Filed Pursuant to Rule 424(b)(3)
under the Securities Act of 1933,
as amended (File No. 333-131528)
Prospectus
Syndication, Inc.
965,588,235 Shares of
Common Stock
This prospectus relates to the resale by the selling stockholders of up to
965,588,235 shares of our common stock, including up to 845,588,235 shares of
common stock underlying convertible debentures in the principal amount of
$1,150,000, and up to 120,000,000 shares issuable upon the exercise of common
stock purchase warrants. The $1,150,000 convertible debentures are convertible
into our common stock at the lower of $0.0132 or 85% of the lowest weighted
average price during the 30 trading days immediately preceding the conversion
date. The warrants are exercisable into shares of our common stock until five
years from the date of issuance at the following exercise prices: (i) $0.008
with respect to 36,000,000 shares of common stock; (ii) $0.01 with respect to
36,000,000 shares of common stock; (iii) $0.02 with respect to 21,000,000 shares
of common stock; (iv) $0.05 with respect to 16,000,000 shares of common stock;
and (v) $0.10 with respect to 11,000,000 shares of common stock.
Our common stock is currently traded on the Over-The-Counter Bulletin Board
under the symbol "SYDI".
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 the
exercise price of any common stock we sell to the selling stockholders upon
exercise of the warrants. We expect to use the proceeds received from the
exercise of the warrants, if any, for general working capital purposes. All
costs associated with this registration will be borne by us.
Investing in our common stock involves substantial risks.
See "Risk Factors," beginning on page 7.
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 underlying
the convertible debentures in the principal amount of $1,150,000.
With the exception of Cornell Capital Partners, L.P., which is an "underwriter"
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 date of this prospectus is Jun 9, 2006.
1
TABLE OF CONTENTS
Page
----
Prospectus Summary 3
Risk Factors 6
Forward Looking Statements 12
Use of Proceeds 13
Selling Stockholders 13
Plan of Distribution 16
Market for Common Equity and Related Stockholder Matters 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations 20
Description of Business 25
Description of Property 28
Legal Proceedings 28
Management 29
Executive Compensation 30
Certain Relationships and Related Transactions 31
Security Ownership of Certain Beneficial Owners and Management 31
Description of Securities 33
Indemnification for Securities Act Liabilities 33
Legal Matters 33
Experts 33
Additional Information 34
Index to Financial Statements F-1
2
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 "we," "us," and "our"
refer to Syndication, Inc.
Syndication, 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 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.
For the year ended December 31, 2005 and 2004, we generated $66,425 and $-0- in
revenue, respectively, and a net loss of $2,334,408 and $2,274,319,
respectively. In addition, for the three months ended March 31, 2006, we
generated $8,675 in revenue and a net loss of $39,167. As a result of our
substantial need for working capital and other factors, our auditors in their
report dated April 13, 2006, have expressed substantial doubt about our ability
to continue as going concern.
Our principal executive offices are located at 1250 24th Street, NW, Suite 300,
Washington, D.C. 20037 and our phone number is (202) 467-2788. We are a Delaware
corporation.
The Offering
Common stock outstanding
before offering............. 95,221,074 shares
Common stock offered by
selling stockholders........ Up to 965,588,235 shares, including the
following:
o up to 845,588,235 shares of common
stock underlying convertible
debentures in the principal amount
of $1,150,000 (includes a good faith
estimate of the shares underlying
the secured convertible debentures
to account for market fluctuations
antidilution and price protection
adjustments, respectively), and
o up to 120,000,000 shares of common
stock issuable upon the exercise of
common stock purchase warrants
exercisable into shares of our
common stock until five years from
the date of issuance at the
following exercise prices: (i)
$0.008 with respect to 36,000,000
shares of common stock; (ii) $0.01
with respect to 36,000,000 shares of
common stock; (iii) $0.02 with
respect to 21,000,000 shares of
common stock; (iv) $0.05 with
respect to 16,000,000 shares of
common stock; and (v) $0.10 with
respect to 11,000,000 shares of
common stock.
Common stock to be
outstanding after the
offering.................... Up to 1,060,809,309 shares.
Use of proceeds............. We will not receive any proceeds from the
sale of the common stock hereunder. However,
we will receive the sale price of any common
stock we sell to the selling stockholder
upon exercise of the warrants. We expect
to use the proceeds received from the
exercise of the warrants, if any, for
general working capital purposes.
The above information regarding common stock to be outstanding after the
offering is based on 95,221,074 shares of common stock outstanding as of May 25,
2006 and assumes the subsequent conversion of our issued secured convertible
debentures and exercise of warrants by our selling stockholders.
3
DECEMBER 2005 SECURITIES PURCHASE AGREEMENT
On December 30, 2005, we entered into a Termination Agreement with Cornell
Capital Partners, LP (the "Investor") pursuant to which the Standby Equity
Distribution Agreement entered between us and the Investor dated June 2004 was
terminated. Further, on December 30, 2005, in order to obtain alternative
funding for our ongoing operations, we 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 Investor purchased $300,000 in Debentures and received
Warrants to purchase 120,000,000 shares of our common stock. On February 3,
2006, the Investor purchase an additional $700,000 pursuant to the Agreement. In
addition, provided that all of the conditions in the Agreement are satisfied,
the Investor is obligated to provide us with an additional $150,000 within three
business days of the effectiveness of the registration statement registering the
shares of common stock underlying the Debentures and the Warrants.
The Debentures bear interest at 12%, mature three years from the date of
issuance, and are convertible into our common stock, at the Investor's option,
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. As of January 27, 2006, the lowest weighted average price
during the 30 trading days immediately preceding the conversion date as reported
on the Over-The-Counter Bulletin Board was $.008 and, therefore, the conversion
price for the Debentures was $.0068. Based on this conversion price, the
Debentures in the amount of $1,150,000, excluding interest, were convertible
into 169,117,647 shares of our common stock.
We may prepay the Debentures only in the event that our closing bid price is
less than $0.0132. We are required to pay a premium of 20% at the time of
redemption. The full principal amount of the Debentures is due upon default
under the terms of Debentures. In addition, we have granted the Investor a
security interest in substantially all of our assets and intellectual property
as well as registration rights pursuant to which we are required to have the
registration statement filed within 30 days of the Agreement and effective
within 120 days of the Agreement.
The Warrants are exercisable until five years from the date of issuance at the
following exercise prices:
o $0.008 with respect to 36,000,000 shares of common stock;
o $0.01 with respect to 36,000,000 shares of common stock;
o $0.02 with respect to 21,000,000 shares of common stock;
o $0.05 with respect to 16,000,000 shares of common stock; and
o $0.10 with respect to 11,000,000 shares of common stock.
In addition, the exercise price of the Warrants is adjusted in the event we
issue common stock at a price below market.
4
The Investor has contractually agreed to restrict their ability to convert the
Debentures and exercise the Warrants and receive shares of our common stock such
that the number of shares of our common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.99% of our then issued and
outstanding shares of common stock.
The sale of the Debentures was completed on December 30, 2005 with respect to
$300,000 of the Debentures and on February 3, 2006 with respect to $700,000 of
the Debentures. As of the date hereof, we are obligated on $1,000,000 in face
amount of Debentures issued to the Investor. The Debentures are a debt
obligation arising other than in the ordinary course of business which
constitute a direct financial obligation of our company. In addition, we are
also obligated on an additional $150,000 in face amount of Debentures issued to
the Investors pursuant to the Agreement.
The Debentures and Warrants were offered and sold to the Investor in a private
placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506
promulgated thereunder. The Investor is an accredited investor as defined in
Rule 501 of Regulation D promulgated under the Securities Act of 1933.
On February 3, 2006, we entered into a Termination Agreement with the Investor
pursuant to which we agreed to terminate the Escrow Agreement and the respective
rights and obligations contained therein and any rights and obligations with
respect to escrow arrangements provided for in the Securities Purchase
Agreement. As a result, the Investor and we shall not have any rights or
obligations under or with respect to the Escrow Agreement or the escrow
arrangements (including fees) provided for in the Securities Purchase Agreement.
