of the number of shares of our common
stock that we believe will be issuable upon conversion of the debentures
to account for market fluctuations. Should the conversion ratio result in
our having insufficient shares, we will not rely upon Rule 416, but will
file a new registration statement to cover the resale of such additional
shares should that become necessary. In addition, should a decrease in the
exercise price as a result of an issuance or sale of shares below the then
current market price, result in our having insufficient shares, we will
not rely upon Rule 416, but will file a new registration statement to
cover the resale of such additional shares should that become necessary.
(4) Represents shares of common stock issued as a fee to Newbridge Securities
Corporation for acting as exclusive placement agent under the Standby
Equity Distribution Agreement and shares of common stock issued to Cornell
Capital Partners, L.P. upon execution of the Standby Equity Distribution
Agreement.
The registrant amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED OCTOBER 15, 2004
SYNDICATION NET.COM, INC.
49,950,000 SHARES OF
COMMON STOCK
This prospectus relates to the resale by the selling stockholders of up to
49,950,000 shares of our common stock. The selling stockholders may sell common
stock from time to time in the principal market on which the stock is traded at
the prevailing market price or in negotiated transactions. The selling
stockholders may be deemed underwriters of the shares of common stock, which
they are offering.
We are not selling any shares of common stock in this offering and
therefore will not receive any proceeds from this offering. We will, however,
receive proceeds from the sale of common stock under our Standby Equity
Distribution Agreement with Cornell Capital Partners, L.P. For each share of
common stock purchased under the Standby Equity Distribution Agreement, Cornell
Capital Partners will pay 98% of the lowest volume weighted average price of the
common stock during the five consecutive trading days immediately following the
notice date. We have agreed to pay Cornell Capital Partners, L.P. 5% of the
proceeds that we receive under the Standby Equity Distribution Agreement,
1,160,000 shares of common stock representing a commitment fee and a $2,500 due
diligence fee. All costs associated with this registration will be borne by us.
Our common stock is currently traded on the Over-The-Counter Bulletin
Board under the symbol SYCI.
Investing in our common stock involves substantial risks.
See "Risk Factors," beginning on page 2.
Cornell Capital Partners, L.P. is an "underwriter" within the meaning of
the Securities Act of 1933 in connection with the sale of common stock under the
Standby Equity Distribution Agreement and Newbridge Securities Corporation is
also considered an "underwriter" within the meaning of the Securities Act of
1933 in connection with the sale of its shares of common stock.
With the exception of Cornell Capital Partners, L.P. and Newbridge
Securities Corporation, which are "underwriters" within the meaning of the
Securities Act of 1933, no other underwriter or person has been engaged to
facilitate the sale of shares of common stock in this offering. None of the
proceeds from the sale of stock by the selling stockholders will be placed in
escrow, trust or any similar account.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The information in this Prospectus is not complete and may be changed.
This Prospectus is included in the Registration Statement that was filed by
Syndication Net.com, Inc. with the Securities and Exchange Commission. The
selling stockholders may not sell these securities until the registration
statement becomes effective. This Prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "RISK
FACTORS" section, the financial statements and the notes to the financial
statements. As used throughout this prospectus, the terms "Oxford Ventures," the
"Company," "we," "us," and "our" refer to Syndication Net.com, Inc.
SYNDICATION NET.COM, INC.
We are a consulting company formed to acquire controlling interests in or
to participate in the creation of, and to provide financial, management and
technical support to, development stage business, e-commerce businesses and
traditional brick-and-mortar businesses. We reported a net loss of $605,939 for
the three months ended June 30, 2004 and $1,088,420 for the year ended December
31, 2003. We have suffered operating losses and negative cash flows from
operations since inception and, at June 30, 2004, we had an accumulated deficit,
a capital deficit and have negative working capital. These conditions give rise
to substantial doubt about our ability to continue as a going concern.
Our principal executive offices are located at 1250 24th Street, NW, Suite 300,
Washington, D.C. 20037. Our phone number is (202) 467-2788. We are a Delaware
corporation.
THE OFFERING
Common stock offered by selling stockholders.. Up to 49,950,000 shares, based
on current market prices and
assuming full conversion of the
convertible debentures. This
number represents approximately
81% of our current outstanding
stock and includes 43,500,000
shares of common stock to be
issued under the Standby Equity
Distribution Agreement, up to
5,250,000 shares of common stock
underlying convertible
debentures and 1,200,000 shares
of common stock. Assuming the
conversion of $200,000 of
debentures on October 1, 2004,
and a conversion price of $.20
per share, the number of shares
issuable upon conversion of the
convertible debenture would be
1,000,000. Further, in the event
that we draw down $200,000 under
the Standby Equity Distribution,
which is the maximum permitted
advance within a seven day
period, we would be required to
issue 816,327 shares of common
stock on October 1, 2004 based
on a conversion price of $.245.
Common stock to be outstanding
after the offering.................. Up to 63,017,659 shares.*
Use of proceeds....................... We will not receive any proceeds
from the sale of the common
stock hereunder. We will receive
proceeds from the sale of our
common stock pursuant to the
Standby Equity Distribution
Agreement. See "Use of Proceeds"
for a complete description.
OTCBB Symbol.......................... SYCI
*The above information regarding common stock to be outstanding after the
offering is based on 14,360,088 shares of common stock outstanding as of October
1, 2004.
1
STANDBY EQUITY DISTRIBUTION AGREEMENT
On June 15, 2004, we entered into a Standby Equity Distribution Agreement
with Cornell Capital Partners, L.P. Pursuant to the Standby Equity Distribution
Agreement, we may, at our discretion, periodically sell to Cornell Capital
Partners shares of common stock for a total purchase price of up to $10,000,000.
For each share of common stock purchased under the Standby Equity Distribution
Agreement, Cornell Capital Partners will pay 98% of the lowest volume weighted
average price of the common stock during the five consecutive trading days
immediately following the notice date. In addition, Cornell Capital Partners
will retain 5% of each advance under the Standby Equity Distribution Agreement.
For example, assuming that the 98% of lowest volume weighted average price of
our common stock during the five consecutive trading days immediately following
a notice date is $.245, if we request an advance in the amount of $200,000,
Cornell Capital will be entitled to the following:
o $10,000, which represents the 5% commitment fee; and
o 816,327 shares of our common stock, which is calculated by
dividing $200,000 by $.245.
We are registering in this offering 43,500,000 shares of common stock to
be issued under the Standby Equity Distribution Agreement. Cornell Capital
Partners is a private limited partnership whose business operations are
conducted through its general partner, Yorkville Advisors, LLC. Cornell Capital
Partners is restricted from owing in excess of 9.9% of our outstanding common
stock. In the event that Cornell Capital Partners is unable to sell shares of
common stock that it acquires under the Standby Equity Distribution Agreement
and its ownership equals 9.9% of the our outstanding, then we will not be able
to draw down money under the Standby Distribution Agreement. As a result,
Cornell Capital Partners is purchasing shares under the Standby Equity
Distribution Agreement with an intent to sell or distribute its shares to the
public. Upon the execution of the Standby Equity Distribution Agreement, we
issued to the Investor shares of our common stock in an amount equal to $290,000
divided by the closing bid price of our common stock, as quoted by Bloomberg,
LP, which equated to 1,160,000 shares of our common stock. In addition, we
engaged Newbridge Securities Corporation, a registered broker-dealer, to advise
us in connection with the Standby Equity Distribution Agreement. For its
services, Newbridge Securities Corporation received 40,000 shares of our common
stock.
The outstanding shares are issued based on a discount to the market rate.
As a result, the lower the stock price around the time Cornell Capital Partners
is issued shares, the greater chance that it receives more shares. This could
result in substantial dilution to the interests of other holders of common
stock.
To the extent Cornell Capital Partners sells its common stock, the common
stock price may decrease due to the additional shares in the market. This could
allow Cornell Capital Partners to sell greater amounts of common stock, the
sales of which would further depress the stock price. Further, Cornell Capital
may sell shares during the pricing period which is the five consecutive trading
days immediately following the notice date. The purchase price that Cornell
Capital will pay is determined during the pricing period. As a result, Cornell
Capital may sell shares during the pricing period, which may cause the market
price to decrease and, in turn, additional shares to be issued to Cornell
Capital due to a decreased purchase price.
The significant downward pressure on the price of the common stock as
Cornell Capital Partners sells material amounts of common stocks could encourage
short sales by others. This could place further downward pressure on the price
of the common stock.
CONVERTIBLE DEBENTURES
On June 15, 2004, we entered into a Securities Purchase Agreement whereby
we issued $200,000 in convertible debentures to Cornell Capital Partners, L.P.
of which $50,000 was received by us on June 15, 2004 and $150,000 was received
by us on July 9, 2004. The debentures bear interest at 5%, mature three years
from the date of issuance, and are convertible into our common stock, at the
holder's option, at the lower of: (i) $.42; or (ii) eighty percent (80%) of the
lowest volume weighted average price of the common stock for the five (5)
trading days immediately preceding the conversion date. We are registering in
this offering 5,250,000 shares of common stock underlying the debentures.
2
FORWARD-LOOKING STATEMENTS
Information in this prospectus contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements can be identified by the use of words such as
"believes," "estimates," "could," "possibly," "probably," "anticipates,"
"projects," "expects," "may," "will," or "should" or other variations or similar
words. No assurances can be given that the future results anticipated by the
forward-looking statements will be achieved. The following matters constitute
cautionary statements identifying important factors with respect to those
forward-looking statements, including certain risks and uncertainties that could
cause actual results to vary materially from the future results anticipated by
those forward-looking statements. Among the key factors that have a direct
bearing on our results of operations are the effects of various governmental
regulations, the fluctuation of our direct costs and the costs and effectiveness
of our operating strategy.
RISK FACTORS
Any investment in our shares of common stock involves a high degree of
risk. You should carefully consider the following information about these risks,
together with the other information contained in this prospectus before you
decide to buy our common stock. If any of the following risks actually occur,
our business, results of operations, and financial condition would likely
suffer. In such circumstances, the market price of our common stock could
decline, and you may lose all or a part of the money you paid to buy our common
stock.
We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business and our products. These
are factors that we think could cause our actual results to differ materially
from expected results.
RISKS RELATED TO OUR BUSINESS:
WE ARE A DEVELOPMENT STAGE COMPANY THAT HAS INCURRED RECENT LOSSES AND EXPECT TO
INCUR NET LOSSES FOR THE FORESEEABLE FUTURE. WE HAVE NO OPERATING HISTORY UPON
WHICH AN EVALUATION OF OUR PROSPECTS CAN BE MADE. FOR THAT REASON, IT WOULD BE
DIFFICULT FOR A POTENTIAL INVESTOR TO JUDGE OUR PROSPECTS FOR SUCCESS.
There can be no assurance that our future proposed operations will be
implemented successfully or that we will ever have profits. If we are unable to
sustain our operations, you may lose your entire investment. We face all the
risks inherent in a new business, including the expenses, difficulties,
complications and delays frequently encountered in connection with the formation
and commencement of operations, including operational difficulties and capital
requirements and management's potential underestimation of initial and ongoing
costs. In evaluating our business and prospects, these difficulties should be
considered.
OUR SUCCESS DEPENDS ON ATTRACTING AND RETAINING HIGHLY SKILLED AND QUALIFIED
TECHNICAL AND CONSULTING PERSONNEL.
We must hire highly skilled technical personnel as employees and as
independent contractors in order to acquire controlling interests in or to
participate in the creation of, and to provide financial, management and
technical support to, development stage business, e-commerce businesses and
traditional brick-and-mortar businesses. The competition for skilled technical
employees is intense and we may not be able to retain or recruit such personnel.
We must compete with companies that possess greater financial and other
resources than we do, and that may be more attractive potential employees and
contractors. To be competitive, we may have to increase the compensation,
bonuses, stock options and other fringe benefits offered to employees in order
to attract and retain such personnel. The costs of retaining or attracting new
personnel may have a materially adverse affect on our business and our operating
results. In addition, difficulties in hiring and retaining technical personnel
could delay the implementation of our business plan.
OUR SUCCESS DEPENDS IN A LARGE PART ON THE CONTINUING SERVICE OF KEY PERSONNEL.
Changes in management could have an adverse effect on our business. We are
dependent upon the active participation of several key management personnel,
including Brian Sorrentino, our chief executive officer, and Mark Solomon, our
president. This is especially an issue for us since our staffing is small. The
failure to retain our current management or personnel could have a material and
adverse effect on our operating results and financial performance.
3
BECAUSE OUR MANAGEMENT TEAM DEVOTES A LIMITED AMOUNT OF THEIR TIME TO OUR
AFFAIRS, OUR BUSINESS MAY NOT BE SUCCESSFUL.
Our management team consists of individuals who are concurrently involved
in other activities and careers and will be spending only a limited amount of
time on our affairs. We may not be able to successfully implement our business
plan or continue our operations if our management team is unable to devote the
time required.
OUR STRATEGY MAY INVOLVE SPECULATIVE INVESTMENTS WHICH COULD CAUSE US TO LOSE
SOME OR ALL OF OUR INVESTED FUNDS AND COULD CAUSE THE PRICE OF OUR STOCK TO
DECLINE.
Our success depends on our ability to develop or select companies that will be
ultimately successful. There may be factors outside our control which could
affect the success of the acquired companies. We intend to seek companies in the
early stages of development with limited operating history, little revenue and
possible losses. If we becomes affiliated with such entities and they do not
succeed, the value of our assets, results of operations and the price of our
common stock could decline.
MANAGEMENT AND AFFILIATES OWN ENOUGH SHARES TO CONTROL SHAREHOLDER VOTE WHICH
COULD LIMIT THE RIGHTS OF EXISTING OR FUTURE SHAREHOLDERS.
Our executive officers, directors, affiliates and entities controlled by them
own approximately 33.92% of the outstanding common stock. As a result, these
executive officers and directors will control the vote on matters that require
stockholder approval such as election of directors, approval of a corporate
merger, increasing or decreasing the number of authorized shares, adopting
corporate benefit plans, effecting a stock split, amending our Certificate of
Incorporation or other material corporate actions.
WE DO NOT HAVE EMPLOYMENT AGREEMENTS WITH ANY OF OUR OFFICERS OR EMPLOYEES AND
IF WE ARE UNABLE TO RETAIN OUR MANAGEMENT TEAM OUR BUSINESS OPERATIONS MAY NOT
BE ABLE TO CONTINUE TO OPERATE.
Our success in achieving our growth objectives is dependant to a substantial
extent upon the continuing efforts and abilities of our key management
personnel, including the efforts of Brian Sorrentino, our Chief Executive
Officer, as well as other executive officers and management. We do not have
employment agreements with any of our executive officers and the loss of their
services would deprive us of their needed legal and business contacts and
experiences. We may not be able to maintain and achieve our growth objectives
should we lose any or all of these individuals' services. We do not maintain
key-man life insurance for any of our officers.
IF WE ARE REQUIRED TO COMPLY WITH THE INVESTMENT COMPANY ACT OF 1940, WE WILL
INCUR SUBSTANTIAL ADDITIONAL EXPENSES AND IF WE DO NOT COMPLY WITH THE
INVESTMENT COMPANY ACT OF 1940, THEN WE COULD BE SUBJECT TO LIABILITIES.
Our ownership interest in companies that we seek to consult with and
acquire could result in our being classified as an investment company under the
Investment Company Act of 1940. If we are required to register as an investment
company, then we will incur substantial additional expenses as the result of the
Investment Company Act of 1940's record keeping, reporting, voting, proxy
disclosure and other legal requirements. We have obtained no formal
determination from the Securities and Exchange Commission as to our status under
the Investment Company Act of 1940. Any violation of the Investment Company Act
of 1940 could subject us to civil or criminal liabilities. In the event we
engage in business combinations which result in our holding passive investment
interests in a number of entities, we could be subject to regulation under the
Investment Company Act of 1940. Passive investment interests, as used in the
Investment Company Act, essentially means investments held by entities which do
not provide management or consulting services or are not involved in the
businesses whose securities are held. In such event, we would be required to
register as an investment company and could be expected to incur significant
registration and compliance costs. Restrictions on transactions between an
investment company and its affiliates under the Investment Company Act of 1940
would make it difficult, if not impossible, for us to implement our business
strategy of actively managing, operating and promoting collaboration among our
to be acquired network of affiliated entities.
RISKS RELATING TO OUR CURRENT STANDBY EQUITY DISTRIBUTION AGREEMENT:
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR STANDBY EQUITY DISTRIBUTION
AGREEMENT THAT ARE BEING REGISTERED IN THIS PROSPECTUS AND THE SALE OF THESE
SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
The issuance and sale of shares upon delivery of an advance by Cornell
Capital Partners pursuant to the Standby Equity Distribution Agreement in the
amount up to $10,000,000 is likely to result in substantial dilution to the
interests of other stockholders. There is no upper limit on the number of shares
that we may be required to issue. This will have the effect of further diluting
the proportionate equity interest and voting power of holders of our common
stock and may result in a change of control of our Company.
4
WE WERE REQUIRED TO ISSUE 1,160,000 SHARES OF COMMON STOCK TO CORNELL CAPITAL AS
A COMMITMENT FEE PURSUANT TO THE STANDBY EQUITY DISTRIBUTION AGREEMENT, WHICH
HAS RESULTED IN SUBSTANTIAL DILUTION OF OUR CURRENT STOCKHOLDERS AND UPON
EFFECTIVENESS OF THIS PROSPECTUS, CORNELL CAPITAL MAY SELL THE 1,160,000 SHARES
INTO THE MARKET, WHICH MAY RESULT IN A DECREASE IN OUR MARKET PRICE.
Upon the execution of Standby Distribution Equity Agreement, we were required to
issue a commitment fee in the form of shares of common stock to Cornell Capital
in an amount equal to $290,000 divided by the closing bid price of our common
stock, as quoted by Bloomberg, LP, as of June 15, 2004, which was $.25. This
resulted in the issuance of 1,160,000 shares of common stock to Cornell Capital.
The issuance of the 1,160,000 shares to Cornell Capital has resulted in
substantial dilution to the interests of other stockholders. In order to be
convert this commitment fee into cash, Cornell Capital has an incentive to sell
the shares immediately upon effectiveness of this prospectus, which may result
in a decrease in our market price.
THE CONTINUOUSLY ADJUSTABLE PRICE FEATURE OF OUR STANDBY EQUITY DISTRIBUTION
AGREEMENT COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES,
WHICH WILL CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.
