10QSB 1 f10qsbsynerteck.txt FORM 10-QSB SYNERTECK INCORPORATED SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-QSB [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2005 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ___________ Commission file number: 000-50754 SYNERTECK INCORPORATED (Exact name of small business issuer as specified in its charter) Delaware 20-0929024 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 11585 South State Street, Suite 102 Draper, Utah 84020 ------------ ----- (Address of principal executive offices) (Zip Code)
(801) 816-2505 -------------- (Issuer's telephone number) (Former name or former address and former fiscal year, if changed since last report.) APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. As of June 30, 2005, the Company had outstanding 2,000,000 shares of common stock and 50,000 shares of preferred stock, par value $0.001 per share. Transitional Small Business Disclosure Format (check one) [ ] Yes [x ] No 2 PART I FINANCIAL INFORMATION The Financial Statements of the Company are prepared as of June 30, 2005. ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-QSB CONTENTS Condensed Balance Sheets...................................................... 4 Condensed Statements of Operations............................................ 5 Condensed Statements of Stockholders' Equity.................................. 7 Condensed Statements of Cash Flows............................................ 8 Notes to the Condensed Financial Statements.................................. 10 3 SYNERTECK INCORPORATED Condensed Balance Sheets ASSETS ------
June 30, December 31, 2005 2004 ------------------ ---------------------- (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 36,289 $ 36,376 Accounts receivable, net 14,131 16,769 ------------------ ----------------- Total Current Assets 50,420 53,145 ------------------ ----------------- PROPERTY AND EQUIPMENT, NET 16,524 20,008 ------------------ ----------------- OTHER ASSETS Marketable securities 48,543 - ------------------ ----------------- Total Other Assets 48,543 - ------------------ ----------------- TOTAL ASSETS $ 115,487 $ 73,153 ================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 6,675 $ 7,885 Accrued expenses 2,647 10,157 ------------------ ----------------- Total Current Liabilities 9,322 18,042 ------------------ ----------------- LONG TERM LIABILITIES Notes payable - 15,000 Notes payable - related parties - 35,000 ------------------ ----------------- Total Long Term Liabilities - 50,000 ------------------ ----------------- TOTAL LIABILITIES 9,322 68,042 ------------------ ----------------- STOCKHOLDERS' EQUITY Preferred stock, $0.001 par value; 10,000,000 shares authorized, 50,000 and -0- shares issued and outstanding, respectively 50 - Common stock, $0.001 par value; 100,000,000 shares authorized, 2,000,000 and 500,000 shares issued and outstanding, respectively 2,000 500 Additional paid-in capital 142,231 59,810 Accumulated deficit (38,116) (55,199) ------------------- ------------------ Total Stockholders' Equity 106,165 5,111 ------------------ ----------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 115,487 $ 73,153 ================== =================
4 The accompanying notes are an integral part of these condensed financial statements. SYNERTECK INCORPORATED Condensed Statements of Operations (Unaudited)
For the Three Months Ended June 30, ------------------------------------- 2005 2004 ------------------ ----------------- NET REVENUES Product revenue $ 1,168 $ 6,962 Service revenue 13,413 15,847 Product and service revenue - related parties 13,890 28,180 ------------------ ----------------- Total Net Revenues 28,471 50,989 ------------------ ----------------- OPERATING EXPENSES Cost of sales-product 828 6,498 Cost of sales-service 1,164 1,664 Cost of sales-related parties 2,124 3,352 General and administrative 21,348 18,294 Selling and marketing 11,266 10,830 Research and development 4,960 4,570 ------------------ ----------------- Total Operating Expenses 41,690 45,208 ------------------ ----------------- INCOME (LOSS) FROM OPERATIONS (13,219) 5,781 ------------------ ----------------- OTHER INCOME (EXPENSES) Interest expense (811) (1,293) Unrealized loss on marketable securities (17,586) - Interest income - 67 ------------------ ----------------- Total Other Expenses (18,397) (1,226) ------------------ ----------------- NET INCOME (LOSS) BEFORE INCOME TAXES (31,616) 4,555 PROVISION FOR INCOME TAXES - - ------------------ ----------------- NET INCOME (LOSS) $ (31,616) $ 4,555 ================== ================= BASIC NET INCOME (LOSS) PER SHARE $ (0.04) $ 0.01 ================== ================= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 780,220 500,000 ================== =================
5 The accompanying notes are an integral part of these condensed financial statements. SYNERTECK INCORPORATED Condensed Statements of Operations (Unaudited)