In addition, the termination of the Escrow Agreement required us to enter into
amendments to the Securities Purchase Agreement, Investor Registration Rights
Agreement, and Security Agreement, each dated as of February 3, 2006, to delete
all references to the Escrow Agreement or the escrow arrangements specified
thereunder.
5
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. Each of the following risks may materially and adversely
affect our business, results of operations and financial condition. These risks
may cause the market price of our common stock to decline, which may cause you
to 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 have a history of losses which may continue, requiring us to seek additional
sources of capital which may not be available, requiring us to curtail or cease
operations.
We incurred net losses of $2,334,408 for the year ended December 31, 2005 and
$2,274,319 for the year ended December 31, 2004. In addition, we incurred a net
loss of $39,167 for the three months ended March 31, 2006. Our monthly burn rate
is approximately $35,000 per month and, accordingly, we will need to raise
approximately $420,000 over the next 12 months in order to sustain our current
operations. We cannot assure you that we can achieve or sustain profitability on
a quarterly or annual basis in the future. If revenues grow more slowly than we
anticipate, or if operating expenses exceed our expectations or cannot be
adjusted accordingly, we will continue to incur losses. We will continue to
incur losses until we are able to market and sell our services. Our possible
success is dependent upon the successful development and marketing of our
services, as to which there is no assurance. Any future success that we might
enjoy will depend upon many factors, including factors out of our control or
which cannot be predicted at this time. These factors may include changes in or
increased levels of competition, including the entry of additional competitors
and increased success by existing competitors, changes in general economic
conditions, increases in operating costs, including costs of supplies, personnel
and equipment, reduced margins caused by competitive pressures and other
factors. These conditions may have a materially adverse effect upon us or may
force us to reduce or curtail operations. In addition, we will require
additional funds to sustain and expand our activities, particularly if a
well-financed competitor emerges. There can be no assurance that financing will
be available in amounts or on terms acceptable to us, if at all. The inability
to obtain sufficient funds from operations or external sources would require us
to curtail or cease operations. Any additional equity financing may involve
substantial dilution to our then existing shareholders.
Our Independent Auditors have expressed substantial doubt about our ability to
continue as a going concern, which may hinder our ability to obtain future
financing.
In their report dated April 13, 2006, our independent auditors stated that our
financial statements for the year ended December 31, 2005 were prepared assuming
that we would continue as a going concern. Our ability to continue as a going
concern is an issue raised as a result of cash flow constraint, an accumulated
deficit of $4,608,727 at December 31, 2005 and recurring losses from operations.
Our ability to continue as a going concern is subject to our ability to generate
a profit and/or obtain necessary funding from outside sources, including
obtaining additional funding from the sale of our securities, increasing sales
or obtaining loans and grants from various financial institutions where
possible. Our continued net losses and stockholders' deficit increases the
difficulty in meeting such goals and there can be no assurances that such
methods will prove successful.
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.
6
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.
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 50.94% 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.
We have and intend to continue to issue shares of our common stock to our
officers, directors and consultants as compensation for services which they
perform on behalf of our company at a discount to the market price of our common
stock at the time of such issuance. This results in a large number of shares
which have been issued and the sale of these shares may depress the market price
of our common stock and will cause dilution to our existing stockholders.
We often issue, and intend to continue to issue from time to time, shares of our
common stock to our officers, directors and consultants as compensation for
services which they perform on behalf of our company at a discount to the market
price of our common stock at the time of such issuance. As of the date hereof,
we have issued Brian Sorrentino, our Chief Executive Officer and Director, an
aggregate of 17,056,262 shares of our common stock as compensation for services
performed on our behalf. In addition, we have issued Mark Solomon, our President
and Director, and Howard Siegel, our Director, an aggregate of 11,098,300 and
3,025,000 shares of our common stock, respectively, each as compensation for
services performed on our behalf. This results in a large number of shares which
have been issued to our officers, directors and consultants at a discount to the
market price of our common stock. The sale of these shares may depress the
market price of our common stock and will cause dilution to our existing
stockholders.
7
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 Financing:
There are a large number of shares underlying our convertible debentures and
warrants that may be available for future sale and the sale of these shares may
depress the market price of our common stock.
As of May 25, 2006, we had 95,221,074 shares of common stock issued and
outstanding, convertible debentures outstanding that may be converted into an
estimated 169,117,647 shares of common stock, an obligation to issue convertible
debentures that may be converted into an estimated 95,505,618 shares of common
stock, and outstanding warrants to purchase 120,000,000 shares of common stock.
In addition, the number of shares of common stock issuable upon conversion of
the outstanding convertible debentures 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 exercise of our warrants, 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 secured 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 secured 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 secured
convertible debentures (excluding accrued interest), based on market prices 25%,
50% and 75% below the market price, as of April 21, 2006 of $0.008.
% Below Market Price Per Share Discount of 15% Number of Shares Issuable
- -------------- --------------- --------------- -------------------------
25% $ .006 $ .0051 225,490,196
50% $ .004 $ .0034 338,235,294
75% $ .002 $ .0017 676,470,588
8
As illustrated, the number of shares of common stock issuable upon conversion of
our secured 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 $1,150,000 principal
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
15% 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. The selling stockholder could sell common
stock into the market in anticipation of covering the short sale by converting
their securities, which could cause the further downward pressure on the stock
price. In addition, not only the sale of shares issued upon conversion or
exercise of debentures, warrants and options, but also the mere perception that
these sales could occur, may adversely affect the market price of the common
stock.
The issuance of shares upon conversion of the convertible debentures and
exercise of outstanding warrants 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. Although the selling stockholders
may not convert their convertible debentures and/or exercise their warrants if
such conversion or exercise would cause them to own more than 4.99% of our
outstanding common stock, this restriction does not prevent the selling
stockholders from converting and/or exercising some of their holdings and then
converting the rest of their holdings. In this way, the selling stockholders
could sell more than this limit while never holding more than this limit. 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 the current conversion price of our 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 will allocate and register 845,588,235 shares to
cover the conversion of the convertible debentures and stock purchase warrants.
In the event that our conversion or exercise 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 substantial assets.
On December 30, 2005, we entered into a financing arrangement involving the sale
of a $1,150,000 principal amount of convertible debentures and stock purchase
warrant to buy 120,000,000 shares of our common stock. The convertible
debentures are due and payable, with 12% interest, three years from the date of
issuance, unless sooner converted into shares of our common stock. In addition,
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 note, the assignment
or appointment of a receiver to control a substantial part of our property or
business or the commencement of a bankruptcy, insolvency, reorganization or
liquidation proceeding against us could require the early repayment of the
convertible debentures. We anticipate that the full amount of the convertible
debentures 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 note 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.
9
Risks Related To Our Common Stock:
If we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board which would limit the ability of broker-dealers to
sell our securities and the ability of stockholders to sell their securities in
the secondary market.
Companies trading on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements, we could be removed from the OTC Bulletin Board. As
a result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market.
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.
Our common stock will be subject to the "Penny Stock" rules of the SEC and the
trading market in our securities will be limited, which will make 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.
10
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.
11
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.
12
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and
sold from time to time by the selling stockholders. We will not receive any
proceeds from the sale of shares of common stock in this offering. However, we
will receive the sale price of any common stock we sell to the selling
stockholder upon exercise of the warrants. We expect to use the proceeds
received from the exercise of the warrants, if any, for general working capital
purposes. However, the selling stockholders will be entitled to exercise the
warrants on a cashless basis if the shares of common stock underlying the
warrants are not then registered pursuant to an effective registration
statement. In the event that the selling stockholder exercises the warrants on a
cashless basis, then we will not receive any proceeds. In addition, we have
received gross proceeds of $1,150,000 from the sale of the convertible
debentures. The proceeds received from the sale of the convertible debentures
will be and are being used for business development purposes, working capital
needs, consulting fees, management fees, internal and external accounting fees
and repayment of debt.