Our obligation to issue shares upon receipt of an advance pursuant to the
Standby Equity Distribution Agreement is essentially limitless. The purchase
price of the shares purchased under the Standby Equity Distribution Agreement
will be equal to 98% of the lowest volume weighted average price of the common
stock for the five consecutive trading days immediately following the notice to
advance funds date. As Cornell Capital will always receive shares at a discount
to market, it will have an incentive to sell immediately to realize the gain on
the difference. As our market price decreases, Cornell Capital will sell at an
increased pace in order to take advantage of its discount. Further, Cornell
Capital may sell shares during the pricing period which is the five consecutive
trading days immediately following the notice date. The purchase price that
Cornell Capital will pay is determined during the pricing period. As a result,
Cornell Capital may sell shares during the pricing period, which may cause the
market price to decrease and, in turn, additional shares to be issued to Cornell
Capital due to a decreased purchase price. The following is an example of the
amount of shares of our common stock issuable in connection with an advance of
$200,000 under the Standby Equity Distribution Agreement, based on market prices
25%, 50% and 75% below the market price as of August 16, 2004 of $0.25:
% Below market Price Per Share Discount of 2% Number of Shares Issuable Percentage of Stock*
- --------------------------------------------------------------------------------------------------------------------------
25% $.1875 $.1838 1,088,435 7.05%
50% $.1250 $.1225 1,632,653 10.21%
75% $.0625 $.0613 3,265,306 18.53%
*Based upon 14,360,088 shares of common stock outstanding.
As illustrated, the number of shares of common stock issuable in
connection with an advance under the Standby Equity Distribution Agreement will
increase if the market price of our stock declines, which will cause dilution to
our existing stockholders.
THE SALE OF OUR STOCK UNDER OUR STANDBY EQUITY DISTRIBUTION AGREEMENT COULD
ENCOURAGE SHORT SALES BY THIRD PARTIES, WHICH COULD CONTRIBUTE TO THE FUTURE
DECLINE OF OUR STOCK PRICE AND MATERIALLY DILUTE EXISTING STOCKHOLDERS' EQUITY
AND VOTING RIGHTS.
In many circumstances the provision of a Standby Equity Distribution
Agreement for companies that are traded on the Over-The-Counter Bulletin Board
has the potential to cause significant downward pressure on the price of common
stock. This is particularly the case if the shares being placed into the market
exceed the market's ability to absorb the increased stock or if we have not
performed in such a manner to show that the equity funds raised will be used to
grow our company. Such an event could place further downward pressure on the
price of our common stock. Under the terms of our Standby Equity Distribution
Agreement we may request numerous drawdowns. Even if we use the Standby Equity
Distribution Agreement to grow our revenues and profits or invest in assets
which are materially beneficial to us, the opportunity exists for short sellers
and others to contribute to the future decline of our stock price despite the
fact that Cornell Capital may only engage in naked short transactions so long as
the sales are not in excess of the amount of shares owned by Cornell Capital. If
there are significant short sales of our stock, the price decline that would
result from this activity will cause the share price to decline more so, which,
in turn, may cause long holders of the stock to sell their shares thereby
contributing to sales of stock in the market. If there is an imbalance on the
sell side of the market for the stock, the stock price will decline. If this
occurs, the number of shares of our common stock that is issuable pursuant to
the Standby Equity Distribution Agreement will increase, which will materially
dilute existing stockholders' equity and voting rights.
5
THE PRICE YOU PAY IN THIS OFFERING WILL FLUCTUATE AND MAY BE HIGHER THAN THE
PRICES PAID BY OTHER PEOPLE PARTICIPATING IN THIS OFFERING.
The price in this offering will fluctuate based on the prevailing market
price of the common stock on the Over-the-Counter Bulletin Board. Accordingly,
the price you pay in this offering may be higher than the prices paid by other
people participating in this offering.
WE MAY NOT BE ABLE TO ACCESS SUFFICIENT FUNDS UNDER THE STANDBY EQUITY
DISTRIBUTION AGREEMENT WHEN NEEDED
We are to some extent dependent on external financing to fund our
operations. Our financing needs are expected to be substantially provided from
the Standby Equity Distribution Agreement. No assurances can be given that such
financing will be available in sufficient amounts or at all when needed, in
part, because we are limited to a maximum draw down of $200,000 per advance.
RISKS RELATING TO OUR CURRENT CONVERTIBLE DEBENTURE FINANCING AGREEMENT:
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR CONVERTIBLE DEBENTURES THAT
MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY DEPRESS THE
MARKET PRICE OF OUR COMMON STOCK
As of October 1, 2004, we had 14,360,088 shares of common stock issued and
outstanding. The number of shares of common stock issuable upon conversion of
the outstanding convertible debentures and the sale of shares pursuant to our
Standby Equity Distribution Agreement may increase if the market price of our
stock declines. All of the shares, including all of the shares issuable upon
conversion of the debentures and upon sale pursuant to the Standby Equity
Distribution Agreement, may be sold without restriction. The sale of these
shares may adversely affect the market price of our common stock.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE
DEBENTURES COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES,
WHICH WILL CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.
Our obligation to issue shares upon conversion of our $200,000 principal
amount convertible debentures is essentially limitless. The following is an
example of the amount of shares of our common stock that are issuable upon
conversion of our convertible debentures (excluding accrued interest), based on
market prices 25%, 50% and 75% below the market price as of October 1, 2004 of
$0.25:
% Below Price With Discount Number of Shares
market Per Share of 20% Issuable Percentage of Stock*
- ----------------------------- ---------------- ----------------- ------------------------ ---------------------------
25% $.1875 $.15 1,333,333 8.50%
50% $.1250 $.10 2,000,000 12.22%
75% $.0625 $.05 4,000,000 21.79%
*Based upon 14,360,088 shares of common stock outstanding.
As illustrated, the number of shares of common stock issuable upon
conversion of our convertible debentures will increase if the market price of
our stock declines, which will cause dilution to our existing stockholders.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE
DEBENTURES MAY ENCOURAGE INVESTORS TO MAKE SHORT SALES IN OUR COMMON STOCK,
WHICH COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.
The convertible debentures are convertible into shares of our common stock
at a 20% discount to the trading price of the common stock prior to the
conversion. The significant downward pressure on the price of the common stock
as the selling stockholder converts and sells material amounts of common stock
could encourage short sales by investors. This could place further downward
pressure on the price of the common stock. In addition, not only the sale of
shares issued upon conversion of debentures or exercise of warrants, but also
the mere perception that these sales could occur, may adversely affect the
market price of the common stock.
6
THE ISSUANCE OF SHARES UPON CONVERSION OF THE CONVERTIBLE DEBENTURES MAY CAUSE
IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR EXISTING STOCKHOLDERS.
The issuance of shares upon conversion of the convertible debentures and
exercise of warrants may result in substantial dilution to the interests of
other stockholders since the selling stockholders may ultimately convert and
sell the full amount issuable on conversion. There is no upper limit on the
number of shares that may be issued which will have the effect of further
diluting the proportionate equity interest and voting power of holders of our
common stock, including investors in this offering.
IN THE EVENT THAT OUR STOCK PRICE DECLINES, THE SHARES OF COMMON STOCK ALLOCATED
FOR CONVERSION OF THE CONVERTIBLE DEBENTURES AND REGISTERED PURSUANT TO THIS
PROSPECTUS MAY NOT BE ADEQUATE AND WE MAY BE REQUIRED TO FILE A SUBSEQUENT
REGISTRATION STATEMENT COVERING ADDITIONAL SHARES. IF THE SHARES WE HAVE
ALLOCATED AND ARE REGISTERING HEREWITH ARE NOT ADEQUATE AND WE ARE REQUIRED TO
FILE AN ADDITIONAL REGISTRATION STATEMENT, WE MAY INCUR SUBSTANTIAL COSTS IN
CONNECTION THEREWITH.
Based on our current market price and the potential decrease in our market
price as a result of the issuance of shares upon conversion of the convertible
debentures, we have made a good faith estimate as to the amount of shares of
common stock that we are required to register and allocate for conversion of the
convertible debentures. Accordingly, we have allocated and registered 5,250,000
shares to cover the conversion of the convertible debentures. In the event that
our stock price decreases, the shares of common stock we have allocated for
conversion of the convertible debentures and are registering hereunder may not
be adequate. If the shares we have allocated to the registration statement are
not adequate and we are required to file an additional registration statement,
we may incur substantial costs in connection with the preparation and filing of
such registration statement.
IF WE ARE REQUIRED FOR ANY REASON TO REPAY OUR OUTSTANDING CONVERTIBLE
DEBENTURES, WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL, IF AVAILABLE,
OR RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE CONVERTIBLE DEBENTURES, IF
REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST US, WHICH COULD REQUIRE THE SALE
OF SUBSTANTIALLY ALL OF OUR ASSETS.
In June 2004, we entered into a Securities Purchase Agreement for the sale
of an aggregate of $200,000 principal amount of convertible debentures to
Cornell Capital Partners, L.P. The convertible debentures are due and payable,
with 5% interest, three years from the date of issuance, unless sooner converted
into shares of our common stock. Any event of default such as our failure to
repay the principal or interest when due, our failure to issue shares of common
stock upon conversion by the holder, our failure to timely file a registration
statement or have such registration statement declared effective, breach of any
covenant, representation or warranty in the Securities Purchase Agreement or
related convertible debenture, the commencement of a bankruptcy, insolvency,
reorganization or liquidation proceeding against our Company and the delisting
of our common stock could require the early repayment of the convertible
debentures if the default is not cured with the specified grace period. We
anticipate that the full amount of the convertible debentures, together with
accrued interest, will be converted into shares of our common stock, in
accordance with the terms of the convertible debentures. If we are required to
repay the convertible debentures, we would be required to use our limited
working capital and raise additional funds. If we were unable to repay the
debentures when required, the debenture holders could commence legal action
against us and foreclose on all of our assets to recover the amounts due. Any
such action would require us to curtail or cease operations.
RISKS RELATED TO OUR COMMON STOCK:
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET.
As of October 1, 2004, we had 14,360,088 shares of our common stock issued
and outstanding of which we believe 975,450 shares to be restricted shares. Rule
144 provides, in essence, that a person holding "restricted securities" for a
period of one year may sell only an amount every three months equal to the
greater of (a) one percent of a company's issued and outstanding shares, or (b)
the average weekly volume of sales during the four calendar weeks preceding the
sale. The amount of "restricted securities" which a person who is not an
affiliate of our company may sell is not so limited, since non-affiliates may
sell without volume limitation their shares held for two years if there is
adequate current public information available concerning our Company. In such an
event, "restricted securities" would be eligible for sale to the public at an
earlier date. The sale in the public market of such shares of common stock may
adversely affect prevailing market prices of our common stock.
THE LIMITED MARKET FOR OUR SHARES WILL MAKE OUR PRICE MORE VOLATILE; THEREFORE
YOU MAY HAVE DIFFICULTY SELLING OUR COMMON STOCK.
The market for our common stock is limited and we cannot assure you that a
larger market will ever be developed or maintained. Currently, our common stock
is traded on the Over-The-Counter Bulletin Board. Market fluctuations and
volatility, as well as general economic, market and political conditions, could
reduce our market price. As a result, this may make it difficult or impossible
for you to sell our common stock.
7
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange Commission has adopted Rule 3a51-1 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, Rule
15g-9 require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the SEC relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more difficult
for investors to dispose of our common stock and cause a decline in the market
value of our stock.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
8
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be
offered and sold from time to time by Cornell Capital Partners, L.P. We will
receive proceeds from the sale of shares of our common stock to Cornell Capital
Partners, L.P. under the Standby Equity Distribution Agreement, which restricts
the use of proceeds to general corporate purposes and prohibits us from using
the proceeds for the payment (or loaned to any such person for the payment) of
any judgment, or other liability, incurred by any executive officer, officer,
director or employee, except for any liability owed to such person for services
rendered, or if any judgment or other liability is incurred by such person
originating from services rendered our company, or we have indemnified such
person from liability. The purchase price of the shares purchased under the
Standby Equity Distribution Agreement will be equal to 98% of the lowest volume
weighted average price of the common stock for the five consecutive trading days
immediately following the notice to advance funds date. We have agreed to pay
Cornell Capital Partners, L.P. 5% of the proceeds that we receive under the
Standby Equity Distribution Agreement. We cannot draw more than $200,000 per
advance. Cornell Capital Partners is restricted from owing in excess of 9.9% of
our outstanding common stock. In the event that Cornell Capital Partners is
unable to sell shares of common stock that it acquires under the Standby Equity
Distribution Agreement and its ownership equals 9.9% of the our outstanding,
then we will not be able to draw down money under the Standby Distribution
Agreement.
For illustrative purposes, we have set forth below our intended use of
proceeds for the range of net proceeds indicated below to be received under the
Standby Equity Distribution Agreement. Although we are able to draw down the
full $10,000,000 pursuant to the Standby Equity Distribution Agreement, we
anticipate only needing to draw down between $3,000,000 and $6,000,000. The
table assumes estimated offering expenses of $45,000, plus the 5% fee to be paid
to Cornell Capital Partners, L.P.
GROSS PROCEEDS $3,000,000 $6,000,000 $10,000,000
NET PROCEEDS (AFTER OFFERING EXPENSES AND 5% FEE) $2,895,000 $5,655,000 $9,455,000
USE OF PROCEEDS:
Acquisition of Tri State Metro-Territories, LLC * $1,500,000 $1,500,000 $1,500,000
Additional Acquisitions* $237,000 $1,893,000 $4,173,000
General Working Capital $868,500 $1,696,500 $2,836,500
Administrative Expenses, Including Salaries $289,500 $565,500 $945,500
TOTAL $2,895,000 $5,655,000 $9,455,000
* Except for the letter of intent entered for the acquisition of Tri State
Metro-Territories, LLC, we currently do not have plans, arrangements or
agreements with respect to any particular acquisitions. Although it is our
intent to acquire all the assets of Tri-State, the specific terms and the
evaluations of the potential transaction have not yet been finalized and the
pending audited financial statements of Tri-State are a requirement for
completion of that transaction. The transaction is also subject to customary
closing conditions, including but not limited to the receipt of all definitive
documents, valuations, consents, and approvals. There can be no assurance as to
whether or when the transaction will close.
9
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders, including Cornell Capital Partners, L.P. and Newbridge Securities
Corporation. A description of each selling stockholder's relationship to our
Company and how each selling stockholder acquired the shares to be sold in this
offering is detailed in the information immediately following this table.
SHARES TO BE ACQUIRED UNDER
STANDBY EQUITY DISTRIBUTION
SHARES BENEFICIALLY OWNED AGREEMENT/ CONVERTIBLE SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING DEBENTURE AFTER THE OFFERING (2)
--------------------------------------------------------------------------------------------
NAME NUMBER PERCENT (1) NUMBER PERCENT (1) NUMBER PERCENT
- ------------------------------------------------------------------------------------------------------------------------------------
Cornell Capital Partners, L.P. 1,432,707 (3) 9.9% 48,750,000 78.89% 0 0%
101 Hudson Street,
Suite 3606
Jersey City, NJ 07302
Newbridge Securities Corporation 40,000 * N/A N/A 0 0%
1451 Cypress Creek Road, Suite 204
Fort Lauderdale, FL 33309
* Less than 1%.
(1) Applicable percentage ownership is based on 14,360,088 shares of common
stock outstanding as of October 1, 2004, together with securities
exercisable or convertible into shares of common stock within 60 days of
October 1, 2004 for each stockholder. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Shares of common stock that are currently exercisable or exercisable
within 60 days of August 24, 2004 are deemed to be beneficially owned by
the person holding such securities for the purpose of computing the
percentage of ownership of such person, but are not treated as outstanding
for the purpose of computing the percentage ownership of any other person.
(2) Assumes that all securities registered will be sold and that all shares of
common stock underlying the convertible debentures and the Standby Equity
Distribution Agreement will be issued.
(3) Represents (i) 1,160,000 shares issued to Cornell Capital Partners, L.P.
upon execution of the Standby Equity Distribution Agreement and (ii)
272,707 shares of common stock that are issuable pursuant to the secured
convertible notes and/or the Standby Equity Distribution Agreement, which
represents the maximum permitted ownership that the selling stockholder
can own at one time (and therefore, offer for resale at any one time)
equal to 9.9% of the outstanding common stock as required by the Standby
Equity Distribution Agreement. The number and percentage of shares
beneficially owned is determined in accordance with Rule 13d-3 of the
Securities Exchange Act of 1934, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rule,
beneficial ownership includes any shares as to which the selling
stockholders has sole or shared voting power or investment power and also
any shares, which the selling stockholders has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the
conversion of the secured convertible notes and the Standby Equity
Distribution Agreement is subject to adjustment depending on, among other
factors, the future market price of the common stock, and could be
materially less or more than the number estimated in the table.
The following information contains a description of each selling
stockholder's relationship to us and how each selling stockholder acquired the
shares to be sold in this offering is detailed below. None of the selling
stockholders have held a position or office, or had any other material
relationship, with our Company:
CORNELL CAPITAL PARTNERS, L.P. is the investor under the Standby Equity
Distribution Agreement and a holder of convertible debentures. All investment
decisions of Cornell Capital Partners are made by its general partner, Yorkville
Advisors, LLC. Mark Angelo, the managing member of Yorkville Advisors, makes the
investment decisions on behalf of Yorkville Advisors. Mr. Angelo does not have
voting control over the shares beneficially owned by Cornell Capital Partners.
Cornell Capital Partners acquired all shares being registered in this offering
in financing transactions with us. Those transactions are explained below:
10
STANDBY EQUITY DISTRIBUTION AGREEMENT. On June 15, 2004, we entered into
an Standby Equity Distribution Agreement with Cornell Capital Partners, L.P.
Pursuant to the Standby Equity Distribution Agreement, we may, at our
discretion, periodically sell to Cornell Capital Partners shares of common stock
for a total purchase price of up to $10,000,000. For each share of common stock
purchased under the Standby Equity Distribution Agreement, Cornell Capital
Partners will pay us 98% of the lowest volume weighted average price of the
common stock during the five consecutive trading days immediately following the
notice date. Further, we have agreed to pay Cornell Capital Partners, L.P. 5% of
the proceeds that we receive under the Standby Equity Distribution Agreement. In
addition, Cornell Capital Partners will retain 5% of each advance under the
Standby Equity Distribution Agreement. For example, assuming that the 98% of
lowest volume weighted average price of our common stock during the five
consecutive trading days immediately following a notice date is $.245, if we
request an advance in the amount of $200,000, Cornell Capital will be entitled
to the following:
o $10,000, which represents the 5% commitment fee; and
o 816,327 shares of our common stock, which is calculated by dividing
$200,000 by $.245.
