SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2004
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ___________
Commission file number: 0-50754
SYNERTECK INCORPORATED
(Exact name of small business issuer as specified in its charter)
Delaware 20-0929024
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11585 South State Street, Suite 102
Draper, Utah 84020
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(Address of principal executive offices) (Zip Code)
(801) 816-2505 (Issuer's
------------------------
telephone number)
- --------------------------------------------------------------------------------
(Former name or former address and former fiscal year, if
changed since last report.)
1
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13, or 15(d) of the Exchange Act of 1934 after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of June 30, 2004, the Company had
outstanding 500,000 shares of common stock, par value $0.001 per share.
Transitional Small Business Disclosure Format (check one) [ ] Yes [x ] No
2
PART I
FINANCIAL INFORMATION
The Financial Statements of the Company are prepared as of June 30, 2004.
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-QSB
CONTENTS
Balance Sheets............................................................... 4
Statements of Operations..................................................... 6
Statements of Stockholders' Equity (Deficit)................................. 8
Statements of Cash Flows..................................................... 9
Notes to the Consolidated Financial Statements.............................. 11
3
SYNERTECK INCORPORATED
Balance Sheets
ASSETS
June 30, December 31,
2004 2003
------------------ -----------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents (Note 2) $ 53,863 $ 7,940
Accounts receivable, net (Note 2) 13,444 5,095
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Total Current Assets 67,307 13,035
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PROPERTY AND EQUIPMENT (Note 2) 20,132 3,119
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OTHER ASSETS
Receivable - related parties 18,374 16,497
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Total Other Assets 18,374 16,497
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TOTAL ASSETS $ 105,813 $ 32,651
================== =================
The accompanying notes are an integral part of these financial statements.
4
SYNERTECK INCORPORATED
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31,
2004 2003
------------------ -----------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 23,231 $ 12,698
Accrued expenses 5,163 1,801
Income tax payable - related parties 9,580 9,580
------------------ -----------------
Total Current Liabilities 37,974 24,079
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LONG TERM LIABILITIES
Notes payable 50,000 -
------------------ -----------------
Total Long Term Liabilities 50,000 -
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TOTAL LIABILITIES 87,974 24,079
------------------ -----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.001 par value; 100,000,000 shares
authorized, 500,000 shares issued and
outstanding, respectively 500 500
Additional paid-in capital (500) (500)
Retained Earnings 17,839 8,572
------------------ -----------------
Total Stockholders' Equity (Deficit) 17,839 8,572
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 105,813 $ 32,651
================== =================
The accompanying notes are an integral part of these financial statements.
5
SYNERTECK INCORPORATED
Statements of Operations
(Unaudited)
For the Three Months Ended
June 30,
------------------------------------
2004 2003
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NET REVENUES
Product revenue $ 6,962 $ 10,585
Service revenue 15,847 22,237
Related party revenue 28,180 18,000
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Total Net Revenues 50,989 50,822
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OPERATING EXPENSES
Cost of sales-product 6,498 4,844
Cost of sales-service 1,664 2,144
Cost of sales-related party 3,352 2,435
General and administrative 18,294 8,342
Selling and marketing 10,830 6,096
Research and development 4,570 2,460
------------------ -----------------
Total Operating Expenses 45,208 26,321
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INCOME (LOSS) FROM OPERATIONS 5,781 24,501
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OTHER INCOME (EXPENSES)
Interest expense (1,293) -
Interest income 67 -
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Total Other Income (Expenses) (1,226) -
------------------ -----------------
NET INCOME (LOSS) BEFORE INCOME TAXES 4,555 24,501
PROVISION FOR INCOME TAXES - -
------------------ -----------------
NET INCOME (LOSS) $ 4,555 $ 24,501
================== =================
BASIC NET INCOME (LOSS) PER SHARE $ 0.01 $ 0.05
================== =================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 500,000 500,000
================== =================
The accompanying notes are an integral part of these financial statements.
