-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hr4wn8vfzNZUlm34wVXUtj5DjX34J1EeIQ3L6Lk3GDfUX/EnCsRKuAbG0rFTbhB1 kYyQceM7xenpUBZ8PwkGmw== 0000891554-00-000128.txt : 20000203 0000891554-00-000128.hdr.sgml : 20000203 ACCESSION NUMBER: 0000891554-00-000128 CONFORMED SUBMISSION TYPE: 10SB12G PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20000125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYCONET COM INC CENTRAL INDEX KEY: 0001099234 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541838089 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10SB12G SEC ACT: SEC FILE NUMBER: 000-29113 FILM NUMBER: 512707 BUSINESS ADDRESS: STREET 1: 9208A VENTURE CT CITY: MANASSAS STATE: VA ZIP: 20111 BUSINESS PHONE: 7033663900 10SB12G 1 GENERAL FORM FOR REGISTRATION OF SECURITIES UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-SB GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS Under Section 12(b) or (g) of the Securities Exchange Act of 1934 SYCONET.COM, INC. (Name of Small Business Issuer in its charter) Delaware 54-1838089 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9208A Venture Court Manassas, Virginia 20111 (Address of principal executive offices) (Zip Code) Issuer's telephone number: (703) 366-3900 Securities to be registered under Section 12(b) of the Act: Title of each class Name of each exchange on which to be so registered each class is to be registered N/A N/A Securities to be registered under Section 12(g) of the Act: Common Stock (Title of Class) Information Required in Registration Statement This registration statement on Form 10-SB, including, without limitation, Item 1, Business, and Item 2, Management's Discussion and Analysis or Plan of Operation, contains forward-looking statements. We intend to identify forward-looking statements in this registration statement using words such as "believes," "intends," "expects," "may," "will," "should," "plan," "projected," "contemplates," "anticipates," or similar statements. These statements are based on our beliefs as well as assumptions we made using information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties, and assumptions. Actual future results may differ significantly from the results discussed in the forward-looking statements. Factors that may cause these differences include, without limitation, our inability to obtain additional capital, competition from other, significantly larger distributors of Anime products, and our dependence on third parties as our source of Anime products. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this registration statement. PART I Unless the context otherwise requires, all references in this registration statement to "us," "we," "our" or "SyCo" mean SyCoNet.Com, Inc. Item 1. Business. A. Overview. SyCoNet.Com, Inc. was formed in Delaware in June 1997 under the name SyCo Comics and Distribution Inc. and is the successor to a limited partnership named SyCo Comics and Distribution formed under the laws of the Commonwealth of Virginia on February 1, 1997, by Sy Robert Picon and William Spears, the co-founders and principal shareholders of SyCoNet.Com. On February 17, 1999, SyCo Comics and Distribution Inc. changed its name to SyCoNet.Com, Inc. Our principal place of business is 9208A Venture Court, Manassas, Virginia 20111, and our telephone number is (703) 366-3900. Our common stock is listed on NASDAQ's Over-the-Counter Bulletin Board under the symbol "SYCD". As more fully described below, SyCoNet.Com, Inc. is a development stage corporation which is engaged principally in the distribution and direct marketing of Anime - animated cartoons produced in Japan and shipped to the United States where English subtitles or dialogue are inserted prior to distribution on videocassettes -- and Anime-related toys and other merchandise. We sell directly to individuals over the Internet and at Anime conventions. We are 2 also a wholesale distributor to small retail outlets such as Anime specialty stores, comic book specialty stores, video stores, toy stores and electronic stores. B. Business Development. Our original plan of operation was to distribute comic books and comic book character-based trading cards and T-shirts to comic book specialty stores and traditional outlets. The response from the comic book retailers to our efforts was minimal because we could not offer them the comics published by Marvel Entertainment Group, Inc. and the other principal comic book publishers, all of which had entered into and were subject to exclusive distribution agreements with Diamond Comic Distributors, Inc. Accordingly, we incurred substantial losses in the first three quarters of 1997. In the fourth quarter of 1997, we refocused our operations on the distribution of Anime. We are no longer involved in comic-book distribution. Distribution of Anime currently accounts for approximately 90% of our revenues, and Anime-related merchandise, including toys and trading cards, accounts for 10%. 85% of our catalog is devoted to VCR tapes, 10% to DVD, and 5% to toys and trading cards. Our VHS products are priced from 28% to 50% less than the manufacturer's suggested retail price and our DVD products are priced 28% to 30% less than the manufacturer's suggested retail price. Notwithstanding our rapid growth, we cannot assure you that our growth will be sustained or that we will gain significant market share in the future. C. Description of Our Business. Anime Anime differs from American animation in several important ways. Unlike American animation, which is created mainly for children, Anime is targeted for specific age groups which range from young children to adults. Therefore, Anime has more developed storylines and more lifelike characters, which grow emotionally and socially throughout the story. The storylines and characters can be as varied and detailed as in a feature-length movie or long-running television series. In addition, the characters' actions and characteristics drive stories more than they do with American animation. Characters learn how to obtain help from their friends and overcome their own weaknesses. That internal growth is the focus of the story , which makes the overall plot far more compelling, believable and relevant to the audience. Anime videos also have a high degree of sensory appeal, due to the high-quality music and graphics. Also, the graphic style of most Anime is focused more on the visual context and use of backgrounds and less on the simulations of fluid body movements and other action. This method provides more information about the overall impression of the scene than with American cartoons, while the lower priority assigned to life-like body movement enables Anime to be produced at a far lower cost per frame. Unlike American animation, Anime appeals to both males and females. Anime makes liberal use of romantic themes, and 60% of all Anime films and series have female leads as either the hero or the love interest. 3 Market The market for Anime and related merchandise in the United States has grown dramatically since its introduction almost ten years ago. In 1989, the market for Anime was $5.5 million. The market has been increasing substantially since then, with sales of almost $35 million in 1993, $110 million in 1995 and $225 million in 1997. By the year 2000, United States sales are expected to reach $500 million, although no assurance can be given. Nearly 2,500 Anime titles are now available in the United States, principally through national chains selling or renting videocassettes. We distribute virtually the entire line of Anime videos, as well as ancillary products such as toys and trading cards based on the Anime movies. Product We obtain product on a non-exclusive basis from 15 Anime suppliers, including Central Park Media, Pioneer, A.D. Vision, Viz Communications, Irwin Toys, ADV Films and MGM's Orion Pictures. Since we obtain our Anime cassettes from multiple sources, we believe we have a secure source of product, although we cannot give any assurances. We distribute all of the nearly 2,500 available video titles, including Pokemon, Dragon Ball Z and Sailor Moon videos, as well as select Anime-related toys and other merchandise. We maintain an inventory of products in high demand so as to offer prompt service and fast delivery, and we obtain other products to fulfill orders we receive. Between October 31 and December 30, 1999, we fulfilled 98.7% of over 4000 orders within our stated delivery time frame of two days and 100% of our orders were filled in time for Christmas. Approximately 85% of the videos we purchase from suppliers are returnable. Marketing and Distribution Initially our products were offered only through our own catalogs to small retail customers that focused almost exclusively on Anime products. We plan to continue providing wholesale services to retail stores that are interested in the Anime product line. However, now we are focusing on direct marketing to the individual consumer through the Internet. Currently, all of our products can be ordered through our two websites "www.animedepot.com" and "www.altvidwar.com". We intend to make the Internet our primary distribution channel to retail customers since Anime buyers are opting for this method of buying over traditional shopping malls and specialty shops. We believe that this medium will significantly reduce our expenses. We also market our products to individuals and retailers at trade shows and conventions, as well as through trade publications and headers on selected Internet search engines. We rely on agreements with United Parcel Service and R.P.S. to deliver products from suppliers as well as to customers. Charges associated with delivery of products to us are frequently borne by our suppliers. We intend to establish facilities in various regions of the United States to allow for faster receipt and distribution of our products if warranted by new business and subject to the availability of the necessary capital. 4 Competition Anime producers have not granted exclusive distribution agreements to any distributor, although we cannot assure you that this situation will continue. The four major wholesale distributors of Anime videos in the United States are Bandai, Pioneer, Baker & Taylor, and Ingram Entertainment. They specialize in providing products to large general retailers, toy retailers and video chains that are interested primarily in selling only the 20 to 30 most popular Anime titles. We do not sell to large retail accounts and therefore we do not compete with these large distribution companies. We focus on providing a high degree of service to smaller retailers. We have our main competitors who, like us, are relatively small privately held companies that serve the Anime niche market of small specialty retailers. These companies are Central Park Media, Media Blasters, Animego, and AD Vision, and they have greater financial, personnel, marketing and sales resources than we do. We compete with these companies on the basis of price, service, selection, availability and product knowledge. We also compete with many smaller retail outlets that sell Anime either by itself or as part of a product line that includes role playing games, video games, and other hobbyist activities. Intellectual Property We have service mark applications pending for the following: "SYCO","ANIMEDEPOT.COM", "YUGI-OH" "YUGI-OH.COM", "YUGI-OH DEPOT", "YUGI- OH DEPOT.COM", "OTAKU", "OTAKU USA", "OTAKU USA.COM", "ANIME USA", ANIME USA.COM", "SYCONET" and "SYCONET.COM". Employees As of January 24, 1999, we had 24 employees, 23 of whom are full-time. Item 2. Management's Discussion and Analysis or Plan of Operation. Overview The following is a discussion of certain factors affecting our results for the two fiscal years ended December 31, 1997 and 1998, and the nine months ended September 30, 1999, and our liquidity and capital resources. This discussion and analysis should be read along with our financial statements and their notes, contained elsewhere in this registration statement. As a reminder, our fiscal year ends on December 31. The years mentioned throughout this prospectus are fiscal years. Since inception, we have incurred losses, and as of September 30, 1999, we had an accumulated deficit of $1.6 million. We believe that sales growth will be contingent on our ability to (a) establish name recognition among fans of Anime and capitalize on up-selling and cross-selling opportunities; (b) select and market product lines that will gain popularity among Anime fans and will have cross-over potential to mainstream animation fans; (c) provide our customers good value, in terms of competitive pricing and order fulfillment; (d) identify and capitalize on advertising media 5 that will best reach our target customers; (e) acquire and successfully market product licenses or alternatively, acquire emerging companies that have specialized skills, particularly in gaming and web entertainment technologies. During the past three months, we entered into short-term (under six months) on-line advertising agreements with World Wrestling Federation and Lycos. Within the next six months, we plan to launch an Internet, and possibly television, advertising campaign, as well as consummate partnering agreements with USA Networks, SCI-FI Channel, and other arrangements that are in negotiation. We plan to expand our consumer oriented e-commerce business, and we expect that additional spending will occur in this area. We believe that achieving profitability will be highly dependent on our ability to grow this segment of the business, in addition to increasing our licensing and advertising revenues. We have expanded our product lines from primarily comics in 1997 to sub-titled and dubbed videos, DVDs, trading cards, toys and apparel during 1998 and 1999. Because of these changes in the product line mix and the recent increase in our on-line customer sales, a historical comparative analysis may not necessarily be meaningful or indicative of our future operating results. Overall, our sales may fluctuate as a result of promotional discounts, convention marketing, current trends which influence the popularity of certain of our product lines, inventory levels, and seasonal demand. Other factors that may impact sales in the future include unforeseen technological problems associated with web traffic and server availability, government regulations on web transactions, and the general state of the economy. In order to carve a significant niche in the largely untapped Anime market, which by various independent estimates may approximate half a billion dollars in the next two years, we will incur additional expenditures in marketing costs, web technology, e-commerce solutions, enhancing our web presence, establishing a highly automated order fulfillment system, and upgrading back-office and infrastructure support. Although we expect sales to have sufficient capital to make these expenditures and that our sales will grow as a result of these expenditures, we cannot assure you that we will have the necessary funds or that the anticipated level of growth will occur or will offset the planned expenditures. Operating margins will be significantly impacted by (a) our ability to maintain and satisfy our existing repeat customers, as well as attract new customers with the same level of loyalty; (b) competitive pricing pressures; (c) the effectiveness of advertising and marketing expenditures and management's ability to measure and evaluate results; (d) the effectiveness of our web design and content in attracting and leading consumers to consummate on-line sales; (e) shipping efficiencies; and (f) general economies of scale. Results of Operations Comparison of the nine months ended September 30, 1999 and 1998 Net sales, consisting of the selling price of VHS and DVD products, trading cards, toys and apparel, net of discounts and customer returns were $773,000 during the nine months ended September 30, 1999, an increase of 98% from net sales of $391,000 during 1998. Most of the sales increase in 1999 occurred during the third quarter, which we attribute to the effectiveness of on-line advertising in generating on-line customer sales, the popularity of certain video titles in the product 6 line, an increased customer base, and continued repeat sales. Increased sales also arose from the Company's presence at tradeshows and conventions. The following table sets forth certain financial data for us as a percentage of net sales for the indicated periods: (Unaudited) Nine months ended September 30 1999 1998 ------ ------ Net Sales 100.00% 100.00% Cost of Goods Sold 77.42 82.49 Gross Margin 22.58 17.51 Selling, General and Administrative Expenses 75.86 125.79 Operating Loss (53.28) (108.29) Other Expense (00.30) (00.77) Net Loss (53.58) (109.05) Gross profit is defined as sales less cost of sales, which consists of the cost of product sold to the customers and related shipping costs. Our gross margin increased as a result of increased on-line consumer sales, which generally yield higher margins than sales to retailers. Our gross profit was $175,000 for the nine months ended September 30, 1999, a 156% increase over the gross profit for the same period in 1998. Selling, general and administrative expenses include the costs of advertising, customer service, investor relations, and administrative personnel. The cost components did not change significantly during all periods presented. Expenses totaled $586,000 for the nine months ended September 30, 1999 compared to $491,000 for the same period in 1998. The costs have increased during 1999 largely due to requirements for additional order fulfillment personnel to service on-line customers; casual labor support and travel related to trade conventions; grass roots marketing; and professional services associated with development of web content, primarily on our animedepot.com and altvidwar.com web sites. We believe that these costs will continue to increase as a result of our commitment to build and enhance our infrastructure. During the next six months, we expect our increased costs to result from marketing and advertising expenditures; warehouse and office expansion; additional customer service, order fulfillment, and warehouse personnel to process an anticipated increase in on-line sales; amortization of software associated with e-commerce solutions; depreciation of newly purchased PCs and computer peripherals; network engineering and telecommunications to continuously secure our various web sites; and the build-out of more web sites to increase Anime market penetration and to cater to specific market segments. Despite our focused efforts, we cannot assure you that we will achieve a level of sales commensurate with the increase in expenditures. 