Cornell Capital Partners is restricted from owing in excess of 9.9%
of our outstanding common stock. In the event that Cornell Capital
Partners is unable to sell shares of common stock that it acquires under
the Standby Equity Distribution Agreement and its ownership equals 9.9% of
the our outstanding, then we will not be able to draw down money under the
Standby Distribution Agreement. Cornell Capital Partners also received
1,160,000 shares of our common stock upon execution of the Standby Equity
Distribution Agreement. We are registering in this offering 43,500,000
shares of common stock to be issued under the Standby Equity Distribution
Agreement.
SECURED CONVERTIBLE DEBENTURES. To obtain funding for our ongoing
operations, we entered into a Securities Purchase Agreement with Cornell
Capital Partners on June 15, 2004 for the sale of $200,000 in convertible
debentures of which $50,000 was received by us on June 15, 2004 and
$150,000 was received by us on July 9, 2004.. The debentures issued
pursuant to the June 2004 Securities Purchase Agreement bear interest at
5%, mature three years from the date of issuance, and are convertible into
our common stock, at the holder's option, at the lower of the following:
(i) $.42; or (ii) eighty percent (80%) of the lowest volume weighted
average price of the common stock for the five (5) trading days
immediately preceding the conversion date. We are registering in this
offering 5,250,000 shares of common stock underlying the debentures.
THERE ARE CERTAIN RISKS RELATED TO SALES BY CORNELL CAPITAL PARTNERS,
INCLUDING:
The outstanding shares are issued based on a discount to the market
rate. As a result, the lower the stock price around the time Cornell
Capital Partners is issued shares, the greater chance that it receives
more shares. This could result in substantial dilution to the interests
of other holders of common stock.
To the extent Cornell Capital Partners sells its common stock, the
common stock price may decrease due to the additional shares in the
market. This could allow Cornell Capital Partners to sell greater
amounts of common stock, the sales of which would further depress the
stock price.
The significant downward pressure on the price of the common stock as
Cornell Capital Partners sells material amounts of common stocks could
encourage short sales by others. This could place further downward
pressure on the price of the common stock.
NEWBRIDGE SECURITIES CORPORATION. Newbridge Securities Corporation is
an unaffiliated registered broker-dealer that has been retained by us. Mr. Guy
S. Amico, Newbridge Securities Corporation's President, makes the investment
decisions on behalf of Newbridge Securities Corporation and has voting control
over the securities beneficially owned by Newbridge Securities Corporation. For
its services in connection with the Standby Equity Distribution Agreement,
Newbridge Securities Corporation received a fee of 40,000 shares of common
stock. These shares are being registered in this offering.
11
STANDBY EQUITY DISTRIBUTION AGREEMENT
SUMMARY. On June 15, 2004, we entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners, L.P. Pursuant to the Standby Equity
Distribution Agreement, we may, at our discretion, periodically sell to Cornell
Capital Partners shares of common stock for a total purchase price of up to
$10,000,000. For each share of common stock purchased under the Standby Equity
Distribution Agreement, Cornell Capital Partners will pay 98% of the lowest
volume weighted average price of the common stock during the five consecutive
trading days immediately following the notice date. In addition, Cornell Capital
Partners will retain 5% of each advance under the Standby Equity Distribution
Agreement. For example, assuming that the 98% of lowest volume weighted average
price of our common stock during the five consecutive trading days immediately
following a notice date is $.245, if we request an advance in the amount of
$200,000, Cornell Capital will be entitled to the following:
o $10,000, which represents the 5% commitment fee; and
o 816,327 shares of our common stock, which is calculated by dividing
$200,000 by $.245.
We are registering in this offering 43,500,000 shares of common stock to
be issued under the Standby Equity Distribution Agreement. Cornell Capital
Partners is a private limited partnership whose business operations are
conducted through its general partner, Yorkville Advisors, LLC. Cornell Capital
Partners will retain 5% of each advance under the Standby Equity Distribution
Agreement. Cornell Capital Partners is restricted from owing in excess of 9.9%
of our outstanding common stock. In the event that Cornell Capital Partners is
unable to sell shares of common stock that it acquires under the Standby Equity
Distribution Agreement and its ownership equals 9.9% of the our outstanding,
then we will not be able to draw down money under the Standby Distribution
Agreement. In addition, we engaged Newbridge Securities Corporation, a
registered broker-dealer, to advise us in connection with the Standby Equity
Distribution Agreement. For its services, Newbridge Securities Corporation
received 40,000 shares of our common stock.
STANDBY EQUITY DISTRIBUTION AGREEMENT EXPLAINED. Pursuant to the Standby
Equity Distribution Agreement, we may periodically sell shares of common stock
to Cornell Capital Partners, L.P. to raise capital to fund our working capital
needs. The periodic sale of shares is known as an advance. We may request an
advance every seven trading days. A closing will be held six trading days after
written notice of such a request, at which time we will deliver shares of common
stock and Cornell Capital Partners, L.P. will pay the advance amount.
We may request advances under the Standby Equity Distribution Agreement
once the underlying shares are registered with the Securities and Exchange
Commission. Thereafter, we may continue to request advances until Cornell
Capital Partners has advanced $10,000,000 or two years after the effective date
of the accompanying registration statement, whichever occurs first.
The amount of each advance is subject to an aggregate maximum advance
amount of $200,000. The amount available under the Standby Equity Distribution
Agreement is not dependent on the price or volume of our common stock. Cornell
Capital Partners may not own more than 9.9% of our outstanding common stock at
any time. Because Cornell Capital Partners can repeatedly acquire and sell
shares, this limitation does not limit the potential dilutive effect or the
total number of shares that Cornell Capital Partners may receive under the
Standby Equity Distribution Agreement. In the event that Cornell Capital
Partners is unable to sell its shares and its percentage ownership is equal to
9.9% of our outstanding common stock, we will not be able to request an advance
under the Standby Equity Distribution Agreement as Cornell Capital Partners is
restricted to owning more than 9.9% of our outstanding common stock. In
addition, Cornell Capital may terminate the Standby Equity Distribution
Agreement upon the occurrence of the following:
o there shall occur any stop order or suspension of the effectiveness
of this prospectus for an aggregate of 50 trading days, other than
due to the acts of Cornell Capital;
o we shall fail to keep our company listed on the Over the Counter
Bulletin Board and such failure shall continue for 30 days;
o we shall fail to cause our common stock to be registered under the
Securities Exchange Act of 1934 and such failure shall continue for
30 days; and
o two years after the effective date of this prospectus.
12
Cornell Capital is not required to pay for shares under the Standby Equity
Distribution Agreement if any of the following occur:
o this prospectus shall not be declared effective or fail to
remain effective;
o the SEC has issued or intends to issue a stop order with
respect to the prospectus or that the SEC otherwise has
suspended or withdrawn the effectiveness of the prospectus;
o the sale and issuance of the shares of common stock shall not
be legally permitted by all laws and regulations that we are
subject to;
o there shall not exist any fundamental changes to the
information set forth in this prospectus such as a the
existence of a material acquisition or change in our business,
which would require us to file a post-effective amendment,
such as a material event;
o our trading shall be suspended by the SEC or the OTCBB; and
o the amount of the advance requested shall result in Cornell
Capital owning in excess of 9.9% of our outstanding common
stock.
In the event that Cornell Capital should fail to perform any of its
obligations under the Standby Equity Distribution Agreement, then we are not
obligated to issue shares thereunder.
We cannot predict the actual number of shares of common stock that will be
issued pursuant to the Standby Equity Distribution Agreement, in part, because
the purchase price of the shares will fluctuate based on prevailing market
conditions and we have not determined the total amount of advances we intend to
draw. Nonetheless, we can estimate the number of shares of our common stock that
will be issued using certain assumptions. For example, we would need to issue
33,333,333 shares of common stock in order to raise the maximum amount of
$10,000,000 under the Standby Equity Distribution Agreement at a purchase price
of $0.30.
The following is an example of the amount of shares of our common stock
issuable in connection with an advance of $200,000 under the Standby Equity
Distribution Agreement, based on market prices 25%, 50% and 75% below the market
price as of October 1, 2004 of $0.25:
% Below market Price Per Share Discount of 2% Number of Shares Issuable Percentage of Stock*
------------------ ---------------- -------------------------- --------------------------- ------------------------
25% $.1875 $.1838 1,088,435 7.05%
50% $.1250 $.1225 1,632,653 10.21%
75% $.0625 $.0613 3,265,306 18.53%
------------------ ---------------- -------------------------- --------------------------- ------------------------
*Based upon 14,360,088 shares of common stock outstanding.
We are registering a total of 43,500,000 shares of common stock for the
sale under the Standby Equity Distribution Agreement. The issuance of shares
under the Standby Equity Distribution Agreement may result in a change of
control. Up to 43,500,000 shares of common stock could be issued under the
Standby Equity Distribution Agreement. If all or a significant block of these
shares are held by one or more stockholders working together, then such
stockholder or stockholders would have enough shares to assume control of us by
electing its or their own directors. This could happen, for example, if Cornell
Capital Partners sold the shares purchased under the Standby Equity Distribution
Agreement to the same purchaser.
Proceeds used under the Standby Equity Distribution Agreement will be used
in the manner set forth in the "Use of Proceeds" section of this prospectus. We
cannot predict the total amount of proceeds to be raised in this transaction
because we have not determined the total amount of the advances we intend to
draw.
13
We expect to incur expenses of approximately $45,000 consisting primarily
of professional fees incurred in connection with this registration. In addition,
Cornell Capital Partners will retain 5% of each advance. In addition, we issued
40,000 shares of common stock to Newbridge Securities Corporation, a registered
broker-dealer, as a placement agent fee.
SAMPLE CONVERSION CALCULATION OF THE CONVERTIBLE DEBENTURE
On June 15, 2004, we entered into a Securities Purchase Agreement whereby
we issued $200,000 in convertible debentures to Cornell Capital Partners, L.P.
of which $50,000 was received by us on June 15, 2004 and $150,000 was received
by us on July 9, 2004. The debentures bear interest at 5%, mature three years
from the date of issuance, and are convertible into our common stock, at the
holder's option, at the lower of: (i) $.42; or eighty percent (80%) of the
lowest volume weighted average price of the common stock for the five (5)
trading days immediately preceding the conversion date. We are registering in
this offering 5,250,000 shares of common stock underlying the debentures.
The number of shares of common stock issuable upon conversion of the
debentures is determined by dividing that portion of the principal of the
debenture to be converted and interest, if any, by the conversion price. For
example, assuming conversion of $200,000 of debentures on October 1, 2004, and a
conversion price of $0.28 per share, the number of shares issuable upon
conversion would be:
$200,000/$.20 = 1,000,000 shares
The following is an example of the amount of shares of our common stock that are
issuable upon conversion of our convertible debentures (excluding accrued
interest), based on market prices 25%, 50% and 75% below the market price as of
August 18, 2004 of $0.25:
% Below market Price Per Share With Discount of 20% Number of Shares Issuable Percentage of Stock*
-------------- --------------- -------------------- ------------------------- --------------------
25% $.1875 $.15 1,333,333 8.50%
50% $.1250 $.10 2,000,000 12.22%
75% $.0625 $.05 4,000,000 21.79%
*Based upon 14,360,088 shares of common stock outstanding.
14
PLAN OF DISTRIBUTION
The selling stockholders may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. This registration
statement does not cover sales by donees, pledgees, transferees or other
successors-in-interest of Cornell Capital. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately-negotiated transactions;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o through the writing of options on the shares;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The selling stockholders may also engage puts, calls and other
transactions in our securities or derivatives of our securities and may sell or
deliver shares in connection with these trades.
The selling stockholders may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed to be "underwriters" as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares, including fees and disbursements of counsel to the selling
stockholders, but excluding brokerage commissions or underwriter discounts.
The selling stockholders, alternatively, may sell all or any part of the
shares offered in this prospectus through an underwriter. No selling stockholder
has entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
The selling stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholders defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by the selling stockholders or any other such person. In the
event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. All of these limitations may affect the marketability of the shares.
15
We have agreed to indemnify the selling stockholders, or their transferees
or assignees, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the selling
stockholders, may be required to make in respect of such liabilities.
If the selling stockholders notify us that they have a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholders and the broker-dealer.
Upon execution of the Standby Equity Distribution Agreement, Newbridge
Securities Corporation, Cornell Capital and our company, entered a Placement
Agent Agreement whereby Newbridge Securities Corporation, as exclusive placement
agent, agreed to review the terms of the Standby Equity Distribution Agreement
and advise us with respect to those terms. Pursuant to this agreement, in
consideration for Newbridge Securities Corporation providing its services to us,
we agreed to issue Newbridge Securities Corporation 40,000 shares of common
stock. Newbridge Securities Corporation is an "underwriter" within the meaning
of the Securities Act of 1933 in connection with the sale of its shares of
common stock.
16
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock is currently traded on the Over-The-Counter Bulletin
Board under the symbol SCYI. For the periods indicated, the following table sets
forth the high and low bid prices per share of common stock. These prices
represent inter-dealer quotations without retail markup, markdown, or commission
and may not necessarily represent actual transactions.
Fiscal 2004 Fiscal 2003 Fiscal 2002
-------------------------- ------------------------- --------------------------
COMMON STOCK High Low High Low High Low)
- -------------------------------------------- ------------- ------------ ------------ ------------ ------------ -------------
First Quarter $0.60 $0.25 $0.05 $0.02 -- --
Second Quarter $1.90 $0.55 $1.15 $0.05 -- --
Third Quarter $0.30 $0.25 $0.05 $0.05 -- --
Fourth Quarter -- -- $2.45 $0.05 -- --
As of October 1, 2004, our shares of common stock were held by
approximately 41 stockholders of record. We believe that the number of
beneficial owners is substantially greater than the number of record holders
because a significant portion of our outstanding common stock is held of record
in broker "street names" for the benefit of individual investors. The transfer
agent of our common stock is Pacific Stock Transfer, Inc. In connection with the
Standby Equity Distribution Agreement and Securities Purchase Agreement between
Cornell Capital Partners, L.P. and our Company, we engaged Continental Stock
Transfer and Trust Company as co-transfer agent.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table shows information with respect to each equity
compensation plan under which the Company's common stock is authorized for
issuance as of the fiscal year ended December 31, 2003.
EQUITY COMPENSATION PLAN INFORMATION
- ------------------------------------ ------------------------ ----------------------- ---------------------------
Plan category NUMBER OF SECURITIES WEIGHTED AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE OF REMAINING AVAILABLE FOR
EXERCISE OF OUTSTANDING OPTIONS, FUTURE ISSUANCE UNDER
OUTSTANDING OPTIONS, WARRANTS AND RIGHTS EQUITY COMPENSATION PLANS
WARRANTS AND RIGHTS (EXCLUDING SECURITIES
REFLECTED IN COLUMN (A)
- ------------------------------------ ------------------------ ----------------------- ---------------------------
(A) (B) (C)
- ------------------------------------ ------------------------ ----------------------- ---------------------------
EQUITY COMPENSATION PLANS APPROVED
BY SECURITY HOLDERS -0- -0- -0-
- ------------------------------------ ------------------------ ----------------------- ---------------------------
EQUITY COMPENSATION PLANS NOT
APPROVED BY SECURITY HOLDERS -0- -0- -0-
- ------------------------------------ ------------------------ ----------------------- ---------------------------
TOTAL -0- -0- -0-
- ------------------------------------ ------------------------ ----------------------- ---------------------------
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
The information in this registration statement contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. This Act provides a "safe harbor" for forward-looking statements to
encourage companies to provide prospective information about themselves so long
as they identify these statements as forward looking and provide meaningful
cautionary statements identifying important factors that could cause actual
results to differ from the projected results. All statements other than
statements of historical fact made in this registration statement are forward
looking. In particular, the statements herein regarding industry prospects and
future results of operations or financial position are forward-looking
statements. Forward-looking statements reflect management's current expectations
and are inherently uncertain. Our actual results may differ significantly from
management's expectations.
The following discussion and analysis should be read in conjunction with
our financial statements and summary of selected financial data, included
herewith. This discussion should not be construed to imply that the results
discussed herein will necessarily continue into the future, or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future. Such discussion represents only the best present
assessment of our management.
GENERAL
We are a consulting company formed to acquire controlling interests in or
to participate in the creation of, and to provide financial, management and
technical support to, development stage businesses. Our strategy is to integrate
affiliated companies into a network and to actively develop the business
strategies, operations and management teams of the affiliated entities.
It is the intent of our board of directors to develop and exploit all
business opportunities to increase efficiencies between companies with which we
may invest in or consult. In addition, we may acquire companies to be held as
wholly owned subsidiaries.
We had one wholly owned subsidiary, Kemper Pressure Treated Forest
Products, Inc. Kemper was engaged in the retail brokerage business of
preservative treated lumber such as utility poles, bridge pilings, timber and
guardrail posts. Kemper had one customer and as a result of limited revenue we
elected to wind down Kemper's operations during the fourth quarter of 2003. We
have changed our focus and growth efforts towards our consulting business and/or
the acquisition of an operating development company.
On November 10, 2003, we entered into a Letter of Intent with Tri State
Metro- Territories, LLC (Tri-State) to acquire substantially all of the assets
of Tri-State. Brian Sorrentino, a major shareholder of our company as well as an
executive officer and director, is also the managing member in Tri State. Tri
State is in the business of selling franchised hair coloring salon units under
the name of "HCX the haircolorxperts". The assets being acquired by us include
the exclusive rights to develop the franchise chain of "HCX Tri-State Metro
Territories LLC" in the District of Columbia and Maryland area as well as the
interest in the prototype HCX Salon located in Columbia, Maryland. On March 18,
2004, we entered into privately negotiated exchange agreements to exchange
355,000 restricted shares of our common stock for 8% of membership interests of
Tri-State. Although it is our intent to acquire all the assets of Tri-State, the
specific terms and the evaluations of the potential transaction have not yet
been finalized and the pending audited financial statements of Tri-State are a
requirement for completion of that transaction. The transaction is also subject
to customary closing conditions, including but not limited to the receipt of all
definitive documents, valuations, consents, and approvals. There can be no
assurance as to whether or when the transaction will close.
THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003
For the three months ended June 30, 2004, our revenue decreased by $70
dollars to $0 for the quarter ended June 30, 2004. The decrease is primarily
attributed to a reduction in consulting fees received from Tri-State.
The General and Administrative Operating Expenses for the quarter ended
June 30, 2004 increased from $10,745 for the quarter ended June 30, 2003 to
$43,006 for the quarter ended June 30, 2004. Our total operating expenses
increased from $10,745 at June 30, 2003 to $583,506 for the quarter ended June
30, 2004.