SELLING STOCKHOLDERS
The following table presents information regarding the selling stockholders. A
description of each selling stockholder's relationship to our Company and how
each selling stockholder acquired the shares in this offering is detailed in the
information immediately following this table.
- ------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
Total
Total Shares of Percentage Percentage
Common Stock of Common Beneficial of Common
Issuable Upon Stock, Shares of Beneficial Percentage of Ownership Stock Owned
Conversion of Assuming Common Stock Ownership Common Stock After the After
Debentures Full Included in Before the Owned Before Offering Offering
Name and/or Warrants* Conversion Prospectus Offering** Offering** (2) (2)
- ------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
Cornell Capital 289,117,647 75.22% Up to 965,588,235(1) 4.99% -- --
Partners, L.P. 965,588,235(1)
shares of
common stock
- ------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
* This column represents an estimated number based on a current conversion price
of $0.0068, divided into the principal amount.
** These columns represent the aggregate maximum number and percentage of shares
that the selling stockholder can own at one time (and therefore, offer for
resale at any one time) due to its 4.99% limitation.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended,
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 debentures 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.
(1) The actual number of shares of common stock offered in this prospectus, and
included in the registration statement of which this prospectus is a part,
includes such additional number of shares of common stock as may be issued or
issuable upon conversion of the secured convertible debentures and exercise of
the related warrants by reason of any stock split, stock dividend or similar
transaction involving the common stock, in accordance with Rule 416 under the
Securities Act of 1933, as amended. However the selling stockholders have
contractually agreed to restrict their ability to convert their secured
convertible debentures or exercise their warrants and receive shares of our
common stock such that the number of shares of common stock held by them in the
aggregate and their affiliates after such conversion or exercise does not exceed
4.99% of the then issued and outstanding shares of common stock as determined in
accordance with Section 13(d) of the Exchange Act. Accordingly, the number of
shares of common stock set forth in the table for the selling stockholders
exceeds the number of shares of common stock that the selling stockholders could
own beneficially at any given time through their ownership of the secured
convertible debentures and the warrants. In that regard, the beneficial
ownership of the common stock by the selling stockholder set forth in the table
is not determined in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934, as amended.
13
(2) Assumes that all securities registered will be sold.
The following information contains a description of the selling stockholders.
Except as set forth, 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 holder of convertible debentures in the
principal amount of $1,150,000 and a warrant to purchase 120,000,000 shares of
common stock. Cornell Capital Partners is a private equity fund. 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 and has voting control over
the securities beneficially owned by Yorkville Advisors, LLC and Cornell Capital
Partners. Cornell Capital Partners acquired all shares being registered in this
offering in financing transactions with us.
DECEMBER 2005 SECURITIES PURCHASE AGREEMENT
On December 30, 2005, we entered into a Termination Agreement with Cornell
Capital Partners, LP (the "Investor") pursuant to which the Standby Equity
Distribution Agreement entered between us and the Investor dated June 2004 was
terminated. Further, on December 30, 2005, in order to obtain alternative
funding for our ongoing operations, we 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 Investor purchased $300,000 in Debentures and received
Warrants to purchase 120,000,000 shares of our common stock. On February 3,
2006, the Investor purchase an additional $700,000 pursuant to the Agreement. In
addition, provided that all of the conditions in the Agreement are satisfied,
the Investor is obligated to provide us with an additional $150,000 within three
business days of the effectiveness of the registration statement registering the
shares of common stock underlying the Debentures and the Warrants.
The Debentures bear interest at 12%, mature three years from the date of
issuance, and are convertible into our common stock, at the Investor's option,
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. As of January 27, 2006, the lowest weighted average price
during the 30 trading days immediately preceding the conversion date as reported
on the Over-The-Counter Bulletin Board was $.008 and, therefore, the conversion
price for the Debentures was $.0068. Based on this conversion price, the
Debentures in the amount of $1,150,000, excluding interest, were convertible
into 169,117,647 shares of our common stock.
We may prepay the Debentures only in the event that our closing bid price is
less than $0.0132. We are required to pay a premium of 20% at the time of
redemption. The full principal amount of the Debentures is due upon default
under the terms of Debentures. In addition, we have granted the Investor a
security interest in substantially all of our assets and intellectual property
as well as registration rights pursuant to which we are required to have the
registration statement filed within 30 days of the Agreement and effective
within 120 days of the Agreement.
The Warrants are exercisable until five years from the date of issuance at the
following exercise prices:
o $0.008 with respect to 36,000,000 shares of common stock;
o $0.01 with respect to 36,000,000 shares of common stock;
14
o $0.02 with respect to 21,000,000 shares of common stock;
o $0.05 with respect to 16,000,000 shares of common stock; and
o $0.10 with respect to 11,000,000 shares of common stock.
In addition, the exercise price of the Warrants is adjusted in the event we
issue common stock at a price below market.
The Investor has contractually agreed to restrict their ability to convert the
Debentures and exercise the Warrants and receive shares of our common stock such
that the number of shares of our common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.99% of our then issued and
outstanding shares of common stock.
The sale of the Debentures was completed on December 30, 2005 with respect to
$300,000 of the Debentures and on February 3, 2006 with respect to $700,000 of
the Debentures. As of the date hereof, we are obligated on $1,000,000 in face
amount of Debentures issued to the Investor. The Debentures are a debt
obligation arising other than in the ordinary course of business which
constitute a direct financial obligation of our company. In addition, we are
also obligated on an additional $150,000 in face amount of Debentures issued to
the Investors pursuant to the Agreement.
The Debentures and Warrants were offered and sold to the Investor in a private
placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506
promulgated thereunder. The Investor is an accredited investor as defined in
Rule 501 of Regulation D promulgated under the Securities Act of 1933.
On February 3, 2006, we entered into a Termination Agreement with the Investor
pursuant to which we agreed to terminate the Escrow Agreement and the respective
rights and obligations contained therein and any rights and obligations with
respect to escrow arrangements provided for in the Securities Purchase
Agreement. As a result, the Investor and we shall not have any rights or
obligations under or with respect to the Escrow Agreement or the escrow
arrangements (including fees) provided for in the Securities Purchase Agreement.
In addition, the termination of the Escrow Agreement required us to enter into
amendments to the Securities Purchase Agreement, Investor Registration Rights
Agreement, and Security Agreement, each dated as of February 3, 2006, to delete
all references to the Escrow Agreement or the escrow arrangements specified
thereunder.
Sample Conversion Calculation
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 $300,000 of debentures on January 27, 2006, and a conversion price
of $0.0089 per share, the number of shares issuable upon conversion would be:
$300,000/$.0068 = 44,117,647 shares
The following is an example of the amount of shares of our common stock that are
issuable, upon conversion of our secured convertible debentures (excluding
accrued interest), based on market prices 25%, 50% and 75% below the market
price, as April 21, 2006 of $0.008.
% Below Market Price Per Share Discount of 15% Number of Shares Issuable
- -------------- --------------- --------------- -------------------------
25% $ .006 $ .0051 225,490,196
50% $ .004 $ .0034 338,235,294
75% $ .002 $ .0017 676,470,588
15
PLAN OF DISTRIBUTION
The selling stockholder and any of its pledgees, donees, assignees and other
successors-in-interest 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. These sales may be at fixed or
negotiated prices. The selling stockholder 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 stockholder 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 stockholder may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus. The selling stockholder
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 stockholder or its pledgees, donees, transferees or other successors
in interest, 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 stockholder 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 stockholder cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholder. The selling
stockholder 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 stockholder,
but excluding brokerage commissions or underwriter discounts.
The selling stockholder, 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 stockholder may pledge its shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares. The
selling stockholder 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 stockholder or any other such person. In the
event that the selling stockholder are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholder 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. In regards to short sells, the selling stockholder is contractually
restricted from engaging in short sells. In addition, if a such short sale is
deemed to be a stabilizing activity, then the selling stockholder will not be
permitted to engage in a short sale of our common stock. All of these
limitations may affect the marketability of the shares.
16
We have agreed to indemnify the selling stockholder, 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
stockholder or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such liabilities.
