UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended
March 31, 2006
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-28955
SYNDICATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-2218873
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 24th Street, NW
Suite 300
Washington, D.C. 20037
(Address of principal executive offices (zip code))
(202) 467-2788
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the last 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12-b2 of the Exchange Act). Yes |_| No |X|
At May 19, 2006, there were 99,993,946 shares of common stock, $0.0001 par value
per share, issued and outstanding.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYNDICATION, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 and December 31, 2005
SYNDICATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
March 31, December 31,
2006 2005
--------- ---------
(Unaudited)
CURRENT ASSETS
Cash $ 301,401 $ 255,684
Accounts Receivable 1,850 12,300
--------- ---------
Total Current Assets 303,251 267,984
--------- ---------
OTHER ASSETS
Debt Offering Costs 135,521 60,000
Amortization Accumulated (6,776) --
--------- ---------
Total Other Assets 128,745 60,000
--------- ---------
TOTAL ASSETS $ 431,996 $ 327,984
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
2
SYNDICATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31, December 31,
2006 2005
----------- -----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 45,446 $ 103,717
Accounts payable - related party 1,717 18,419
Note payable - related party 368,937 368,937
Interest payable - related party 95,172 84,104
Note payable 138,011 301,761
Interest payable 28,687 37,043
Interest payable - convertible debenture -- 1,318
Derivative Liability 2,217,173 1,668,627
----------- -----------
Total Current Liabilities 2,895,143 2,583,926
----------- -----------
LONG TERM LIABILITIES
Convertible Debenture -- 168,038
----------- -----------
Total Long Term Liabilities -- 168,038
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: 20,000,000 shares authorized of
$0.0001 par value, no shares issued and outstanding -- --
Common stock: 3,000,000,000 shares authorized of $0.0001
par value, 99,993,946 shares issued and
outstanding respectively 9,994 9,994
Additional paid-in capital 4,406,272 4,406,272
Deficit accumulated prior to the development stage (2,231,519) (2,231,519)
Deficit accumulated during the development stage (4,647,894) (4,608,727)
----------- -----------
Total Stockholders' Equity (Deficit) (2,463,147) (2,423,980)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 431,996 $ 327,984
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
3
SYNDICATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From inception
of the
Development
For the Three Months Ended stage on
March 31, January 1, 2004
-------------------------- through
2006 2005 March 31, 2006
----------- ----------- -----------
CONSULTING REVENUE $ 8,675 $ -- $ 75,100
----------- ----------- -----------
OPERATING EXPENSES
Bad debt expense 49,564 36,936 408,503
General and administrative 43,485 128,192 952,373
Consulting 45,925 127,500 1,635,792
----------- ----------- -----------
Total Operating Expenses 138,974 292,628 2,996,668
----------- ----------- -----------
OPERATING LOSS (130,299) (292,628) (2,921,568)
----------- ----------- -----------
OTHER INCOME (EXPENSES)
Loss on investment value -- (50,000) (284,469)
Interest income -- -- --
Other Income (expenses) (43,780) (11,095) (7,848)
Gain (Loss) on derivative liability 151,454 -- (1,217,173)
Interest expense (16,542) (8,059) (216,836)
----------- ----------- -----------
Total Other Income (Expenses) 91,132 (69,154) (1,726,326)
----------- ----------- -----------
LOSS BEFORE INCOME TAXES AND DISCONTINUED
OPERATIONS (39,167) (361,782) (4,647,894)
----------- ----------- -----------
INCOME TAX EXPENSE -- -- --
----------- ----------- -----------
LOSS BEFORE DISCONTINUED OPERATIONS (39,167) (361,782) (4,647,894)
----------- ----------- -----------
NET INCOME (LOSS) $ (39,167) $ (361,782) $(4,647,894)
=========== =========== ===========
BASIC LOSS PER SHARE
Total (Loss) Per Share $ (0.00) $ (0.02)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 99,993,946 15,365,088
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
4
SYNDICATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From Inception
of the
Development
For the Three Months Ended Stage on
March 31, January 1, 2004
-------------------------- Through
2006 2005 March 31, 2006
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (39,167) $ (361,780) $(4,647,894)
Adjustments to reconcile net loss to net cash
provided (used) in operating activities:
Common Stock issued for services -- -- 2,393,101
Amortization expense 6,776 82,500 298,776
Bad debt expense -- 36,936 278,187
Loss on investment value -- 50,000 276,431
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 10,450 22,538 (1,850)
Decrease in accounts payable (58,269) -- (261,562)
Increase (decrease) in accounts payable - related party (16,703) -- 1,717
Increase in interest payable - related party 11,068 11,095 56,913
Increase (decrease) in interest payable - others (9,677) 14,077 28,687
Increase in accrued expenses -- 8,200 (12,000)
----------- ----------- -----------
Net Cash (Used) in Operating
Activities (95,521) (136,434) (2,144,112)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase (decrease) in notes receivable - related -- (36,936) --