The net loss for the quarter ended June 30, 2004 was $605,939 compared to
net income of $537 for the quarter ended June 30, 2003.
18
Total current assets were $206,914 and total assets were $418,345 at June
30, 2004. Our total current liabilities were $749,058. Our total loss per share
was $(0.05).
FISCAL YEAR ENDED DECEMBER 31, 2003 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2002
For the year ended December 31, 2003, our revenue decreased by $9,305 to
$3,420 from $12,725 for the year ended December 31, 2002. The decrease is
primarily attributed to the winding down of our wholly owned subsidiary, Kemper
Pressure Treated Forest Products, Inc.
The General and Administrative Operating Expenses for the period ended
December 31, 2003 increased by $178,954 to $215,492 from $36,538 for the period
ending December 31, 2002. Our total operating expenses increases from $37,448 at
December 31, 2002 to $1,222,830 for the fiscal year ended December 31, 2003.
These increase are primarily attributed to the issuance of our common stock as
consideration, valued at $1.00 per share, related to exploring acquisition
candidates.
The net loss for the year ended December 31, 2003 was $1,088,420 compared
to net income of $21,306 for the year ended December 31, 2002. The primary
reasons for the increase in the loss was due to the winding down of our
subsidiary's wood business.
LIQUIDITY AND CAPITAL RESOURCES
Total current assets at December 31, 2003 were $14.
We have historically incurred losses. For the three months ended June 30,
2004, we had a net loss of $605,939. For the fiscal year ended December 31,
2003, we had a net loss of $1,088,420. On June 15, 2004, we entered into a
Standby Equity Distribution Agreement with Cornell Capital Partners, L.P.
Pursuant to the Standby Equity Distribution Agreement, we may, at our
discretion, periodically sell to Cornell Capital Partners shares of common stock
for a total purchase price of up to $10,000,000. For each share of common stock
purchased under the Standby Equity Distribution Agreement, Cornell Capital
Partners will pay 98% of the lowest volume weighted average price of the common
stock during the five consecutive trading days immediately following the notice
date. In addition, Cornell Capital Partners will retain 5% of each advance under
the Standby Equity Distribution Agreement. For example, assuming that the 98% of
lowest volume weighted average price of our common stock during the five
consecutive trading days immediately following a notice date is $.245, if we
request an advance in the amount of $200,000, Cornell Capital will be entitled
to the following:
o $10,000, which represents the 5% commitment fee; and
o 816,327 shares of our common stock, which is calculated by dividing
$200,000 by $.245.
Cornell Capital Partners is restricted from owing in excess of 9.9% of our
outstanding common stock. In the event that Cornell Capital Partners is unable
to sell shares of common stock that it acquires under the Standby Equity
Distribution Agreement and its ownership equals 9.9% of the our outstanding,
then we will not be able to draw down money under the Standby Distribution
Agreement. Cornell Capital Partners is a private limited partnership whose
business operations are conducted through its general partner, Yorkville
Advisors, LLC. In addition, we engaged Newbridge Securities Corporation, a
registered broker-dealer, to advise us in connection with the Standby Equity
Distribution Agreement. For its services, Newbridge Securities Corporation
received 40,000 shares of our common stock.
On June 15, 2004, we entered into a Securities Purchase Agreement whereby
we issued $200,000 in convertible debentures to Cornell Capital Partners, L.P.
of which $50,000 was received by us on June 15, 2004 and $150,000 was received
by us on July 9, 2004. The debentures bear interest at 5%, mature three years
from the date of issuance, and are convertible into our common stock, at the
holder's option, at the lower of: (i) $.42; or (ii) eighty percent (80%) of the
lowest volume weighted average price of the common stock for the five (5)
trading days immediately preceding the conversion date. The issuance of the
convertible debenture has resulted in the creation of a liability. However, we
believe, although we cannot provide guarantees, that the convertible debenture
will be converted by Cornell Capital into shares of our common stock thereby not
impacting our cash position. In the event that Cornell Capital does not convert
the debenture to shares, then we will be required to repay the principal and
interest on the debenture, which will have a negative impact on our liquidity.
19
Our future revenues and profits, if any, will depend upon various factors,
including the following:
o whether we will be able to effectively evaluate the overall quality
and industry expertise of potential acquisition candidates;
o whether we will have the funds to provide seed capital and mezzanine
financing to brick-and-mortar, e-commerce and Internet-related
companies; and
o whether we can develop and implement business models that will
enable growth companies to develop.
We may not be able to effect any acquisitions of or investments in development
stage companies if we are unable to secure sufficient funds to finance our
proposed acquisitions costs. We expect that our current cash and cash
equivalents will allow us to continue our current operation for six months. If
we are unable to generate additional revenues or secure financings, we may be
forced to cease or curtail operations.
We intend for our management team to identify companies that are
positioned to succeed and to assist those companies with financial, managerial
and technical support. Over the next 12 months, we intend to increase revenue
and gross profit margin by focusing and expanding its consulting services and
seeking acquisition candidates. It is management's belief that potential
acquisition targets can be better identified and assessed for risk if we first
become involved with these candidates on a consulting capacity. Our strategy is
to integrate affiliated companies into a network and to actively develop the
business strategies, operations and management teams of the affiliated entities.
We have recently decided to engage in the acquisition phase of our business
plan. To that end, we expanded our relationship with HCX Tri-State Metro
Territories and on November 7, 2003 executed a Letter of Intent pursuant to
which we will acquire substantially all of the assets of Tri State. Tri State is
in the business of selling franchised hair coloring salon units under the name
of "HCX the haircolorxperts".
We do not foresee any significant changes in the number of our employees
over the next twelve months except in the event we finalize our acquisition of
the assets of Tri-State or complete any other acquisitions which would require
us to hire additional employees related to that business.
We have not paid dividends on our common stock, and intend to reinvest our
earnings to support our working capital and expansion requirements. We intend to
continue to utilize our earnings in the development and expansion of the
business and do not expect to pay cash dividends in the foreseeable future. It
is the belief of management that as we move toward an active trading status the
ability to raise capital by stock issuance to effect our business plan is
enhanced.
We do not expect to sell any manufacturing facilities or significant
equipment over the next twelve months except within the demands of potential
acquisitions that we may pursue.
20
DESCRIPTION OF BUSINESS
BACKGROUND
We are a Delaware corporation. Kemper Pressure Treated Forest Products, Inc. is
Mississippi corporation formed in 1987. On August 16, 1999, the shareholders of
Kemper Pressure Treated Forest Products exchanged all their outstanding stock,
16,200,000 shares, on a one-for-one basis for shares of stock of Life2K.com,
Inc., a Delaware corporation, which had been incorporated in Delaware on March
24, 1999 as Algonquin Acquisition Corporation and which had no operations, no
revenues and one shareholder, TPG Capital Corporation. On August 12, 1999, in
anticipation of the share exchange with Kemper Pressure Treated Forest Products,
Inc., Algonquin Acquisition Corporation changed its name to Life2K.com, Inc. As
a result of the share exchange, Kemper Pressure Treated Forest Products, Inc.
became a wholly-owned subsidiary of Life2K.com, Inc.
On October 13, 2000, the shareholders of Life2K.com, Inc. exchanged all their
outstanding stock for shares of our company which was named Generation
Acquisition Corporation at such time. At the time of the exchange, the officers
and directors of Life2K.com, Inc. became the officers and directors of
Generation Acquisition Corporation. Simultaneously, Life2K.com, Inc. merged with
and into Generation Acquisition Corporation and changed its name to
SyndicationNet.com, Inc.
GENERAL
We are a consulting company formed to acquire controlling interests in or
to participate in the creation of, and to provide financial, management and
technical support to, development stage business, e-commerce businesses and
traditional brick-and-mortar businesses. We have no restrictions or limitations
in terms of the type of industry that we intend to focus our activities on. We
do not want to limit the scope of our potential target businesses. In evaluating
whether to act as a consultant with a particular company and whether to invest
in a specific company, our board of directors intends to apply a general
analysis which would include, but be not limited to, the following
o an evaluation of industry of a target company to determine the
competition that exists in that particular industry;
o an evaluation to determine if the target company has the products,
services and skills to successfully compete in its industry;
o an evaluation of the target company's management skills; and
o an evaluation of our equity position in a target company, if any, to
review the extent, if any, that we will be able to exert influence
over the direction and operations of the development stage company.
As a condition to any acquisition or development agreement, we intend to require
representation on the company's board of directors to ensure our ability to
provide active guidance to the company. The board of directors has the ultimate
authority for any decision with regard to selecting which companies to consult
with and in which companies we might make an investment.
Our strategy is to integrate affiliated companies into a network and to
actively develop the business strategies, operations and management teams of the
affiliated entities. It is the intent of our board of directors to develop and
exploit all business opportunities to increase efficiencies between companies
with which we may invest in or consult. For example, if we are consulting with a
marketing company, we may utilize that marketing company to provide services for
other companies with which we consult with or invest. We may acquire companies
to be held as wholly owned subsidiaries of our company.
Our board of directors believes that the financial evaluations of our company
would be enhanced as a result of having diversified companies owned by our
company. We anticipate that our role as a consultant to development stage
companies may provide the opportunity for us to invest in such development stage
companies, however, our services as a consultant will not be conditioned on us
being allowed to invest in a company.
We do not intend to identify potential acquisition, investment and
consulting activities through the use of paid advertisements, phone solicitation
or email solicitation, but intend to become aware of and identify potential
acquisition, investment and consulting activities through the business contacts
and networking of our officers and directors.
21
LETTER OF INTENT WITH TRI-STATE METRO TERRITORIES LLC
On November 10, 2003, we entered into a Letter of Intent with Tri State
Metro-Territories, LLC (Tri-State) to acquire substantially all of the assets of
Tri-State. Brian Sorrentino, a major shareholder, director and an executive
officer of our company, is also a 10% shareholder and managing member in Tri
State. Additionally, Robert Green serves as a member of the Board of Director of
Tri-State and is a member of Tri-State and a shareholder of our company. Mark
Solomon, who serves as a member of our Board of Directors and is a shareholder
of our company also is a member of Tri-State. Dale Hill, is a shareholder of our
company and is also a member of Tri-State. Tri State is in the business of
selling franchised hair coloring salon units under the name of "HCX the
haircolorxperts". HCX, the parent franchisor, has currently sold 31 territories
in 24 states representing 2,738 franchises committed to open over the next 7 to
10 years. The assets being negotiated by us include the exclusive rights to
develop the franchise chain of "HCX Tri-State Metro Territories LLC" in the
District of Columbia and Maryland area as well as the interest in the prototype
HCX Salon located in Columbia Maryland. We believe that through the acquisition
of the development rights from Tri-State, we have an opportunity to sell between
seventy-five and one hundred HCX units over an estimated seven to ten years. On
March 18, 2004, we entered into privately negotiated exchange agreements to
exchange 355,000 restricted shares of its common stock for 8% of membership
interests of Tri-State. Although it is our intent to acquire all the assets of
Tri-State, the specific terms and the evaluations of the potential transaction
have not yet been finalized and the pending audited financial statements of
Tri-State are a requirement for completion of that transaction. The transaction
is also subject to customary closing conditions, including but not limited to
the receipt of all definitive documents, valuations, consents, and approvals.
There can be no assurance as to whether or when the transaction will close.
THE MARKET
We believe that the effective achievement of the public status has provided
access to the capital markets and the associated investment capital necessary to
effect its declared intention to engage in the acquisition and merger elements
of its business plan. As Internet-based network reliability, speed and security
continue to improve, and as more businesses are connected to the Internet,
traditional brick-and-mortar businesses are using the Internet to conduct
e-commerce and to create new revenue opportunities by enhancing their
interactions with new and existing customers. Businesses are also using the
Internet to increase efficiency in their operations through improved
communications, both internally and with suppliers and other business partners.
Our management team believes that it can offer development stage companies
strategic guidance regarding business model development, market positioning,
management selection, day-to-day operational support and the introduction to
investors that start-up companies often need to fulfill their business
objectives by way of increased access to public equity markets.
MARKETING
Primarily through the marketing efforts of our executive officers, directors and
consultants, we intend to locate B2B Internet-related companies and traditional
brick-and-mortar businesses for which we will act as a general corporate
consultant and we also intend to locate development stage companies as
acquisition candidates. We do not intend to concentrate our efforts on any
particular industry. Our management team hopes to take advantage of the
resources of its directors, specifically in the areas of accounting, e-commerce,
finance and politics, to enable us to consult with, acquire and integrate B2B
e-commerce companies and traditional brick-and-mortar businesses. We intend to
actively explore synergistic opportunities such as cross marketing efforts
within the network of companies we will consult with or acquire.
STRATEGY AND OBJECTIVES - INVESTMENT AND DEVELOPMENT ACTIVITIES
We believe that we can add value to development stage B2B e-commerce
Internet-related companies and traditional brick and mortar businesses by
providing seed-capital and we may take advantage of various potential business
acquisition opportunities through the issuance of our securities. SyndicationNet
believes we can further assist them in the following areas:
o to develop and implement business models that capitalize on the
Internet's ability to provide solutions to traditional companies;
o to build a corporate infrastructure including a management team, a
qualified sales and marketing department, information technology,
finance and business development;
o to assist them in their ability to manage rapid growth and
flexibility to adopt to the changing Internet marketplace and
technology;
o to assist them in evaluating, structuring and negotiating joint
ventures, strategic alliances, joint marketing agreements and other
corporate transactions; and
o to advise them in matters related to corporate finance, financial
reporting and accounting operations.
22
We believes that our management team is qualified to identify companies
that are positioned to compete successfully in their respective industries. We
intend to structure our acquisitions to permit the acquired company's management
and key personnel to retain an equity stake in the company. We believe that we
have the ability to complete acquisitions and investments quickly and
efficiently. We intend that after acquiring an interest in a development
company, it will participate in follow-on financing if needed. We have no
proposed activities related to the offering of securities of any other company.
MANAGEMENT AND CONSULTING ACTIVITIES
In evaluating whether to act as a consultant with a particular company, we
intend to apply an analysis which includes, but is not limited to, the following
factors:
o industry evaluation to determine inefficiencies that may be
alleviated through Internet or e-commerce use and will evaluate the
profit potential, the size of the market opportunity and the
competition that exists for that particular industry;
o target company evaluation to determine if the target company has the
products, services and skills to become successful in its industry;
o overall quality and industry expertise evaluation of a potential
acquisition candidate in deciding whether to acquire a target
company. If the target company's management skills are lacking, a
determination will be made as to whether a restructuring of its
corporate infrastructure is feasible and, if done so, whether it
would be successful;
o evaluation of our equity position in a target company and extent
that we will be able to exert influence over the direction and
operations of the development stage company; and
o as a condition to any acquisition or development agreement, we
intend to require representation on the company's board of directors
to ensure our ability to provide active guidance to the acquired
company.
COMPETITION
The market to acquire interests in development stage growth companies,
Internet or brick-and-mortar, is highly competitive. Many of our competitors may
have more experience identifying and acquiring equity interests in development
stage companies and have greater financial, research and management resources
than our company. In addition, we may encounter substantial competition from new
market entrants. Some of our current and future competitors may be significantly
larger and have greater name recognition than our company. Many investment
oriented entities have significant financial resources which may be more
attractive to entrepreneurs of development stage companies than obtaining our
consulting, management skills and networking services. We may not be able to
compete effectively against such competitors in the future.
EMPLOYEES
Other than our officers, as of March 31, 2004, we had no employees other
than one consultant. our success depends to a large extent upon the continued
services of our officers and directors. The loss of such personnel could have a
material adverse effect on our business and our results of operations.
DESCRIPTION OF PROPERTY
We are headquartered in 1250 24th Street, NW, Suite 300 Washington, D.C. 20037.
We pay $300 per month to rent this office space. We project that such office
space should be sufficient for their anticipated needs for the foreseeable
future. Our telephone number is 202-467-2788 and its fax number is 301-528-4238.
LEGAL PROCEEDINGS
Other than the information stated below, we are not a party to any
litigation and management has no knowledge of any threatened or pending
litigation against it.
On November 26, 2001, Barry Pope ("Pope"), individually and as a
shareholder of Worldwide Forest Products, Inc. ("Worldwide") commenced an action
against Brian Sorrentino, Dale Hill, Worldwide Forest Products, Inc., Kemper
Pressure Treated Forest Products, Inc., Life2k.com, Inc., Algonquin Acquisition
Corp., Generation Acquisition Corp., SyndicationNet.com, Inc., Castle Securities
Corporation and John Does 1-5, in the Circuit Court of Madison County,
Mississippi. In such action, Pope claims that stock he owned and commissions
owed to him by Worldwide should have been converted into shares of the common
stock of our company.
23
Worldwide was a corporation organized under the laws of the State of
Mississippi that operated as a wood treatment company that worked exclusively
with creosite, a wood treatment chemical, for utility wood poles and products.
In 1997 the corporate charter of Worldwide expired and Worldwide no longer
conducts operations. Brian Sorrentino, an officer and director and a shareholder
of our company, was the chairman of the board, chief financial officer and
majority shareholder of Kemper and was also the chairman of the board, chief
financial officer and beneficial majority shareholder of Worldwide Forest
Products, Inc. In 1996, Pope entered into a consent order settlement with
Worldwide arising from claims brought by Pope against the former President of
Worldwide, David Wise, and Worldwide. Pursuant to such settlement, on November
8, 1996, Pope received 30,000 shares of Worldwide common stock and received
warrants, exercisable at $1.00 per share, to purchase 200,000 shares of
Worldwide common stock.
Worldwide never completed an initial public offering and, as such, Pope
alleges losses equal to the value of his Worldwide shares had Worldwide
completed a public offering, had such shares traded at a minimum of $5.00 per
share and had Pope been able to sell his securities equal to or in excess of
$5.00. Pope further alleges that certain defendants guaranteed the obligations
of Worldwide in the amount of $2,060,000 and alleges that all shareholders of
Worldwide were provided an opportunity by Worldwide to convert shares of
Worldwide common stock into shares of common stock of our company.
Finally, Pope alleges that Brian Sorrentino orally guaranteed payment to
Pope in the amount of $200,000 representing commissions to be paid to Pope if
and when Pope provided a $2,000,000 loan for Worldwide which loan was never
effected. Pope is seeking compensatory and punitive damages in an amount to be
determined at trial, plus an award of reasonable costs, attorneys' fees and
expenses, pre-judgement and post-judgement interest, and any other relief to
which Pope may be entitled.
On May 2, 2002, the Circuit Court of Madison County, Mississippi, granted
the plaintiff's counsel motion to withdraw as counsel for the plaintiff. As of
March 2004, we continue to pursue discovery proceedings with plaintiff's newly
engaged counsel. We believe that Pope's claim is without merit and we have
engaged counsel to vigorously defend against the action.