For the Six Months Ended June 30, ------------------------------------- 2005 2004 ------------------ ----------------- NET REVENUES Product revenue $ 7,024 $ 18,114 Service revenue 31,897 29,098 Product and service revenue - related parties 42,020 39,930 ------------------ ----------------- Total Net Revenues 80,941 87,142 ------------------ ----------------- OPERATING EXPENSES Cost of sales-product 5,429 12,650 Cost of sales-service 5,278 8,278 Cost of sales-related parties 9,124 6,727 General and administrative 42,645 27,201 Selling and marketing 23,641 14,636 Research and development 10,340 6,101 ------------------ ----------------- Total Operating Expenses 96,457 75,593 ------------------ ----------------- INCOME (LOSS) FROM OPERATIONS (15,516) 11,549 ------------------ ----------------- OTHER INCOME (EXPENSES) Interest expense (1,797) (1,293) Unrealized gain on marketable securities 34,396 - Interest income - 134 ------------------ ----------------- Total Other Income (Expenses) 32,599 (1,159) ------------------ ----------------- NET INCOME BEFORE INCOME TAXES 17,083 10,390 PROVISION FOR INCOME TAXES - (1,123) ------------------ ----------------- NET INCOME $ 17,083 $ 9,267 ================== ================= BASIC NET INCOME PER SHARE $ 0.03 $ 0.02 ================== ================= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 640,884 500,000 ================== =================
6 The accompanying notes are an integral part of these condensed financial statements. SYNERTECK INCORPORATED Condensed Statements of Stockholders' Equity
Preferred Stock Common Stock Additional -------------------------- ---------------------------- Paid-in Accumulated Shares Amount Shares Amount Capital Deficit ----------- ---------- ------------ ----------- -------------- ---------------- Balance, December 31, 2003 - $ - 500,000 $ 500 $ (500) $ 8,572 Gain on forgiveness of related party debt - - - - 60,310 - Net income for the year ended December 31, 2004 - - - - - (63,771) ----------- ---------- ------------ ----------- -------------- ---------------- Balance, December 31, 2004 - - 500,000 500 59,810 (55,199) Issuance of preferred stock for cash (unaudited) 50,000 50 - - 24,950 - Common stock issued for debt payment (unaudited) - - 1,500,000 1,500 57,471 - Net income for the six months ended June 30, 2005 (unaudited) - - - - - 17,083 ----------- ---------- ------------ ----------- -------------- ---------------- Balance, June 30, 2005 (unaudited) 50,000 $ 50 2,000,000 $ 2,000 $ 142,231 $ (38,116) =========== ========== ============ =========== ============== ================
7 The accompanying notes are an integral part of theses condensed financial statements. SYNERTECK INCORPORATED Condensed Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, ------------------------------------- 2005 2004 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 17,083 $ 9,267 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation 3,484 1,308 Unrealized gain on marketable securities (34,396) - Changes in operating assets and liabilities: Accounts receivable 2,638 (8,349) Due to/from related parties - (1,877) Accounts payable (1,210) 10,533 Accrued expenses 1,461 3,362 ----------------- ----------------- Net Cash Provided (Used) by Operating Activities (10,940) 14,244 ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (14,147) - Purchases of property & equipment - (18,321) ----------------- ----------------- Net Cash Used in Investing Activities (14,147) (18,321) ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of preferred stock 25,000 - Proceeds from issuance of notes payable - 15,000 Proceeds from issuance of notes payable - related parties - 35,000 ----------------- ----------------- Net Cash Provided by Financing Activities 25,000 50,000 ----------------- ----------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (87) $ 45,923 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 36,376 7,940 ----------------- ----------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36,289 $ 53,863 ================= =================
8 The accompanying notes are an integral part of these condensed financial statements. SYNERTECK INCORPORATED Condensed Statements of Cash Flows (Continued) (Unaudited)
For the Six Months Ended June 30, ------------------------------------- 2005 2004 ----------------- ----------------- SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for: Interest $ - $ - Income taxes $ - $ - Non-Cash Investing and Financing Activities: Common stock issued to convert notes payable and accrued interest and royalty fees $ 58,971 $ -