7 Comparison of the fiscal years ended December 31, 1998 and 1997 No meaningful comparison can be made between 1998 and 1997 sales because during 1998 we changed our product line to consist primarily of Anime videos and DVDs. In 1997, sales consisted primarily of comic books. Our decision to change our product line resulted in a 358% increase in net sales, from $175,000 in 1997 to $626,000 in 1998. The negative profit margin for 1997 reflects a provision for the write-off of the remaining inventory, consisting primarily of comic books, at the end of that year. As a result, the 1997 fiscal year's negative gross margin of $(71,000) is not comparable with the gross margin of $114,000 for the full 1998 fiscal year, which did not reflect a similar write-off. Selling, general and administrative expenses were $771,000 for the fiscal year ended December 31, 1999 compared to $416,000 for the fiscal year ended December 31, 1997. We attribute the increase to additional personnel necessary to service and warehouse greater inventory as a result of the new product line. Income Taxes We made no provision for any current or deferred U.S. federal, state income tax or benefit for any of the periods presented. Since inception, we have experienced operating losses, which have recently been declining in relation to sales. Although management expects the improved trend to continue, we cannot provide any assurance as to when profits will materialize. Therefore, we cannot predict when we can use the net operating loss carry-forwards which begin to expire in 2017, and which may be subject to certain limitations imposed under Section 382 of the Internal Revenue Code of 1986. Due to the uncertainty concerning our ability to realize the related tax benefit, we have provided a full valuation allowance on the deferred tax asset, which consists primarily of net operating loss carry-forwards. Year 2000 As of the end of 1999, we substantially replaced disparate financial, purchasing, and customer order databases with a fully integrated Y2K-compliant enterprise-wide platform of front office, back office, financial and e-business solutions. Although we do not expect to experience business disruptions associated with Y2K-related problems, we cannot assure you that all potential Y2K defects have been uncovered or corrected in our internal systems, including third party software and related products. Impact of Recently Issued Accounting Standards Comprehensive Income (Loss) As of January 1, 1998, we adopted Statement of Financial Accounting Standards No. 130 ("SFAS No. 130") entitled "Reporting Comprehensive Income," which establishes standards 8 for the reporting and display of comprehensive income and its components in the financial statements. Currently, there are no reportable items of comprehensive income (loss). In March 1998, the Accounting Standards Executive Committee issued Statement of Position 98-1 ("SOP 98-1"), entitled "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which requires all costs related to the development of internal use software other than those incurred during the application development stage to be expensed as incurred. Costs incurred during the application development stage are required to be capitalized and amortized over the estimated useful life of the software. SOP 98-1 will be effective for our fiscal year ending December 31, 1999. Projected expenditures for our e-commerce infrastructure will be capitalized in compliance with this pronouncement. In April 1998, the American Institute of Certified Public Accountants issued SOP 98- 5, entitled "Reporting on the Costs of Start-Up Activities." SOP 98-5 is effective for our fiscal year ending December 31, 1999. SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. We do not expect adoption of the subject pronouncement to have a material effect on the financial statements. Liquidity and capital resources As of September 30, 1999, our cash position consisted of $100,000 in cash compared to $32,000 in cash for the same period in 1998. We have funded our operations primarily through private equity financing pursuant to Regulation D, which is a limited offer and sale of securities without registration under the Securities Act of 1933. Our primary sources of cash were funds raised through numerous private placements during 1997, 1998, and 1999. During the nine months ended 1999, net cash provided by financing included $775,000 in private placement funds compared to $363,000 for the same period in 1998, and $523,000 for all of 1998. The Company raised $512,000 through private placements during 1997. Net cash used in operations were $682,000 for the first nine months of 1999 compared to $412,000 during the same period in 1998, and $587,000 and $448,000 for 1998 and 1997, respectively. The use of cash was due primarily to loss from operations which was $426,000 and $ 403,000 during the nine-month periods in 1999 and 1998, respectively. Cash flows were impacted in both years with the growth in inventories to ensure product availability. Losses for the full years of 1998 and 1997 were $661,000 and $490,000 respectively. For all comparative periods net cash used in investing activities consisted primarily of purchases of PCs and peripheral equipment. Towards the end of 1999 and into the year 2000, we expect that we will incur significant capital expenditures to enhance our technological capabilities in e-commerce and web deployable order fulfillment solutions. Subsequent to the date of the financial statements, we received a $2,000,000 funding commitment from a venture capital firm that has funded numerous emerging growth companies. The 9 money will be made available to us in four $500,000 tranches as follows: (a) the date we file with the SEC a registration statement on Form 10; (b) the date on which the SEC declares effective our Form SB-2; (c) 60 days following the effectiveness of our SB-2, and (d) 120 days following the effectiveness of our SB-2. We believe that we will require additional financing, credit facilities and cash to be generated from operations to build our e-commerce infrastructure and undertake major marketing programs to help boost our sales during 2000 and beyond. Working capital and other capital needs may also increase as result of changes in corporate strategy, product diversification, and order fulfillment process improvements. Accordingly, we may seek such capital through additional bank borrowings, debt or equity offerings or other sources. Subject to shareholder approval, we will increase the number of authorized shares from 15,000,000 to 40,000,000 to provide greater financing flexibility and capability for us. We have been in discussions with a number of parties regarding obtaining additional financing, however, we cannot assure you that our financing requirements can be met by current available facilities or that additional facilities will be available on terms and conditions favorable to us, if at all. Item 3. Description of Property The Company leases from an unaffiliated landlord approximately 6,000 square feet of office and warehouse space in Manassas, Virginia for $2,325 per month, pursuant to an eight month lease extension that expires in September 2000. Item 4. Security Ownership of Certain Beneficial Owners and Management. Unless otherwise indicated, we believe that the individuals listed in this Item have the sole power to vote and dispose of the number of shares listed opposite their respective names. (a) Security ownership of certain beneficial owners The following table contains information regarding ownership of our common stock, which are our only voting securities, which are deemed under the current rules of the Securities and Exchange Commission to be beneficially owned by any person -- including any "group" as that term is used in Instruction No. 4 to S-B Item 403 -- known by us to be the beneficial owner of more than five percent (5%) of our common stock as of January 14, 2000: Name and address No. of of beneficial owner Shares Owned Percentage of Class - ------------------- ------------ ------------------- Sy Robert Picon 7,540,300(1) 43% c/o SyCoNet.Com, Inc. 9208A Venture Court Manassas, VA 20111 10 William Spears 5,816,706(2) 34 c/o SyCoNet.Com, Inc. 9208A Venture Court Manassas, VA 20111 J. Larry Hineline 650,753(3) 5 9266 Oak Hammock Lane Jupiter, FL 33478 - ---------- (1) Includes options to purchase 5,285,000 shares and 250,000 shares owned by Mr. Picon's wife, as to which he disclaims beneficial ownership. (2) Includes options to purchase 5,115,000 shares. (3) Includes options to purchase 280,000 shares. (b) Security Ownership of Management. The following table contains information regarding ownership of our common stock, which are our only voting securities, which are deemed under the current rules of the Securities and Exchange Commission to be beneficially owned by our directors, our executive officers named in Item 5 below, and our directors and executive officers as a group, as of January 14, 2000:
No. of Name and Address Office Shares Owned Percentage of Class - ---------------- ------ ------------ ------------------- Sy Robert Picon President, Chief 7,540,300(1) 43% c/o SyCoNet.Com, Inc. Executive Officer, 9208A Venture Court Treasurer and Manassas, VA 20111 Director William Spears Executive Vice 5,816,706(2) 34 c/o SyCoNet.Com, Inc. President, 9208A Venture Court and Director Manassas, VA 20111 J. Larry Hineline Secretary and 650,753(3) 5 9266 Oak Hammock Lane Director Jupiter, FL 33478 Edward E. Kramer Director 245,000(4) 2 2480 Honeycomb Way Duluth, GA 30096
11 Philip Jacobson Executive 60,500(5) (6) 9029 Edgepark Road Vice President Vienna, Virginia 22182 Kathryn Jacobson Chief Financial 60,500(7) (6) 9029 Edgepark Road Officer Vienna, Virginia 22182 All Officers and 14,313,259 68 Directors as a Group (6 individuals)
- ---------- (1) Includes options to purchase 5,285,000 shares and 250,000 shares owned by Mr. Picon's wife, as to which he disclaims beneficial ownership. (2) Includes options to purchase 5,115,000 shares. (3) Includes options to purchase 280,000 shares. (4) Includes options to purchase 215,000 shares. (5) Includes options to purchase 25,000 shares owned by his wife Kathryn Jacobson, as to which Mr. Jacobson disclaims beneficial ownership. (6) Less than one percent. (7) Includes options to purchase 25,000 shares and includes 35,500 shares owned by her husband, Philip Jacobson, as to which Mrs. Jacobson disclaims beneficial ownership. Item 5. Directors and Executive Officers, Promoters and Control Persons. (a) Officers and directors: The following table provides information concerning each of our executive officers and directors. All directors hold office until the next annual meeting of shareholders or until their successors have been elected and qualified, or until a director's death, resignation or removal. Name Age Position - ---- --- -------- Sy Robert Picon 41 President, Chief Executive Officer, Treasurer and Director William Spears 37 Executive Vice President and Director 12 Jean-Claude Geha 36 Executive Vice President and Chief Operating Officer Philip Jacobson 39 Executive Vice President Kathryn T. Jacobson 43 Chief Financial Officer J. Larry Hineline 54 Secretary and Director Edward E. Kramer 38 Director Sy Robert Picon: Mr. Picon is one of our co-founders along with William Spears. He has been our Chairman of the Board, Chief Executive Officer and Treasurer since our inception and was elected our President in June 1998. He was a co-founder of the Virginia limited partnership formed on February 1, 1997 which is our predecessor. He has been involved in the comic book industry for over ten years. In 1991, he founded SyCo Comics, a supplier of comic books and related media to disabled individuals, which he sold in 1996. Mr. Picon has also worked as a chief administrator for a major telecommunications firm. William Spears: Mr. Spears is one of our co-founders along with Mr. Picon. He has been one of our Directors since our inception. He was our President from inception until June 1998, when he became our Executive Vice President. He was a co-founder of the Virginia limited partnership formed on February 1, 1997 which is our predecessor. He has been in the comic book industry since 1989 when he created a comic book title which he published. In 1995, he opened a retail comic book specialty store in San Carlos, California and expanded onto the Internet in 1996. Since 1982, he has owned and operated the Perfect Shirt & Sign Company, a promotional screen printing facility which in 1990 expanded into supplying computer accessories. Jean-Claude Geha: Mr. Geha has been an Executive Vice President and our Chief Operating Officer since January 2000. He has more than 10 years of senior management experience and has worked in the fields of engineering, operating and marketing at MCI. From 1998 until he joined us, Mr. Geha was the Director of Product Management and Market Communications for Apex Global Internet Services, a Tier 1 Internet backbone company, where his responsibilities included the design and implementation of AGIS' domestic and international Internet and data products and services. From 1996 to 1999, he was the Senior Marketing Manager and Consultant for Broadband Marketing at Bell Canada/Stentor. From 1991 to 1996 he worked at MCI, first as a Special Services Engineer, then as a Manager of Global Data Engineering and Provisioning, and later of Internet MCI Services and, finally, as a Senior Sales Support Manager in Customer Business Solutions. Mr. Geha has an M.S. in Telecommunications Management from Southern Methodist University and a B.S. in Electrical Engineering from the University of Maryland. Philip Jacobson: Mr. Jacobson joined us as Executive Vice President in January 2000. From July 1999 to January 2000, he was the founder and President of a financial planning and partner marketing consulting firm called Network Conceptions LLC. From April 1998 to July 1999, he was Director of Business Development for Apex Global Internet Services and from