Cassidy and Associates, PA, our former counsel, filed a statement of claim
against us with the American Arbitration Association. The claimant claims breach
of contract and is seeking damages in the amount of $35,000.
24
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Name Age Position
- ------------------- ------------- ---------------------------------
Brian Sorrentino 46 Chief Executive Officer
and Director
Cynthia White 33 Chief Financial Officer
Mark Solomon 46 President and Director
Howard B. Siegel 58 Director
Our directors have been elected to serve until the next annual meeting of the
stockholders of our company and until their respective successors have been
elected and qualified or until death, resignation, removal or disqualification.
Vacancies in the existing Board are filled by a majority vote of the remaining
directors on the Board. Our executive officers are appointed by and serve at the
discretion of the Board.
Brian Sorrentino, 46, serves as our CEO and as a director. Mr. Sorrentino has
worked in the securities industry since 1986 and has been licensed series 6, 7,
and 24. In 1993, he started Source Management Services, a consulting company.
Mr. Sorrentino has specialized in mergers and acquisitions and contract
negotiations with regard to those efforts. Since August 2000, Mr. Sorrentino has
served as the CEO and development agent of Tri-State Metro Territories LLC. Tri
State is in the business of selling franchised hair coloring salon units under
the name of "HCX the haircolorxperts" which include the exclusive rights to
develop the franchise chain of "HCX" in the District of Columbia and Maryland
area.
MARK SOLOMON, ESQ. has served as Chairman of the Board of Directors of our
company since August 1999. Mr. Solomon received a Bachelor of Science Degree
from Nova University in 1976 and received his Juris Doctor from Nova University
Law School in 1979. For at least the last five years Mr. Solomon has been a
practicing attorney for Mark Solomon, P.A., located in Florida, specializing in
criminal law.
CYNTHIA WHITE has served as the Chief Financial Officer of our company since
August 1999. Since October 1991, Ms. White has owned The Accelerated Group,
Inc., an accounting firm located in Florida which specializes in corporate and
individual taxes, audits, financial reporting and business consultation. From
1992 to 1993, Ms. White also served as the Comptroller for Optoelectronics, Inc.
and prior to that she served as an accountant for Florida Business Services,
Inc. and the accounting firm of James and Surman, CPA. In 1992, Ms. White
received her B.A. from Florida Atlantic University with a major in accounting.
Ms. White also serves as the treasurer for the Boca Raton Society for the
Disabled, Inc.
HOWARD S. SIEGEL has served as a director of our company since August 1999. Mr.
Siegel received his Juris Doctor in 1969 from St. Mary's University Law School.
Since 1969, Mr. Siegel has been a practicing attorney. For the past five years,
Mr. Siegel has worked with the law office of Yuen & Associates, located in
Houston, Texas. Prior to working for Yuen & Associates, Mr. Siegel was employed
with the Internal Revenue Service, Tenneco, Inc., Superior Oil Company and
Braswell & Paterson. Mr. Siegel serves as a director of Golden Triangle
Industries, Inc. (GTII), a public company traded on the Nasdaq exchange, and
serves as a director for Signature Motor Cars, Inc, a privately-held company.
DIRECTOR COMPENSATION
Directors receive an annual issuance of 20,000 shares of our common stock
for serving as directors and are repaid for their expenses incurred for serving
as directors.
25
We pay accounting fees to the Accelerated Group, Inc., a private
accounting firm owned by Cynthia White, our Chief Financial Officer. We believe
that we have paid less than $12,000 annually for the past three years as
compensation for such accounting services.
AUDIT COMMITTEE
The Board of Directors does not have a Compensation, Audit or Nominating
Committee, and the usual functions of such committees are performed by the
entire Board of Directors. The board of directors have determined that at
present we do not have an audit committee financial expert. The Board believes
that the members of the Board of Directors are collectively capable of analyzing
and evaluating our financial statements and understanding internal controls and
procedures for financial reporting. In addition, we have been seeking and
continue to seek an appropriate individual to serve on the Board of Directors
and the Audit Committee who will meet the requirements necessary to be an
independent financial expert.
CODE OF ETHICS
We have adopted a Code of Ethics and Business Conduct for Officers,
Directors and Employees that applies to all of our officers, directors and
employees.
EXECUTIVE COMPENSATION
Long-Term Compensation
-----------------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Name and Restricted
Principal Stock
Position(s) Year Salary($) Bonus($) Other($) Awards(#shares)
Compensation
- ---------------------------------------------------------------------------
Wayne Hartke 2003 -- -- -- 91,000
2002 -- -- -- 20,000
2001 -- -- -- 20,000
We do not have any long term compensation plans or stock option plans.
EMPLOYMENT AGREEMENTS
We have not entered into employment agreements with any of our officers or
employees.
FAMILY RELATIONSHIPS
Currently there are no family relationships among our directors, executive
officers or other persons nominated or chosen to become officers or executive
officers.
EXECUTIVE EMPLOYMENT AGREEMENTS
To date, we have not entered into any employment agreements with our
executive officers.
26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1999, we borrowed an aggregate of $105,000 from Brian Sorrentino, an
executive officer, director and shareholder. We executed a promissory note for
the loan amount at an interest rate of 12% per annum. The loan, which was due
March 3, 2000, has not been paid as of the date of this filing. In the fiscal
year ended December 31, 2003, Mr. Sorrentino loaned an additional $4,100 to the
Company so that the aggregate amount due to Mr. Sorrentino is $113,100.
The controlling person and founder of our company was James M. Cassidy. At
the time of the exchange of stock with Life2K.com, Inc., we had 5,000,000 shares
of our common stock outstanding all of which were redeemed and cancelled except
250,000 retained by TPG Capital Corporation, a corporation controlled by James
Cassidy. As part of the transactions we agreed to pay TPG Capital Corporation an
aggregate of $100,000 for its consulting services of which $65,000 has been
paid. In 2004, as a result of a dispute regarding the services rendered by TPG
Capital Corporation, we instructed our transfer agent to cancel the 250,000
outstanding shares.
We pay accounting fees to the Accelerated Group, Inc., a private
accounting firm owned by Cynthia White, our Chief Financial Officer. We believe
that we have paid less than $12,000 annually for the past three years as
compensation for such accounting services.
On November 10, 2003, we entered into a Letter of Intent with Tri State
Metro- Territories, LLC (Tri-State) to acquire substantially all of the assets
of Tri-State. Brian Sorrentino, a major shareholder of our company as well as an
executive officer and director, is also the managing member in Tri State. Tri
State is in the business of selling franchised hair coloring salon units under
the name of "HCX the haircolorxperts". The assets being acquired by us include
the exclusive rights to develop the franchise chain of "HCX Tri-State Metro
Territories LLC" in the District of Columbia and Maryland area as well as the
interest in the prototype HCX Salon located in Columbia, Maryland. On March 18,
2004, the Company entered into privately negotiated exchange agreements to
exchange 355,000 restricted shares of our common stock for 8% of membership
interests of Tri-State. Although it is our intent to acquire all the assets of
Tri-State, the specific terms and the evaluations of the potential transaction
have not yet been finalized and the pending audited financial statements of
Tri-State are a requirement for completion of that transaction. The transaction
is also subject to customary closing conditions, including but not limited to
the receipt of all definitive documents, valuations, consents, and approvals.
There can be no assurance as to whether or when the transaction will close.
Until June 2004, we had a corporate services consulting agreement with
Source Management Services ("Source Management"). Brian Sorrentino, a
significant shareholder and an executive officer and director, is the president
and sole director and shareholder of Source Management. Pursuant to this
agreement we compensated Source Management at the rate of $150 per hour. In
addition, we issued 571,000 shares of common stock to Source Management as a
bonus.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of October 1, 2004. The information in this
table provides the ownership information for:
o each person known by us to be the beneficial owner of more than 5%
of our common stock;
o each of our directors;
o each of our executive officers; and
o our executive officers and directors as a group.
Beneficial ownership has been determined in accordance with the rules and
regulations of the SEC and includes voting or investment power with respect to
the shares. Unless otherwise indicated, the persons named in the table below
have sole voting and investment power with respect to the number of shares
indicated as beneficially owned by them.
27
Common Stock Percentage of
Name of Beneficial Owner Title Beneficially Owned (1) Common Stock (1)
----------------------------------- ----------------------- --------------------------------- ---------------------------
Cynthia White CFO 20,000 *
1250 24th Street, NW
Suite 300
Washington, D.C. 20037
Mark Solomon President and Director 94,000 *
901 South Federal Highway
Fort Lauderdale, Florida
22216
Howard B. Siegel Director 20,000 *
15902 South Barker Landing
Houston, Texas 77079
Brian Sorrentino CEO and Director 4,110,262 28.62%
PO Box 484
Damascus, MD 20872
Dale Hill 5,097,168 35.49%
5056 West grove Drive
Dallas, Texas 75248
Cornell Capital Partners, L.P. 1,421,648 (2) 9.99%
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
All Directors and Executive
Officers as a Group (5) 4,244,262 29.41%
* Less than 1%.
(1) Applicable percentage ownership is based on 14,360,088 shares of common
stock outstanding as of October 1, 2004, together with securities
exercisable or convertible into shares of common stock within 60 days of
August 24, 2004 for each stockholder. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Shares of common stock that are currently exercisable or exercisable
within 60 days of October 1, 2004 are deemed to be beneficially owned by
the person holding such securities for the purpose of computing the
percentage of ownership of such person, but are not treated as outstanding
for the purpose of computing the percentage ownership of any other person.
(2) Represents shares issuable upon conversion of a convertible debenture in
the amount of $200,000 up to the maximum permitted ownership under the
Standby Equity Distribution Agreement of 9.9% of our outstanding common
stock.
As Cornell Capital coverts its convertible debenture or receives shares of
common stock pursuant to the Standby Equty Distribution Agreement and resells
these shares into the market, the combined percentage ownership of the officers
and directors, which is currently approximately 29% will be reduced, which will
impact their ability to influence the shareholder voting of our company. In
addition, this may result in a change in control of our company.
DESCRIPTION OF SECURITIES
The following description of our capital stock is a summary and is
qualified in its entirety by the provisions of our Articles of Incorporation,
with amendments, all of which have been filed as exhibits to our registration
statement of which this prospectus is a part.
DIVIDEND POLICY
We have not had any earnings or profits and have not paid any dividends.
Our proposed operations are capital intensive and we need working capital.
Therefore, we will be required to reinvest any future earnings in our Company's
operations. Our Board of Directors has no present intention of declaring any
cash dividends, as we expect to re-invest all profits in the business for
additional working capital for continuity and growth. The future declaration and
payment of dividends will be determined by our Board of Directors after
considering the conditions then existing, including the our earnings, financial
condition, capital requirements, and other factors.
28
CAPITAL STRUCTURE
Our authorized capital consists of 100,000,000 shares of common stock, par
value $.0001 per share and $20,000,000 shares of preferred stock, par value
$.0001 per share. As of October 1, 2004, we had 14,360,088 shares of common
stock outstanding. Stockholders: (i) have general ratable rights to dividends
from funds legally available therefor, when, as and if declared by the Board of
Directors; (ii) are entitled to share ratably in all assets of the Company
available for distribution to stockholders upon liquidation, dissolution or
winding up of the affairs of the Company; (iii) do not have preemptive,
subscription or conversion rights, nor are there any redemption or sinking fund
provisions applicable thereto; and (iv) are entitled to one vote per share on
all matters on which stockholders may vote at all shareholder meetings.
The common stock does not have cumulative voting rights, which means that
the holders of more than fifty percent of the common stock voting for election
of directors can elect one hundred percent of the directors of the Company if
they choose to do so. The Company, which has had no earnings, has not paid any
dividends on its common stock and it is not anticipated that any dividends will
be paid in the foreseeable future.
CONVERTIBLE DEBENTURE FINANCING
To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with Cornell Capital Partners on June 15, 2004 for the sale
of $200,000 in convertible debentures. The debentures issued pursuant to the
June 2004 Securities Purchase Agreement bear interest at 5%, mature three years
from the date of issuance, and are convertible into our common stock, at the
holder's option, at the lower of the following:
o $.42; or
o eighty percent (80%) of the lowest volume weighted average price of
the common stock for the five (5) trading days immediately preceding
the conversion date.
The full principal amount of the convertible debentures is due upon default
under the terms of convertible debentures. We are obligated to file a
registration statement for the resale of the conversion shares issuable upon
conversion of the debentures under the Securities Act of 1933, as amended, no
later than thirty (30) days from June 15, 2004. The convertible debenture is
secured by all of our assets. At our option, we have the right to redeem, with
three business days advance written notice, a portion or all outstanding
convertible debenture. The redemption price is 120% of the amount redeemed plus
accrued interest. In the event we exercise a redemption of either all or a
portion the convertible debenture, Cornell Capital shall receive a warrant to
purchase 50,000 shares of our common stock for every $100,000 redeemed, pro
rata. Such warrant is exercisable on a "cash basis"
We are required to reserve and keep available out of our authorized but
unissued shares of common stock, solely for the purpose of effecting the
conversion of the debenture, such number of shares of common stock as shall from
time to time be sufficient to effect such conversion. If at any time we do not
have a sufficient number of conversion shares authorized and available, then we
are required to call and hold a special meeting of our stockholders within 60
days of that time for the sole purpose of increasing the number of authorized
shares of common stock.
Except for the Standby Equity Distribution Agreement, so long as the
convertible debenture remains unpaid and unconverted, we are restricted, without
the prior consent of Cornell Capital, from the following
o issuing or selling any common stock or preferred stock without
consideration or for a consideration per share less than its fair
market value determined immediately prior to its issuance;
o issuing or selling any securities or instrument granting the holder
thereof the right to acquire common stock without consideration or
for a consideration per share less than the fair market value
determined immediately prior to its issuance,
o enter into any security instrument granting the holder a security
interest in any of our assets; or
o file any registration statement on Form S-8 unless for a bonafide
employee stock option plan for no more than 1,500,000 shares of
common stock adopted by our Board of Directors or securities issued
in connection with an acquisition of a subsidiary, which such
securities shall not be issued together with registration rights
without the prior written consent of Cornell Capital.
29
STANDBY EQUITY DISTRIBUTION FINANCING
On June 15, 2004, we entered into a Standby Equity Distribution Agreement
with Cornell Capital Partners. Pursuant to the Standby Equity Distribution
Agreement, we may, at our discretion, periodically sell to the investor shares
of common stock for a total purchase price of up to $10,000,000. For each share
of common stock purchased under the Standby Equity Distribution Agreement, the
investor will pay 98% of the lowest volume weighted average price of the common
stock during the five consecutive trading days immediately following the notice
date. In addition, Cornell Capital Partners will retain 5% of each advance under
the Standby Equity Distribution Agreement. For example, assuming that the 98% of
lowest volume weighted average price of our common stock during the five
consecutive trading days immediately following a notice date is $.245, if we
request an advance in the amount of $200,000, Cornell Capital will be entitled
to the following:
o $10,000, which represents the 5% commitment fee; and
o 816,327 shares of our common stock, which is calculated by dividing
$200,000 by $.245.
The investor, Cornell Capital Partners, L.P. is a private limited
partnership whose business operations are conducted through its general partner,
Yorkville Advisors, LLC. Cornell Capital Partners is restricted from owing in
excess of 9.9% of our outstanding common stock. In the event that Cornell
Capital Partners is unable to sell shares of common stock that it acquires under
the Standby Equity Distribution Agreement and its ownership equals 9.9% of the
our outstanding, then we will not be able to draw down money under the Standby
Distribution Agreement. As a result, Cornell Capital Partners is purchasing
shares under the Standby Equity Distribution Agreement with an intent to sell or
distribute its shares to the public. In addition, we engaged Newbridge
Securities Corporation, a registered broker-dealer, to advise us in connection
with the Standby Equity Distribution Agreement. For its services, Newbridge
Securities Corporation received 40,000 shares of our common stock. We are
obligated to prepare and file with the Securities and Exchange Commission a
registration statement to register the resale of the shares issued under the
Standby Equity Distribution Agreement prior to the first sale to the investor of
our common stock.
30
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation, as amended and restated, provide to the
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, that our directors or officers shall not be personally liable
to us or our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended and restated, is to eliminate our rights and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Our By Laws also provide that the Board of Directors may also authorize
the company to indemnify our employees or agents, and to advance the reasonable
expenses of such persons, to the same extent, following the same determinations
and upon the same conditions as are required for the indemnification of and
advancement of expenses to our directors and officers. As of the date of this
Registration Statement, the Board of Directors has not extended indemnification
rights to persons other than directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
LEGAL MATTERS
The validity of the shares of common stock being offered hereby will
be passed upon for us by Sichenzia Ross Friedman Ference LLP, New York, New
York.
EXPERTS
Our financial statements at December 31, 2003 and 2002, appearing in this
prospectus and registration statement have been audited by HJ & Associates, LLC,
independent certified public accountants, as set forth on their report thereon
appearing elsewhere in this prospectus, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933, as amended, relating to the shares of common stock being offered by
this prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of Syndication Net.com, Inc., filed as
part of the registration statement, and it does not contain all information in
the registration statement, as certain portions have been omitted in accordance
with the rules and regulations of the Securities and Exchange Commission.
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, which requires us to file reports, proxy
statements and other information with the Securities and Exchange Commission.
Such reports, proxy statements and other information may be inspected by public
reference facilities of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Because we file documents
electronically with the SEC, you may obtain this information by visiting the
SEC's Internet website at http://www.sec.gov.