9 The accompanying notes are an integral part of these condensed financial statements. SYNERTECK INCORPORATED Notes to the Condensed Financial Statements June 30, 2005 and December 31, 2004 NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed financial statements be read in conjunction with the Company's audited financial statements and notes thereto for the year ended December 31, 2004 included in its Form 10-KSB. Operating results for the six months ended June 30, 2005 are not necessarily indicative of the results to be expected for the year ending December 31, 2005. NOTE 2 - MATERIAL EVENTS On April 8, 2005, the Company entered into a preferred stock purchase agreement with an individual investor whereby the Company agreed to issue 50,000 of its previously unissued Series A preferred stock for cash of $25,000. The preferred shares will convert into common stock of the Company during a three year period on a one for one basis. On June 13, 2005, the Company issued 1,500,000 shares of its common stock in satisfaction of notes payable and accrued interest and royalty fees totaling $58,971. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION You should read the following discussion of the company's financial condition and results of operations in conjunction with the audited financial statements and related notes included in the filing of the company's annual 10-KSB. This discussion may contain forward-looking statements, including, without limitation, statements regarding our expectations, beliefs, intentions, or future strategies that are signified by the words "expects," "anticipates," "intends," "believes," or similar language. Actual results could differ materially from those projected in the forward looking statements. You should carefully consider the information set forth above under the caption "Risk Factors" in addition to the other information set forth in this report. We caution you that Synerteck's business and financial performance is subject to substantial risks and uncertainties. OVERVIEW Synerteck is an integrator of business strategy with technology solutions. We attempt to understand the business of our clients principally from their customer's point of view, in order to properly position ourselves to advocate and implement measures that achieve the client's organizational objectives. Our clients consist of small to medium sized organizations, operating in North America and Europe. Currently, we service eight clients on a continuous monthly basis and average ten additional clients for one-time or intermittent projects over the course of a year. You can learn more about our business at our website located at www.synerteck.com. RESULTS OF OPERATIONS Following is our discussion of the relevant items affecting results of operations for the periods ended June 30, 2005 and 2004. REVENUES. Revenue is recognized upon completion of services or delivery of goods. Advance customer payments are recorded as deferred revenue until such time as they are recognized. Product sales are not warranted by the Company and may be subject only to warranties that may be provided by the product manufacturer. Therefore, product warranties have no effect on the financial statements. Synerteck generated net revenues of $28,471 during the three months ended June 30, 2005, which represents a 44% decrease compared to $50,989 in net revenues during the second quarter of 2004. For the six month period ended June 30, 2005, net revenues were $80,941, representing a 7% decrease compared to $87,142 in net revenues during the first six months of 2004. This decrease was mainly due to the reduction in systems support services provided to one large client during the second quarter of 2005. During the second quarters of 2005 and 2004, we received $10,510 and $26,410, respectively, in gross revenues from systems support. Although hardware sales revenues decreased, several new IT service contracts were established in the first three months of 2005 which added to the total net revenues recorded for the first six months of 2005. Other sources of revenue were information technology services, hardware sales and equipment leases. We anticipate that these three areas will constitute the principal source of Synerteck's revenue for the foreseeable future. COST OF SALES. Expenses which comprise cost of sales are the wholesale cost of hardware, software, any accompanying licenses, product sales commissions, and commissions paid in connection with information technology consulting contracts. Also included in cost of sales are personnel and materials costs to administer these information technology services. As more organizations utilize our technology services, future expenses included in cost of goods sold will increase as well as potential fee sharing expenses to organizations that assist us in providing these services. Cost of sales for the three months ended June 30, 2005 were $4,116, a 64% decrease from $11,514 during the second quarter of 2004. For the six month period ended June 30, 2005, cost of sales was $19,831, a 28% decrease from $27,655 during the first six months of 2004. This decrease corresponds with the decrease in revenues for the same period. Revenues for the six months ended June 30, 2005 were more heavily weighted towards service as opposed to hardware and software sales when compared to the same period in the prior year. IT services and systems support yield a higher margin than hardware and software sales. Cost of sales is attributable to (i) expenses incurred pursuant to