6
SYNERTECK INCORPORATED
Statements of Operations
(Unaudited)
For the Six Months Ended
June 30,
-------------------------------------
2004 2003
------------------ -----------------
NET REVENUES
Product revenue $ 18,114 $ 12,505
Service revenue 29,098 25,513
Related party revenue 39,930 35,706
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Total Net Revenues 87,142 73,724
------------------ -----------------
OPERATING EXPENSES
Cost of sales-product 12,650 6,098
Cost of sales-service 8,278 4,787
Cost of sales-related party 6,727 5,435
General and administrative 27,201 15,429
Selling and marketing 14,636 12,683
Research and development 6,101 5,095
------------------ -----------------
Total Operating Expenses 75,593 49,528
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INCOME (LOSS) FROM OPERATIONS 11,549 24,196
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OTHER INCOME (EXPENSES)
Interest expense (1,293) -
Interest income 134 -
------------------ -----------------
Total Other Income (Expenses) (1,159) -
------------------ -----------------
NET INCOME (LOSS) BEFORE INCOME TAXES 10,390 24,196
PROVISION FOR INCOME TAXES (1,123) -
------------------ -----------------
NET INCOME (LOSS) $ 9,267 $ 24,196
================== =================
BASIC NET INCOME (LOSS) PER SHARE $ 0.02 $ 0.05
================== =================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 500,000 500,000
================== =================
The accompanying notes are an integral part of these financial statements.
7
SYNERTECK INCORPORATED
Statements of Stockholders' Equity (Deficit)
Additional
Paid-in Accumulated
Shares Amount Capital Deficit
--------------- ---------------- --------------- -----------------
Balance, December 31, 2003 500,000 $ 500 $ (500) $ (9,056)
Net income for the year ended
December 31, 2003 - - - 17,628
--------------- ---------------- --------------- ----------------
Balance, December 31, 2003 500,000 500 (500) 8,572
Net income for the six months ended June 30,
2004 (unaudited) - - - 9,267
Balance, June 30, 2004 (unaudited) 500,000 $ 500 $ (500) $ 17,839
=============== ================ =============== ================
The accompanying notes are an integral part of these financial statements.
8
[PG NUMBER]
The accompanying notes are an integral part of
these financial statements.
SYNERTECK INCORPORATED
Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
---------------------------------------
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,267 $ 24,196
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 1,308 -
Changes in operating assets and liabilities:
Accounts receivable (8,349) 715
Due to/from related parties (1,877) (18,000)
Accounts payable 10,533 (3)
Accrued expenses 3,362 (645)
----------------- ------------------
Net Cash Provided by Operating Activities 14,244 6,263
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property & Equipment (18,321) -
----------------- -----------------
Net Cash Used in Investing Activities (18,321) -
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long term debt 50,000 -
----------------- -----------------
Net Cash Provided by Financing Activities 50,000 $ -
----------------- -----------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 45,923 $ 6,263
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 7,940 2,839
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 53,863 $ 9,102
================= =================
The accompanying notes are an integral part of these financial statements.
9
SYNERTECK INCORPORATED
Statement of Cash Flows (Continued)
(Unaudited)
For the Six Months Ended
June 30,
---------------------------------
2004 2003
------------ -------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest $ - $ -
Income taxes $ - $ -
The accompanying notes are an integral part of these financial statements.
10
SYNERTECK INCORPORATED
Notes to the Financial Statements
June 30, 2004 and December 31, 2003
[PG NUMBER]
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Synerteck Incorporated (the Company) was incorporated under the
laws of the State of Delaware on March 30, 2004, with authorized
common stock of 100,000,000 shares and authorized preferred stock
of 10,000,000 shares. Both classes of stock have a par value of
$0.001 per share.
The Company was originally formed as Synerteck Incorporated under
the laws of the State of Utah on March 2, 2001. The Company
determined that its business purpose would be better served if it
reincorporated into the State of Delaware (Note 8).
A wholly owned subsidiary of SportsNuts, Inc., the Company was
created to be a technology partner with SportsNuts, Inc. for a
variety of organizations, both sports and non-sports related,
that require information technology services. These services
include website hosting, website design and maintenance, computer
hardware leasing, hardware and software programming and
configuration, wide area network and local area network
configuration, and other related services.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is
presented to assist in understanding the Company's financial
statements. The financial statements and notes are
representations of the Company's management who are responsible
for their integrity and objectivity. These accounting policies
conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the
preparation of the financial statements. The following policies
are considered to be significant:
a. Accounting Method
The Company recognizes income and expenses based on the accrual
method of accounting. The Company has elected a calendar
year-end.
b. Cash and Cash Equivalents
Cash equivalents are generally comprised of certain highly liquid
investments with original maturities of less than three months.
c. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles 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.
d. Basic Net Loss per Share of Common Stock
In accordance with Financial Accounting Standards No. 128,
"Earnings per Share," basic net loss per common share is based on
the weighted average number of shares outstanding during the
11
SYNERTECK INCORPORATED
Notes to the Financial Statements
June 30, 2004 and December 31, 2003
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Basic Net Loss per Share of Common Stock (Continued)
periods presented. Diluted earnings per share is computed using
weighted average number of common shares plus dilutive common
share equivalents outstanding during the period. There are no
common stock equivalents as of June 30, 2004 and December 31,
2003.