Increase (decrease) in investments - related party -- (50,000) --
Increase in deferred acquisition costs -- (1,038) --
----------- ----------- -----------
Net Cash Used in Investing Activities -- (87,974) --
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock issued for cash -- -- --
Increase in notes payable -- 250,000 138,011
Payments on notes payable (163,750) (10,000) (30,000)
Increase in convertible debenture 531,962 -- 1,000,000
Increase (decrease) in debt discount (700,000) -- (1,000,000)
Increase (decrease) in derivative liability 548,546 -- 2,217,173
Increase in Debt offering costs (75,521) -- (135,521)
Increase in notes payable - related party -- -- 255,836
----------- ----------- -----------
Net Cash Provided by Financing Activities 141,237 240,000 2,445,499
----------- ----------- -----------
NET INCREASE IN CASH 45,717 15,592 301,387
CASH, BEGINNING OF PERIOD 255,684 14,041 14
----------- ----------- -----------
CASH, END OF PERIOD $ 301,401 $ 29,633 $ 301,401
=========== =========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
5
SYNDICATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From Inception
of the
Development
For the Three Months Ended Stage on
March 31, January 1, 2004
-------------------------- Through
2006 2005 March 31, 2006
----------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Payments For:
Income taxes $ - $ -
Interest $ - $ - $ 11,370
Non-Cash Financing Activities
Common stock issued for deferred fees $ - $ - $ 304,000
Common stock issued for converting N/P $ - $ 65,000 $ 65,000
Common stock issued for converting debt $ - $ 10,000 $ 10,000
Common stock issued for services $ - $ 1,182,750
The accompanying notes are an integral part of
these consolidated financial statements.
6
SYNDICATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2006 and December 31, 2005
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 consolidated 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 consolidated interim financial
statements include normal recurring adjustments and reflects all
adjustments, which, in the opinion of management, are necessary
for a fair presentation of such consolidated financial statements.
Although management believes the disclosures and information
presented are adequate to make the information not misleading, it
is suggested that these consolidated interim financial statements
be read in conjunction with the Company's most recent audited
consolidated financial statements and notes thereto included in
its December 31, 2005 Annual Report on Form 10-KSB. Operating
results for the three months ended March 31, 2006 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 2006.
NOTE 2 - 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. At the 1st Quarter close, the Company had cash
resources of $301,401.00 and the recent establishment of initial
stage sources of revenue 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 3 - DEBENTURE
On December 30th 2005, Syndication, Inc. (the "Company"), in order
to obtain alternative funding for its ongoing operations of the
Company, entered into a Termination Agreement with Cornell Capital
Partners, LP (the "Investor") pursuant to which the Standby Equity
Distribution Agreement entered between the Company and the
Investor dated June 2004 was terminated. To that end, on December
30th 2005, the company then executed a Securities Purchase
Agreement (the "Agreement") for the sale of (i) $1,150,000 in
secured convertible debentures (the "Debentures") and (ii) stock
purchase warrants (the "Warrants") to buy 120,000,000 shares of
our common stock. In accordance with EITF-00-19 and SFAS 150,
since there is no explicit limit on the number of shares that are
to be delivered upon exercise of the conversion feature, the
Company is not able to assert that it will have sufficient
authorized and unissued shares to settle the conversion option. As
a result, the conversion feature should be accounted for as a
derivative liability, with the fair value recorded in earnings
each
7
period. On February 6th 2006 the company issued an additional
$700,000 of the $1,150,000 debenture and expects to issue the
final $150,000 of the $1,150,000 debenture on the date that the
SEC approves the pending registration of said debenture.
NOTE 4 - SIGNIFICANT EVENTS
"SYNDICATED PROPERTIES" formally HTRG & Associates LLC
In the First Quarter of 2006 the company took steps to stream line
its name branding and changed the name of its subsidiary to
"SYNDICATED PROPERTIES" from HTRG & associates as well as the
parent company's banner to "SYNDICATION" from syndication net. com
inc. The company plans to move Syndicated Properties into real
estate development away from the appraisal focus. Syndicated
Properties plans to use the recently procured $1,150,000 of
capital to research and leverage equity and or debt financing, to
complete real estate development projects which have been
identified to foster greater potential for income and asset
production.
Tri-State Metro Territories LLC
During the quarter ended March 31, 2006, the Company increased its
investment in Tri State Metro Territories, LLC (TSMT) by $17,172,
which equals an increase in the ownership of TSMT by approximately
0.83%, up from 12.92% to 13.75%. Also, the Company loaned an
additional $49,564 to TSMT. Mr. Sorrentino a greater than 10%
shareholder of the Company has resigned as the managing member of
TSMT.
8
ITEM 2. 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.