If the selling stockholder notifies us that it has 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 stockholder
and the broker-dealer.
17
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is currently traded on the Over-The-Counter Bulletin Board
under the symbol "SCYI". The following table sets forth the high and low bid
prices of our common stock, as reported by the Over-The-Counter Bulletin Board
for each quarter since January 1, 2003. The quotations set forth below reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not
represent actual transactions.
High Bid Price Low Bid Price
-------------- -------------
First Quarter 2003 $ 0.05 $ 0.02
Second Quarter 2003 $ 1.15 $ 0.05
Third Quarter 2003 $ 0.05 $ 0.05
Fourth Quarter 2003 $ 2.45 $ 0.05
--------------------------------------------------------------------
First Quarter 2004 $ 0.60 $ 0.25
Second Quarter 2004 $ 1.90 $ 0.55
Third Quarter 2004 $ 0.30 $ 0.25
Fourth Quarter 2004 $ 1.50 $ 0.15
--------------------------------------------------------------------
First Quarter 2005 $ 1.25 $ 0.22
Second Quarter 2005 $ 0.51 $ 0.07
Third Quarter 2005 $ 0.09 $ 0.02
Fourth Quarter 2005 $ 0.05 $ 0.004
--------------------------------------------------------------------
First Quarter 2006 $ 0.017 $ 0.006
As of May 25, 2006, there were approximately 43 holders of record of our common
stock. 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., 500 E. Warm Springs Road, Suite 240, Las Vegas,
Nevada 89119.
Dividends
We have never declared or paid any cash dividends on its common stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business. As a result, we do not anticipate paying any cash dividends in the
foreseeable future.
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, 2005.
18
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
Number of securities remaining available for
to be issued upon Weighted average future issuance under
exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a)
- ------------------------------------ ------------------------ ----------------------- ---------------------------
(a) (b) (c)
- ------------------------------------ ------------------------ ----------------------- ---------------------------
Equity compensation plans approved -0- -0- -0-
by security holders
- ------------------------------------ ------------------------ ----------------------- ---------------------------
- ------------------------------------ ------------------------ ----------------------- ---------------------------
Equity compensation plans not -0- -0- -0-
approved by security holders
- ------------------------------------ ------------------------ ----------------------- ---------------------------
- ------------------------------------ ------------------------ ----------------------- ---------------------------
Total -0- -0- -0-
19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 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.
20
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
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.
Fiscal Year Ended December 31, 2005 Compared to Fiscal Year Ended December 31,
2004
For the year ended December 31, 2005, our revenue increased by $66,425 to
$66,425 for the year ended December 31, 2005 from $0 for the year ended December
31, 2004. The increase is primarily attributed to the revenue generated by HTRG
& Associates LLC the Company's new subsidiary that came on line in September
2005.
21
The operating expenses for the period ended December 31, 2005 decreased by
$900,866 to $978,414 for the year ended December 31, 2005 from $1,879,280 for
the year ended December 31, 2004. Our operating expenses consist primarily of
general and administrative expenses and consulting fees which increased by
$268,702 and decreased $972,133, respectively. The reason for the changes relate
to the ability of the Company to pay for services with cash instead of relying
on the issuance of shares for consulting services.
The net loss for the year ended December 31, 2005 was $2,334,408 compared to net
less of $2,274,319 for the year ended December 31, 2004. The primary reason 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.
22
DESCRIPTION OF BUSINESS
Organizational History
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 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.
23
HTRG & Associates LLC
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.
24
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 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.
Letter of Intent with New Age Systems, Inc.
On September 14, 2004, we entered into a letter of intent with the shareholders
of New Age Systems, Inc. ("New Age") in which we agreed to acquire 100% of New
Age's outstanding securities from New Age's shareholders. The closing of this
sale was subject to the entering of a final definitive agreement and the
performance of customary due diligence. New Age is a full-service information
technology provider to government and business, providing services and related
products. New Age provides services in the following areas:
o Software Engineering,
o Records Management and Workflow,
o Network Design and Support,
o Program Management,
o Geographic/Geospatial Information System solutions, and
o Integrated Association Management Systems.
During the three months ended September 30, 2005, we discontinued negotiations
to pursue the acquisition of New Age Systems, Inc.
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 our declared intention to engage in the acquisition and merger elements
of our 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.
25
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. We believe 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.
We believe 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.
26
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 May 25, 2006, we had no employees other than one
consultant, Brian Sorrentino. 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 our fax number is (301)
528-4238.
LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm our business. Except as
disclosed below, we are currently not aware of any such legal proceedings or
claims that we believe will have, individually or in the aggregate, a material
adverse affect on our business, financial condition or operating results.
On January 6, 2005, the Circuit Court of Madison County, Mississippi, granted
summary judgment in favor of all defendants in the action styled "Barry Pope,
Individually and as a Shareholder of Worldwide Forest Products, Inc., v Brian
Sorrentino, et.al.", including our company as a defendant. The Court also
granted a motion of certain Defendants, including our company, asking that Mr.
Pope be ordered to pay the defendants attorney fees and expenses incurred as a
result of a continuance of a trial set on September 22, 2004, with the Court
finding that the actions of Plainfiff Pope caused the continuance. This matter
was commenced on November 26, 2001, Barry Pope, individually and as a
shareholder of Worldwide Forest Products, Inc. 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.
Cassidy and Associates, PA, our former counsel, filed a statement of claim
against us with the American Arbitration Association. This arbitration was
settled in September 2004.
27
MANAGEMENT
Executive Officers and Directors
Below are the names and certain information regarding our executive officers and
directors.
Name Age Position
- -------------------------------- ------- -------------------------------------
Brian Sorrentino 48 Chief Executive Officer and Director
- -------------------------------- ------- -------------------------------------
Mrutyunjaya S. Chittavajhula 45 Chief Financial Officer
- -------------------------------- ------- -------------------------------------
Mark Solomon 47 President and Director
- -------------------------------- ------- -------------------------------------
Howard S. Siegel 59 Director
Officers are elected annually by the Board of Directors (subject to the terms of
any employment agreement), at our annual meeting, to hold such office until an
officer's successor has been duly appointed and qualified, unless an officer
sooner dies, resigns or is removed by the Board.
Background of Executive Officers and Directors
Brian Sorrentino, 48, serves as our Chief Executive Officer 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.
Mrutyunjaya S. Chittavajhula, 45, serves as our Chief Financial Officer. Mr.
Chittavajhula graduated Andhra University located in India with a degree in
commerce. From July 1999 through November 2002, Mr. Chittavajhula worked as an
accountant in David Pomerantz & Associates, LLC where handled all aspects of
professional accounting services. From 2002 until present, Mr. Chittavajhula has
been employed as a comptroller of Deep Sea Logistics, Inc. From April 2003 until
the present, Mr. Chittavajhula started working for James D Goldblatt CPA PC,
Maryland, as an accountant. From May 2003 to July 2004, Mr. Chittavajhula was
employed by Futrovsky & Tossman, CPAs, as an accountant.
Mark Solomon, Esq., 47, 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.
Howard S. Siegel, 59, 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 80,000 shares of our common stock for
serving as directors and are repaid for their expenses incurred for serving as
directors.
Committees of Our Board of Directors
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.
28
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.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that our directors
and executive officers, and persons who own more then 10% of our common stock,
file with the SEC the initial reports of ownership and reports of changes in
ownership of common stock. Based solely on our review of the copies of such
reports received by us, or written representations from certain reporting
persons that no Forms 5 were required for such persons, we believe that there
was no failure to comply with Section 16(a) filing requirements applicable to
our officers, directors and 10% stockholders.
Executive Compensation
The following table sets forth all compensation paid in respect of our Chief
Executive Officer and those individuals who received compensation in excess of
$100,000 per year for our last three completed fiscal years.