31
SYNDICATION NET.COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND DECEMBER 31, 2003
SYNDICATION NET. COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2004 2003
--------------- ---------------
(Unaudited)
CURRENT ASSETS
Cash $ 7,703 $ 14
Notes receivable - related party 190,000 --
Interest receivable - related party 9,211 --
--------------- ---------------
Total Current Assets 206,914 14
--------------- ---------------
OTHER ASSETS
Investment (Note 4) 211,431 --
--------------- ---------------
Total Other Assets 211,431 --
--------------- ---------------
TOTAL ASSETS $ 418,345 $ 14
=============== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
F-1
SYNDICATION NET. COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 317,187 $ 306,008
Accounts payable-related party 1,500 1,000
Note payable - related party 109,000 113,100
Interest payable - related party 28,117 32,965
Note payable 200,500 30,000
Interest payable 12,504 5,295
Convertible debenture 50,000 --
Interest payable - convertible debenture 1,250 --
Accrued directors fees 29,000 12,000
----------- -----------
Total Current Liabilities 749,058 500,368
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: 20,000,000 shares authorized of
$0.0001 par value, no shares issued and outstanding -- --
Common stock: 100,000,000 shares authorized of $0.0001
par value, 14,360,088 and 12,075,088 shares issued and
outstanding, respectively 1,436 1,207
Additional paid-in capital 3,033,980 2,021,958
Deferred fees (403,000) (292,000)
Deficit accumulated prior to the development stage (2,231,519) (2,231,519)
Deficit accumulated during the development stage (731,610) --
----------- -----------
Total Stockholders' Equity (Deficit) (330,713) (500,354)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 418,345 $ 14
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
SYNDICATION NET. COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
From inception
of the
Development
For the Three Months Ended For the Six Months Ended stage on
June 30, June 30, January 1, 2004
----------------------------------- -------------------------------------- through
2004 2003 2004 2003 June 30, 2004
----------------- ---------------- ------------------ ------------------ -----------------
CONSULTING REVENUE $ -- $ 70 $ -- $ 1,820 $ --
----------------- ---------------- ------------------ ------------------ -----------------
OPERATING EXPENSES
General and administrative 43,006 10,745 163,054 12,675 163,054
Consulting 540,500 -- 540,500 539,788 540,500
----------------- ---------------- ------------------ ------------------ -----------------
Total Operating Expenses 583,506 10,745 703,554 552,463 703,554
----------------- ---------------- ------------------ ------------------ -----------------
OPERATING LOSS (583,506) (10,675) (703,554) (550,643) (703,554)
----------------- ---------------- ------------------ ------------------ -----------------
OTHER (EXPENSES)
Interest income 4,287 -- 4,425 -- 4,425
Interest expense (26,720) (3,270) (32,481) (6,540) (32,481)
----------------- ---------------- ------------------ ------------------ -----------------
Total Other (Expenses) (22,433) (3,270) (28,056) (6,540) (28,056)
----------------- ---------------- ------------------ ------------------ -----------------
LOSS BEFORE INCOME TAXES
AND DISCONTINUED
OPERATIONS (605,939) (13,945) (731,610) (557,183) (731,610)
----------------- ---------------- ------------------ ------------------ -----------------
INCOME TAX EXPENSE -- -- -- -- --
----------------- ---------------- ------------------ ------------------ -----------------
LOSS BEFORE DISCONTINUED
OPERATIONS (605,939) (13,945) (731,610) (557,183) (731,610)
----------------- ---------------- ------------------ ------------------ -----------------
Income from discontinued
operations -- 14,482 -- 27,970 --
----------------- ---------------- ------------------ ------------------ -----------------
Total income from
discontinued operations -- 14,482 -- 27,970 --
----------------- ---------------- ------------------ ------------------ -----------------
NET INCOME (LOSS) $ (605,939) $ 537 $ (731,610) $ (529,213) $ (731,610)
================= ================ ------------------ ================== =================
BASIC AND LOSS PER SHARE
Loss before discontinued
operations $ (0.05) $ (0.00) $ (0.06) $ (0.05)
Income from discontinued
operations 0.00 0.00 0.00 0.00
----------------- ---------------- ------------------ ------------------
Total Income (Loss) Per Share $ (0.05) $ 0.00 $ (0.06) $ (0.05)
================= ================ ================== ==================
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 13,184,264 10,781,750 12,688,192 10,781,750
================= ================ ================== ==================
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
SYNDICATION NET. COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Common Stock Additional
---------------------------- Paid-In Deferred Accumulated
Shares Amount Capital Fees Deficit
------------- ------------- ------------ ------------- -------------
Balance, December 31, 2002 10,795,750 $ 1,079 $ 805,748 $ -- $ (1,143,099)
Common stock issued for services at $1.00 per share 50,000 5 49,995 (50,000) --
Common stock issued for services at $1.00 per share 250,000 25 249,975 -- --
Common stock issued for cash at $0.10 per share to
related parties 70,000 7 6,993 -- --
Common stock issued for debt and services at $1.00
per share to a related party 571,338 57 571,281 -- --
Common stock issued for services at $1.00 per share
to related parties 108,000 11 107,989 -- --
Common stock issued for services at $1.00 per share
to related parties 70,000 7 69,993 -- --
Common stock issued for services at $1.00 per share 410,000 41 409,959 (242,000) --
Common stock canceled for services at $1.00 per share (250,000) (25) (249,975) -- --
Net loss for the year ended December 31, 2003 -- -- -- -- (1,088,420)
------------- ------------- ------------ ------------- -------------
Balance, December 31, 2003 12,075,088 1,207 2,021,958 (292,000) (2,231,519)
Common stock issued for cash at $1.00 per share on
February 16, 2004 (unaudited) 50,000 5 49,995 -- --
Common stock issued for deferred fees at $0.80 per share
on February 16, 2004 (unaudited) 30,000 3 23,997 (24,000) --
Common stock issued for assets at $0.90 per share on
February 28, 2004 (unaudited) 120,000 12 107,988 -- --
Common stock issued for assets at $0.65 per share on
March 17, 2004 (unaudited) 160,000 16 103,984 -- --
Common stock issued for assets at $0.65 per share on
March 17, 2004 (unaudited) 15,000 2 9,749 -- --
Common stock issued for assets at $0.65 per share on
March 17, 2004 (unaudited) 60,000 6 38,994 -- --
Common stock issued for deferred fees at $0.40 per share
on May 18, 2004 (unaudited) 600,000 60 239,940 (240,000) --
Common stock issued for services at $0.35 per share
on June 1, 2004 (unaudited) 1,200,000 120 419,880 -- --
Common stock issued for additional interest on default on
note payable at $0.35 per share (unaudited) 50,000 5 17,495 -- --
Amortization of deferred fees (unaudited) -- -- -- 153,000 --
------------- ------------- ------------ ------------- -------------
Balance forward 14,360,088 $ 1,436 $ 3,033,980 $ (403,000) $ (2,231,519)
------------- ------------- ------------ ------------- -------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
SYNDICATION NET. COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Common Stock Additional
--------------------------- Paid-In Deferred Accumulated
Shares Amount Capital Fees Deficit
------------ ------------ ------------ ------------ ------------
Balance forward 14,360,088 $ 1,436 $ 3,033,980 $(403,00) $ (2,231,519)
Net loss for the six months ended June 30, 2004
(unaudited) -- -- -- -- (731,610)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 2004 (unaudited) 14,360,088 $ 1,436 $ 3,033,980 $ (403,000) $ (2,963,129)
============ ============ ============ ============ ============
Deficit accumulated prior to development stage $ (2,231,519)
Deficit accumulated during the development stage (731,610)
------------
Accumulated deficit $ (2,963,129)
============
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
SYNDICATION NET. COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
From Inception
of the
Development
For the Six Months Ended Stage on
June 30, January 1, 2004
---------------------------------- Through
2004 2003 June 30, 2004
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (731,610) $ (529,213) $ (731,610)
Adjustments to reconcile net loss to net cash
provided (used) in operating activities:
Common stock issued for service 437,500 -- 437,500
Amortization of deferred fees 153,000 -- 153,000
Changes in operating assets and liabilities:
(Increase) in interest receivable - related party (2,391) -- (2,391)
(Increase) in accounts receivable -- (577,773) --
Increase in accounts payable - related party 500 -- 500
Increase (decrease) in accounts payable 11,179 1,094,524 11,179
Increase in accrued expenses 25,459 12,540 25,459
Increase in accrued expenses - related party (4,848) -- (4,848)
--------------- --------------- ---------------
Net Cash Provided (Used) in Operating
Activities (111,211) 78 (111,211)
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in investments (52,500) -- (52,500)
--------------- --------------- ---------------
Net Cash Used in Investing Activities (52,500) -- (52,500)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock issued for cash 50,000 -- 50,000
Increase in notes payable 190,500 -- 190,500
Payments on notes payable (20,000) -- (20,000)
Increase in notes payable - related party 9,500 -- 9,500
Payments on notes payable - related party (13,600) -- (13,600)
Increase in convertible debenture 50,000 -- 50,000
Increase in notes receivable - related party (95,000) -- (95,000)
--------------- --------------- ---------------
Net Cash Provided by Financing Activities 171,400 -- 171,400
--------------- --------------- ---------------
NET INCREASE IN CASH 7,689 78 7,689
CASH, BEGINNING OF PERIOD 14 31 14
--------------- --------------- ---------------
CASH, END OF PERIOD $ 7,703 $ 109 $ 7,703
=============== =============== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
SYNDICATION NET. COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
From Inception
of the
Development
For the Six Months Ended Stage on
June 30, January 1, 2004
-------------------------------- Through
2004 2003 June 30, 2004
--------------- --------------- ---------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Payments For:
Income taxes $ -- $ -- $ --
Interest $ 11,370 $- $ 11,370
Non-Cash Financing Activities
Common stock issued for deferred fees $ 264,000 $ 50,000 $ 264,000
Common stock issued for services $ 437,500 $ -- $ 437,500
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
SYNDICATION NET. COM, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements June 30, 2004 and December 31,
2003
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated 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 accounting
principles generally accepted in the United States of America have been or
omitted in accordance with such rules and regulations. The information furnished
in the interim consolidated 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
consolidated financial statements be read in conjunction with the Company's most
recent audited financial statements and notes thereto included in its December
31, 2003 Annual Report on Form 10-KSB. Operating results for the six months
ended June 30, 2004 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2004.
NOTE 2 - RECLASSIFICATIONS
Certain reclassifications have been made to the June 30, 2004 financial
statements to conform to the current quarter's presentation.
NOTE 3 - GOING CONCERN
The Company's consolidated financial statements are prepared using accounting
principals generally accepted in the Unites States of America applicable to a
going concern which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, the Company does not have
cash or other material assets, nor does it have an established source of
revenues to cover its operating costs and to allow it to continue as a going
concern. The consolidated financial statements do not reflect any adjustments
that might result from the outcome of this uncertainty. It is management's
intent to seek growth by way of a merger or acquisition. It is the belief that
over the next 12 months that Company will acquire at least one or more of
acquisition candidates. The acquisition process should provide capital, revenue
and incomes as a result. There is no assurance that the Company will be
successful in its acquisition efforts or in raising the needed capital.
NOTE 4 - MATERIAL EVENTS
STOCK ISSUANCES
On February 16, 2004, the Company issued 50,000 share of common stock for
$50,000 cash. This stock issuance is part of the private placement to issue up
to 50,000 units. Each unit consists of one share of common stock and three
warrants to purchase three additional shares of common stock. Each warrant has
an exercise price of $0.10 per share.
On February 16, 2004, the Company issued 30,000 shares for deferred legal fees
at $0.80 per share.
F-8
SYNDICATION NET. COM, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements June 30, 2004 and December 31,
2003
NOTE 4 - MATERIAL EVENTS (CONTINUED)
STOCK ISSUANCES (CONTINUED)
During the six months ended June 30, 2004, the Company issued 355,000 shares of
common stock and paid out $52,500 in exchange for 575 class "A" common shares
and 1,500 common shares in Tri-State Metro Territories, LLC, Inc. (TSMT) and
notes receivable with principal balances of $95,000 plus accrued interest.
On May 18, 2004, the Company issued 600,000 shares of common stock for deferred
legal fees at $0.40 per share.
On June 1, 2004, the Company issued 1,200,000 shares of common stock for
consulting services at $0.35 per share.
On June 15, 2004, the Company issued 50,000 shares of common stock for
defaulting on a note payable at $0.35 per share.
NOTES RECEIVABLES
During the six months ended June 30, 2004, the Company lent $95,000 to (TSMT)
and purchase three notes receivables from TSMT by the issuance of common stock
to three unrelated parties for notes receivables of $95,000. All notes are
unsecured and due on demand. Interest rates range from prime + 1% to 10% per
annum.
INVESTMENT
During the six months ended June 30, 2004, the Company purchased 575 Class "A"
common stock and 1,500 common shares in Tristate Metro Territories, LLC (TSMT).
The valuation of this investment was $211,431. This investment is valued at the
lower of cost or market and represents 8% of TSMT. A major shareholder of the
Company is also the managing member of TSMT.
Note payable - Related Party
During the six months ended June 30, 2004, the Company borrowed an additional
$9,500 from a related party and repaid $13,600. The balance at June 30, 2004 was
$109,000. This note is due on demand and unsecured.
NOTE PAYABLE
During the six months ended June 30, 2004, the Company borrowed $190,000 from
seven individuals and repaid $20,000. The balance at June 30, 2004 was $200,500.
The notes are due on demand and unsecured.
AGREEMENTS
As of June 1, 2004, the Company issued a Secured Convertible Debenture to an
unrelated party in the principal amount of $200,000, of which $50,000 has been
paid to the Company. Another $150,000 was issued during July, after the
registration statement associated with the debenture was filed with the SEC. The
convertible debenture
F-9
SYNDICATION NET. COM, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements June 30, 2004 and December 31,
2003
NOTE 4 - MATERIAL EVENTS (CONTINUED)
AGREEMENTS (CONTINUED)
accrues interest at the rate of 5% per year and is convertible at the holder's
option. At the option of the Company, the entire principal amount and all
accrued interest can be either: (i) paid three years after the convertible
debenture was issued, or (ii) converted into shares of the Company's common
stock at a price per share that is equal to the lesser of: (i) $0.42 or (ii) an
amount equal to 80% of the average of the lowest daily volume weighted average
price of the common stock for the five trading days immediately preceding the
conversion date. The debenture has a term of three years and is secured by all
of the company's assets. As of June 30, 2004, the debenture had not been
converted. There was not a beneficial conversion expense associated with this
bond.
On June 15, 2004, the Company entered into standby equity distribution agreement
with an unrelated party. Whereby the Company may sell common stock for up to
$10,000,000. Each share of common stock sold will be sold at 98% of the lowest
volume weighted average price of the common stock during the five consecutive
trading days immediately following the notice date.
F-10
INDEPENDENT AUDITORS' REPORT
Board of Directors
Syndication Net.com, Inc. and Subsidiary Falls Church, Virginia
We have audited the accompanying consolidated balance sheet of Syndication
Net.com, Inc. and Subsidiary as of December 31, 2003 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended December 31, 2003 and 2002. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Syndication Net.com, Inc. and Subsidiary as of December 31, 2003 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2003 and 2002 in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 6 to the
consolidated financial statements, the Company has incurred significant losses
which have resulted in an accumulated deficit and a deficit in stockholders'
equity, raising substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 6. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
April 12, 2004
F-11
SYNDICATION NET. COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
2003
CURRENT ASSETS
Cash $ 14
Accounts receivable, net (Note 1) -
------------
Total Current Assets 14
------------
PROPERTY AND EQUIPMENT - NET (Note 2) -
------------
TOTAL ASSETS $ 14
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 307,008
Note payable - related party (Note 5) 113,100
Interest payable - related party (Note 5) 32,965
Note payable (Note 8) 30,000
Interest payable 5,295
Accrued directors fees 12,000
------------
Total Current Liabilities 500,368
COMMITMENTS AND CONTINGENCIES (NOTE 3)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: 20,000,000 shares authorized of
$0.0001 par value, no shares issued and outstanding -
Common stock: 100,000,000 shares authorized of $0.0001
par value, 12,075,088 shares issued and outstanding 1,207
Additional paid-in capital 2,021,958
Deferred fees (292,000)
Accumulated deficit (2,231,519)
------------
Total Stockholders' Equity (Deficit) (500,354)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 14
============
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
SYNDICATION NET. COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
--------------------------
2003 2002
------------ ------------
CONSULTING REVENUE $ 3,420 $ 12,725
------------ ------------
OPERATING EXPENSES
Depreciation - 910
Consulting fees 1,007,338 -
General and administrative 215,492 36,538
------------ ------------
Total Operating Expenses 1,222,830 37,448
------------ ------------
OPERATING INCOME (1,219,410) (24,723)
------------ ------------
OTHER EXPENSES
Interest expense (4,000) (12,789)
------------ ------------
Total Other Expenses (4,000) (12,789)
------------ ------------
LOSS BEFORE INCOME TAXES AND DISCONTINUED
OPERATIONS (1,223,410) (37,512)
------------ ------------
Income tax expense - -
------------ ------------
LOSS BEFORE DISCONTINUED OPERATIONS (1,223,410) (37,512)
------------ ------------
INCOME FROM DISCONTINUED OPERATIONS (NOTE 9)
Income from discontinued operations 134,990 58,818
------------ ------------
Total Income from Discontinued Operations 134,990 58,818
------------ ------------
NET INCOME (LOSS) $ (1,088,420) $ 21,306
============ ============
BASIC INCOME (LOSS) PER SHARE
Loss before discontinued operations $ (0.10) $ (0.00)
Income (loss) from discontinued operations 0.01 0.00
------------ ------------
Total Income (Loss) Per Share $ (0.09) $ 0.00
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 11,556,040 10,784,742
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
SYNDICATION NET. COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock Additional
------------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Fees Deficit
--------------- ------------- -------------- -------------- -------------
Balance, December 31, 2001 10,781,750 $ 1,078 $ 791,749 - $(1,164,405)
Common stock issued for services
at $1.00 per share 13,000 1 12,999 - -
Common stock issued for debt at
$1.00 per share 1,000 - 1,000 - -
Net income for the year ended
December 31, 2002 - - - - 21,306
--------------- ------------- -------------- -------------- -------------
Balance, December 31, 2002 10,795,750 1,079 805,748 - (1,143,099)
Common stock issued for services
at $1.00 per share 50,000 5 49,995 (50,000) -
Common stock issued for services
at $1.00 per share 250,000 25 249,975 - -
Common stock issued for cash
at $0.10 per share to related parties 70,000 7 6,993 - -
Common stock issued for debt and
services at $1.00 per share to a related party 571,338 57 571,281 - -
Common stock issued for services
at $1.00 per share to related parties 108,000 11 107,989 - -
Common stock issued for services
at $1.00 per share to related parties 70,000 7 69,993 -
Common stock issued for services
at $1.00 per share 410,000 41 409,959 (242,000) -
Common stock canceled for services
at $1.00 per share (250,000) (25) (249,975) - -
Net loss for the year ended
December 31, 2003 - - - - (1,088,420)
--------------- ------------- -------------- -------------- -------------
Balance, December 31, 2003 12,075,088 1,207 2,021,958 (292,000) (2,231,519)
=============== ============= ============== ============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
SYNDICATION NET. COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
--------------------------
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (1,088,420) $ 21,306
Adjustments to reconcile net income to net cash
provided (used) in operating activities:
Gain on release of debt (94,159) -
Depreciation - 910
Common stock issued for services 1,161,338 13,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable - 616,523
(Decrease) in accounts payable (22,146) (672,013)
Increase in accrued expenses 17,294 12,789
Decrease in accrued expenses related party (15,024) -
------------ ------------
Net Cash Used in Operating Activities (41,117) (7,485)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES - -
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock issued for cash to related parties 7,000 -
Increase in notes payable 40,000
Payments on notes payable (10,000) -
Increase in notes payable - related party 4,100 4,000
------------ ------------
Net Cash Provided by Financing Activities 41,100 4,000
------------ ------------
NET DECREASE IN CASH (17) (3,485)
CASH, BEGINNING OF YEAR 31 3,516
------------ ------------
CASH, END OF YEAR $ 14 $ 31
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Payments For:
Income taxes $ - $ -
Interest $ 28,150 $ -
Non-Cash Financing Activities
Stock issued for services $ 1,161,338 $ 13,000
Stock issued in satisfaction of debt $ 6,000 $ 1,000
Cancellation of stock for services $ (250,000) $ -
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
SYNDICATION NET. COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements December 31, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The consolidated financial statements presented are those of Syndication
Net.com, Inc. (formerly Life2K.com, Inc.) (Syndication) and its wholly-owned
subsidiary, Kemper Pressure Treated Forest Products, Inc. (Kemper).