e. Allowance for Doubtful Accounts
Accounts receivable are recorded net of the allowance for
doubtful accounts. The Company generally offers 30-day credit
terms on sales to its customers and requires no collateral. The
Company maintains an allowance for doubtful accounts which is
determined based on a number of factors, including each
customer's financial condition, general economic trends and
management judgement. As of June 30, 2004 and December 31, 2003,
the allowance for doubtful accounts was $31,612.
f. Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. When assets
are disposed of, the cost and accumulated depreciation (net book
value of the assets) are eliminated and any resultant gain or
loss reflected accordingly. Betterments and improvements are
capitalized over their estimated useful lives whereas repairs and
maintenance expenditures on the assets are charged to expense as
incurred.
Estimated
Useful Lives
------------
ComputerEquipment 5 Years
Depreciation expense for the six months ended June 30, 2004 and
2003 was $1,307 and $0, respectively.
g. Revenue Recognition
Revenue is recognized upon completion of services or delivery of
goods. Advance customer payments are recorded as deferred revenue
until such time as they are recognized. Product sales are not
warranted by the Company and may be subject only to warranties
that may be provided by the product manufacturer.
h. Recent Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board issued
Statement No. 145 ("SFAS 145"), "Rescission of FASB Statements
Nos. 4, 44, and 64 and Amendment of FASB Statement No. 13." SFAS
145 addresses the presentation for losses on early retirements of
debt in the statement of operations. The Company has adopted SFAS
145 and will not present losses on early retirements of debt as
an extraordinary item.
In June 2002, the Financial Accounting Standards Board issued
Statement No. 146 ("SFAS 146"), "Accounting for Costs Associated
with Exit or Disposal Activities." The provisions of SFAS 146
12
SYNERTECK INCORPORATED
Notes to the Financial Statements
June 30, 2004 and December 31, 2003
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Recent Accounting Pronouncements (Continued)
become effective for exit or disposal activities commenced
subsequent to December 31, 2002. The adoption of SFAS 146 had no
impact on the Company's financial position, results of operations
or cash flows.
In November 2002, the Financial Accounting Standards Board issued
FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This interpretation
elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies
(for guarantees issued after January 1, 2003) that a guarantor is
required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligations undertaken in
issuing the guarantee. At June 30, 2004, the Company does not
have any outstanding guarantees and accordingly does not expect
the adoption of FIN 45 to have any impact on its financial
position, results of operations or cash flows.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company is a wholly owned subsidiary of SportsNuts, Inc.
During the ordinary course of business there may be amounts due
to or from any of the companies in the consolidated entity. These
amounts are classified as either net receivables or net payables
- related parties. Synerteck records all expenses related to
their operations in their financial statements, therefore, there
are no adjustments which would be required to present the
Company's financial statements as if it had operated as an
unaffiliated entity.
At June 30, 2004 the Company has a net related party receivable
of $8,794 and at December 31, 2003 the Company has net related
party payable of $6,917.
Service Agreement
On March 1, 2002, the Company entered into an oral agreement to
provide IT related services to a company affiliated by common
management and shareholders. These services include network
engineering, architecture and design, website and e-mail hosting,
network hosting and website design. The fee for these services
varies depending on the level of service but ranges between
$4,000 and $7,000 per month. Additional project based fees may be
negotiated.
Management Services Agreement
Effective April 1, 2004, the Company entered into a management
services agreement with SportsNuts, Inc., its sole shareholder,
to receive various services including use of information
technologies, accounting and bookkeeping services, and limited
legal, business development and administrative services for a
non-refundable fee of $750 per month. No minimum or specific
performance is required by the terms of this agreement.
13
SYNERTECK INCORPORATED
Notes to the Financial Statements
June 30, 2004 and December 31, 2003
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
Service Agreement
Effective April 1, 2004, the Company entered into a service
agreement with SportsNuts, In., its sole shareholder, to provide
various services including network and server maintenance and
support, user support and website maintenance. In exchange for
these services SportsNuts, Inc. will pay to the Company a
non-refundable fee of $2,000 per month. No minimum or specific
performance is required by the terms of this agreement.
Office Space
The Company is subject to a month-to-month rental agreement for
its office space with SportsNuts, Inc. Currently, the rental fee
is $1,000 per month and is subject to increase as more space is
needed or due to economic factors. During the six months ended
June 30, 2004 the Company paid SportsNuts, Inc. $6,000 for office
space. The terms of this agreement are similar to those of other,
unrelated, companies renting office space from SportsNuts, Inc.