January 1984 13 to January 1998 he worked for MCI Communications managing a series of financial and marketing departments, with an emphasis on Internet services and advanced products, most recently as Senior Manager, Partner Marketing. Mr. Jacobson has a B.A. in Accounting from the University of Massachusetts and he is a certified public accountant. He is the husband of Kathryn Jacobson. Kathryn T. Jacobson: Mrs. Jacobson has been our Chief Financial Officer since November 1999. Her background includes controllership, Enterprise Resource Planning systems conversions, treasury functions, financing and acquisitions. From July 1998 to September 1999, she was Controller at Information Systems Support Inc. From October 1987 to July 1998, she worked at CACI Technologies, Inc., a division of CACI, Inc. (NASDAQ: CACI), formerly QuesTech, Inc., first as a Senior Accountant, then Manager of Financial Reporting, then Assistant Controller and finally as Director of Accounting and Financial Reporting, managing that company's accounting and SEC reporting functions. Prior CACI, she worked in various professional capacities in finance and accounting at Computer Sciences Corporation, and MCI Worldcom (formerly MCI). Mrs. Jacobson is a certified public accountant and received her M.B.A. in Finance and a Masters in Accounting from George Washington University. She is a member of the American Institute of Certified Public Accountants and the Institute of Management Accountants. She is the wife of Philip Jacobson. J. Larry Hineline: Mr. Hineline has been one of our Directors since January 1998 and our Secretary since June 1998. From 1978 to 1991 he was employed at U.S. Surgical, most recently as Senior Director of Operations, a position he held for seven years. From 1991 to 1992, he was the Vice-President of Product Operations for Joint Medical Products Corporation. Since October 1993 he has been the owner of JVR Systems Inc. and Bear Services Inc., computer and consulting companies, respectively. Since February 1997 he also has been the owner of DavDez Arts Inc., a publisher of comic books, short stories and graphic novels. Mr. Hineline received his undergraduate degree from Troy State University in 1976 and his M.B.A from California Coast University in 1999. He is currently working towards a Ph.D. in Business Administration. Edward E. Kramer: Mr. Kramer has been one of our Directors since October 1997. He has been in the comic book industry since 1987, when he became a co-owner of Titan Games and Comics, a position that he currently holds. Since 1992, Mr. Kramer also has been a Technology Associate at Metropolitan Regional Educational Service Agency, a division of the Georgia Department of Education, in Atlanta, Georgia. Mr. Kramer is also an award-winning writer and editor of nearly two dozen books in the science fiction and horror genres. He received his undergraduate degree in Psychology from Emory University and a Master's Degree in Administration and Planning from Emory University School of Medicine. (b) Key employees: R. Scott Murphy: Mr. Murphy, age 41, joined us in January 2000 as the Director of Technical Services and Web Design. From September 1999 to January 2000, he was a Senior Systems Programmer at Command Technologies, Inc. From June 1998 to September 1999, he held a management position at KPMG where he led a project to create an intranet portal service that allows KPMG employees worldwide to access a complete library of tax services. Mr. Murphy was 14 employed by West Virginia University since February 1997 as its coordinator of all user access and systems security. He received a B.A. in Computer Art from Davis and Elkins College and is working on the requirements for an M.S. in Computer Science from West Virginia University. Keith Impink: Mr. Impink, age 37, joined us in January 2000 as our Creative Director and Webmaster. Mr. Impink is a professional artist and web designer who is responsible for the design of our corporate and e-commerce websites, as well as all of our marketing and convention materials. For the last five years Mr. Impink has worked as a free-lance web developer and graphic designer based in California. During those five years, he worked as Webmaster for companies such as M.P. Mountanos, Inc. and Oscar Knows, which runs the www.oscarknows.com site. From 1981 to 1995, Mr. Impink was a free-lance commercial artist designing t-shirts, album covers, convention materials and marketing literature for clients such as Hewlett-Packard, BMW, the American Heart Association, Capitol Records and rock bands such as The Grateful Dead and Lynryd Skynryd. Item 6. Executive Compensation. (a) Summary Compensation: The following table summarizes the compensation for the fiscal year ended December 31, 1999 and the prior two fiscal years earned by or paid to our chief executive officer. No other executive officer earned more than $100,000 for these years.
Long Term Compensation ---------------------- Annual Compensation Awards ------------------- Securities Name and Underlying principal position Year Salary Bonus Options(#)/SARS - ------------------ ---- ------ ----- --------------- Sy R. Picon, CEO 1999 $103,955 $0 2,000,000 1998 $ 58,231 $0 0 1997 $ 42,058 $0 2,285,000
Option/SAR Grants in Last Fiscal Year
Individual Grants - -------------------------------------------------------------------------------------------------------------- Number of % of Total Securities Options/SARS Underlying Granted to Exercise or Market Price Options/SARS Employees Base Price Expiration on Date of Name Granted (#) in Fiscal Year ($/share) Date of Grant ($) - ---- ------------------- -------------- --------- --------------- ------------ Sy R. Picon 1,000,000 10% $0.51 01/03/10 $2.03 1,000,000 10% $2.03 01/03/10 $2.03
15 Item 7. Certain Relationships and Related Transactions. None. Item 8. Description of Securities. Authorized Capitalization Our authorized capital stock consists of 15,000,000 shares, of which 14,500,000 shares are common stock, par value $.0001, and 500,000 shares are preferred stock, par value $.0001. Common Stock We currently have 12,140,635 shares of common stock outstanding. All outstanding shares of common stock are duly authorized, validly issued, fully paid and nonassessable. Holders of common stock are entitled to receive dividends, when and if declared by the board of directors, out of funds legally available for that purpose and to share ratably in our net assets upon liquidation, after provision has been made for each class of stock, if any, having preference over the common stock. Holders of common stock are entitled to one vote per share on all matters requiring a vote of shareholders. Since the common stock does not have cumulative voting rights in electing directors, the holders of more than a majority of the outstanding shares of common stock voting for the election of directors can elect all of the directors whose terms expire that year, if they choose to do so. Holders of common stock do not have preemptive or other rights to subscribe for additional shares, nor are there any redemption or sinking fund provisions associated with the common stock. Preferred Stock We currently have no shares of preferred stock outstanding. However, our board of directors is authorized to issue up to 500,000 shares of preferred stock in series and to establish from time to time the number of shares to be included in each series and to fix the designations, powers and other rights and preferences of the shares of each series as may be determined from time to time by our board of directors, as well as any qualifications, limitations or restrictions. Accordingly, our board of directors, without stockholder approval, may issue preferred stock with dividend, liquidation, conversion, voting, redemption or other rights which could adversely affect the voting power or other rights of the subscribers for our common stock. The preferred stock thus could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of us, which could have the effect of discouraging hostile bids for control of us in which stockholders may receive premiums for their shares of common stock or otherwise dilute the rights 16 of holders of common stock and the market price of the common stock. Although we have no present intention to issue any shares of our preferred stock, we may do so in the future. Delaware anti-takeover law We are subject to the General Corporation Law of the State of Delaware, including Section 203, an anti-takeover law enacted in 1988. In general, the law prohibits a public Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder unless: (1) prior to the date of the transaction, the board of directors approved the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; or (2) upon becoming an interested stockholder, the stockholder then owns at least 85% of the voting securities, as defined in Section 203; or (3) after the date of the transaction, the business combination is approved by both the board of directors and the stockholders. "Business combination" generally is defined to include mergers, asset sales and certain other transactions with an "interested stockholder." An "interested stockholder" generally is defined as a person who, together with affiliates and associates, owns, or within the prior three years did own, 15% or more of a corporation's voting stock. Although Section 203 permits us to elect not to be governed by its provisions, to date we have not made this election. As a result of the application of section 203, potential acquirers of the company may be discouraged from attempting to effect an acquisition transaction with us, thereby possibly depriving holders of our securities of certain opportunities to sell or otherwise dispose of their securities at above-market prices in these transactions. PART II Item 1. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters. (a) Market information. Our common stock is listed on the Over-the-Counter Bulletin Board under the symbol "SYCD". The following table sets forth the range of high and low bid closing quotations for our common stock for each quarter within the last two fiscal years since quotation commenced. These quotes were provided by the National Quotation Bureau, Inc. and reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions. 17
Period Closing Bid Closing Ask ------ --------------------- --------------------- High Low High Low ---- --- ---- --- October 13 (first availability) through December 31, 1998 $.62 $.01 $1.25 $.44 January 4 through March 31, 1999 .56 .19 .62 .25 April 1 through June 30, 1999 .73 .22 .78 .25 July 1 through September 30, 1999 2.40 .42 2.45 .45 October 1 through December 31, 1999 2.69 1.19 2.75 1.22
(b) Holders As of January 14, 2000, there were 78 holders of record of our common stock. (c) Dividends Since our inception, we have not declared any dividends on our common stock and, since we currently intend to retain earnings for use in operations and the expansion of our business, we do not anticipate paying any cash dividends in the foreseeable future. Item 2. Legal Proceedings. None. Item 3. Changes in and Disagreements with Accountants. None. Item 4. Recent Sales of Unregistered Securities. In June 1997, we sold our 31 founders 4,592,053 shares for an aggregate price of $457 ($.0001 per share) in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), for transactions not involving a public offering. 18 In September, November and December 1997, we sold to 40 investors 686,000 shares of common stock for an aggregate price of $343,000 ($.50 per share) in a private placement made pursuant to the exemption from registration provided by Section 3(b) of the Securities Act and Rule 504 of Regulation D promulgated under the Securities Act. The investors paid cash for their shares. In March, April, May and June 1998, we sold to 39 investors 728,000 shares of common stock for an aggregate price of $364,000 ($.50 per share) in a private placement made pursuant to the exemption from registration provided by Section 3(b) and Rule 504. In October 1998 we issued 400,000 shares of common stock to two consultants for services rendered aggregating $200,000. This issuance was in reliance on the exemption from registration provided by Section 3(b) and Rule 504. From November 1998 through February 1999, in connection with a private placement made pursuant to the exemption from registration provided by Rule 504, we (a) sold 2,012,500 shares of common stock to 12 private investors at a price of $.20 per share, for an aggregate price of $402,500 in cash, and (b) issued 180,000 shares to five consultants for services rendered valued at $36,000. In March and April 1999, we sold to three investors 667,500 shares of common stock at a price of $.20 per share, for an aggregate price of $133,500, in cash, in a private placement made pursuant to the exemption from registration provided by Section 3(b) and Rule 504. In June 1999, we sold to two accredited investors 1,520,000 shares of common stock at a price of $.15 per share, for an aggregate price of $228,000, in a private placement made pursuant to the exemption from registration provided by Section 3(b) and Rule 504 of the Securities Act and Section 203(t) of the Pennsylvania Securities Act of 1972. In October 1999, we sold to one accredited investor 394,000 shares of common stock at a price of $.75 per share, for an aggregate price of $295,500, in a private placement made pursuant to the exemption from registration provided by Section 3(b) and Rule 504 of the Securities Act and Section 203(t) of the Pennsylvania Securities Act of 1972. In November and December 1999, we sold to 21 accredited investors 610,377 shares of common stock at a price of $.85 per share, for an aggregate price of $518,820, in a private placement made pursuant to the exemption from registration provided by Section 4(2) and 4(6) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act. Item 5. Indemnification of Directors and Officers. As permitted by Section 102(b)(7) of the General Corporation Law of the State of Delaware (the "DGCL"), article tenth of our certificate of incorporation provides that our directors can't be held liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director other than (i) for any breach of the director's duty of loyalty to us or our stockholders, (ii) for acts or omissions not in good faith or which involved intentional misconduct or a knowing 19 violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. Section 145 of the DGCL provides that a corporation may, under certain circumstances, indemnify its directors and officers against expenses, judgments, fines, and amounts paid in settlement, provided that these expenses have been actually and reasonably incurred by the directors and officers by reason of their capacity as such. Article tenth of our certificate of incorporation requires us to indemnify, to the fullest extent permitted by the DGCL, as amended from time to time, any person who is, was, or has agreed to become a director or officer of the company against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person. FINANCIAL STATEMENTS 20 SYCONET.COM, INC. Balance Sheets September 30, 1999 and 1998 (Unaudited)
September 30, -------------------------- Assets 1999 1998 ----------- ----------- Current Assets Cash and cash equivalents $ 99,969 $ 32,470 Accounts receivable, net of allowance for doubtful accounts of $8,202 and $900, respectively 49,555 37,090 Prepaids expenses -- 5,000 Inventory 366,869 135,399 ----------- ----------- Total current assets $ 516,393 $ 209,959 ----------- ----------- Property and equipment, at cost $ 25,703 $ 19,277 Less accumulated depreciation (9,330) (3,414) ----------- ----------- Total property and equipment $ 16,373 $ 15,863 ----------- ----------- Other Assets $ 5,000 $ 5,000 ----------- ----------- Total assets $ 537,766 $ 230,822 =========== =========== Liabilities and Stockholders' Equity Current Liabilities Current maturities of long-term debt $ 32,311 $ 36,500 Accounts payable and accrued expenses 221,660 164,201 Stock subscription refund payable 22,500 22,500 Payroll taxes payable 16,771 48,554 ----------- ----------- Total liabilities $ 293,242 $ 271,755 ----------- ----------- Stockholders' Equity Preferred Stock, authorized 500,000 shares; issued none $ -- $ -- Common stock, $0.0001 par value, authorized 14,500,000 shares; issued and outstanding 10,786,052 and 5,901,053 shares in 1999 and 1998, respectively 1,078 590 Additional paid-in capital 1,808,440 874,134 Retained earnings (deficit) (1,564,994) (915,657) ----------- ----------- Total stockholders' equity $ 244,524 $ (40,933) ----------- ----------- Total liabilities and stockholders' equity $ 537,766 $ 230,822 =========== ===========