Long-Term Compensation
-----------------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Name and Restricted
Principal Stock Other($)
Position(s) Year Salary($) Bonus($) Compensation Awards(#shares)
--------------- ----- ---------- --------- ------------ ---------------
Brian Sorrentino 2005 $95,867 -- -- 20,000
2004 -- -- -- 20,000
2003 -- -- -- 91,000
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 directors.
29
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 us.
In the fiscal year ended December 31, 2004, Mr. Sorrentino loaned an additional
$248,730 to us. As of December 31, 2004, that the aggregate amount due including
interest to Mr. Sorrentino is $401,993.
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.
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 in Tri State. Additionally,
Robert Green 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. 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 Salons located in Columbia Maryland and
Washington, DC. The Company has loaned Tri-State $178,000 in connection with
Tri-State's opening of its prototype salon in 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. 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.
As of the date hereof, we have 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.
We pay accounting fees to MS Acctek, Inc., a private accounting firm owned by
Mr. Chittavajhula, our Chief Financial Officer, We paid MS Acctek, Inc. $25,500
for the year ended December 2005.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of May 25, 2006 with
respect to the beneficial ownership of the outstanding common stock by (i) any
holder of more than five (5%) percent; (ii) each of the our executive officers
and directors; and (iii) our directors and executive officers as a group. Except
as otherwise indicated, each of the stockholders listed below has sole voting
and investment power over the shares beneficially owned.
30
Common Stock Percentage of
Name of Beneficial Owner Title Beneficially Owned (1) Common Stock (1)
- -------------------------------------------------------------------------------------------------------------------
Mrutyunjaya S. Chittavajhula. CFO 3,000,000 3.15%
1250 24th Street, NW
Suite 300, Washington, D.C.
20037
- -------------------------------------------------------------------------------------------------------------------
Mark Solomon President and Director 11,098,300 11.66%
901 South Federal Highway
Fort Lauderdale, Florida
22216
- -------------------------------------------------------------------------------------------------------------------
Howard B. Siegel Director 3,025,000 3.18%
15902 South Barker Landing
Houston, Texas 77079
- -------------------------------------------------------------------------------------------------------------------
Brian Sorrentino CEO and Director 17,056,262 17.91%
PO Box 484
Damascus, MD 20872
- -------------------------------------------------------------------------------------------------------------------
Dale Hill 14,321,194 15.04%
5056 West grove Drive
Dallas, Texas 75248
- -------------------------------------------------------------------------------------------------------------------
All Directors and Executive
Officers as a Group (4) 34,179,562 35.9%
- -------------------------------------------------------------------------------------------------------------------
* Less than 1%.
(1) Applicable percentage ownership is based on 95,221,074 shares of common
stock outstanding as of May 25, 2006, together with securities exercisable or
convertible into shares of common stock within 60 days of May 25, 2006 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 May 25, 2006 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.
31
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 3,000,000,000 shares of common stock at
a par value of $0.0001 per share. As of May 25, 2006, there were 95,221,074
shares of our common stock issued and outstanding.
Holders of our common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
common stock voting for the election of directors can elect all of the
directors. Holders of our common stock representing a majority of the voting
power of our capital stock issued, outstanding and entitled to vote, represented
in person or by proxy, are necessary to constitute a quorum at any meeting of
stockholders. A vote by the holders of a majority of our outstanding shares is
required to effectuate certain fundamental corporate changes such as
liquidation, merger or an amendment to our articles of incorporation.
Holders of our common stock are entitled to share in all dividends that the
board of directors, in its discretion, declares from legally available funds. In
the event of a liquidation, dissolution or winding up, each outstanding share
entitles its holder to participate pro rata in all assets that remain after
payment of liabilities and after providing for each class of stock, if any,
having preference over the common stock. Our common stock has no pre-emptive
rights, no conversion rights and there are no redemption provisions applicable
to the Company's common stock.
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 as of December 31, 2004 and 2003 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.
32
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, 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 100 F Street, N.E., 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.
33
SYNDICATION, INC.
INDEX TO FINANCIAL STATEMENTS
Balance Sheet at March 31, 2006 and December 31, 2005 F-2
Statements of Operations for the three months ended March 31, 2006
and 2005 and from inception through March 31, 2006 F-3
Statements of Cash Flows for the three months ended March 31, 2006
and 2005 and from inception through March 31, 2006 F-4
Notes to Financial Statements F-6
Report of Registered Independent Certified Public Accounting Firm F-8
Balance Sheet at December 31, 2005 and December 31, 2004 F-9
Statements of Operations for the Years ended December 31, 2005
and December 31, 2004 F-11
Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 2005 and December 31, 2004 F-12
Statements of Cash Flows for the Years
Ended December 31, 2005 and December 31, 2004 F-15
Notes to Financial Statements F-17
34
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.
F-1
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.
F-2
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.
F-3
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.
F-4
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.
F-5
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
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.
F-6
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.
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Syndication, Inc.
(Formerly Syndication Net.com, Inc.)
(A Development Stage Company)
Washington DC
We have audited the accompanying consolidated balance sheet of Syndication, Inc.
(formerly Syndication Net.com, Inc.) (a development stage company) at December
31, 2005, and the related statements of operations, stockholders' equity
(deficit) and cash flows for the years ended December 31, 2005 and 2004 and from
inception of the development stage on January 1, 2004 through December 31, 2005.
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 of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
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 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 financial position of Syndication, Inc.
(formerly Syndication Net.com, Inc.) (a development stage company) at December
31, 2005, and the results of their operations and their cash flows for the years
ended December 31, 2005 and 2004 and from inception of the development stage on
January 1, 2004 through December 31, 2005 in conformity with United States
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 6 to the
consolidated financial statements, the Company has recorded significant losses
from operations, and has no revenues to support operational cash flows, which
together raise 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.
HJ & Associates, LLC
Salt Lake City, Utah
April 13, 2006
F-8
SYNDICATION, INC.
(formerly SYNDICATION NET.COM, INC.)
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
December 31,
2005
CURRENT ASSETS
Cash $ 255,684
Accounts receivable 12,300
Note receivable, Net (Note 13) --
------------
Total Current Assets 267,984
------------
OTHER ASSETS
Investment, net (Note 10) --
Debt offering costs 60,000
------------
Total Other Assets 60,000
------------
TOTAL ASSETS $ 327,984
============
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
SYNDICATION, INC.
(formerly SYNDICATION NET.COM, INC.)
(A Development Stage Company)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
2005
CURRENT LIABILITIES
Accounts payable $ 103,717
Accounts payable-related party 18,419
Note payable - related party (Note 5) 368,937
Interest payable - related party (Note 5) 84,104
Note payable 301,761
Interest payable 37,043
Interest payable - convertible debenture 1,318
Derivative liability 1,668,627
-------------
Total Current Liabilities 2,583,926
-------------
LONG TERM LIABILITIES
Convertible debenture (Note 7) 168,038
Convertible debenture (net of $300,000 discount) --
-------------
Total Long Term Liabilities 168,038
-------------
Total Liabilities 2,751,964
-------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: 20,000,000 shares authorized of
$0.001 par value, no shares issued and outstanding --
Common stock: 3,000,000,000 shares authorized of $0.001
par value, 95,271,074 shares issued and outstanding 9,994
Additional paid-in capital 4,406,272
Deficit accumulated prior to the development stage (2,231,519)
Deficit accumulated during the development stage (4,608,727)
-------------
Total Stockholders' Equity (Deficit) (2,423,980)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 327,984
=============
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
SYNDICATION, INC.
(formerly SYNDICATION NET.COM, INC.)