the delivery of our information technology support, 11 and (ii) sales commissions paid in connection with technology consulting projects. GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses have been comprised of administrative wages and benefits; occupancy and office expenses; outside legal, accounting and other professional fees; travel and other miscellaneous office and administrative expenses. General and administrative expenses for the three months ended June 30, 2005 were $21,348, a 17% increase from $18,294 during the second quarter of 2004. For the six month period ended June 30, 2005, general and administrative expenses were $42,645, a 57% increase from $27,201 during the first six months of 2004. This increase was primarily due to accounting and legal fees associated with the audit of the financial statements and filings with the Securities and Exchange Commission. Professional fees accounted for approximately $18,456 of general and administrative expenses during the six month period ended June 30, 2005, as compared to $10,825 during the first six months of 2004. Although we endeavor to decrease certain costs associated with personnel salaries and benefits, professional fees, contract labor, and rent and occupancy-related expense, as the business grows, these expenses will increase. Because we sublease our office facilities from our former parent corporation, we do not anticipate any material commitments for capital expenditures in the foreseeable future. SELLING AND MARKETING EXPENSES. Our selling and marketing expenses include selling/marketing wages and benefits; advertising and promotional expenses; travel and other miscellaneous related expenses. Selling and marketing expenses for the three months ended June 30, 2005 were $11,266, a 4% increase from $10,830 during the second quarter of 2004. For the six month period ended June 30, 2005, selling and marketing expenses were $23,641, a 62% increase from $14,636 during the first six months of 2004. This increase was primarily attributable to increased salaries of sales personnel as well as additional expenditures for advertising and marketing. We expect that our sales and marketing expenditures will increase as we continue to develop our client base and expand our efforts in computer hardware and software leasing. PRODUCT DEVELOPMENT. Product research and development expenses for the three months ended June 30, 2005 were $4,960, a 9% increase from $4,570 during the second quarter of 2004. For the six month period ended June 30, 2005, product development expenses were $10,340, a 69% increase from $6,101 during the first six months of 2004. Our product development expenses relate primarily to payroll and systems development for our programming and web site hosting services. We believe that significant investments in product development are required to remain competitive. Accordingly, we expect to incur increased expenditures with respect to product development in future periods. OTHER INCOME (EXPENSE). We incurred net other income of $32,599 for the six months ended June 30, 2005 compared to net other expense of $1,159 during the first six months of 2004. The income recorded in the first half of 2005 is the result of stock options exercised by the Company which were received from a client for services rendered. The increase in value of the stock of $34,396 has been recorded as an unrealized gain on marketable securities. The expenses incurred in this category were comprised primarily of interest expenses related to the notes payable issued by the Company during the first half of 2004. Income tax expense of $1,123 was also recorded during the first six months of 2004. OFF-BALANCE SHEET ARRANGEMENTS Synerteck is not subject to any off-balance sheet arrangements. PERSONNEL Synerteck has two full-time employees, two part-time employees, and numerous project-based contract personnel that we utilize to carry out our business. We utilize contract personnel on a continuous basis, primarily in connection with service contracts which require a high level of specialization for one or more of the service components offered. We expect to hire one more full-time employee during 2005. Although competition for technology personnel in the metropolitan Salt Lake City area is intense, because we offer competitive compensation, maintain a productive and collegial work environment, and work with internationally-based clients, we don't believe we will have significant difficulty retaining additional employees or contract personnel in the future. LIQUIDITY AND CAPITAL RESOURCES 12 Since inception, we have financed Synerteck's operations from its business cash flows and the issuance of $50,000 of promissory notes. As of June 30, 2005, Synerteck's primary source of liquidity consisted of $36,289 in cash and cash equivalents. Because Synerteck is profitable, we do not expect to require additional investment capital during the next twelve months to continue our operations at their current level. Nevertheless, we may seek to secure