See Note to Financial Statements. SYCONET.COM, INC. Statements of Operations For the Nine Months Ended September 30, 1999 and 1998 (Unaudited) For the Nine For the Nine Months Ended Months Ended September 30, September 30, 1999 1998 --------- --------- Net sales $ 773,134 $ 390,570 Cost of goods sold 598,527 322,194 --------- --------- Gross profit (loss) $ 174,607 $ 68,376 General and administrative expenses 586,521 491,307 --------- --------- Operating loss $(411,914) $(422,931) Nonoperating income (expense): Interest income -- -- Interest expense (2,316) (2,989) --------- --------- Net loss $(414,230) $(425,920) ========= ========= Loss per common share, basic and diluted $ (.04) $ (.08) ========= ========= See Note to Financial Statements. SYCONET.COM, INC. Statements of Cash Flows For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
For the Nine For the Nine Months Ended Months Ended September 30, September 30, 1999 1998 --------- --------- Cash Flows From Operating Activities Net income $(414,230) $(425,920) Adjustments to reconcile net income to net cash (used in) operating activities: Depreciation 3,855 2,490 Changes in assets and liabilities: (Increase) in accounts receivable (9,049) (19,078) (Increase) in inventory (199,362) (135,399) Increase in accounts payable and accrued expenses 2,726 124,188 Increase in stock subscription fund payable 0 22,500 Decrease in payroll taxes payable (65,597) 19,666 --------- --------- Net cash (used in) operating activities $(681,657) $(411,553) --------- --------- Cash Flows From Investing Activities, Purchase of property, plant and equipment $ -- $ (10,047) --------- --------- Cash Flows From Financing Activities Proceeds from issuance of stock $ 774,980 $ 362,935 Short-term loans from officers (10,000) -- Short-term loans to employees 2,000 (12,130) Principal payments on long-term debt (6,030) -- --------- --------- Net cash provided by financing activities $ 760,950 $ 350,805 --------- --------- Increase in cash and cash equivalents $ 79,293 $ (70,795) Cash and Cash Equivalents Beginning 20,676 103,265 --------- --------- Ending $ 99,969 $ 32,470 ========= ========= Supplemental Disclosures of Cash Flow Information, cash payments for interest $ 1,469 $ 2,034 ========= =========
See Note to Financial Statements. SYCONET.COM, INC. Notes to Financial Statements Note 1. Significant Accounting Policies Unaudited Interim Financial Information The interim financial statements as of September 30, 1999 and 1998 have been prepared by Syconet.com, Inc. (the "Corporation") pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial reporting. These statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the balance sheets, operating results, and cash flows for the periods presented in accordance with generally accepted accounting principles. Operating results for the nine-month periods ended September 30, 1999 and 1998 may not be indicative of the results for the years ending December 31, 1999 and 1998. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in accordance with the rules and regulations of the SEC. These financial statements should be read in conjunction with the audited financial statements, and accompanying notes, included in the Corporation's financial statements for the year ended December 31, 1998. A summary of the Corporation's accounting policies are as follows: Cash and Cash Equivalents For purposes of reporting the statements of cash flows, the Corporation includes all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less as cash and cash equivalents on the accompanying balance sheets. Accounts Receivable Accounts receivable are shown net of related allowance for doubtful accounts. The allowance for doubtful accounts is $8,200 and $900 for September 30, 1999 and 1998, respectively. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories at September 30, 1999 and 1998 consisted of goods, primarily anime videos, purchased for redistribution. Notes to Financial Statements Property and Equipment Property and equipment, principally computer hardware and software, are stated at historical cost less accumulated depreciation. The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense. Depreciation is provided using the straight-line method over a three to five-year estimated life. Depreciation expense totaled $3,855 and $2,490 for the nine months ended September 30, 1999 and 1998, respectively. Earnings Per Share Per Financial Accounting Standards Board Statement No. 128, "Earnings Per Share," basic earnings per share is computed on the weighted average number of shares outstanding and excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is computed in a manner similar to basic EPS, except for certain adjustments to the numerator and the denominator. Diluted EPS gives effect to all dilutive potential common shares that were outstanding during the period. Dilution reduces EPS and results from the assumption that convertible securities were converted, that options or warrants were exercised, or that other shares were issued upon the satisfaction of certain conditions. Common equivalent shares are excluded from the computation if their effect is antidilutive. Revenue Recognition Sales are recorded net of discounts, which range from 28% to 50%. Right of return is granted in exchange for cash refund or merchandise exchange contingent upon receipt of the returned inventory. Advertising Costs Advertising costs are expensed as incurred. 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 asset 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. Notes to Financial Statements Use of Estimates 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. C O N T E N T S Page INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS 1 FINANCIAL STATEMENTS Balance sheets 2 Statements of operations 3 Statements of stockholders' equity 4 Statements of cash flows 5 Notes to financial statements 6-12 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Syconet.com, Inc. Manassas, Virginia We have audited the accompanying balance sheets of Syconet.com, Inc. as of December 31, 1998 and 1997 and the related statements of operations, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in all material respects, the financial position of Syconet.com, Inc. as of December 31, 1998 and 1997 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Yount, Hyde & Barbour, P.C. Winchester, Virginia December 31, 1999 1 SYCONET.COM, INC. Balance Sheets December 31, 1998 and 1997
December 31, -------------------------- Assets 1998 1997 ----------- ----------- Current Assets Cash and cash equivalents $ 20,676 $ 103,265 Accounts receivable, net of allowance for doubtful accounts of $8,202 and $910 at December 31, 1998 and 1997, respectively 40,506 18,012 Due from employee 2,000 -- Prepaid expenses -- 5,000 Inventory 167,507 -- ----------- ----------- Total current assets $ 230,689 $ 126,277 ----------- ----------- Property and Equipment, at cost $ 25,703 $ 9,230 Less accumulated depreciation (5,475) (923) ----------- ----------- Total property and equipment $ 20,228 $ 8,307 ----------- ----------- Other Assets $ 5,000 $ 5,000 ----------- ----------- Total assets $ 255,917 $ 139,584 =========== =========== Liabilities and Stockholders' Equity Current Liabilities Current maturities of long-term debt $ 22,483 $ 16,840 Accounts payable and accrued expenses 218,934 40,013 Payroll taxes payable 82,368 28,888 Stock subscription refund payable 22,500 -- Loans from officers 10,000 -- ----------- ----------- Total current liabilities $ 356,285 $ 85,741 Long-Term Debt, less current maturities 15,858 31,790 ----------- ----------- Total liabilities $ 372,143 $ 117,531 ----------- ----------- Stockholders' Equity Preferred stock, authorized, 500,000 shares; no shares outstanding $ -- $ -- Common stock, $0.0001 par value, authorized 14,500,000 and 7,500,000 shares in 1998 and 1997, respectively; issued and outstanding 6,500,053 and 5,153,053 shares in 1998 and 1997, respectively 650 515 Additional paid-in capital 1,033,888 511,273 Retained earnings (deficit) (1,150,764) (489,735) ----------- ----------- Total stockholders' equity $ (116,226) $ 22,053 ----------- ----------- Total liabilities and stockholders' equity $ 255,917 $ 139,584 =========== ===========
See Notes to Financial Statements. 2 SYCONET.COM, INC. Statements of Operations For the Year Ended December 31, 1998 and for the Period from January 15, 1997 (Date of Inception) to December 31, 1997 Period from January 15, 1997 Year Ended (Date of Inception) December 31, to December 31, 1998 1997 --------- --------- Net sales $ 625,955 $ 174,880 Cost of goods sold 512,024 246,222 --------- --------- Gross profit (loss) $ 113,931 $ (71,342) Selling, general and administrative expenses 771,395 415,971 --------- --------- Operating loss $(657,464) $(487,313) Nonoperating income (expense): Interest income 420 106 Interest expense (3,985) (2,528) --------- --------- Net loss $(661,029) $(489,735) ========= ========= Loss per common share, basic and diluted $ (0.12) $ (0.10) ========= ========= See Notes to Financial Statements. 3 SYCONET.COM, INC. Statements of Stockholders' Equity For the Year Ended December 31, 1998 and the Period from January 15, 1997 (Date of Inception) to December 31, 1997
Additional Retained Common Paid-In Earnings Stock Capital (Deficit) ----------- ----------- ----------- Balance, January 15, 1997 (date of inception) $ -- $ -- $ -- Net (loss) -- -- (489,735) Sale of 5,153,053 shares of common stock 5,153 506,635 -- ----------- ----------- ----------- Balance, December 31, 1997 $ 5,153 $ 506,635 $ (489,735) Net (loss) -- -- (661,029) Sale of 1,347,000 shares of common stock 1,347 521,403 -- ----------- ----------- ----------- Balance, December 31, 1998 $ 6,500 $ 1,028,038 $(1,150,764) =========== =========== ===========
See Notes to Financial Statements. 4 SYCONET.COM, INC. Statements of Cash Flows For the Year Ended December 31, 1998 and the Period from January 15, 1997 (Date of Inception) to December 31, 1997
Period from January 15, 1997 Year Ended (Date of Inception) December 31, to December 31, 1998 1997 --------- --------- Cash Flows From Operating Activities Net loss $(661,029) $(489,735) Adjustments to reconcile net loss to net cash (used in) operating activities: Depreciation 4,552 923 Changes in assets and liabilities: (Increase) in accounts receivable (22,494) (18,012) (Increase) decrease in prepaid expenses 5,000 (5,000) (Increase) in inventory (167,507) -- (Increase) in other assets -- (5,000) Increase in accounts payable and accrued expenses 178,921 40,285 Increase in stock subscription refund payable 22,500 -- Increase in payroll taxes payable 53,480 28,616 --------- --------- Net cash (used in) operating activities $(586,577) $(447,923) --------- --------- Cash Flows From Investing Activities, purchase of property and equipment $ (16,473) $ (9,230) --------- --------- Cash Flows From Financing Activities Proceeds from issuance of stock $ 522,750 $ 511,788 Short-term loans from officers 10,000 -- Short-term loans to employees (2,000) Proceeds from long-term borrowing -- 50,000 Principal payments on long-term debt (10,289) (1,370) --------- --------- Net cash provided by financing activities $ 520,461 $ 560,418 --------- --------- Increase (decrease) in cash and cash equivalents $ (82,589) $ 103,265 Cash and Cash Equivalents Beginning 103,265 -- --------- --------- Ending $ 20,676 $ 103,265 ========= ========= Supplemental Disclosures of Cash Flow Information, cash payments for interest $ 2,712 $ 1,630 ========= =========
See Notes to Financial Statements. 5 SYCONET.COM, INC. Notes to Financial Statements Note 1. Nature of Business and Significant Accounting Policies From January 15, 1997, date of inception, to February 1, 1997, the Corporation operated as a general partnership between Sy Robert Picone, Chief Executive Officer of Syconet.com, Inc. ("SyCo" or the "Corporation"), and William Spears, President of SyCo. From February 1, 1997 to June 30, 1997, the Corporation operated as a limited partnership which included nine separate partners and on June 30, 1997, the Corporation was incorporated in the State of Delaware under the name Syco Comics & Distribution. The Company changed its name in early 1999 to Syconet.com. From the date of inception to December 31, 1997, the Corporation primarily operated as a distributor of comic books, trading cards and collectible toys to independent retailers nationwide. Subsequent to 1997, the Corporation replaced the distribution of comic books with the distribution of Japanese anime videos. Sales are made in the United States and internationally through several websites on the internet, the publication of a catalog and attendance at conventions across the United States. A summary of the Corporation's accounting policies are as follows: Cash and Cash Equivalents For purposes of reporting the statements of cash flows, the Corporation includes all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less as cash and cash equivalents on the accompanying balance sheets. Accounts Receivable Accounts receivable are shown net of related allowance for doubtful accounts. The allowance for doubtful accounts is $8,202 and $910 for December 31, 1998 and 1997, respectively. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories at December 31, 1998 consisted of goods, primarily anime videos, purchased for redistribution. With the change to the anime video distribution at the end of 1997, the remaining comic book inventory was abandoned and written off. 6 Notes to Financial Statements Property and Equipment Property and equipment, principally computer hardware and software, are stated at historical cost less accumulated depreciation. The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense. Depreciation is provided using the straight-line method over a three to five-year estimated life. Depreciation expense totaled $4,552 and $923 for the year ended December 31, 1998 and the period from January 15, 1997, date of inception, through December 31, 1997, respectively. Earnings Per Share Per Financial Accounting Standards Board Statement No. 128, "Earnings Per Share," basic earnings per share is computed on the weighted average number of shares outstanding and excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is computed in a manner similar to basic EPS, except for certain adjustments to the numerator and the denominator. Diluted EPS gives effect to all dilutive potential common shares that were outstanding during the period. Dilution reduces EPS and results from the assumption that convertible securities were converted, that options or warrants were exercised, or that other shares were issued upon the satisfaction of certain conditions. Common equivalent shares are excluded from the computation if their effect is antidilutive. Revenue Recognition Sales are recorded net of discounts, which range from 28% to 50%. Right of return is granted in exchange for cash refund or merchandise exchange contingent upon receipt of the returned inventory. Advertising Costs Advertising costs are expensed as incurred. Advertising costs were $17,030 and $12,012 for the year ended December 31, 1998 and the period from January 15, 1997, date of inception, through December 31, 1997, respectively. 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 asset 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. 7 Notes to Financial Statements Use of Estimates 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. Note 2. Accounts Payable and Accrued Expenses The Corporation's accounts payable and accrued expenses consist of the following: December 31, ---------------------------- 1998 1997 -------- -------- Accounts payable $160,686 $ 26,009 Legal 54,813 11,270 Payroll 1,630 1,783 Interest 1,727 759 Sales taxes 78 192 -------- -------- $218,934 $ 40,013 ======== ======== Note 3. Long-Term Debt The Corporation's long-term debt is as follows: December 31, ----------------------- 1998 1997 ------- ------- Note payable, due in monthly installments of $1,517, interest at 9.25%, uncollateralized $38,341 $48,630 Less current maturities 22,483 16,840 ------- ------- $15,858 $31,790 ======= ======= Aggregate maturities of long-term debt are 1999, $22,483 and 2000, $15,858. 