Collectively, they are referred to herein as the "Company". Syndication was
incorporated under the name of Generation Acquisition Corporation (Generation)
on March 25, 1999 under the laws of the State of Delaware to engage in any
lawful act or activity. Effective August 16, 1999, Life2K.com, Inc. (Life2K)
issued 16,200,000 shares of its common stock and 60,000 shares of its preferred
stock in exchange for the issued and outstanding stock of Kemper. Effective
October 13, 2000, pursuant to an Agreement and Plan of Organization between
Generation Acquisition Corporation and Life2K, Generation Acquisition
Corporation issued 10,387,750 shares of its outstanding common stock for 100% of
the outstanding shares of Life2K. As part of the transaction, Life2K was merged
with and into Generation Acquisition Corporation, Life2K was dissolved and
Generation Acquisition Corporation changed its name to Syndication Net.com, Inc.
Kemper was incorporated on December 28, 1987 under the State laws of
Mississippi. Kemper was organized to procure, buy, sell and harvest forest
products for treating poles, conventional lumber and wood products, as well as
preserve and treat wood and forest products for sale in wholesale and retail
markets.
On October 9, 1997, Kemper entered into an asset purchase agreement and lease
assignment under which it conditionally sold all of its assets as well as
reassigned its lease related to its manufacturing enterprise. From that time,
Kemper has acted as a retail broker, having eliminated virtually all of its
manufacturing capacity.
At the time of the acquisition of Kemper, Life2K was essentially inactive, with
no operations and minimal assets. Additionally, the exchange of Life2K's common
stock for the common stock of Kemper resulted in the former stockholders of
Kemper obtaining control of Life2K. Accordingly, Kemper became the continuing
entity for accounting purposes, and the transaction was accounted for as a
recapitalization of Kemper with no adjustment to the basis of Kemper's assets
acquired or liabilities assumed. For legal purposes, Life2K was the surviving
entity.
At the time of the acquisition of Life2K, Syndication was essentially inactive,
with no operations and minimal assets. Additionally, the exchange of
Syndication's common stock for the common stock of Life2K resulted in the former
stockholders of Life2K obtaining control of Syndication. Accordingly, Life2K
became the continuing entity for accounting purposes, and the transaction was
accounted for as a recapitalization of Life2K with no adjustment to the basis of
Life2K's assets acquired or liabilities assumed. For legal purposes, Syndication
was the surviving entity.
F-16
SYNDICATION NET. COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements December 31, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
b. Accounting Method
The Company's consolidated financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year end.
c. Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
d. Accounts Receivable
Accounts receivable consist of an amount due from one customer. Accounts
receivable are shown net of the allowance for doubtful accounts. The allowance
was $35,000 at December 31, 2003.
e. Basic Loss Per Share
The computations of basic loss per share of common stock are based on the
weighted average number of common shares outstanding during the period of the
consolidated financial statements as follows:
For the Years Ended
December 31,
--------------------------
2003 2002
------------ ------------
Loss from operations $ (0.10) $ (0.00)
Income from discontinued operations 0.01 0.00
------------ ------------
Total Income (Loss) Per Share $ (0.09) $ 0.00
============ ============
Weighted Average Number of Shares
Outstanding 11,556,040 10,784,742
============ ============
F-17
SYNDICATION NET. COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements December 31, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
f. Recent Accounting Pronouncements
During the year ended December 31, 2003, the Company adopted the following
accounting pronouncements:
SFAS NO. 143 -- In August 2001, the FASB issued SFAS No. 143, Accounting for
Asset Retirement Obligations, which established a uniform methodology for
accounting for estimated reclamation and abandonment costs. The statement was
effective for fiscal years beginning after June 15, 2002. The adoption of SFAS
No. 143 did not have a material effect on the financial statements of the
Company.
SFAS NO. 145 -- On April 30, 2002, the FASB issued FASB Statement No. 145 (SFAS
145), "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." SFAS 145 rescinds both FASB
Statement No. 4 (SFAS 4), "Reporting Gains and Losses from Extinguishment of
Debt," and the amendment to SFAS 4, FASB Statement No. 64 (SFAS 64),
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." Through
this rescission, SFAS 145 eliminates the requirement (in both SFAS 4 and SFAS
64) that gains and losses from the extinguishment of debt be aggregated and, if
material, classified as an extraordinary item, net of the related income tax
effect. However, an entity is not prohibited from classifying such gains and
losses as extraordinary items, so long as it meets the criteria in paragraph 20
of Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
Further, SFAS 145 amends paragraph 14(a) of FASB Statement No. 13, "Accounting
for Leases", to eliminate an inconsistency between the accounting for
sale-leaseback transactions and certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The amendment requires
that a lease modification (1) results in recognition of the gain or loss in the
9 financial statements, (2) is subject to FASB Statement No. 66, "Accounting for
Sales of Real Estate," if the leased asset is real estate (including integral
equipment), and (3) is subject (in its entirety) to the sale-leaseback rules of
FASB Statement No. 98, "Accounting for Leases: Sale-Leaseback Transactions
Involving Real Estate, Sales-Type Leases of Real Estate, Definition of the Lease
Term, and Initial Direct Costs of Direct Financing Leases." Generally, FAS 145
is effective for transactions occurring after May 15, 2002. The adoption of SFAS
145 did not have a material effect on the financial statements of the Company.
SFAS NO. 146 -- In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit
or Disposal Activities" (SFAS 146). SFAS 146 addresses significant issues
regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring activities
that are currently accounted for under EITF No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The scope of SFAS 146
also includes costs related to terminating a contract that is not a capital
lease and termination benefits that employees who are involuntarily terminated
receive under the terms of a one-time benefit arrangement that is not an ongoing
benefit arrangement or an individual deferred-compensation contract. SFAS 146
will be effective for exit or disposal activities that are initiated after
December 31, 2002 and early
F-18
SYNDICATION NET. COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements December 31, 2003 and 2002
##
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
f. Recent Accounting Pronouncements (Continued)
application is encouraged. The provisions of EITF No. 94-3 shall continue to
apply for an exit activity initiated under an exit plan that met the criteria of
EITF No. 94-3 prior to the adoption of SFAS 146. The effect on adoption of SFAS
146 will change on a prospective basis the timing of when the restructuring
charges are recorded from a commitment date approach to when the liability is
incurred. The adoption of SFAS 146 did not have a material effect on the
financial statements of the Company.
SFAS NO. 147 -- In October 2002, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 147, "Acquisitions
of Certain Financial Institutions" which is effective for acquisitions on or
after October 1, 2002. This statement provides interpretive guidance on the
application of the purchase method to acquisitions of financial institutions.
Except for transactions between two or more mutual enterprises, this Statement
removes acquisitions of financial institutions from the scope of both SFAS 72
and Interpretation 9 and requires that those transactions be accounted for in
accordance with SFAS No. 141, "Business Combinations" and No. 142, "Goodwill and
Other Intangible Assets". The adoption of SFAS No. 147 did not have a material
effect on the financial statements of the Company.
SFAS NO. 148 -- In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock Based Compensation-Transition and Disclosure-an amendment of FASB
Statement No. 123" which is effective for financial statements issued for fiscal
years ending after December 15, 2002. This Statement amends SFAS 123, Accounting
for Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of SFAS 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
compensation and the effect of the method used on reported results. The adoption
of SFAS No. 148 did not have a material effect on the financial statements of
the Company.
SFAS NO. 149 -- In April 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities" which is
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. This statement amends and
clarifies financial accounting for derivative instruments embedded in other
contracts (collectively referred to as derivatives) and hedging activities under
SFAS 133. The adoption of SFAS No. 149 did not have a material effect on the
financial statements of the Company.
SFAS NO. 150 -- In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" which is effective for financial instruments entered into or modified
after May 31, 2003, and is otherwise effective at the beginning of the first
interim period beginning after June 15, 2003. This Statement establishes
standards for how an issuer classifies and measures in its statement of
financial position certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is
F-19
SYNDICATION NET. COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements December 31, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
f. Recent Accounting Pronouncements (Continued)
within its scope as a liability (or an asset in some circumstances) because that
financial instrument embodies an obligation of the issuer. The adoption of SFAS
No. 150 did not have a material effect on the financial statements of the
Company.
FASB INTERPRETATION NO. 45 -- "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others - an Interpretation of FASB Statements No. 5, 57 and 107". The initial
recognition and initial measurement provisions of this Interpretation are to be
applied prospectively to guarantees issued or modified after December 31, 2002.
The disclosure requirements in the Interpretation were effective for financial
statements of interim or annual periods ending after December 15, 2002. The
adoption of FASB Interpretation No. 45 did not have a material effect on the
financial statements of the Company.
FASB INTERPRETATION NO. 46 -- In January 2003, the FASB issued FASB
Interpretation No. 46 "Consolidation of Variable Interest Entities." FIN 46
provides guidance on the identification of entities for which control is
achieved through means other than through voting rights, variable interest
entities, and how to determine when and which business enterprises should
consolidate variable interest entities. This interpretation applies immediately
to variable interest entities created after January 31, 2003. It applies in the
first fiscal year or interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The adoption of FIN 46 did not have a material
impact on the Company's financial statements.
During the year ended December 31, 2003, the Company adopted the following
Emerging Issues Task Force Consensuses: EITF Issue No. 00-21 "Revenue
Arrangements with Multiple Deliverables", EITF Issue No. 01 -8 " Determining
Whether an Arrangement Contains a Lease", EITF Issue No. 02-3 "Issues Related to
Accounting for Contracts Involved in Energy Trading and Risk Management
Activities", EITF Issue No. 02-9 "Accounting by a Reseller for Certain
Consideration Received from a Vendor", EITF Issue No. 02-17, "Recognition of
Customer Relationship Intangible Assets Acquired in a Business Combination",
EITF Issue No. 02-18 "Accounting for Subsequent Investments in an Investee after
Suspension of Equity Method Loss Recognition", EITF Issue No. 03-1, "The Meaning
of Other Than Temporary and its Application to Certain Instruments", EITF Issue
No. 03-5, "Applicability of AICPA Statement of Position 9702, `Software Revenue
Recognition' to Non-Software Deliverables in an Arrangement Containing More Than
Incidental Software", EITF Issue No. 03-7, "Accounting for the Settlement of the
Equity Settled Portion of a Convertible Debt Instrument That Permits or Requires
the Conversion Spread to be Settled in Stock", EITF Issue No. 03-10,
"Application of EITF Issue No. 02-16 by Resellers to Sales Incentives Offered to
Consumers by Manufacturers.
F-20
SYNDICATION NET. COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements December 31, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
g. Property and Equipment
Property and equipment is recorded at cost. Major additions and improvements are
capitalized. The cost and related accumulated depreciation of equipment retired
or sold are removed form the accounts and any differences between the
undepreciated amount and the proceeds from the sale are recorded as gain or loss
on sale of equipment. Depreciation is computed using the straight-line method
over a period of five years.
h. Provision for Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely that not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31,
2003 and 2002:
2003 2002
------------ ------------
Deferred tax assets
NOL Carryover $ 405,300 $ 642,400
Accrued expenses 12,900 -
Deferred tax liabilities: - -
Valuation allowance (418,200) (642,400)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate of 39% to pretax income from
continuing operations for the years ended December 31, 2003 and 2002 due to the
following:
2003 2002
------------ ------------
Book income $ 424,485 $ 8,309
Stock for services/options expense (452,920) 5,070
NOL - (13,379)
Valuation allowance 28,435 -
------------ ------------
$ - $ -
============ ============
F-21
SYNDICATION NET. COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements December 31, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
h. Provision for Income Taxes (Continued)
At December 31, 2003, the Company had net operating loss carryforwards of
approximately $1,647,000 that may be offset against future taxable income from
the year 2002 through 2022. No tax benefit has been reported in the December 31,
2002 consolidated financial statements since the potential tax benefit is offset
by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net operating
loss carryforwards may be limited as to use in the future.
i. Principles of Consolidation
The consolidated financial statements include those of Syndication and its
wholly-owned subsidiary, Kemper.
All material intercompany accounts and transactions have been eliminated.
j. Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
k. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising expense for the years ended December 31, 2003 and 2002
was $-0- and $-0-, respectively.
l. Revenue Recognition Policy
The Company entered into a consulting agreement (Note 3) with Tri-State Metro
Territories, Inc. (Tri-State). The Company is to assist in the management,
development, sales, and marketing of Tri-State's hair coloring salon units. The
Company recognized this consulting income from Tri-State on a monthly basis for
time actually spent consulting. The agreement establishes the hourly billing
rates. Collectability is reasonably assured.
F-22
SYNDICATION NET. COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements December 31, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
m. Concentrations of Risk
The Company has one major customer for its consulting services which accounts
for 100% of its consulting revenue. A loss of this customer could affect the
operating results of the Company.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2003:
Office equipment $ 4,550
Accumulated depreciation (4,550)
------------
Net property and equipment $ -
============
Depreciation expense for the years ended December 31, 2003 and 2002 was $0 and
$910, respectively.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
On May 18, 1999, the Company entered into an agreement to acquire a reporting
United States corporation with audited financial statements showing no material
assets or liabilities. The Company agreed to pay $100,000 for its services in
regard to the transaction. On October 13, 2000 this acquisition took place (Note
1.) The Company has paid a total of $65,000 and has accrued an additional
$35,000 for legal fees.
On April 7, 1999, the Company ratified its corporate service consulting
agreement with Source Management Services, Inc. (Source), a related company
owned by a significant shareholder. Source is to oversee the general activities
of the Company on a day-to-day basis, develop and execute a business plan, and
assist in other ongoing administrative issues. For the year ended December 31,
2002, the Company agreed to pay Source a total of $1,000. The Company has also
agreed to award Source a bonus of 5% of the outstanding shares of stock when the
Company's securities are traded on any United States stock exchange. The Company
became listed on the OTC Bulletin Board on March 5, 2003
On September 19, 2000, the Company entered into a Services and Consulting
Agreement with Tri-State Metro Territories, Inc. (Tri-State), a business that
sells franchised hair coloring salon units under the copyright name of
"haircolorxpress." The Company was retained as Tri-State's consultant to assist
in the development of management, sales and marketing of "haircolorxpress"
franchised hair coloring salon units. The Company received a total of $12,725
during 2002 as a result of the consulting agreement with Tri-State. The
agreement is for a term of twenty years with up to four, five-year extensions.
The Company is currently in negotiations with a number of companies that are
interested in entering into similar consulting agreements.
On November 26, 2001, Barry Pope ("Pope"), individually and as a shareholder of
Worldwide Forest Products, Inc. ("Worldwide") commenced an action against the
F-23
SYNDICATION NET. COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements December 31, 2003 and 2002
NOTE 3 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company, Brian Sorrentino, Dale Hill, Worldwide Forest Products, Inc., Kemper
Pressure Treated Forest Products, Inc., Life2k.com, Inc., Algonquin Acquisition
Corp., Generation Acquisition Corp., Castle Securities Corporation and John Does
1-5, in the Circuit Court of Madison County, Mississippi. In such action, Pope
claims that stock he owned and commissions owed to him by Worldwide should have
been converted into shares of the common stock of the Company.
Worldwide was a corporation organized under the laws of the State of Mississippi
that operated as a wood treatment company that worked exclusively with creosite,
a wood treatment chemical, for utility wood poles and products. In 1997 the
corporate charter of Worldwide expired and Worldwide no longer conducts
operations. In 1996, Pope entered into a consent order settlement with Worldwide
arising from claims brought by Pope against the former President of Worldwide
and Worldwide, David Wise. Pursuant to such settlement, on November 8, 1996,
Pope received 30,000 shares of Worldwide common stock and received warrants,
exercisable at $1.00 per share, to purchase 200,000 shares of Worldwide common
stock.
Worldwide never completed a public offering and, as such, Pope alleges losses
equal to the value of his Worldwide shares had Worldwide completed a public
offering, had such shares traded at a minimum of $5.00 per share and had Pope
been able to sell his securities equal to or in excess of $5.00. Pope further
alleges that certain defendants guaranteed the obligations of Worldwide in the
amount of $2,060,000 and alleges that all shareholders of Worldwide were
provided an opportunity by Worldwide to convert shares of Worldwide common stock
into shares of common stock of the Company.
Finally, Pope alleges that Brian Sorrentino orally guaranteed payment to Pope in
the amount of $200,000 representing commissions to be paid to Pope if and when
Pope provided a $2,000,000 loan for Worldwide. Pope is seeking compensatory and
punitive damages in an amount to be determined at trial, plus an award of
reasonable costs, attorneys' fees and expenses, pre-judgement and post-judgement
interest, and any other relief to which Pope may be entitled. The Company
believes that Pope's claim is without merit and the Company has engaged counsel
to vigorously defend against the action.
On November 10, 2003, the Company entered into a Letter of Intent with Tri State
Metor Territories, LLC (Tri State) to acquire substantially all of the assets of
Tri State. A major shareholder of the Company is also a 10% shareholder and
managing member in Tri State.
NOTE 4 - PREFERRED STOCK
The shareholders of the Company have authorized 20,000,000 shares of preferred
stock with a par value of $0.0001. The terms of the preferred stock are to be
determined when issued by the board of directors of the Company.
On January 1, 2000, the remaining 60,000 Series A preferred shares were
converted into common shares, thus, at December 31, 2001, no preferred shares
were outstanding.