(A Development Stage Company)
Consolidated Statements of Operations
From inception of the
For the Twelve Months Ended Development stage on
December 31, January 1, 2004
------------------------------ through
2005 2004 December 31, 2005
------------ ------------ ------------------
CONSULTING REVENUE $ 66,425 $ -- $ 66,425
------------ ------------ ------------------
OPERATING EXPENSES
Bad debt expense 80,752 278,187 358,939
General and administrative 588,795 320,093 908,888
Consulting 308,867 1,281,000 1,589,867
------------ ------------ ------------------
Total Operating Expenses 978,414 1,879,280 2,857,694
------------ ------------ ------------------
OPERATING LOSS (911,989) (1,879,280) (2,791,269)
------------ ------------ ------------------
OTHER (EXPENSES)
Loss on investment value (8,038) (276,431) (284,469)
Other income 35,932 -- 35,932
Loss on derivative liability (1,368,627) -- (1,368,627)
Interest expense (81,686) (118,608) (200,294)
------------ ------------ ------------------
Total Other (Expenses) (1,422,419) (395,039) 1,817,458
------------ ------------ ------------------
LOSS BEFORE INCOME TAXES (2,334,408) (2,274,319) (4,608,627)
------------ ------------ ------------------
INCOME TAX EXPENSE -- -- --
------------ ------------ ------------------
NET INCOME (LOSS) $ (2,334,408) $ (2,274,319) $ (4,608,727)
============ ============ ==================
BASIC LOSS PER SHARE
Total Income (Loss) Per Share $ (0.11) $ (0.17)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 21,140,178 13,391,577
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
SYNDICATION, INC.
(formerly SYNDICATION NET.COM, INC.)
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Additional
--------------------------- Paid-In Deferred Accumulated
Shares Amount Capital Fees Deficit
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 12,075,088 $ 1,207 $ 2,021,959 $ (292,000) $(2,231,519)
Common stock issued for cash at $1.00
per share on February 16, 2004 50,000 5 49,995 -- --
Common stock issued for deferred fees at
$0.80 per share on February 16, 2004 30,000 3 23,997 (24,000) --
Common stock issued for assets at $0.90
per share on February 28, 2004 120,000 12 107,988 -- --
Common stock issued for assets at $0.65
per share on March 17, 2004 160,000 16 103,984 -- --
Common stock issued for assets at $0.65
per share on March 17, 2004 15,000 2 9,748 -- --
Common stock issued for assets at $0.65
per share on March 17, 2004 60,000 6 38,994 -- --
Common stock issued for deferred fees at
$0.40 per share on May 18, 2004 600,000 60 239,940 (240,000) --
Common stock issued for services at $0.35
per share on June 1, 2004 1,200,000 120 419,880 -- --
Common stock issued for additional interest
on default on note payable at $0.35 per
share on June 15, 2004 50,000 5 17,495 -- --
Beneficial conversion feature of
convertible debentures -- -- 50,000 -- --
Common stock issued for services at $0.44
per share on December 1, 2004 675,000 67 296,932 -- --
Common stock issued for deferred fees at
$0.50 per share on December 9, 2004 80,000 8 39,992 (40,000) --
Common stock issued for services at $0.55
per share on December 27, 2004 250,000 25 137,475 -- --
Amortization of deferred fees -- -- -- 406,000 --
Net loss for the year ended
December 31, 2004
-- -- -- -- (2,274,319)
----------- ----------- ----------- ----------- -----------
Balance, December 30, 2004 15,365,088 1,536 3,558,379 (190,000) (4,505,838)
Amortization of deferred fees -- -- -- 82,500 --
----------- ----------- ----------- ----------- -----------
Subtotal 15,365,088 $ 1,536 $ 3,558,379 $ (107,500) $(4,505,838)
----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
SYNDICATION, INC.
(formerly SYNDICATION NET.COM, INC.)
(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 15,365,088 $ 1,536 $ 3,558,379 $ (107,500) $(4,505,838)
Common stock issued at $0.24 per
share per Irrevocable
TA instructions free trading
on June 09, 2005 41,667 4 9,995 -- --
Common stock issued at $0.17 per
share on June 20, 2005
Loan payoff - draw 1 59,788 5 9,995 -- --
Common stock issued at $0.12 per
share on June 27, 2005
Loan payoff - draw 2 85,034 8 9,992 -- --
Common stock issued at $0.05 per
share on July 05, 2005
Loan payoff - draw 3 204,082 20 9,980 -- --
Common stock issued at $0.041 per
share on Sep 19, 2005
Loan payoff - draw 4 243,902 24 9,976 -- --
Common stock issued at $0.03 per
share on Sep 26, 2005
Loan payoff - draw 5 776,398 78 24,922 -- --
Common stock issued at $0.017 per
share on Oct 03, 2005
Note Payable 1,488,095 149 24,851 -- --
Common stock issued at $0.014 per
share on Oct 10, 2005
Note Payable 2,551,020 255 24,745 -- --
Common stock issued at $0.011 per
share on Oct 24, 2005
Note Payable 2,319,109 232 24,768 -- --
Common stock issued at $0.008 per
share on Oct 31, 2005
Note Payable 3,188,776 319 24,681 -- --
Common stock issued at $0.007 per
share on Nov 07, 2005
Note Payable 3,644,315 364 24,636 -- --
Common stock issued at $0.007 per
share on Nov 07, 2005
Interest on Note Payable 3,594,872 359 24,301 -- --
Common stock issued at $0.005 per
share on Nov 14, 2005
Note Payable 4,611,837 464 24,536 -- --
Common stock issued at $0.004 per
share on Nov 17, 2005
Convertible debenture 2,439,024 244 9,756 -- --
Common stock issued at $0.005 per
share on Nov 21, 2005
Note Payable 4,813,246 481 24,519 -- --
Common stock issued at $0.007 per
share on Nov 28, 2005
Note Payable 3,644,315 364 24,636 -- --
----------- ----------- ----------- ----------- -----------
Subtotal 49,070,568 $ 4,908 $ 3,864,668 $ (107,500) $(4,505,838)
----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
SYNDICATION, INC.
(formerly SYNDICATION NET.COM, INC.)
(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 49,070,568 $ 4,908 $ 3,864,668 $ (107,500) $(4,505,838)
Common stock issued at $0.004 per
share on Dec 01, 2005
Convertible debenture 1,662,500 166 6,484 -- --
Common stock issued at $0.021 per
share on Dec 09, 2005
Note Payable 1,214,772 121 24,879 -- --
Common stock issued at $0.005 per
share on Dec 12, 2005
Convertible debenture 1,106,667 111 5,201 -- --
Common stock issued at $0.015 per
share on Dec 12, 2005
Note Payable 1,759,324 176 24,824 -- --
Common stock issued at $0.013 per
share on Dec 19, 2005
Note Payable 1,962,323 196 24,804 -- --
Common stock issued at $0.011 per
share on Dec 29, 2005
To Directors for services & fee 38,500,000 3,850 431,200 -- --
Amortization of deferred fees -- -- -- 107,500 --
Related party debt settlement -- -- 24,678
Price rounding adjustments on
issuance dates above (5,080) 466 (466) -- --
Net loss for the year
December 31, 2005 -- -- -- -- (2,334,408)
----------- ----------- ----------- ----------- -----------
Balance on December 31, 2005 95,271,074 $ 9,994 $ 4,406,272 -- $(6,840,246)
=========== =========== =========== =========== ===========
Deficit accumulated prior to
development stage $(2,231,519)
Deficit accumulated during the
development stage (4,608,727)
-----------
Accumulated deficit $(6,840,246)
===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
SYNDICATION, INC.
(formerly SYNDICATION NET.COM, INC.)