8 Notes to Financial Statements Note 4. Payroll Taxes Payable During 1997 and the first three quarters of 1998, the Corporation was in compliance with payroll tax reporting requirements but was not able to remit the related tax amounts. Consequently, the Corporation entered into an installment payment agreement with the IRS and began making payments to cover the back taxes and penalties. The payroll tax liability was $28,616, plus penalties and interest of $272 at December 31, 1997 and at December 31, 1998, the payroll tax liability was $64,768, plus penalties and interest of $17,600. The Corporation paid off its back taxes in 1999, and is now current with its payroll tax obligations. Note 5. Credit Risk The Corporation maintains its cash accounts at a commercial bank in Virginia. The amount on deposit at December 31, 1997 that was not covered by the Federal Deposit Insurance Corporation (FDIC) was $7,873. At December 31, 1998, all deposits were covered by the FDIC. Note 6. Related Party Transactions The amounts due from employees and loans due to stockholders represent short-term cash advances. There were no such transactions at December 31, 1997. At December 31, 1998, the Corporation had $2,000 due from an employee and $10,000 due to officers. Note 7. Loss Per Share The following table shows the weighted average number of shares used in computing the loss per share. The effect on weighted average number of shares of diluted potential common stock are not included in the computation if their inclusion would have an antidilutive effect (reduce the loss per common share) applicable to the loss from operations for the year ended December 31, 1998 and the period from January 15, 1997, date of inception, through December 31, 1997. 1998 1997 ----------- ----------- Basic loss per share: Net income (loss) $ (661,029) $ (489,735) Weighted average shares outstanding 5,625,507 5,153,058 ----------- ----------- $ (0.12) $ (0.10) =========== =========== 9 Notes to Financial Statements Options of 5,471,000 and 5,400,000 shares were not included in computing loss per share assuming dilution for the year ended December 31, 1998 and the period from January 15, 1997, date of inception, through December 31, 1997, respectively, because their effects were antidilutive. Note 8. Stock Options The Corporation authorized the grant of 5,400,000 non-qualified stock options in 1997 and 86,000 non-qualified stock options in 1998 to key employees or directors of the Corporation. Financial Accounting Standards Board ("SFAS") Statement No. 123, "Accounting for Stock Based Compensation," provides for a fair value method of accounting for employee options and measures compensation expense using an option valuation model that takes into account, as of the grant date, the exercise price and expected life of the options, the current price of the underlying stock, and the risk-free interest rate for the expected term of the option. The Corporation has elected to continue accounting for employee stock-based compensation under Accounting Principles Board Opinion ("APB") No. 25 and related interpretations, which generally requires that compensation cost be recognized for the difference, if any, between the quoted market price of the stock and the amount an employee must pay to acquire the stock. Prior to October, 1998, the Corporation's stock was not readily marketable and had no determinable fair value. Under APB No. 25, because the exercise price of all outstanding options was equal to or greater than the fair value of the underlying stock on the date of grant, no compensation expense was recognized during the year ended December 31, 1998 and the period from January 15, 1997, date of inception, through December 31, 1997. If the fair value method of accounting for stock options under SFAS 123 had been applied there would have been no expense relating to the stock options for 1998 and 1997 since there was no determinable fair value for the related stock at the grant date of the stock options. A summary of the status of the outstanding options at December 31, 1998 and 1997 and changes during the periods ended on those dates is as follows: 10 Notes to Financial Statements
December 31, 1998 December 31, 1997 --------------------------------- --------------------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ---------------- --------------- ---------------- --------------- Outstanding at beginning of year 5,400,000 $ 0.01 -- $ -- Granted 86,000 0.14 5,400,000 0.01 Exercised 15,000 0.01 -- -- ---------- ---------- Outstanding at end of year 5,471,000 5,400,000 0.01 ========== ========== Excercisable at end of year 5,446,000 5,400,000 Weighted-average fair value per option of options granted during the year $ 0.05 $ 0.01
At December 31, 1998, the range of exercise prices for all options is between $0.01 and $0.50, with a weighted average remaining contractual life of 4.4 years, with the exception of 5,400,000 options which do not expire. There were 5,446,000 options exercisable at December 31, 1998. Note 9. Operating Leases The Corporation leases office and warehousing space and certain office equipment and automobiles under various operating leases. Scheduled payments under these leases are as follows: Year ended December 31, 1999 $ 39,309 2000 7,494 2001 691 -------- $ 47,494 ======== The total rental expense included in the statements of operations for the for the year ended December 31, 1998 and the period from January 15, 1997, date of inception, through December 31, 1997 was $53,314 and $8,857, respectively. 11 Notes to Financial Statements Note 10. Income Tax Matters Net deferred tax assets consist of the following components as of December 31, 1998 and 1997: 1998 1997 --------- --------- Deferred tax assets: Loss carryforwards $ 377,400 $ 192,000 Less valuation allowance (377,400) (192,000) --------- --------- $ -- $ -- ========= ========= During the year ended December 31, 1998 and the period from January 15, 1997, date of inception, through December 31, 1997, the Corporation recorded a valuation allowance of $377,400 and $192,000 on the deferred tax assets to reduce the total to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. There was no other activity in the valuation allowance account during 1998 or 1997. Loss carryforwards for tax purposes as of December 31, 1998 have the following expiration dates: Expiration Date Amount --------------- ------ 2017 $ 480,000 2018 630,000 ------------- $ 1,110,000 ============= The income tax provision differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pretax income (loss) from continuing operations for the years ended December 31, 1998 and 1997 due to nondeductible expenses and the valuation allowance. Note 11. Subsequent Events Additional Sources of Capital The Corporation has funded its operations primarily through private equity financing pursuant to Regulation D, which is a limited offer and sale of securities without registration under the Securities Act of 1933. Additional funds were raised through various private placements during 1999 totaling in excess of $1 million. New Line of Credit The Corporation has signed a Letter of Intent for a $5 million line of credit with a venture capital firm that has funded numerous emerging growth companies. 12 PART III Item 1. Index to Exhibits. Exhibit No. Description ----------- ----------- 3.1 Certificate of Incorporation 3.1a Certificate of Amendment of the Certificate of Incorporation, dated March 11, 1998 3.1b Certificate of Amendment of Certificate of Incorporation, dated February 17, 1999 3.2 By-Laws 10.1 Funding Agreement with Alliance Equities, Inc., dated December 16, 1999 10.2 Lease Agreement with John G. and Mary Immer, dated November 15, 1997 10.3 Lease Amendment, dated January 4, 2000 21 Subsidiaries 27 Financial Data Schedule SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. SYCONET.COM, INC. Date: January 25, 2000 By: /s/ Sy R. Picon ------------------------------ Sy R. Picon Chief Executive Officer EX-3.1 2 CERTIFICATE OF INCORPORATION CERTIFICATE OF INCORPORATION OF SYCO COMICS AND DISTRIBUTION, INC. The undersigned, desiring to form a corporation pursuant to Section 103 of the General Corporation Law of the State of Delaware, does hereby certify, as follows: FIRST: The name of the corporation is SYCO COMICS AND DISTRIBUTION, INC. (the "Corporation"). SECOND: The address of the Corporation's registered office in the State of Delaware is c/o UNITED CORPORATE SERVICES, INC., 15 East North Street, in the City of Dover, County of Kent, State of Delaware, 19901. The name of the registered agent at such address is United Corporate Services, Inc. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The aggregate number of shares which the Corporation shall have authority to issue is Eight Million (8,000,000) shares, of which Seven Million Five Hundred Thousand (7,500,000) shares shall be designated common stock and shall have a par value of $.0001 per share and Five Hundred Thousand (500,000) shares shall be designated preferred stock and shall have a par value of $.0001 per share. The Corporation's Board of Directors is authorized, subject to the limitations prescribed by law and the provisions of this Article "FOURTH", to provide for the issuance of the above authorized preferred stock in series, and by filing a certificate of designations pursuant to section 151 of the General Corporation Law of the State of Delaware, as the same may be amended, to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: 1 (a) The number of shares constituting that series and the distinctive designation of that series; (b) The dividend rate, if any, on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (c) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (d) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate upon such events as the Board of Directors shall determine; (e) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (f) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority of payment of shares of that series; and (g) Any other relative rights, preferences and limitations of that series. Dividends on outstanding shares of preferred stock shall be paid or declared and set apart for payment before any dividends shall be paid or declared and set apart for payment on common shares with respect to the same dividend period. FIFTH: The name and mailing address of the incorporator of the Corporation is as follows: Richard G. Klein c/o Hofheimer Gartlir & Gross, LLP 633 Third Avenue New York, New York 10017 SIXTH: The Corporation is to have perpetual existence. SEVENTH: The number of directors which shall constitute the whole Board of Directors of the Corporation shall be designated in the By-Laws of the Corporation. Election of directors need not be by written ballot unless the By-Laws so provide. 2 EIGHTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the By- laws of the Corporation, without the need for shareholder approval. NINTH: In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the General Corporation Law of the State of Delaware, this Certificate of Incorporation, and any By-Laws adopted by the stockholders; provided,however, that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such By-Laws had not been adopted. TENTH: To the fullest extent permitted by the General Corporation Law of the State of Delaware, as the same exists or as it may hereafter be amended, no director of the Corporation shall be personally liable for monetary damages for breach of his/her fiduciary duty as a director. The Corporation shall indemnify each officer and director of the Corporation to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended from time to time. Any repeal or modification of this Article TENTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. ELEVENTH: Meetings of stockholders of the Corporation may be held within or without the State of Delaware, as the By-laws may provide. The books of the Corporation may be kept (subject to any contrary provision contained in the General Corporation Law of the State of Delaware) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-laws of the Corporation. TWELFTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 3 The effective time of this Certificate of Incorporation of the Corporation and the time when the existence of the Corporation shall commence is upon the filing hereof. Dated: June 26, 1997 /s/ Richard G. Klein ----------------------------- Richard G. Klein, Incorporator 4 EX-3.1A 3 CERTIFICATE OF AMENDMENT CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SYCO COMICS AND DISTRIBUTION, INC. (under Section 242 of the General Corporation Law) The undersigned corporation, in order to amend its Certificate of Incorporation, hereby certifies as follows: FIRST: The name of the corporation is: SYCO COMICS AND DISTRIBUTION, INC. SECOND: The corporation's Certificate of Incorporation was originally filed with the Secretary of State on June 30, 1997. THIRD: The corporation hereby amends its Certificate of Incorporation as follows: Paragraph FOURTH of the Certificate of Incorporation, relating to the Corporation's authorized shares of capital stock, is hereby amended to read as follows: "FOURTH: The aggregate number of shares which the Corporation shall have authority to issue is Fifteen Million (15,000,000) shares, of which Fourteen Million Five Hundred Thousand (14,500,000) shares shall be designated common stock and shall have a par value of $.0001 per share and Five Hundred Thousand (500,000) shares shall be designated preferred stock and shall have a par value of $.0001 per share. FOURTH: The amendment effected herein was authorized by written consent of the holders of a majority of the outstanding shares entitled to vote thereon; written notice of this corporate action has been given to all shareholders entitled to vote thereon who did not consent in writing to such action pursuant to Sections 228 and 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, I hereunto sign my name and affirm that the statements made herein are true under the penalties of perjury, this 11th day of March, 1998. /s/ Sy Robert Picon ------------------------------ Sy Robert Picon Chairman of the Board and Chief Executive Officer EX-3.1B 4 CERTIFICATE OF AMENDMENT CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SYCO COMICS AND DISTRIBUTION, INC. The undersigned corporation, in order to amend its Certificate of Incorporation, hereby certifies as follows: FIRST: The name of the corporation is: SYCO COMICS AND DISTRIBUTION, INC. SECOND: The corporation hereby amends its Certificate of Incorporation as follows: Paragraph FIRST of the Certificate of Incorporation, relating to the name of the corporation, is hereby amended to read as follows: "FIRST: The name of the Corporation is: SYCONET.COM, INC." THIRD: The amendment effected herein was authorized by the consent in writing, setting forth the action so taken, signed by the holders of at least a majority of the outstanding shares entitled to vote thereon; and due notice so taken has been given to those shareholders who have not consented in writing pursuant to Sections 222 and 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, I hereunto sign my name and affirm that the statements made herein are true under the penalties of perjury, this 17th day of February, 1999. /s/ Sy R. Picon ------------------------------- Sy R. Picon, President EX-3.2 5 BY-LAWS EXHIBIT 3.2 BY-LAWS OF SYCO COMICS AND DISTRIBUTION, INC. ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. - The registered office shall be established and maintained at c/o United Corporate Services, Inc., 15 East North Street, Dover, Delaware 19901 and United Corporate Services, Inc. shall be the registered agent of this corporation in charge thereof. SECTION 2. OTHER OFFICES. - The corporation may have other offices, either within or without the State of Delaware, at such place or places as the Board of Directors may from time to time appoint or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. ANNUAL MEETINGS. - Annual meetings of stockholders for the election of directors and for such other business as may be stated in the notice of the meeting, shall be held at such place, either within or without the State of Delaware, and at such time and date as the Board of Directors, by resolution, shall determine and as set forth in the notice of meeting. In the event the Board of Directors fails to so determine the time, date and place of meeting, the annual meeting of stockholders shall be held at the registered office of the corporation in Delaware. If the date of the annual meeting shall fall upon a legal holiday, the meeting shall be held on the next succeeding business day. At each annual meeting, the stockholders entitled to vote shall elect a Board of Directors and they may transact such other corporate business as shall be stated in the notice of the meeting. SECTION 2. OTHER MEETINGS. - Meetings of stockholders for any purpose other than the election of directors may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting. SECTION 3. VOTING. - Each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation and in accordance with the provisions of these By- Laws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder, but no proxy shall be voted after three years from its date unless such proxy provides for a longer period. Upon the demand of any stockholder, the vote for directors and the vote upon any question before the meeting, shall be by ballot. All elections for directors shall be decided by plurality vote; all other questions shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of the State of Delaware. A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, with the address of each, and the number of shares held by each, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 4. QUORUM . - Except as otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the presence, in person or by proxy, of stockholders holding a majority of the stock of the corporation entitled to vote shall constitute a quorum at all meetings of the stockholders. In case a quorum shall not be present at any meeting, a majority in interest of the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock entitled to vote shall be present. At any such adjourned meeting at which the requisite amount of stock entitled to vote shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof. SECTION 5. SPECIAL MEETINGS. - Special meetings of the stockholders for any purpose or purposes may be called by the President or Secretary, or by resolution of the directors. SECTION 6. NOTICE OF MEETINGS. - Written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at his address as it appears on the records of the corporation, not less than ten nor more than fifty days before the date of the meeting. No business other than that stated in the notice shall be transacted at any meeting without the unanimous consent of all the stockholders entitled to vote thereat. SECTION 7. ACTION WITHOUT MEETING. - Unless otherwise provided by the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the -2- corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS SECTION 1. NUMBER AND TERM. - The number of directors shall be seven (7). At any time that there are less than three (3) directors, the number of directors may not be less than the number of shareholders. The directors shall be elected at the annual meeting of the stockholders and each director shall be elected to serve until his successor shall be elected and shall qualify. A director need not be a stockholder. SECTION 2. RESIGNATIONS. - Any director, member of a committee or other officer may resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective. SECTION 3. VACANCIES. - If the office of any director, member of a committee or other officer becomes vacant, the remaining directors in office, though less than a quorum by a majority vote, may appoint any qualified person to fill such vacancy, who shall hold office for the unexpired term and until his successor shall be duly chosen. SECTION 4. REMOVAL. - Any director or directors may be removed either for or without cause at any time by the affirmative vote of the holders of a majority of all the shares of stock outstanding and entitled to vote, at a special meeting of the stockholders called for the purpose and the vacancies thus created may be filled, at the meeting held for the purpose of removal, by the affirmative vote of a majority in interest of the stockholders entitled to vote. SECTION 5. INCREASE OF NUMBER. The number of directors may be increased by amendment of these By-Laws by the affirmative vote of a majority of the directors, though less than a quorum, or, by the affirmative vote of a majority in interest of the stockholders, at the annual meeting or at a special meeting called for that purpose, and by like vote the additional directors may be chosen at such meeting to hold office until the next annual election and until their successors are elected and qualify. SECTION 6. POWERS. - The Board of Directors shall exercise all of the powers of the corporation except such as are by law, or by the Certificate of Incorporation of the corporation or by these By-Laws conferred upon or reserved to the stockholders. SECTION 7. COMMITTEES. - The Board of Directors may, by resolution or resolutions passed by a majority of the whole board, designate one or more committees, each committee to consist of two or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or -3- disqualified member at any meeting of the committee. In the absence or disqualification of any member or such committee or committees, the member or members thereof present at any such meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in these By-Laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power of authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the By-Laws of the corporation; and unless the resolution, these By-Laws, or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. SECTION 8. MEETINGS. - The newly elected Board of Directors may hold their first meeting for the purpose of organization and the transaction of business, if a quorum be present, immediately after the annual meeting of the stockholders; or the time and place of such meeting may be fixed by consent, in writing, of all the directors. Unless restricted by the incorporation document or elsewhere in these By-Laws, members of the Board of Directors or any committee designated by such Board may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at such meeting. Regular meetings of the Board of Directors may be scheduled by a resolution adopted by the Board. The Chairman of the Board or the President or Secretary may call, and if requested by any two directors, must call special meeting of the Board and give five days' notice by mail, or two days' notice personally or by telegraph or cable to each director. The Board of Directors may hold an annual meeting, without notice, immediately after the annual meeting of shareholders. SECTION 9. QUORUM. - A majority of the directors shall constitute a quorum for the transaction of business. If at any meeting of the board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned. SECTION 10. COMPENSATION. - Directors shall not receive any stated salary for their services as directors or as members of committees, but by resolution of the board a fixed fee and expenses of attendance may be allowed for attendance at each meeting. Nothing herein -4- contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent or otherwise, and receiving compensation therefor. SECTION 11. ACTION WITHOUT MEETING. - Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee therof, may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the board, or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee. ARTICLE IV OFFICERS SECTION 1. OFFICERS. - The officers of the corporation shall be a President, a Treasurer, and a Secretary, all of whom shall be elected by the Board of Directors and who shall hold office until their successors are elected and qualified. In addition, the Board of Directors may elect a Chairman, one or more Vice-Presidents and such Assistant Secretaries and Assistant Treasurers as they may deem proper. None of the officers of the corporation need be directors. The officers shall be elected at the first meeting of the Board of Directors after each annual meeting. More than two offices may be held by the same person. SECTION 2. OTHER OFFICERS AND AGENTS. - The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. SECTION3. CHAIRMAN. - The Chairman of the Board of Directors, if one be elected, shall preside at all meetings of the Board of Directors and he shall have and perform such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 4. PRESIDENT. - The President shall be the chief executive officer of the corporation and shall have the general powers and duties of supervision and management usually vested in the office of President of a corporation. He shall preside at all meetings of the stockholders if present thereat, and in the absence or non-election of the Chairman of the Board of Directors, at all meetings of the Board of Directors, and shall have general supervision, direction and control of the business of the corporation. Except as the Board of Directors shall authorize the execution thereof in some other manner, he shall execute bonds, mortgages and other contracts in behalf of the corporation, and shall cause the seal to be affixed to any instrument requiring it and when so affixed the seal shall be attested by the signature of the Secretary or the Treasurer or Assistant Secretary or an Assistant Treasurer. SECTION 5. VICE-PRESIDENT. - Each Vice-President shall have such powers and shall perform such duties as shall be assigned to him by the directors. -5- SECTION 6. TREASURER. - The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the corporation. He shall deposit all moneys and other valuables in the name and to the credit of the corporation in such depositaries as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, or the President, taking proper vouchers for such disbursements. He shall render to the President and Board of Directors at the regular meetings of the Board of Directors, or whenever they may request it, an account of all his transactions as Treasurer and of the financial condition of the corporation. If required by the Board of Directors, he shall give the corporation a bond for the faithful discharge of his duties in such amount and with such surety as the board shall prescribe. SECTION 7. SECRETARY. - The Secretary shall give, or cause to be given, notice of all meetings of stockholders and directors, and all other notices required by the law or by these By-Laws, and in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the President, or by the directors, or stockholders, upon whose requisition the meeting is called as provided in these By-Laws. He shall record all the proceedings of the meetings of the corporation and of the directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him by the directors or the President. He shall have the custody of the seal of the corporation and shall affix the same to all instruments requiring it, when authorized by the directors or the President, and attest the same. SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. - Assistant Treasurers and Assistant Secretaries, if any, shall be elected and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the directors. ARTICLE V. MISCELLANEOUS SECTION 1. CERTIFICATES OF STOCK. - A certificate of stock, signed by the Chairman or Vice-Chairman of the Board of Directors, if they be elected, President or Vice- President, and the Treasurer or an Assistant Treasurer, or Secretary or Assistant Secretary, shall be issued to each stockholder certifying the number of shares owned by him in the corporation. When such certificates are countersigned (1) by a transfer agent other than the corporation or its employee, or, (2) by a registrar other than the corporation or its employee, the signatures of such officers may be facsimiles. SECTION 2. LOST CERTIFICATES. - A new certificate of stock may be issued in the place of any certificate theretofore issued by the corporation, alleged to have been lost or destroyed, and the directors may, in their discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the corporation a bond, in such sum as they may -6- direct, not exceeding double the value of the stock, to indemnify the corporation against any claim that may be made against it on account of the alleged loss of any such certificate, or the issuance of any such new certificate. SECTION 3. TRANSFER OF SHARES. - The shares of stock of the corporation shall be transferrable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificate shall be surrendered to the corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers, or to such other person as the directors may designate, by whom they shall be cancelled, and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer. SECTION 4. STOCKHOLDERS RECORD DATE. - In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjournment meeting. SECTION 5. DIVIDENDS. - Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any funds of the corporation available for dividends, such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interests of the corporation. SECTION 6. SEAL. - The corporate seal shall be circular in form and shall contain the name of the corporation, the year of its creation and the words "Corporate Seal, Delaware, 1900". Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. SECTION 7. FISCAL YEAR. - The fiscal year of the corporation shall be determined by resolution of the Board of Directors. SECTION 8. CHECKS. - All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner as shall be determined from time to time by resolution of the Board of Directors. -7- SECTION 9. NOTICE AND WAIVER OF NOTICE. - Whenever any notice is required by these By-Laws to be given, personal notice is not meant unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage, prepaid, addressed to the person entitled thereto at his address as it appears on the records of the corporation, and such notice shall be deemed to have been given on the day of such mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by Statute. Whenever any notice whatever is required to be given under the provisions of any law, or under the provisions of the Certificate of Incorporation of the corporation of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VI AMENDMENTS These By-Laws may be altered or repealed and By-Laws may be made at any annual meeting of the stockholders or at any special meeting thereof if notice of the proposed alteration or repeal of By-Law or By-Laws to be made be contained in the notice of such special meeting, by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote thereat, or by the affirmative vote of a majority of the Board of Directors, at any regular meeting of the Board of Directors, or at any special meeting of the Board of Directors, if notice of the proposed alteration or repeal of By-Law or By-Laws to be made, be contained in the notice of such special meeting. ARTICLE VII INDEMNIFICATION No director shall be liable to the corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except with respect to (1) a breach of the director's duty of loyalty to the corporation or its stockholders, (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) liability which may be specifically defined by law or (4) a transaction from which the director derived an improper personal benefit, it being the intention of the foregoing provision to eliminate the liability of the corporation's directors to the corporation or its stockholders to the fullest extent permitted by law. The corporation shall indemnify to the fullest extent permitted by law each person that such law grants the corporation the power to indemnify. -8- EX-10.1 6 FUNDING AGREEMENT FUNDING AGREEMENT AGREEMENT, made as of December 16, 1999, by and between SYCONET.COM, INC. ("SYCD"), a Delaware corporation having its principal offices at 9208A Venture Court, Manassas Park, Virginia 20111, and ALLIANCE EQUITIES, INC., a Florida corporation having its principal offices at 12147 N.W. 9th Drive, Coral Springs, Florida 33071, ("Alliance"). WHEREAS, SYCD is desirous of receiving short term financing, and Alliance is willing and able to provide such financing, on the terms and conditions set forth below: NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1. Financing Commitment. Alliance agrees to provide to SYCD an aggregate of $2,000,000.00 in loans (the "Loans"), each loan to be an unsecured SYCD obligation bearing interest at an annual rate of 12% per annum and repayable by SYCD by SYCD issuing to Alliance that number of shares of SYCD common stock (the "Shares") registered under the Securities Act of 1933, as amended (the "Securities Act"), equal to principal plus interest accrued to the payment date, each share to be valued at the lower of $0.98 or the average of the closing bid price of SYCD's common stock as reported on YAHOO for the 20 days prior to the declaration by the Securities and Exchange Commission of the effectiveness of the SYCD Registration Statement on Form SB-2 (the "SB-2") registering under the Securities Act the Shares and the 600,000 warrants described in Section 3 below. 