NOTE 4 - EQUITY TRANSACTIONS
100,000 common shares of Synerteck (Utah) were issued to the
incorporator upon incorporation. The shares were issued at no
value.
500,000 common shares of Synerteck (Delaware) were issued on the
basis of 5-for-1 for all of the outstanding shares of Synerteck
(Utah) as part of the Company's reincorporation into the State of
Delaware. All references to shares issued and outstanding in the
financial statements have been retroactively restated to reflect
the effects of this change in capital structure.
NOTE 5 - FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS 107),
"Disclosures about Fair Value of Financial Instruments" requires
disclosure of the fair value of financial instruments held by the
Company. SFAS 107 defines the fair value of a financial
instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. The
following methods and assumptions were used to estimate fair
value:
The carrying amount of cash equivalents, accounts receivable and
accounts payable approximate fair value due to their short-term
nature.
14
SYNERTECK INCORPORATED
Notes to the Financial Statements
June 30, 2004 and December 31, 2003
NOTE 6 - INCOME TAXES
The Company is a wholly-owned subsidiary of SportsNuts, Inc. and
has been filing a consolidated tax return. For the purposes of
these financial statements income tax expense has been calculated
on the separate return basis as if the Company were not a part of
a consolidated entity. Income tax related liabilities are payable
to its parent, SportsNuts, Inc.
The provision for income taxes as of June 30, 2004 and 2003 is
detailed in the following summary:
June 30,
----------------------------------------
2004 2003
------------------- -------------------
Current
Federal income taxes $ 831 $ -
State income taxes 292 -
------------------- -------------------
Income tax expense $ 1,123 $ -
=================== ===================
A reconciliation of income taxes at the state and federal
statutory rate to the effective tax rate is as follows:
June 30,
-----------------------------------------
2004 2003
------------------ --------------------
Income taxes computed at the state
and federal statutory rate (5% and
15%, respectively) $ 1,167 $ -
State income taxes (44) -
------------------ --------------------
Income Tax Expense $ 1,123 $ -
================== ====================
NOTE 7 - NOTES PAYABLE
Notes payable consisted of the following:
June 30,
-----------------------------------------
2004 2003
------------------ --------------------
Notes payable to individuals,
unsecured, interest at 8%, principal
and interest due March 1, 2007 $ 50,000 $ -
----------------- --------------------
Total notes payable $ 50,000 $ $ -
================= ====================
The notes also collectively entitle the holders to an aggregate
of two percent (2%) of the gross revenues of the Company,
commencing July 1, 2004. These payments will be accounted for as
variable interest expense.
15
SYNERTECK INCORPORATED
Notes to the Financial Statements
June 30, 2004 and December 31, 2003
NOTE 8- REINCORPORATION IN DELAWARE
On April 5, 2004, the Company reincorporated into the State of
Delaware by filing with the state of Certificate of Merger
whereby Synerteck Incorporated (Utah) merged with and into
Synerteck Incorporated (Delaware) which was incorporated for this
purpose on March 30, 2004. As part of the merger five common
shares of Synerteck (Delaware) were issued for each outstanding
common share of Synerteck (Utah) for a total of 500,000 common
shares of Synerteck (Delaware) issued upon incorporation. All
references to shares issued and outstanding in the financial
statements have been retroactively restated to reflect the
effects of this change in capital structure.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
You should read the following discussion of the company's financial
condition and results of operations in conjunction with the audited financial
statements and related notes included in this report. This discussion may
contain forward-looking statements, including, without limitation, statements
regarding our expectations, beliefs, intentions, or future strategies that are
signified by the words "expects," "anticipates," "intends," "believes," or
similar language. Actual results could differ materially from those projected in
the forward looking statements. You should carefully consider the information
set forth above under the caption "Risk Factors" in addition to the other
information set forth in this report. We caution you that Synerteck's business
and financial performance is subject to substantial risks and uncertainties.
Overview
Synerteck is an integrator of business strategy with technology solutions.
We attempt to understand the business of our clients principally from their
customer's point of view, in order to properly position ourselves to advocate
and implement measures that achieve the client's organizational objectives. Our
clients consist of small to medium sized organizations, operating in North
America and Europe. Currently, we service eight clients on a continuous monthly
basis and average ten additional clients for one-time or intermittent projects
over the course of a year. You can learn more about our business at our website
located at www.synerteck.com.