(A Development Stage Company)
Consolidated Statements of Cash Flows
From Inception
of the
Development
For the Twelve Months Ended Stage on
December 31, January 1, 2004
-------------------------------------- through
2005 2004 December 31, 2005
---------------- ---------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (2,334,408) $ (2,274,319) $ (4,608,727)
Adjustments to reconcile net loss to net cash
provided (used) in operating activities:
Common stock issued for services 234,982 1,182,750 1,417,732
Amortization of deferred fees -- 406,000 406,000
Bad debt expense -- 278,187 278,187
Loss on investment value -- 276,431 276,431
Gain on accounts payable write off (39,932) -- (39,932)
Unearned compensation 190,000 -- 190,000
Increase in allowance for bad debts 80,752 -- 80,752
Changes in operating assets and liabilities:
Increase in accounts receivable (12,300) -- (12,300)
Increase in interest payable - related party 43,941 7,198 51,139
Increase in interest payable - others 40,014 -- 40,014
Increase in accounts payable - related party 16,419 1,000 17,419
Increase (decrease) in accounts payable 29,193 18,516 47,709
Increase in accrued expenses -- 38,641 38,641
Increase in directors fee accrued (44,000) -- (44,000)
Increase in accrued expenses - related party -- 32,000 32,000
Increase in deferred acquisition costs 7,000 (7,000) --
Increase in debt offering costs (60,000) -- (60,000)
Increase in derivative liability 1,368,627 -- 1,368,627
---------------- ---------------- ------------------
Net Cash Used in Operating Activities (479,712) (40,596) (520,308)
---------------- ---------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in notes receivable - related (80,752) (278,187) (358,939)
Increase in investments - related -- (276,431) (276,431)
---------------- ---------------- ------------------
Net Cash Used in Investing Activities (80,752) (554,618) (635,370)
---------------- ---------------- ------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
SYNDICATION, INC.
(formerly SYNDICATION NET.COM, INC.)
(A Development Stage Company)
Consolidated Statements of Cash Flows - continued
From Inception
of the
Development
For the Twelve Months Ended Stage on
December 31, January 1, 2004
---------------------------------------------- through
2005 2004 December 31, 2005
-------------------- -------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock issued for cash -- 50,000 50,000
Increase in notes payable -- 207,500 207,500
Proceeds from notes payable 500,000 -- 500,000
Payments on notes payable (5,000) (96,989) (101,989)
Increase in notes payable - related party 7,107 272,990 280,097
Payments on notes payable - related party -- (24,260) (24,260)
Increase in convertible debenture -- 200,000 200,000
Increase in convertible debenture - new 300,000 -- 300,000
-------------------- -------------------- --------------------
Net Cash Provided by Financing Activities 802,107 609,241 1,411,348
-------------------- -------------------- --------------------
NET INCREASE (DECREASE) IN CASH 241,643 14,027 255,670
CASH, BEGINNING OF PERIOD 14,041 14 14
-------------------- -------------------- --------------------
CASH, END OF PERIOD $ 255,684 $ 14,041 $ 255,684
==================== ==================== ====================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Payments For:
Income taxes $ -- $ -- $ --
Interest $ -- $ 11,370 $ 11,370
Non-Cash Financing Activities
Common stock issued for deferred fees $ -- $ 304,000 $ 304,000
Common stock issued for services $ 234,982 $ 1,182,750 $ 1,417,732
Common stock issued for converting N/P $ 340,001 $ -- $ 340,001
Common stock issued for convertible debenture $ 21,962 $ -- $ 21,962
Forgiveness of debt - related party $ 24,678 $ -- $ 24,678
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The financial statements presented are those of Syndication, Inc. (formerly
Syndication Net.com, Inc.) (Syndication). 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. and then to Syndication, Inc.
HTRG & Associates was formed on August 27, 2005, and is a wholly owned
subsidiary of Syndication. HTRG & Associates is a real estate appraisal,
evaluation, and development company.
b. Accounting Method
The Company's 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 a related company in the form
of a note receivable. The note carries a balance of $85,863, which includes
interest receivable on the note. The balance of the note has been fully allowed
for as of December 31, 2005
F-17
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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
financial statements as follows:
For the Years Ended
December 31,
-------------------------
2005 2004
------------ -----------
Net Loss $ (2,334,408) $(2,274,319)
------------ -----------
Total Income (Loss) Per Share $ (0.11) $ (0.17)
============ ===========
Weighted Average Number of Shares
Outstanding 21,140,178 13,391,577
============ ===========
f. Recent Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment of
ARB No. 43, Chapter 4. The amendments made by Statement 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and require
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years
beginning after November 23, 2004. The Company has evaluated the impact of the
adoption of SFAS 151, and does not believe the impact will be significant to the
Company's overall results of operations or financial position.
In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments made by Statement 152 This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. The Company has evaluated the impact
of the adoption of SFAS 152, and does not believe the impact will be significant
to the Company's overall results of operations or financial position.
F-18
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
f. Recent Accounting Pronouncements (Continued)
In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions."The
amendments made by Statement 153 are based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a broader
exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange
of a productive asset for a similar productive asset or an equivalent interest
in the same or similar productive asset should be based on the recorded amount
of the asset relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
The Board believes that exception required that some nonmonetary exchanges,
although commercially substantive, be recorded on a carryover basis. By focusing
the exception on exchanges that lack commercial substance, the Board believes
this Statement produces financial reporting that more faithfully represents the
economics of the transactions. The Statement is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges occurring in fiscal
periods beginning after the date of issuance. The provisions of this Statement
shall be applied prospectively. The Company has evaluated the impact of the
adoption of SFAS 153, and does not believe the impact will be significant to the
Company's overall results of operations or financial position.
In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment". Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. Statement 123(R) covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued in
1995, established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that Statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable fair-value-based method been used. Public entities
(other than those filing as small business issuers) will be required to apply
Statement 123(R) as of the first interim or annual reporting period that begins
after June 15, 2005. The Company adopted Statement 123(R) in December of 2005.
In December 2004, the Financial Accounting Standards Board issued two FASB Staff
Positions - FSP FAS 109-1, Application of FASB Statement 109 "Accounting for
Income Taxes" to the Tax Deduction on Qualified Production Activities Provided
by the American Jobs Creation Act of 2004, and FSP FAS 109-2 Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004. Neither of these affected the Company as it
does not participate in the related activities.
F-19
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
f. Recent Accounting Pronouncements (Continued)
In March 2005, the SEC released Staff Accounting Bulletin No. 107, "Share-Based
Payment" ("SAB 107"), which provides interpretive guidance related to the
interaction between SFAS 123(R) and certain SEC rules and regulations. It also
provides the SEC staff's views regarding valuation of share-based payment
arrangements. In April 2005, the SEC amended the compliance dates for SFAS
123(R), to allow companies to implement the standard at the beginning of their
next fiscal year, instead of the next reporting period beginning after June 15,
2005. Management is currently evaluating the impact SAB 107 will have on our
consolidated financial statements.
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 provides guidance
relating to the identification of and financial reporting for legal obligations
to perform an asset retirement activity. The Interpretation requires recognition
of a liability for the fair value of a conditional asset retirement obligation
when incurred if the liability's fair value can be reasonably estimated. FIN 47
also defines when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. The provision is
effective no later than the end of fiscal years ending after December 15, 2005.
The Company will adopt FIN 47 beginning the first quarter of fiscal year 2006
and does not believe the adoption will have a material impact on its
consolidated financial position or results of operations or cash flows.
In May 2005, the FASB issued FASB Statement No. 154, "Accounting Changes and
Error Corrections." This new standard replaces APB Opinion No. 20, "Accounting
Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements," and represents another step in the FASB's goal to
converge its standards with those issued by the IASB. Among other changes,
Statement 154 requires that a voluntary change in accounting principle be
applied retrospectively with all prior period financial statements presented on
the new accounting principle, unless it is impracticable to do so. Statement 154
also provides that (1) a change in method of depreciating or amortizing a
long-lived non-financial asset be accounted for as a change in estimate
(prospectively) that was effected by a change in accounting principle, and (2)
correction of errors in previously issued financial statements should be termed
a "restatement." The new standard is effective for accounting changes and
correction of errors made in fiscal years beginning after December 15, 2005.
Early adoption of this standard is permitted for accounting changes and
correction of errors made in fiscal years beginning after June 1, 2005 . The
Company has evaluated the impact of the adoption of Statement 154 and does not
believe the impact will be significant to the Company's overall results of
operations or financial position.
In February of 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments", which is intended to simplify the accounting and
improve the financial reporting of certain hybrid financial instruments (i.e.,
derivatives embedded in other financial instruments). The statement amends SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", and
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities--a replacement of FASB Statement No. 125." SFAS
No. 155 is effective for all financial instruments issued or acquired after the
beginning of an entity's first fiscal year that begins after September 15,
2006.. The Company is currently evaluating the impact SFAS No. 155 will have on
its consolidated financial statements, if any.