additional debt or equity capital to finance substantial business development initiatives or acquire another information technology firm. At present, however, we have no plans to seek any such additional capital or to engage in any business development or acquisition activity. FORWARD LOOKING STATEMENTS AND RISK FACTORS FORWARD LOOKING STATEMENTS When used in this report, the words, "believes," "plans," "expects," and similar expressions are intended by us to identify forward-looking statements within the meaning of and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are subject to certain risks and uncertainties, including those discussed below, that could cause actual results to differ materially from those we have projected. These forward-looking statements speak only as of the date hereof. All of these forward-looking statements are based on our estimates and assumptions, which although we believe them to be reasonable, are inherently uncertain and difficult to predict. We cannot assure you that the benefits anticipated in these forward-looking statements will be achieved. We undertake no obligation to update any forward-looking statements, but you are advised to consult any further disclosures by the Synerteck on this subject in its subsequent filings pursuant to the Securities Exchange Act of 1934. Furthermore, we are providing these cautionary statements identifying risk factors, listed below, that could cause our actual results to differ materially from expected and historical results. It is not possible for our management to foresee or identify all such factors. Consequently, this list should not be considered an exhaustive statement of all potential risks, uncertainties and inaccurate assumptions. RISK FACTORS OPERATING RISKS WE ARE HEAVILY DEPENDENT UPON OUR KEY PERSONNEL. Synerteck's success depends, in large part, upon the talents and skills of its management and key personnel. In addition, to the extent that any of our key personnel are unable or refuse to continue their association with Synerteck, a suitable replacement would have to be found. The competition for qualified personnel in the computer networking is intense, and there are limited numbers of such qualified personnel in the metropolitan Salt Lake City area. We cannot assure you that we would be able to find suitable replacements for our existing management personnel or technical personnel, or that we could retain such replacements for an affordable amount. YOU MAY NOT AGREE WITH THE DECISIONS OF OUR MANAGEMENT TEAM. Although Synerteck's directors and officers will endeavor to make decisions as they reasonably deem consistent with their fiduciary duties under Delaware corporate law, you may disagree with these decisions. Synerteck's management has significant control over stockholder matters, which may affect the ability of minority stockholders to influence our activities. WE ARE HEAVILY DEPENDENT UPON A FEW KEY CLIENTS. Three client accounts comprise a substantial majority of Synerteck's monthly revenues, one of which is serviced on an oral agreement on a month-to-month basis. If we lost one or all of these clients, we would be required to immediately replace these clients with similar sized accounts, or dramatically cut our operating costs to remain in business. If Synerteck were to cease its operations, you would likely lose the entire value of your investment. OUR BUSINESS IN INHERENTLY RISKY. Service based businesses in the computer networking and hosting industries are inherently risky. If our services do not generate enough cash flow to meet our operating expenses (such as debt service, capital expenditures, and legal and accounting fees), our ability to develop and expand our business and become profitable will be adversely affected. 13 OUR BUSINESS COULD BE ADVERSELY AFFECTED BY MANY FACTORS. Income from outsourced networking, hosting, and programming services may be adversely affected by a number of factors, including, but not limited to: o the general economic climate (such as too much supply or too little demand for information technology services, as well as changes in market rates); o the increasing tendency of medium sized businesses to rely on internal personnel to service and maintain computer networks, even if such personnel are not properly trained to perform the tasks required; o intense competition and rapid and significant technological change in the information technology industry; o increasing competition from outsourced lowre overhead firms in India, Russia, and other rapidly developing technology sectors around the world; or o damage from fire, earthquakes, prolonged power outages, or other natural or man-made disasters. o WE WILL REQUIRE ADDITIONAL FINANCING FOR EXPANSION AND OTHER FUNCTIONS. We will likely require substantial additional capital in the future for expansion, business development, marketing, computer software and systems, overhead, administrative, and other expenses. We cannot assure you that we will be able to raise additional funds or that financing