Results of Operations
Following is our discussion of the relevant items affecting results of
operations for the periods ended June 30, 2004 and 2003.
Revenues. Revenue is recognized upon completion of services or delivery of
goods. Advance customer payments are recorded as deferred revenue until such
time as they are recognized. Product sales are not warranted by the Company and
may be subject only to warranties that may be provided by the product
manufacturer. Therefore, product warranties have no effect on the financial
statements.
Synerteck generated net revenues of $50,989 during the three months ended
June 30, 2004, a 0.33% increase compared to $50,822 in net revenues during the
second quarter of 2003. For the six-month period ended June 30, 2004, net
revenues were 87,142, representing a 18% increase compared to $73,724 in net
revenues during the first six months of 2003. This increase was due to a sales
initiative started in 2004 which provided incentives on new sales. Furthermore,
hardware sales increased and several new IT service contracts were established
in the first six months of 2004. Along with web site design and hosting, other
sources of revenue were information technology systems support and equipment
leases. We anticipate that these three areas will constitute the principal
source of Synerteck's revenue for the foreseeable future.
Our business model and objective is to receive recurring revenue from
long-term contracts with established clients. Over the past twelve months, we
have provided networking, programming, and hosting services for eight clients on
a continuous basis and approximately ten clients for one-time projects. In
addition, we procure and resell hardware and software packages to our clients as
well as single transaction customers. Sales of software and hardware products
are inherently unpredictable, but we anticipate that revenues from this activity
will become more consistent as we grow our client base. During the first six
months of 2004 and 2003, we received $65,590 and $60,187, respectively, in gross
revenues from information technology services, and $21,552 and $13,537,
respectively, in gross revenues from software and hardware product resales and
equipment leasing.
Cost of Sales. Expenses which comprise cost of sales are the wholesale cost
of hardware, software, any accompanying licenses, product sales commissions, and
commissions paid in connection with information technology consulting contracts.
Also included in cost of sales are personnel and materials costs to administer
these information technology services. As more organizations utilize our
technology services, future expenses included in cost of goods sold will
increase as well as potential fee sharing expenses to organizations that assist
us in providing these services.
17
Cost of sales for the three months ended June 30, 2004 were $11,514, a 22%
increase from $9,423 during the second quarter of 2003. For the six month period
ended June 30, 2004, cost of sales was $27,655, a 69% increase from $16,321
during the first six months of 2003. This increase corresponds with the increase
of revenues associated with the sales initiative started in 2004 and is mainly
due to commission incentives on new sales. Furthermore, the sales of computer
hardware during the six months ended June 30, 2004 increased 45% compared to the
same period in the prior year. Hardware sales do not yield as high a margin as
other products offered by the Company, thus contributing to the higher cost of
sales percentage. Cost of sales is attributable to (i) expenses incurred
pursuant to the delivery of our information technology support, and (ii) sales
commissions paid in connection with technology consulting projects.
General and Administrative Expenses. Our general and administrative
expenses have been comprised of administrative wages and benefits; occupancy and
office expenses; outside legal, accounting and other professional fees; travel
and other miscellaneous office and administrative expenses. General and
administrative expenses for the three months ended June 30, 2004 were $18,294, a
119% increase from $8,342 during the second quarter of 2003. primarily due to
accounting professional fees associated with the audit of the financial
statements. General and administrative expenses for the six-month period ended
June 30, 2004 were $27,201, a 76% increase from $15,429 during the first six
months of 2003. This increase was primarily due to accounting and legal fees
associated with the audit of the financial statements. Furthermore, as noted in
the notes to the financial statements, the Company also entered into a
management services agreement with its sole shareholder, SportsNuts, Inc.
Although we endeavor to decrease certain costs associated with personnel
salaries and benefits, professional fees, contract labor, and rent and
occupancy-related expense, as the business grows, these expenses will increase.
Our payroll expense accounted for approximately $26,300 of general and
administrative expenses during the six month period ended June 30, 2004, as
compared to $25,293 during the first six months of 2003. Because we sublease our
office facilities from our parent corporation, we do not anticipate any material
commitments for capital expenditures in the foreseeable future.
Selling and Marketing Expenses. Our selling and marketing expenses include
selling/marketing wages and benefits; advertising and promotional expenses;
travel and other miscellaneous related expenses. Selling and marketing expenses
for the three months ended June 30, 2004 were $10,830, a 140% increase from
$6,096 during the second quarter of 2003. For the six-month period ended June
30, 2004, selling and marketing expenses were $14,636, a 15% increase from
$12,683 during the first six months of 2003. This increase was primarily
attributable to increased salaries of sales personnel as well as additional
expenditures for advertising and marketing. We expect that our sales and
marketing expenditures will increase as we continue to develop our client base
and expand our efforts in computer hardware and software leasing.