The implementation of the provisions of these pronouncements are not expected to
have a significant effect on the Company's financial statement presentation.
F-20
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. As of December 31, 2005 & December 31, 2004, all
equipment has been fully depreciated.
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 than 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,
2005 and 2004:
2005 2004
--------- ----------
Deferred tax assets
NOL Carryover $ 800,106 $ 581,990
Accrued expenses 2,772 15,665
Deferred tax liabilities: - -
Valuation allowance (802,878) (597,655)
--------- ----------
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, 2005 and 2004 due to the
following:
2005 2004
------------ -----------
Book income $ (910,380) $ (886,984)
Stock for services/options expense 533,764 479,620
Bad debt 31,493 114,204
Loss on write down 32,553 107,810
Discount debentures 117,000 5,850
Other (9,653) 45
Valuation allowance 205,223 179,455
------------ -----------
$ - $ -
============ ===========
F-21
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
h. Provision for Income Taxes (continued)
At December 31, 2005, the Company had net operating loss carry forwards of
approximately $4,608,727 that may be offset against future taxable income from
the year 2004 through 2024. No tax benefit has been reported in the December 31,
2005 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. 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.
j. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising expense for the years ended December 31, 2005 and 2004
was $545 and $2,527 respectively.
k. Revenue Recognition Policy
The operations of the Company's wholly owned subsidiary, HTRG & Associates are
still in the initial stages. Revenues are recognized as they are earned with
respect to its appraisal and real estate evaluation services.
l. Principles of Consolidation
The consolidated financial statements contain the financial statements for
Syndication, Inc. and its wholly owned subsidiary, HTRG & Associates, Inc. All
material intercompany transactions were eliminated upon consolidation.
m. Name Change
In the first Quarter of 2006 the Board of Directors approved and directed the
appropriate corporate offices to amend Article I of the Certificate of
Incorporation so that it is superceded and was replaced as follows:
The Name of Corporation. The name of the Corporation is Syndication, Inc.
n. Change of Authorized Shares
In the first Quarter of 2006 the Board of Directors approved and directed that
the appropriate corporate offices amend Article IV of the Certificate of
Incorporation so that it was superseded and was replaced as follows: The total
number of shares of stock which the corporation shall have authority to issue is
three billion twenty million (3,020,000,000) of which three billion
(3,000,000,000) shares shall be Common Stock with a par value of $.0001 and
twenty million (20,000,000) shares shall be Preferred Stock with a par value of
$.0001. The Board of Directors is authorized, subject to limitations prescribed
by law and the provisions of this Article Fourth, to provide by resolution or
resolutions for the issuance of the shares of Preferred Stock in one or more
series, and by filing a certificate pursuant to the applicable laws of Delaware
to establish from time to time the number of shares included in any such series,
and to fix the designation, powers, preferences and rights of the shares of any
such series and the qualifications, limitations or restrictions thereof.
F-22
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2005:
Office equipment $ 4,550
Accumulated depreciation (4,550)
-------------
Net property and equipment $ -
=============
Depreciation expense for the years ended December 31, 2005 and 2004 was $0 and
$0, respectively.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
During the first three quarters of 2005, members of the board of directors
received compensation of 20,000 shares of the Company's common stock. During the
fourth quarter, board members received 23,000,000 shares of the Company's common
stock for services provided.
NOTE 4 - PREFERRED STOCK
The shareholders of the Company have authorized 20,000,000 shares of preferred
stock with a par value of $0.001. The terms of the preferred stock are to be
determined when issued by the board of directors of the Company.
NOTE 5 - NOTES PAYABLE - RELATED PARTY
Notes payable to related parties consisted of the following at December 31,
2005:
Note payable to a related party, due on demand,
plus interest at 10% per annum, unsecured. $ 368,937
Less: Current Portion (368,937)
------------
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
------------ -----------------
2006 $ 368,937
2007 -
2008 -
2009 -
2010 and thereafter -
-----------------
Total $ 368,937
=================
Interest expense for the year ended December 31, 2005 and 2004 was $43,941 and
$40,163 respectively. The total interest payable on this note is $84,104.
F-23
NOTE 6 - 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. The Company has historically
incurred significant losses which have resulted in an accumulated deficit of
$4,608,727 at December 31, 2005 which raises substantial doubt about the
Company's ability to continue as a going concern. At year end close, the Company
had cash resources of $255,684.00 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 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 7 - CONVERTIBLE DEBENTURE
On December 30, 2005, Syndication Net.com, 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. On December 30, 2005, the company
issued $300,000 of the $1,150,000 debenture.
The debentures bear 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.
NOTE 8 - COMMON STOCK
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.
During the year ended December 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. (TSMT) and
notes receivable with principal balances of $95,000 plus accrued interest.
F-24
NOTE 8 - COMMON STOCK (Continued)
During the year ended December 31, 2004, the Company issued 2,235,000 shares of
common stock for services valued between $0.35 and $0.55 per share.
The Company issued 960,000 shares of common stock valued between $0.40 and $0.80
per share for deferred legal fees during 2004
On June 15, 2004, the Company issued 50,000 shares of common stock for
defaulting on a note payable at $0.35 per share.
During June 2005, the Company issued 41,667 shares of common stock at $0.24 per
share per an irrevocable agreement with its transfer agent.
During the year ended December 31, 2005, the Company issued 41,120,417 shares of
common stock for payments on notes, loans, and accrued interest. These shares
were valued between $0.004 and $0.021 per share.
The Company issued 38,500,000 shares of common stock valued at $0.011 per share
for services rendered by its board of directors.
NOTE 9 - NOTE PAYABLE
At December 31, 2005, the Company had five notes payable totaling $301,761.
These notes are unsecured and due on demand. Interest is accrued at 10% per
annum. Interest expense for the years ended December 31, 2005 & 2004 was $81,686
and $37,907 respectively.
NOTE 10 - INVESTMENT
During the twelve months ended December 31, 2005, the Company purchased 723
Class "A" Preferred stock in Tristate Metro Territories, LLC (TSMT). The
valuation of this investment was $83,468. This investment is valued at the lower
of cost or market and represents approximately 3% of TSMT. A major shareholder
of the Company is also a member of TSMT. As of December 31, 2005 the Company has
been unable to establish a market value for its investment, and thus has written
its value to zero and recognized a loss of $83,468.
F-25
NOTE 11 - NOTE RECEIVABLE - RELATED PARTY
During the year end December 31, 2005, the Company loaned $80,752 to a related
company. The note is unsecured and due on demand. The Company now believes that
recovering the amount of the note is unlikely and has allowed for the note in
full. The Company has recognized bad debt of $80,752.
NOTE 12 - WARRANTS & OPTIONS
The following table summarizes option and warrant activity during the years
ended December 31, 2004 and 2005.
Options
and Warrants Options or Warrants
Outstanding Price Per Share
Outstanding at January 1, 2005 --
Options granted --
Warrants issued 120,000,000 $ 0.008 - 0.10
Expired -- --
Forfeited -- --
Exercised -- --
-----------
PART II Outstanding at December, 31, 2005 120,000,000
-----------------------------------------------------
The following table summarizes information about stock options and warrants
outstanding at December 31, 2005.
Outstanding Exercisable
---------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
-----------------------------------------------------------------------------
$ 0.008 36,000,000 5.00 $0.008 36,000,000 $ 0.008
0.01 36,000,000 5.00 0.01 36,000,000 0.01
0.02 21,000,000 5.00 0.02 21,000,000 0.02
0.05 16,000,000 5.00 0.05 16,000,000 0.05
0.10 11,000,000 5.00 0.10 11,000,000 0.10
-----------------------------------------------------------------------------
$0.008-0.10 120,000,000 5.00 $0.574 120,000,000 $ 0.574
-----------------------------------------------------------------------------
F-26
Up to 965,588,235 Shares of Common Stock
of
SYNDICATION, INC.
PROSPECTUS
The date of this prospectus is June 7, 2006