2. Loan Schedule. Alliance shall make the Loans to SYCD by making a loan to SYCD of $500,000.00 principal amount on each of the following four dates: a. the date on which SYCD files with the SEC a Registration Statement on Form 10; b. the date on which the SEC declares effective SYCD's SB-2; C. 60 days following the effectiveness of the SB-2; and d. 120 days following the effectiveness of the SB-2. 3. Inducement Fee. SYCD agrees that upon the closing of the initial $500,000.00 Loan (a) SYCD will issue to Alliance warrants (the "Warrants") entitling Alliance to purchase 600,000 shares of SYCD common stock of a price of $.01 per share for five years, and (b) SYCD will pay to Alliance in cash a Loan administration fee of $30,000.00. SYCD agrees to register under the Securities Act and include in the SB-2 the shares of SYCD common stock issuable upon exercise of the Warrants. -2- 4. Amendment; Breach and Waiver. This Agreement may not be amended or modified in any manner, except by an instrument in writing signed by both parties hereto. The failure of either party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision or any other provision, or of the right of such party thereafter to enforce each and every such provision or other provision in the event of a subsequent breach. 5. Agreement Binding Upon Successors. This Agreement shall inure to the benefit of and shall be binding upon SYCD, its successors and assigns, and upon Alliance and its successors and assigns. 6. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original but both of which together shall constitute one and the same instrument. 7. Choice of Law and Forum. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, exclusive of its choice-of-law principles. Each party hereby irrevocably submits to the jurisdiction of any state or Federal court sitting in New York County, New York in any action or proceeding arising out of or relating to this Agreement, and each party hereby irrevocably waives the defenses of improper venue or -3- an inconvenient forum for the maintenance of any such action or proceeding to the fullest extent permitted by law. 8. Section Headings. Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 9. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and there are no agreements, undertakings, restrictions, warranties, promises or representations between the parties with respect to the subject matter hereof other than those set forth herein. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SYCONET.COM, INC. By: /s/ Sy Robert Picon --------------------------- Sy Robert Picon, Chairman ALLIANCE EQUITIES, INC. By: /s/ Richard Epstein -------------------------- Richard Epstein ------------------------------- (Print Name) President ------------------------------- (Title) -4- EX-10.2 7 COMMERCIAL AGREEMENT OF LEASE COMMERCIAL AGREEMENT OF LEASE THIS AGREEMENT OF LEASE made and entered into this 15th day of November in the year 1997, by and between Syco Inc (herein referred to as Tenant) and John G. and Mary G. Immer (herein referred to as Landlord) WITNESSETH: That for and in consideration of the rent hereinafter reserved and the covenants herein contained, the Landlord does hereby lease and demise unto the Tenant the premises situated in 9208 (A1 and A2) Venture Court, Manassas Park, VA, 22110. Commencing on the 1st day of January, 1998 and ending on the 30th day of December 1999 for the sum of twenty-six thousand four hundred and no/100 ($26,400.00) dollars per annum, payable to John Immer in monthly installments of two thousand two hundred and no/100 ($2,200) dollars, hereinafter sometimes referred to as the basic monthly rental, in advance on the 1st day of each month, the first month's rent to be paid at time of execution of this lease. (2 years lease at $30,000 per year--no escalations)--tenant to have right for additional 2 years extension on this lease. 1. Tenant takes and holds the said premises as tenant for the term and subject to the conditions as herein provided, at the rent payable as aforesaid, and the said Tenant will, without previous demand, pay the rent specified at the time, place and in the manner herein provided. 2. Tenant will not assign this lease, or any portion of the term of this lease, or sublet the leased premises, or any portion thereof, without the written consent of the Landlord first had and obtained, nor shall any subletting or assignment hereof be effected by operation of Law or otherwise than by the written consent of the Landlord first had and obtained. 3. Tenant will pay all bills for electricity, gas, and water used in the within premises, and any sewer charges, as well as any public space rent, if any, during the term of this lease, as they become due and payable. 4. Tenant will comply with all the rules and regulations now in effect or that may hereafter be enacted by the Municipal, County, State or Federal Government, insofar as the same pertain to the conduct of his business in the demised premises. Tenant will not use, permit or suffer to be used, said leased premises for any disorderly or unlawful purpose, or for any other purpose than that of storage, sale and promotion of films, books, etc., and all processes the tenant feels necessary to operate his business. 5. Tenant will furnish heat, hot water and air-conditioning, if any, at his own cost and expense. Landlord warrants the plumbing, air-conditioning and heating systems in and for the demised premises to be in good working order as of the date upon which possession of the demised premises is delivered to the Tenant, and agrees to keep the plumbing, heating and air conditioning systems in good order and repair; to make replacements thereto whether said repairs or replacements be necessitated, together with all other rent provided for under terms of this lease. 6. Tenant will make any and all repairs and replacements to the premises hereby leased during the term of this lease, except repairs to the roof, downspouts, and gutters, and exterior walls which Landlord agrees to make, unless damage to said roof, downspouts, gutters, and/or exterior walls is caused by the negligence of the Tenant or his agents. 7. Landlord assumes no liability or responsibility whatever in respect to the conduct and operation of the business to be conducted in said leased premises by the Tenant, nor for any damage of whatsoever kind, or by whomsoever caused, to person or property of the Tenant or to anyone on or about the premises by consent of the Tenant, however caused and whether due in whole or in part to acts of negligence on the part of the Landlord, his agents or servants, whether such acts be active or passive, and the Tenant agrees to hold the Landlord harmless against such damage claims. 8. All goods and personal property of every kind, in and upon the said leased premises, shall be at the sole risk and hazard of the Tenant, or those claiming by, through or under him, or the owner thereof. 9. Tenant will not move into the said building any safe or safes or heavy furniture, fixtures, or material, without the written consent of the Landlord first had and obtained. All damage done to the building by taking a safe, or heavy furniture, fixtures of materials in and out, or due to its being on the premises, shall be repaired at the expense of the Tenant. 10. If the demised premises shall be partially damaged by fire or other unavoidable casualty, without the fault or neglect of the Tenant, tenant's servants, employees, agents, visitors or licensees, the damages shall be repaired by and at the expense of the Landlord, and then rent until such repairs be made shall be apportioned according to the part of the demised premises which is usable by the Tenant. Due allowance shall be made for reasonable delay which may arise by reason of adjustment of fire insurance on the part of the Landlord and/or the Tenant, and for reasonable delay on account of "Labor troubles" or any other cause beyond the Landlord's control. But if the demised premises are rendered wholly untenantable by fire or other unavoidable casualty, and the Landlord shall decide not to rebuild the same, or if the building shall be so damaged that the Landlord shall decide to demolish it or to rebuild it, then or in any of such events the Landlord may, at the Landlord's option, give the Tenant a notice in writing of such decision, and thereupon the term of this lease shall expire by lapse of time upon the third day after such notice is given and the Tenant shall vacate the demised premises and surrender the same to the Landlord, but in neither of the certain contingencies in this paragraph mentioned shall there be any liability on the part of the Landlord to the Tenant, his successors or assigns, covering or in respect of any period during which the occupation of said leased premises by the Tenant, because of the matters hereinabove stated, may not be possible. 11. Tenant will keep the said demised premises in substantial condition and good repair, clean and in proper sanitary condition, and will at the end of his tenancy surrender the same in good order and condition as the same were at the commencement of his original tenancy, the acts of God, ordinary wear and tear, and loss or damage by fire or other unavoidable casualty excepted. 12. If the whole or any part of the demised premises except vault space, if any, shall be taken or condemned by any competent authority for any public or quasi public use or purpose, then, and in that event, the term of this lease shall cease and terminate from the date when the possession of the part so taken shall be required for such use or purpose and without apportionment of the award. The current rental, however, shall in any such case be apportioned. The taking of vault space shall not entitle Tenant to any reduction in amount of rent payable hereunder. 13. Tenant at his own cost and expense agrees that he will keep the sidewalks in front of said demised premises free from obstructions of any and all nature, will promptly remove all snow and ice from said sidewalks, will keep the premises clean, will maintain suitable receptacles for trash and refuse, and will promptly remove from the demised premises all accumulations of trash and refuse. In the event Tenant fails to perform any of said covenants contained in this paragraph, then and in that event, Landlord, at its option, may cause the work provided for herein to be performed at the cost and expense of Tenant, who agrees to reimburse Landlord for the cost so incurred as additional rent upon the next date rent is due and payable hereunder. 14. This lease is subject and subordinate to all ground or underlying leases and mortgages and/or deeds of trust which may now or hereafter affect the real estate of which the demised premises form a part, and to all renewals and extensions thereof. In confirmation of such subordination, the Tenant shall execute promptly any certificate that the Landlord may request. The Tenant hereby constitutes and appoints the Landlord as tenant's attorney in fact to execute any such certificate or certificates for or on behalf of the Tenant. 15. Tenant will not do or permit anything in said premises, or bring or keep anything therein, that shall, in any way, increase the rate of fire insurance on said building, or the property therein, or conflict with the regulations of the Fire Department or the fire laws, or with the terms of any insurance policy upon said building, or any part thereof, or which make void or voidable any insurance on the said premises or building against fire. It is further understood and agreed that in the event that the rate of fire insurance on the premises (the term "the rate" meaning the normal basic rate promulgated by the Underwriters Association of the District of Columbia or the stock company rating bureau having jurisdiction over the demised premises for the kind of occupancy allowed by the lease) is increased due to neglect of the Tenant, then any resulting increase in the cost of said insurance for the building which is said premises or in which said premises are located shall be paid by said Tenant as additional rental hereunder, upon demand of the Landlord. 16. Landlord or his Agents shall have access to said demised premises at any and all reasonable times for the purpose of protecting the said leased premises against fire, for the prevention of damage and injury to the said leased premises, or for the purpose of inspecting the same, or exhibiting the same to prospective tenant during the last 60 days of the term of this lease. 17. If at any time during the term hereby demised, a petition shall be filed, either by or against the Tenant, in any court of pursuant to any statute either of the United States or of the State or District where said premises are located, whether in bankruptcy, insolvency, for the appointment of a receiver of the Tenant's property or because of any general assignment made by Tenant of the Tenant's property for the benefit of the Tenant's creditors, then immediately upon the happening of any such event, and without any entry or other act by the Landlord, this lease shall expire ipso facto, cease and come to an end with the same force and effect as if the date of the happening of any such event were the date herein fixed for the expiration of the term of this lease. It is further stipulated and agreed that, in the event of the termination of the term of this lease by the happening of any such event, the Landlord shall forthwith, upon such termination, and any other provisions of this lease to the contrary notwithstanding, become entitled to recover as and for liquidated damages caused by such breach of the provisions of this lease an amount equal to the difference between the then cash value of the rent reserved hereunder for the unexpired portion of the term hereby demised, unless the statute which governs or shall govern the proceeding in which such damages are to be proved limits or shall limit the amount of such claim capable of being so proved, in which case the Landlord shall be entitled to prove as and for liquidated damages an amount equal to that allowed by or under any such statute. The provisions of this paragraph of this lease shall be without prejudice to the Landlord's right to prove in full damages for rent accrued prior to the termination of this lease, but not paid. This provision of this lease shall be without prejudice to any rights given to the Landlord by any pertinent statute to prove for any amounts allowed thereby. 18. In making any such computation, the then cash rental value of the demised premises, shall be deemed prima facie to be the rental realized upon any reletting, if such reletting can be accomplished by the Landlord within a reasonable time after such termination of this lease, and the then present cash value of the future rents hereunder reserved to the Landlord for the unexpired portion of the term hereby demised shall be deemed to be such sum, if invested at four per centum (4%) simple interest, as will produce the future rent over the period of time in question. 