Product Development. Product research and development expenses for the
three months ended June 30, 2004 were $4,570, a 86% increase from $2,460 during
the second quarter of 2003. For the six-month period ended June 30, 2004,
product development expenses were $6,101, a 20% increase from $5,095 during the
first six months of 2003. Our product development expenses relate primarily to
payroll and systems development for our programming and web site hosting
services. We believe that significant investments in product development are
required to remain competitive. Accordingly, we expect to incur increased
expenditures with respect to product development in future periods.
Other Income (Expense). We incurred net other expense of $2,282 for the six
months ended June 30, 2004 compared to no net other expense during the first six
months of 2003. The expenses incurred in this category were comprised primarily
of interest expenses related to the $50,000 in notes payable taken by the
Company during the first half of 2004. Income tax expense of $1,123 was also
recorded during the first six months of 2004.
Off-Balance Sheet Arrangements
Synerteck is not subject to any off-balance sheet arrangements.
18
Personnel
Synerteck has two full-time employees, two part-time employees, and
numerous project-based contract personnel that we utilize to carry out our
business. We utilize contract personnel on a continuous basis, primarily in
connection with service contracts which require a high level of specialization
for one or more of the service components offered. We expect to hire one more
full-time employee during 2004. Although competition for technology personnel in
the metropolitan Salt Lake City area is intense, because we offer competitive
compensation, maintain a productive and collegial work environment, and work
with internationally-based clients, we don't believe we will have significant
difficulty retaining additional employees or contract personnel in the future.
Liquidity and Capital Resources
Since inception, we have financed Synerteck's operations from its business
cash flows. As of June 30, 2004, Synerteck's primary source of liquidity
consisted of $53,863 in cash and cash equivalents. Because Synerteck is
profitable, we do not expect to require additional investment capital during the
next twelve months to continue our operations at their current level.
Nevertheless, we may seek to secure additional debt or equity capital to finance
substantial business development initiatives or acquire another information
technology firm. At present, however, we have no plans to seek any such
additional capital or to engage in any business development or acquisition
activity.
Related Party Transactions
Synerteck provides various services including network and server
maintenance and support, user support and website maintenance to its sole
shareholder, SportsNuts, Inc. In exchange for these services, Synerteck receives
$2,000 per month. No minimum or specific performance is required by the terms of
this agreement and we do not foresee any negative trends that would impact
future revenues or operations.
19
FORWARD LOOKING STATEMENTS AND RISK FACTORS
Forward Looking Statements
When used in this report, the words, "believes," "plans," "expects," and
similar expressions are intended by us to identify forward-looking statements
within the meaning of and Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements are subject to certain risks and uncertainties,
including those discussed below, that could cause actual results to differ
materially from those we have projected. These forward-looking statements speak
only as of the date hereof. All of these forward-looking statements are based on
our estimates and assumptions, which although we believe them to be reasonable,
are inherently uncertain and difficult to predict. We cannot assure you that the
benefits anticipated in these forward-looking statements will be achieved.
We undertake no obligation to update any forward-looking statements, but
you are advised to consult any further disclosures by the Synerteck on this
subject in its subsequent filings pursuant to the Securities Exchange Act of
1934. Furthermore, we are providing these cautionary statements identifying risk
factors, listed below, that could cause our actual results to differ materially
from expected and historical results. It is not possible for our management to
foresee or identify all such factors. Consequently, this list should not be
considered an exhaustive statement of all potential risks, uncertainties and
inaccurate assumptions.
RISK FACTORS
Operating Risks
We are Heavily Dependent Upon our Key Personnel. Synerteck's success
depends, in large part, upon the talents and skills of its management and key
personnel. In addition, to the extent that any of our key personnel are unable
or refuse to continue their association with Synerteck, a suitable replacement
would have to be found. The competition for qualified personnel in the computer
networking is intense, and there are limited numbers of such qualified personnel
in the metropolitan Salt Lake City area. We cannot assure you that we would be
able to find suitable replacements for our existing management personnel or
technical personnel or that we could retain such replacements for an affordable
amount.
You May Not Agree With The Decisions of Our Management Team. Although
Synerteck's directors and officers will endeavor to make decisions as they
reasonably deem consistent with their fiduciary duties under Delaware corporate
law, you may disagree with these decisions. Synerteck's management has
significant control over stockholder matters, which may affect the ability of
minority stockholders to influence our activities.