In September 2005, we launched Syndicated Properties LLC (f/k/a SP &
Associates LLC) ("SP") as a wholly owned subsidiary that will specialize in the
real estate appraisal business. We brought on Thomas Gibbs as the President of
SP to run the daily operations of the organization. Mr. Gibbs is also the sole
owner of a consulting company named SP Consulting that has done specific
consulting work for the company in the year of 1999 in efforts to develop and
launch HCX The haircolorxperts. We have not settled with Mr. Gibbs on the terms
of his employment contract at this time. Through SP, we intend to leverage our
activities from the real estate appraisal business into real estate development.
We will establish a formal employment contract in relation to the real estate
development projects that we choose to engage.
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 a 10% shareholder in Tri State. 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. The assets
being negotiated by us include the exclusive to the interest in the prototype
HCX Salons located in Columbia Maryland and Washington, DC. 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. In addition, from September 2004 through February 2005 we entered
into two purchase agreements whereby the Company purchased 3% of membership
interests of Tri-State for $115,000. During the quarter ended March 31, 2006,
the Company increased its investment in Tri State by $17,172, which equals an
increase in the ownership of Tri State by approximately 0.83%, up from 12.92% to
13.75%. Also, the Company loaned an additional $49,564 to 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.
9
THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THREE MONTHS ENDED MARCH 31, 2005
For the three months ended March 31, 2006 we had revenue of $8,675 as
compared to none for the three months ended March 31, 2005. The increase in
revenue for the three months ended March 31, 2006 as compared to the three
months ended March 31, 2005 resulted from the commencement of operations under
SP.
The operating expenses for the three months ended March 31, 2006 decreased
by $153,652 to $138,976 for the three months ended March 31, 2006 from $292,628
for the three months ended March 31, 2005. Our operating expenses consist of bad
debt expenses, general and administrative expenses and consulting fees. The
reason for the decrease primarily relates to a decrease in consulting expenses
and general and administrative expenses resulting from the decrease in corporate
overhead and the decrease of the payment of consulting fees in stock.
The net loss for the three months ended March 31, 2006 was $39,167 compared to
net loss of $361,782 for the three months ended March 31, 2005. The primary
reasons for the decrease in the loss was due to the reasons set for above.
Liquidity and Capital Resources
Total current liabilities at March 31, 2006 were $2,895,143.
We have historically incurred losses. For the three months ended March 31,
2006, we had a operating loss of $130,301.
On December 30, 2005, the Company, in order to obtain alternative funding
for its ongoing operations of the Company, entered into a Termination Agreement
with Cornell Capital Partners, LP (the "Investor") pursuant to which the Standby
Equity Distribution Agreement entered between the Company and the Investor dated
June 2004 was terminated. To that end, on December 30th 2005, the company then
executed a Securities Purchase Agreement (the "Agreement") for the sale of (i)
$1,150,000 in secured convertible debentures (the "Debentures") and (ii) stock
purchase warrants (the "Warrants") to buy 120,000,000 shares of our common
stock. On December 30, 2005, the company issued $300,000 of the $1,150,000
debenture.
The debentures bears interest at 12 percent, mature three years from the
date of issuance, and are convertible into the Company's common stock, at a
conversion price equal to the lower of (i) $0.0132 or (ii) 85% of the lowest
weighted average price during the 30 trading days immediately preceding the
conversion date.
In accordance with EITF-00-19 and SFAS 150, and because there is no
explicit limit on the number of shares that are to be delivered upon exercise of
the conversion feature, the Company is not able to assert that it will have
sufficient authorized and unissued shares to settle the conversion option. As a
result, the conversion feature will be accounted for as a derivative liability,
with the fair value recorded in earnings each period. On February 6, 2006 the
company issued an additional $700,000 of the $1,150,000 debenture and expects to
issue the final $150,000 of the $1,150,000 debenture on the date that the SEC
approves the pending registration of said debenture.
Our future revenues and profits, if any, will depend upon various factors,
including the following:
Whether we will be able to effectively evaluate the overall quality and
industry expertise of potential acquisition candidates; whether we will have the
funds to provide seed capital and mezzanine financing to brick-and-mortar,
e-commerce and Internet-related companies; and 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 do not foresee any significant changes in the number of our employees
over the next twelve months except in the event we finalize an acquisition. 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.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on us.
10
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an
evaluation, under the supervision and with the participation of our chief
executive officer and chief financial officer of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
Act). Based upon this evaluation, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission's
rules and forms. There was no change in our internal controls or in other
factors that could affect these controls during our last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
11
PART 2 - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any material litigation and management has no
knowledge of any threatened or pending litigation against it.
ITEM 2. CHANGES IN SECURITIES
We have not issued securities for the period ended March 31, 2006.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS
31.1 Certification by the Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNDICATION, INC.
By: /s/ Brian Sorrentino
-------------------------------------
Brian Sorrentino
CEO and Principal Executive Officer
Dated: May 22, 2006
By: /s/ Mrutyunjaya S. Chittavajhula
-------------------------------------
Mrutyunjaya S. Chittavajhula
CFO and Principal Accounting Officer
Dated: May 22, 2006
13