19. PROVIDED, always that if the rent aforesaid, or any installment thereof, shall not be paid within five (5) days after the same shall become due and payable, as aforesaid, although no demand shall have been made for the same; or if the Tenant shall fail or neglect to keep and perform each and every of the covenants, conditions and agreements herein contained, ...the part of said Tenant to be kept and performed, or if the same or any part of them shall be broken then ...in each ...every case from thenceforth, and all times hereafter, at the option of the Landlord, his successors or assigns, the Tenant's right of possession shall thereupon cease and determine, and the Landlord, his successors or assigns shall be entitled to the possession of said leased premises and to re-enter the same without demand of rent or demand of possession of said premises, and may forthwith proceed to recover possession of the said leased premise by process of law, any notice to quit, or of intention to re-enter the same being hereby expressly waived by the Tenant. 20. If the demised premises shall be abandoned or become vacant during the term of this lease without Tenant having paid in full the rent for the entire term, or if Landlord shall recover possession subsequent or pursuant to landlord and tent proceedings, then in the happening of either of said events, Landlord shall have the right, at his option, to take possession of the demised premises, to let the same as agent of Tenant and apply the proceeds received from such letting toward the payment of the rent of Tenant under this lease, and such re-entry and re-letting shall not discharge Tenant from liability for rent to date of such retaking and for any loss of rent sustained by Landlord in respect of the balance of the term; any such loss of rent for the balance of the term shall be payable monthly by Tenant in advance in the same manner that rent hereunder is to be paid, and Landlord shall have the right to recover any such loss of rent monthly whether or not said premises had been relet. 21. And it is further provided that if, under the provision hereof, a seven (7) days' summons or other applicable summary process shall be served, and a compromise or settlement thereof shall be made, it shall not be constituted as a waiver of any covenant herein contained; and that no waiver of any breach of any covenant, condition or agreement herein contained shall operate as a waiver of the covenant, condition or agreement itself, or of any subsequent breach thereof. 22. In the event that the Tenant shall not immediately surrender said premises on the day after the end of the term hereby created, then the Tenant shall, by virtue of this agreement, become a tenant by the month at the rental per month of the monthly installments of rent agreed by the said Tenant to be paid as aforesaid, commencing said monthly tenancy with the first day next after the end of the term above demised; and the said Tenant, as a monthly tenant, shall be subject to all of the conditions and covenants of this lease as though the same had originally been a monthly tenancy; and said Tenant shall give to the Landlord at least thirty (30) days' written notice of any intention to quit said premises, and said Tenant shall be entitled to thirty (30) days' written notice to quit said premises, except in the event of nonpayment of rent in advance or of the breach of any other covenant by the said Tenant, in which event the said Tenant shall not be entitled to any notice to quit, the usual thirty (30) days' notice to quit being hereby expressly waived; PROVIDED, however, that in the event that the Tenant shall hold over after the expiration of the term hereby created, and if the said Landlord shall desire to regain possession of said premises promptly at the expiration of the term aforesaid, then at any time prior to the payment of rent by the Tenant as a monthly tenant hereunder, the said Landlord, at its election or option, may re-enter and take possession of said premises, forthwith, without process or by any legal process in force in the State or District said premises are located. 23. If, for any reason whatsoever, the Landlord does not deliver possession of the demised premises according to the terms of this lease, the rent shall be abated until such date as possession of the demised premises is tendered by the Landlord. In no event shall the Landlord, its Agents or employees be liable in damages for failure to deliver possession under the terms of this lease, except for willful failure so to do. 24. The Landlord in appointing no rental agent herein, does so for and in consideration of its services securing the Tenant hereunder and in negotiation of this agreement, and agrees to pay said Agent a commission of 6% of all rents paid during the full term of this agreement and any renewal or extension hereof even though the premises hereby demised shall be sold during the term of this lease or any extension or renewal thereof. Cancellation of this lease or any portion of the term, or any extended term hereof, by agreement of the landlord and tenant without the consent of N/A , shall not relieve Landlord of the obligation to pay N/A the full commission due hereunder for the full term of this lease and any extension or renewal hereof if this lease is extended or renewed. 25. It is further understood and agreed that all advertising and all display on or about the within-mentioned premises is subject to the approval of the Landlord and that no advertising on display on or about the within-mentioned premises shall be made or exhibited by the Tenant if the said landlord shall make reasonable objection thereto, and that no signs are to be nailed or attached to the exterior of the building and no exterior painting done without the written consent of the Landlord first had and obtained. 26. In the event the Tenant does not renew this lease, he hereby gives permission to the Landlord to show the premises to prospective new tenants and to put up a "For Rent" sign advertising said space as being available for rent. Tenant shall give the Landlord at least sixty (60) days' notice in writing of his intention to remove, at the expiration of this lease. 27. Tenant shall not make alterations, additions or improvements to the demised premises without the written consent of the Landlord, and if such consent is given and alterations, additions or improvements have been made by the Tenant, at Tenant's expense, then at the option of the Landlord such alterations, additions and improvements shall at the option of the Landlord either remain upon the premises at the expiration of the lease and become the property of the Landlord, or at the option of the Landlord be removed by and at the expense of the Tenant on or before the expiration of the term, and all damage caused to said premises by such removal shall be repaired by the Tenant at Tenant's expense on or before the expiration of said term. 28. Tenant will be responsible for all damage to and breakage of plate glass in said premises and will carry during the term of this lease in a standard insurance company satisfactory to Landlord, full coverage insurance on all plate glass in aforementioned premises, and cause same to be replaced if damaged or broken; said insurance to be carried in the name of Landlord, the policy or policies for which are to be deposited with Landlord or Landlord's agents. 29. Tenant agrees to protect, indemnify and save harmless Landlord, John G. and Mary G. Immer when required, of and from any and all claims for injury to personal property by reason of any accident, or happening in, upon, or about the demised premises, and Tenant agrees to carry public liability and property damage insurance with limits of at least five hundred thousand and no/100 ($500,000.00) covering personal injury and covering property damage in the name of Landlord, when required and Tenant, and to furnish Landlord, with a certificate, or copy of policy if required, showing such insurance to be in force. 30. If the Landlord shall incur any charge or expense on behalf of the Tenant under the terms of this lease such charge or expense shall be considered additional rent hereunder; in addition to and not in limitation of any other rights and remedies which the Landlord may have in case of the failure by the Tenant to pay such sums when due, such non-payment shall entitle the Landlord to the remedies available to it hereunder for non-payment of rent. All such charges or expenses shall be paid to the Landlord at the office of or at such other place as the Landlord may designate in writing. 31. Should Tenant, directly or indirectly, purchase the demised premises, or the property of which the demised premises are a part, during the terms of this lease, or any renewal or extension thereof or within one year after the termination of his tenancy of the demised presmises upon any terms, or should Tenant acquire the demised property, or the property of which the demised premises are a part, during the term of this lease, or any renewal or extention thereof or within one year after the termination of his tenancy of the demised premises by trade or exchange, its successor or assign shall be deemed the procuring agent in the transaction and will be paid by the Landlord at settlement from proceeds of sale or exchange, a commission of six per cent (6%). Split 50/50 between Debbi Bankert/Remax and William Myers/Weichert Realtor. 32. This agreement shall bind the administrators, executors, successors, and assigns of the respective parties hereto. 33. Feminine or neuter pronouns shall be substituted for those of the masculine form, and the plural shall be substituted for the singular number, in any place or places in which the context may require such substitution or substitutions. 34. In the event of the employment of an attorney by the Landlord because of the violation by the Tenant of any term of provision of this lease, including non- payment of rent as due, the Tenant shall pay and hereby agrees to pay reasonable attorney's fees and all other costs incurred therein by the Landlord. 35. This lease contains the entire and final agreement of and between the parties hereto, and they shall not be bound by any statements, conditions, representations, inducements or warranties, oral or written, not herein contained, unless there is written amendment thereto signed by all the parties hereto. 36. In addition to the first month's rent, the Landlord herewith acknowledges the receipt of four thousand four hundred and no/100 ($4,400.00) Dollars, which he is to retain as security for faithful performance of all of the covenants, conditions, and agreements of this lease, but in no event shall the Landlord be obliged to apply the same on rents or other charges in arrears or on damages for the Tenant's failure to perform the said covenants, conditions, and agreements; the Landlord may so apply the security at his option; and the Landlord's right to the possession of the premises for nonpayment of rent or for any other reason shall not in any event be affected by reason of the fact that the Landlord holds this security. The said sum if not applied toward the payment of rent in arrears or toward the payment of damages suffered by the Landlord by reason of the defendant's breach of the covenants, conditions, and agreements of this lease is to be returned to the Tenant when this lease is terminated, according to these terms, and in no event is the said security to be returned until the Tenant has vacated the premises and delivered possession to the Landlord. In the event that the Landlord repossesses himself of the said premises because of the Tenant's default or because of the Tenant's failure to carry out the covenants, conditions, and agreements of this lease, the Landlord may apply the said security on all damages suffered to the date of said repossession and may retain the said security to apply on such damages as may be suffered or shall accrue thereafter by reason of the Tenant's default or breach. The Landlord shall not be obliged to keep the said security as a separate fund, but may mix the said security with his own funds. 37. The basic monthly rental shall be adjusted for each lease year of the term hereof by any change in the Index now known as "United States Bureau of Labor Statistics, Consumer Price Index for Urban Wage Earners and Clerical Workers, all items for Washington, D. C. SMSA (BASE: 1967=100.0) (hereinafter referred to as the "Index") provided however, that that the amount payable by the Tenant under this lease as rental shall not be less than the rental payment schedule as outlined in this lease, nor shall the rental payment be less than any rental previously established pursuant to a Consumer Price Index increase. Such adjustment shall be accomplished by multiplying the aforementioned basic monthly rental by a fraction, the numerator of which shall be the most recently published monthly Index preceding the first day of the lease year for which such annual adjustment is to be made, and the denominator of which fraction shall be the corresponding monthly Index immediately preceding the commencement date of the term of this lease. If such Index shall be discontinued with no successor or comparable successor Index, the parties shall attempt to agree upon a substitute formula, but if the parties are unable to agree upon a substitute formula, then the matter shall be determined by arbitration in accordance with the rules of the American Arbitration Association then prevailing. 38. Paragraph headings in margins are for purpose of convenience only and not to be considered a part of this lease. 39. Landlord agrees to provide a personal door at top of stair connecting both units. Also to install personal door between two drive in bays on lower level. Also to clean carpets and walls (or paint walls if cleaning is insufficient) at no cost to Tenant. 40. Tenant to have power and all utilities placed in his name prior to January 1st, 1998 and to have right of pre-occupancy December 5, 1997 for fit out and setup. 41. Prior to January 1, 1998, Tenant to have air conditioning and HVAC inspected and Landlord to make any repairs and have systems serviced if necessary, prior to Tenant taking occupancy. 42. Tenant to have first right to purchase the above described property. 43. Tenant to have until November 21, 1997 to withdraw this offer and receive prompt return of his deposit. IN WITNESS WHEREOF the said parties have hereunto signed their names and affixed their seals, on the day and year first hereinbefore written. WITNESS/ATTEST LANDLORD: ____________________________________ ___________________________(SEAL) ____________________________________ ___________________________(SEAL) ____________________________________ ___________________________(SEAL) ____________________________________ ___________________________(SEAL) WITNESS/ATTEST TENANT: ____________________________________ ___________________________(SEAL) ____________________________________ ___________________________(SEAL) ____________________________________ ___________________________(SEAL) ____________________________________ ___________________________(SEAL) EX-10.3 8 LEASE AMENDMENT Flaherty Immer, agent Immer Condo Account PH 301-791-6871 1020 Oak Hill Avenue FAX 301-791-7947 Hagerstown, Maryland 21742 Tuesday, January 04, 2000 Sy Picon Syco Distribution P.O. Box 676 Manassas, Virginia 20113-0676 Dear Sy, The Immers propose to extend your present lease for their property at 9208-A Venture Court, Manassas Park, Virginia at the reduced rent of $2325.00 per month for a period of 8-months. We require certain conditions for that extension and rent reduction. They are: That we be allowed to actively market and show the property during the entire lease extension period. That we may cancel the lease upon sale of the property and after 60 days notice to Syco. That if Syco wishes to cancel the lease they may do so before the 8-month extension period upon the same 60-day notice to the Immers provided that the reduced rent revert to $2600.00 per month for the entire period of your tenancy if less than 8-months occupancy. Your immediate attention and response is required. THANK YOU, FLAHERTY IMMER, AGENT Concur: Sy Picon, CEO EX-21 9 SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES 1. Animedepot.com, Inc., a Delaware corporation. EX-27 10 FDS --
5 This schedule contains summary financial information extracted from SyCoNet.Com, Inc. financial statements for the nine months ended September 30, 1999 (unaudited) and is qualified in its entirety by reference to such financial statements. 9-MOS JUN-21-2000 JAN-01-1999 SEP-30-1999 99,969 0 57,757 8,202 366,869 516,393 25,703 9,330 537,766 293,242 0 0 0 1,078 243,446 537,766 773,134 773,134 598,527 1,185,048 0 0 2,316 (414,230) 0 (414,230) 0 0 0 (414,230) (0.04) (0.04)
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