We are Heavily Dependent Upon a Few Key Clients. Three client accounts
comprise a substantial majority of Synerteck's monthly revenues, one of which is
serviced on an oral agreement on a month-to-month basis. Although we believe we
will continue to service these accounts at the current billing rate for the
remainder of 2004, economic and other factors beyond our control may result in a
loss of one or all three of these accounts. If we lost one or all of these
clients, we would be required to immediately replace these clients with similar
sized accounts, or dramatically cut our operating costs to remain in business.
If Synerteck were to cease its operations, you would likely lose the entire
value of your investment.
Our Business is Inherently Risky. Service based businesses in the computer
networking and hosting industries are inherently risky. If our services do not
generate enough cash flow to meet our operating expenses (such as debt service,
capital expenditures, and legal and accounting fees), our ability to develop and
expand our business and become profitable will be adversely affected.
Our Business Could be Adversely Affected by Many Factors. Income from
outsourced networking, hosting, and programming services may be adversely
affected by a number of factors, including, but not limited to:
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[PG NUMBER]
- the general economic climate (such as too much supply or too little
demand fo rinformation technology services, as well as changes in
market rates);
- the increasing tendency of medium sized businesses to rely on internal
personnel to service and maintain computer networks, even if such
personnel are not properly trained to perform the tasks required; o
intense competition and rapid and significant technological change in
the information technology industry;
- increasing competition from outsourced lowre overhead firms in India,
Russia, and other rapidly developing technology sectors around the
world; or
- damage from fire, earthquakes, prolonged power outages, or other
natural or man-made disasters.
We will Require Additional Financing for Expansion and other Functions.
Although Synerteck is currently profitable, we will likely require substantial
additional capital in the future for expansion, business development, marketing,
computer software and systems, overhead, administrative, and other expenses. We
cannot assure you that we will be able to raise additional funds or that
financing will be available to Synerteck on acceptable terms. Lack of additional
funds could significantly affect our business. Further, funds raised through
future equity financing could be substantially dilutive to you and other
existing shareholders.
We Compete With Substantially Larger Companies. In attempting to market our
services to medium and larger organizations, we compete with substantially
larger companies which have greater name recognition and financial resources to
price their services and, in particular, computer products which are purchased
through them. Accordingly, we may not be able to effectively compete for larger
outsourcing and purchasing contracts unless and until we possess additional
financial, marketing, and technical resources.
Our Computer Systems May Fail. Synerteck's success is substantially
dependent upon our ability to deliver our clients high quality, uninterrupted
access to their websites, their networks, their e-mail systems, and technology
applications, which requires that we actively maintain our computer hardware and
software systems, as well as the data and information stored therein. Our
systems are vulnerable to damage by fire, natural disaster, power loss,
telecommunications failures, unauthorized intrusion, and other catastrophic
events. Any substantial interruption in our systems would have a material
adverse effect on our business, operating results, and financial condition. In
addition, our systems may be vulnerable to computer viruses, physical or
electronic break-ins, sabotage, or other problems caused by third parties which
could lead to interruptions, delays, loss of data, or cessation in service to
persons desiring to access their networks and internet properties. The
occurrence of any of these risks could have a material adverse effect upon
Synerteck's business, results of operations, and financial condition.
Investment Risks
A Purchase of Synerteck Shares is a Speculative Investment. Synerteck's
shares are a speculative investment. To date, Synerteck has generated a modest
amount of profits and we cannot guarantee that it will continue to do so or that
the level of profits will increase in the future. If Synerteck were to lose one
or more of its principal customers, it would likely generate losses, and we
would be forced to scale down Synerteck's operations or raise investment capital
to continue operations. If Synerteck were to generate losses and we were
unsuccessful at decreasing Synerteck's operating costs or raising investment
capital, it is unlikely that Synerteck would be able to meet its financial
obligations and you could lose your entire investment.
There has Never Been a Public Market For Our Shares. Prior to this
registration statement, there has been no public market for the common stock of
Synerteck. If a public market for the common stock does develop at a future
time, sales of shares by shareholders of substantial amounts of common stock of
Synerteck in the public market could adversely affect the prevailing market
price and could impair our future ability to raise capital through the sale of
our equity securities.
21
You May Lack Liquidity in Your Shares. Because in the future, our stock may
trade on the over-the-counter bulletin board, our stockholders may have greater
difficulty in selling their shares when they want and for the price they want.