F-24
SYNDICATION NET. COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements December 31, 2003 and 2002
NOTE 5 - NOTES PAYABLE - RELATED PARTY
Notes payable to related parties consisted of the following at December 31,
2003:
Note payable to a related party, due
on demand, plus interest
at 12% per annum, unsecured. $ 113,100
Less: Current Portion (113,100)
------------
Long-Term Notes Payable to Related Parties $ -
============
The aggregate principal maturities of notes payable to related parties are as
follows:
Year Ended
December 31, Amount
------------- ------------
2004 $ 113,100
2005 -
2006 -
2007 -
2008 and thereafter -
------------
Total $ 113,100
============
Interest expense for the year ended December 31, 2003 and 2002 was $13,125 and
$12,789, respectively.
NOTE 6 - GOING CONCERN
The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. The Company has historically incurred significant losses which have
resulted in an accumulated deficit of $2,231,519 at December 31, 2003 which
raises substantial doubt about the Company's ability to continue as a going
concern.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of liabilities
that might result from the outcome of this uncertainty.
It is management's intent to seek growth by way of a merger or acquisition. It
is the belief that over the next 12 months that Company will acquire at least
one or more of acquisition candidates. The acquisition process should provide
capital, revenue and incomes as a result. There is no assurance that the Company
will be successful in its acquisition efforts or in raising the needed capital.
NOTE 7 - COMMON STOCK
During the year ended December 31, 2003, the Company issued 70,000 shares of
common stock to related parties for $7,000 cash or $0.10 per share to related
parties.
F-25
SYNDICATION NET. COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements December 31, 2003 and 2002
NOTE 7 - COMMON STOCK (CONTINUED)
During the year ended December 31, 2003, the Company issued 710,000 shares of
common stock to various consultants and their attorney valued at $1.00 per share
for consulting and legal services to be performed pursuant to various consulting
agreements. As of December 31, 2003, $418,000 in services performed and $292,000
in unearned fees.
On April 7, 1999, the Company ratified its corporate service consulting
agreement with Source Management Services, Inc. (Source), a related company
owned by a significant shareholder. Source is to oversee the general activities
of the Company on a day-to-day basis, develop and execute a business plan, and
assist in other ongoing administrative issues. For the year ended December 31,
2002, the Company agreed to pay Source a total of $1,000. The Company has also
agreed to award Source a bonus of 5% of the outstanding shares of stock when the
Company's securities are traded on any United States stock exchange. The Company
became listed on the OTC Bulletin Board on March 5, 2003. On March 5, 2003, the
Company had 10,795,750 shares outstanding, 5% of which is 539,788. As of
September 30, 2003, the Company issued 571,338 shares of common stock to the
Company's consultant valued at $1.00 per share for the conversion of related
party debt of $539,788 and additional consulting fees of $31,550.
During the year ended December 31, 2003, the Company had issued 70,000 shares of
common stock to the President of the Company valued at $1.00 per share for
services performed.
During the year ended December 31, 2003, the Company had issued 108,000 shares
of common stock to the directors of the Company valued at $1.00 per share for
$108,000 in services performed.
NOTE 8 - NOTE PAYABLE
At December 31, 2003, the Company had one note payable totaling $30,000. This
note is unsecured and due on demand. Interest is imported at 12% per annum.
Interest expense for the year ended December 31, 2003 was $1,095.
NOTE 9 - DISCONTINUED OPERATIONS
In September 2003, the Company decided to wind down its operations of wood
treatment. This decision was based on minimal margins and new legislation
governing the use of certain chemicals. The Company wanted to limit its exposure
to any risks associated with the use of chemicals used in the treatment of wood.
The Company wound down all wood treatment operations in September 2003.
F-26
SYNDICATION NET. COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements December 31, 2003 and 2002
NOTE 9 - DISCONTINUED OPERATIONS (CONTINUED)
For the Years Ended
December 31,
------------ ------------
2003 2002
------------ ------------
WOOD TREATMENT REVENUE $ 5,806,366 $ 8,943,781
COST OF SALES 5,765,535 8,884,963
------------ ------------
Gross Margin 40,831 58,818
------------ ------------
EXPENSES
General and administrative expense - -
------------ ------------
Total Expenses - -
------------ ------------
Income From Operations 40,831 58,818
------------ ------------
OTHER INCOME (EXPENSE)
Gain on release of debt 94,159 -
------------ ------------
Total Other Income (Expense) 94,159 -
------------ ------------
NET INCOME FROM DISCONTINUED
OPERATIONS $ 134,990 $ 58,818
============ ============
LOSS ON DISPOSAL OF SUBSIDIARY $ - $ -
============ ============
NOTE 10 - SUBSEQUENT EVENTS
Subsequent to December 31, 2003 the Company issued 30,000 shares for legal
services performed, valued at $1.00 per share.
Subsequent to December 31, 2003, the Company issued 355,000 shares and $52,500
in exchanged for 575 class "A" common shares, 1,500 common shares in Tri-State
and notes receivable with principal balances of $110,000 plus accrued interest.
Subsequent to December 31, 2003, the Company approved the offering of 150,000
units. Each unit consists of one share of common stock and three warrants to
purchase three additional common shares with an exercise price of $0.10 per
share. As of the date of this filing, the Company has issued 50,000 of the
150,000 units.
F-27
- ---------------------------------------------------------- ----------------------------------------------------------
You should rely only on the information
contained in this prospectus. We have
not authorized anyone to provide you
with information different from the
information contained in this
prospectus. This document may only be
used where it is legal to sell the
securities. The information in this
document may only be accurate on the
date of this document. UP TO 49,950,000 SHARES
OF OUR
OF COMMON STOCK
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY 1
RISK FACTORS 3 SYNDICATION NET.COM, INC.
USE OF PROCEEDS 9
SELLING STOCKHOLDERS 10
PLAN OF DISTRIBUTION 15
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 18
________________
DESCRIPTION OF BUSINESS 21 PROSPECTUS
________________
MANAGEMENT 25
EXECUTIVE COMPENSATION 26
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 25
DESCRIPTION OF SECURITIES 28 October 14, 2004
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES 31
LEGAL MATTERS 31
EXPERTS 31
AVAILABLE INFORMATION 31
FINANCIAL STATEMENTS F-1
- ---------------------------------------------------------- ----------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation, as amended and restated, provide to the
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, that our directors or officers shall not be personally liable
to us or our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended and restated, is to eliminate our rights and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Our By Laws also provide that the Board of Directors may also authorize
the company to indemnify our employees or agents, and to advance the reasonable
expenses of such persons, to the same extent, following the same determinations
and upon the same conditions as are required for the indemnification of and
advancement of expenses to our directors and officers. As of the date of this
Registration Statement, the Board of Directors has not extended indemnification
rights to persons other than directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:
NATURE OF EXPENSE AMOUNT
----------------- ------
SEC Registration fee $ 1,582.17
Accounting fees and expenses 5,000.00*
Legal fees and expenses 45,000.00*
----------
TOTAL $51,582.17*
===========
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth information regarding all sales of our
unregistered securities during the past three years.
In October 2002, the Company issued 2,000 shares of the Company's common
stock to each of its officers and directors for an aggregate issuance of 12,000
shares. The shares were issued as follows: 2,000 to Vance Hartke, our former
president; 2,000 to Wayne Hartke, a former director; 2,000 to Mark Solomon as a
director; 2,000 to Howard Siegel as a director; 2,000 to Cynthia White, our CFO.
The Company also issued 1,000 shares of common stock to Wayne Hartke for legal
services rendered to the Company at a value of $1.00 per share and 1,000 shares
to Mr. Vance Hartke as consideration for office rental fees value at $1.00 per
share.
II-1
On September 4, 2003, we issued 88,000 shares to Wayne Hartke, 18,000
shares of common stock to Cynthia White, 18,000 shares of common stock to Mark
Solomon, 18,000 shares of common stock to Mark Griffith, 18,000 to Howard Siegel
and 20,000 shares of common stock to Cynthia White. Such shares were valued at
$1.00 and were issued for board services rendered to the Company. The Company
issued an aggregate of 70,000 shares of common stock for cash at $.10 per share
to Mark Solomon and Howard Segal. During the fourth quarter of the year ended
December 31, 2003, we issued an aggregate of 1,172,338 shares of our common
stock to nine individuals, including our officers and directors, as
consideration for services rendered to the Company. The shares were issued as
follows; 571,338 shares of our common stock was issued to Brian Sorrentino for
consulting services as part of the terms related to the Consulting Agreement
between Kemper Pressure Treated Forest Products Inc. and Source Management
Services filed with the Commission as Exhibit 10.1 in a Registration Statement
on Form SB-2 filed on October 5, 2001 and incorporated herein by reference, and
valued at $1.00. We issued 300,000 shares of common stock to the Research Works,
valued at $1.00, for research services rendered to the Company. The services
rendered by Research Works were related to an analysis of the market prospects
related to the potential development of Tri-State Metro Territories LLC. and as
a prerequisite leading to the acquisition of that Company. We also, issued an
aggregate of 130,000 shares of common stock, valued at $1.00, to Shai Stern and
Seth Farbman for legal services and EDGAR services rendered to the Company. We
issued 91,000 shares to Wayne Hartke as Director, 20,000 shares to Cynthia White
as CFO; 20,000 to Mark Solomon as Director; 20,000 to Mark Griffith as
Secretary; and 20,000 to Howard Seigal.
On February 16, 2004, the Company issued 50,000 shares of common stock and
warrants to purchase three shares of common stock for $50,000 cash. This stock
issuance was part of a private placement to issue up to 50,000 units. Each unit
consists of one share of common stock and three warrants to purchase three
additional shares of common stock. Each warrant has an exercise price of $0.10
per share.
On February 16, 2004, the Company issued 30,000 shares to Seth Farbman for
deferred legal fees at $0.80 per share.
During the quarter ended March 31, 2004, the Company issued 355,000 shares
of common stock and paid out $52,500 in exchange for 575 class "A" common shares
and 1,500 common shares in Tri-State Metro Territories, LLC, Inc. and notes
receivable with principal balances of $95,000 plus accrued interest. The shares
were issued to Adoribel Holdings (160,000), Jack Feldman (120,000), George
Kuipers (15,000) and Dale Hill (60,000).
In June 2004, the Company issued 600,000 shares of common stock to Seth
Farbman in consideration for consulting services for a period of 12 months.
In June 2004, the Company issued 50,000 shares of common stock to Seth
Farbman, a note holder, in consideration for the extension of the due date of
such note.
To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with Cornell Capital Partners on June 15, 2004 for the sale
of $200,000 in convertible debentures of which $50,000 was received by us on
June 15, 2004 and $150,000 was received by us on July 9, 2004. The debentures
issued pursuant to the June 2004 Securities Purchase Agreement bear interest at
5%, mature three years from the date of issuance, and are convertible into our
common stock, at the holder's option, at the lower of the following:
o $.42; or
o eighty percent (80%) of the lowest volume weighted average price of
the common stock for the five (5) trading days immediately preceding
the conversion date.
The full principal amount of the convertible debentures is due upon
default under the terms of convertible debentures. We are obligated to file a
registration statement for the resale of the conversion shares issuable upon
conversion of the debentures under the Securities Act of 1933, as amended, no
later than thirty (30) days from June 15, 2004.
II-2
On June 15, 2004, we entered into a Standby Equity Distribution Agreement
with one investor. Pursuant to the Standby Equity Distribution Agreement, we
may, at our discretion, periodically sell to the investor shares of common stock
for a total purchase price of up to $10,000,000. For each share of common stock
purchased under the Standby Equity Distribution Agreement, the investor will pay
98% of the lowest volume weighted average price of the common stock during the
five consecutive trading days immediately following the notice date. The
investor, Cornell Capital Partners, L.P. is a private limited partnership whose
business operations are conducted through its general partner, Yorkville
Advisors, LLC. Cornell Capital Partners, L.P. will retain 5% of each advance
under the Standby Equity Distribution Agreement. Cornell Capital Partners is
restricted from owing in excess of 9.9% of our outstanding common stock. In the
event that Cornell Capital Partners is unable to sell shares of common stock
that it acquires under the Standby Equity Distribution Agreement and its
ownership equals 9.9% of the our outstanding, then we will not be able to draw
down money under the Standby Distribution Agreement. In June 2004, as required
by the Standby Equity Distribution Agreement we issued Cornell Capital Partners,
L.P. 1,160,000 shares of common stock. In addition, we engaged Newbridge
Securities Corporation, a registered broker-dealer, to advise us in connection
with the Standby Equity Distribution Agreement. For its services, Newbridge
Securities Corporation received 40,000 shares of our common stock. We are
obligated to prepare and file with the Securities and Exchange Commission a
registration statement to register the resale of the shares issued under the
Standby Equity Distribution Agreement prior to the first sale to the investor of
our common stock.
All of the above offerings and sales were deemed to be exempt under rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended.
No advertising or general solicitation was employed in offering the securities.
The offerings and sales were made to a limited number of persons, all of whom
were accredited investors, business associates of ours or our executive
officers, and transfer was restricted by us in accordance with the requirements
of the Securities Act of 1933. In addition to representations by the
above-referenced persons, we have made independent determinations that all of
the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.
Except as expressly set forth above, the individuals and entities to whom
we issued securities as indicated in this section of the registration statement
are unaffiliated with us.
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2. References
to "the Company" in this Exhibit List mean Syndication Net.com, Inc., a Nevada
corporation.
3.1 Certificate of Incorporation, filed with the registration statement of
Generation Acquisition Corporation on Form 10-SB (file No. 000-29701)
filed with the Commission and incorporated herein by reference
3.2 Certificate of Ownership and Merger previously filed with the Commission
as an exhibit to a registration statement on Form SB2/A (file no.
333-55534) and incorporated by reference
3.3 By-Laws of the Company, filed with the registration statement of
Generation Acquisition Corporation on Form 10-SB (file No. 000-29701)
filed with the Commission and incorporated herein by reference
3.4 Restated and Amended Bylaws of the Company.
4.1 Agreement and Plan of Reorganization among Generation Acquisition
Corporation, Life2K, Inc., and the shareholders of Life2K, Inc. filed on
Form 8-K (file no. 000-29701) with the Commission on November 6, 2000 and
incorporated herein by reference
4.2 Agreement and Plan of Merger between Generation Acquisition Corporation
and Life2K Acquisition Corporation filed on Form 8-K (file no. 000-29701)
with the Commission on November 6, 2000 and incorporated herein by
reference
4.3 Consulting agreement between SyndicationNet.com, Inc. and Tri-State Metro
Territories, LLC dated September 19, 2000, filed with the Commission as
Exhibit 4.3 in a registration statement on Form SB-2 (file no.
333-55534)filed on February 13, 2001 and incorporated herein by reference
4.4 Securities Purchase Agreement, dated June 15, 2004, by and among
Syndication Net.com, Inc. and Cornell Capital Partners, L.P.
4.5. Secured Convertible Debenture with Cornell Capital Partners, L.P.
4.6 Investor Registration Rights Agreement, dated June 15, 2004, by and among
Syndication Net.com, Inc. and Cornell Capital Partners, L.P. in connection
with the Securities Purchase Agreement.
4.7 Escrow Agreement, dated June 15, 2004, by and between Syndication Net.com,
Inc. and Cornell Capital Partners, L.P. in connection with the Securities
Purchase Agreement.
4.8 Security Agreement, dated June 15, 2004, entered into between Syndication
Net.com, Inc. and Cornell Capital Partners, L.P. in connection with the
Securities Purchase Agreement.
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4.9 Standby Equity Distribution Agreement, dated June 15, 2004, between
Cornell Capital Partners, L.P. and Syndication Net.com, Inc.
4.10 Registration Rights Agreement, dated June 15, 2004, by and between
Syndication Net.com, Inc. and Cornell Capital Partners, L.P. in connection
with the Standby Equity Distribution Agreement.
4.11 Escrow Agreement, dated June 15, 2004, by and between Syndication Net.com,
Inc. and Cornell Capital Partners, L.P. in connection with the Standby
Equity Distribution Agreement.
4.12 Placement Agent Agreement, dated June 15, 2004, by and among Syndication
Net.com, Inc., Newbridge Securities Corporation and Cornell Capital
Partners, L.P.
4.13 Amendment No. 1 to the Standby Equity Distribution Agreement dated August
25, 2004 by and between Syndication Net.com, Inc. and Cornell Capital
Partners, L.P.
4.14 Secured Convertible Debenture with Cornell Capital Partners, L.P. dated
July 9, 2004
5.1 Opinion and Consent of Sichenzia Ross Friedman Ference LLP.
10.1 Consulting Agreement between Kemper Pressure Treated Forest Products Inc.
and Source Management Services filed with the Commission as Exhibit 10.1
in a registration statement on Form SB-2 (file no. 333-55534) filed on
October 5, 2001 and incorporated herein by reference
10.2 Consulting Agreement between SyndicationNet and HTRG Consulting, Inc.
previously filed with the Commission as an exhibit to a registration
statement on Form SB2/A (file no. 333-55534) and incorporated by reference
10.3 Asset Purchase Agreement between Kemper Pressure Treated Forest Products,
Inc. and Electric Mills Wood Preserving LLC, previously filed with the
Commission as an exhibit to a registration statement on Form SB2/A (file
no. 333-55534) and incorporated by reference
10.4 Assignment of Lease between Kemper Pressure Treated Forest Products, Inc.
and Electric Mills Wood Preserving LLC, previously filed with the
Commission as an exhibit to a registration statement on Form SB2/A (file
no. 333-55534) and
14.1 Code of Ethics and Business Conduct for Officers, Directors and Employees
of the Company.
23.1 Consent of HJ & Associates, LLC
23.2 Consent of legal counsel (see Exhibit 5.1).
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and Notwithstanding the forgoing, any increase or decrease in volume
of securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan
of distribution.
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(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned, in the City of Washington, D. C.
on August 25, 2004.
SYNDICATION NET.COM, INC.
Dated: October 14, 2004 By: /s/ Brian Sorrentino
-----------------------------------
Brian Sorrentino
CEO
By: /s/ Mark Solomon
-----------------------------------
Mark Solomon
President
By: /s/ Cynthia White
-----------------------------------
Cynthia White
CFO
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In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
Signature Title Date
/s/ Brian Sorrentino CEO and Director October 14, 2004
- -----------------------------------
Brian Sorrentino
/s/ Cynthia White CFO October 14, 2004
- -----------------------------------
Cynthia White
/s/Mark Solomon President and Director October 14, 2004
- -----------------------------------
Mark Solomon
/s/ Howard B. Siegel Director October 14, 2004
- -----------------------------------
Howard B. Siegel
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