The over-the-counter bulletin board is separate and distinct from the Nasdaq
stock market. The bulletin board does not operate under the same rules and
standards as the Nasdaq stock market, including, for example, order handling
rules. The absence of these rules and standards may make it more difficult for a
stockholder to obtain execution of an order to trade and to obtain the price
they wanted for a trade. This means our shareholders may not be able to sell
their shares when they want for a price they want. In addition, because stocks
traded on the bulletin board are usually thinly traded, highly volatile, have
fewer market makers and are not followed by analysts, our stockholders may have
greater difficulty in selling their shares when they want and for the price they
want. Investors may have greater difficulty in getting orders filled because it
is anticipated that if our stock trades on a public market, it initially will
trade on the over-the-counter bulletin board rather than on Nasdaq. Investors'
orders may be filled at a price much different than expected when an order is
placed. Trading activity in general is not conducted as efficiently and
effectively as with Nasdaq-listed securities. Bulletin board transactions are
conducted almost entirely manually. Because there are no automated systems for
negotiating trades on the bulletin board, they are conducted via telephone. In
times of heavy market volume, the limitations of this process may result in a
significant increase in the time it takes to execute investor orders. Therefore,
when investors place market orders - an order to buy or sell a specific number
of shares at the current market price - it is possible for the price of a stock
to go up or down significantly during the lapse of time between placing a market
order and getting execution. Because bulletin board stocks are usually not
followed by analysts, there may be lower trading volume than for Nasdaq-listed
securities. Further, a registered broker-dealer must submit an application to
the National Association of Securities Dealers to enable our stock to be listed
on the bulletin board. Because the National Association of Securities Dealers
will conduct their own review of Synerteck and its business, we cannot assure
you that we will be successful in getting Synerteck listed on the bulletin board
or any other quotation medium.
We Have Never Issued a Dividend and Don't Anticipate any Dividends in the
Future. Synerteck has never issued a dividend and we do not anticipate paying
dividends on our common stock in the foreseeable future. Furthermore, we may
also be restricted from paying dividends in the future pursuant to subsequent
financing arrangements or pursuant to Delaware law.
We Have Limited the Liability of Our Management. Synerteck has adopted
provisions in its Certificate of Incorporation which limit the liability of our
officers and directors and provisions in our bylaws which provide for
indemnification by Synerteck of our officers and directors to the fullest extent
permitted by Delaware corporate law. Synerteck's Certificate of Incorporation
generally provide that its directors shall have no personal liability to
Synerteck or its stockholders for monetary damages for breaches of their
fiduciary duties as directors, except for breaches of their duties of loyalty,
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, acts involving unlawful payment of dividends or
unlawful stock purchases or redemptions, or any transaction from which a
director derives an improper personal benefit. Such provisions substantially
limit your ability to hold directors liable for breaches of fiduciary duty.
You Could be Diluted from the Issuance of Additional Common and Preferred
Stock. Synerteck is authorized to issue up to 100,000,000 shares of common stock
and 10,000,000 shares of preferred stock. To the extent of such authorization,
the Synerteck board of directors will have the ability, without seeking
shareholder approval, to issue additional shares of common stock in the future
for such consideration as the board may consider sufficient. The issuance of
additional common stock in the future may reduce your proportionate ownership
and voting power.
22
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended June
30, 2004.
The following documents are filed as exhibits to this Form
10-QSB:
INDEX TO EXHIBITS
Exhibit
Number Title of Document
3.1 Certificate of Incorporation of Synerteck Incorporated, a Delaware
corporation. (1)
3.2 Bylaws of Synerteck Incorporated, a Delaware corporation. (1)
10.1 Services Agreement between the Registrant and Healthcare Enterprise
Group PLC.(1)
10.2 Summary of Services Agreement between the Registrant and Moore,
Clayton & Co. Inc. (1)
10.3 Services Agreement between the Registrant and SportsNuts, Inc. (1)
10.4 Management and Business Development Agreement between the Registrant
and SportsNuts, Inc. (1)
10.5 Sublease Agreement between the Registrant and SportsNuts, Inc. (1)
99.1 Certification by Chief Executive Officer, Clayton Barlow, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
99.2 Certification by Chief Financial Officer, Chene Gardner, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
99.3 Certification by Chief Executive Officer Clayton Barlow, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.4 Certification by Chief Financial Officer Chene Gardner, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(1) Filed as an Exhibit to Amendment Number 1 to the Company's registration
statement on Form 10-SB, filed with the Commission on July 28, 2004.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNERTECK INCORPORATED
Date: August 15, 2004. BY:/s/ Chene Gardner
----------------------------
Chene Gardner
Chief Financial Officer