will be available to Synerteck on acceptable terms. Lack of additional funds could significantly affect our business. Further, funds raised through future equity financing could be substantially dilutive to you and other existing shareholders. WE COMPETE WITH SUBSTANTIALLY LARGER COMPANIES. In attempting to market our services to medium and larger organizations, we compete with substantially larger companies which have greater name recognition and financial resources to price their services and, in particular, computer products which are purchased through them. Accordingly, we may not be able to effectively compete for larger outsourcing and purchasing contracts unless and until we possess additional financial, marketing, and technical resources. OUR COMPUTER SYSTEMS MAY FAIL. Synerteck's success is substantially dependent upon our ability to deliver our clients high quality, uninterrupted access to their websites, their networks, their e-mail systems, and technology applications, which requires that we actively maintain our computer hardware and software systems, as well as the data and information stored therein. Our systems are vulnerable to damage by fire, natural disaster, power loss, telecommunications failures, unauthorized intrusion, and other catastrophic events. Any substantial interruption in our systems would have a material adverse effect on our business, operating results, and financial condition. In addition, our systems may be vulnerable to computer viruses, physical or electronic break-ins, sabotage, or other problems caused by third parties which could lead to interruptions, delays, loss of data, or cessation in service to persons desiring to access their networks and internet properties. The occurrence of any of these risks could have a material adverse effect upon Synerteck's business, results of operations, and financial condition. INVESTMENT RISKS A PURCHASE OF SYNERTECK SHARES IS A SPECULATIVE INVESTMENT. Synerteck's shares are a speculative investment. To date, Synerteck has generated a modest amount of profits and we cannot guarantee that it will continue to do so or that the level of profits will increase in the future. If Synerteck were to lose one or more of its principal customers, it would likely generate losses, and we would be forced to scale down Synerteck's operations or raise investment capital to continue operations. If Synerteck were to generate losses and we were unsuccessful at decreasing Synerteck's operating costs or raising investment capital, it is unlikely that Synerteck would be able to meet its financial obligations and you could lose your entire investment. YOU MAY LACK LIQUIDITY IN YOUR SHARES. Our stockholders may have greater difficulty in selling 14 their shares when they want and for the price they want. The over-the-counter bulletin board is separate and distinct from the Nasdaq stock market. The bulletin board does not operate under the same rules and standards as the Nasdaq stock market, including, for example, order handling rules. The absence of these rules and standards may make it more difficult for a stockholder to obtain execution of an order to trade and to obtain the price they wanted for a trade. This means our shareholders may not be able to sell their shares when they want for a price they want. In addition, because stocks traded on the bulletin board are usually thinly traded, highly volatile, have fewer market makers and are not followed by analysts, our stockholders may have greater difficulty in selling their shares when they want and for the price they want. Investors' orders may be filled at a price much different than expected when an order is placed. Trading activity in general is not conducted as efficiently and effectively as with Nasdaq-listed securities. Bulletin board transactions are conducted almost entirely manually. Because there are no automated systems for negotiating trades on the bulletin board, they are conducted via telephone. In times of heavy market volume, the limitations of this process may result in a significant increase in the time it takes to execute investor orders. Therefore, when investors place market orders - an order to buy or sell a specific number of shares at the current market price - it is possible for the price of a stock to go up or down significantly during the lapse of time between placing a market order and getting execution. Because bulletin board stocks are usually not followed by analysts, there may be lower trading volume than for Nasdaq-listed securities. WE HAVE NEVER ISSUED A DIVIDEND AND DON'T ANTICIPATE ANY DIVIDENDS IN THE FUTURE. Synerteck has never issued a dividend and we do not anticipate paying dividends on our common stock in the foreseeable future. Furthermore, we may also be restricted from paying dividends in the future pursuant to subsequent financing arrangements or pursuant to Delaware law. WE HAVE LIMITED THE LIABILITY OF OUR MANAGEMENT. Synerteck has adopted provisions in its Certificate of Incorporation which limit the liability of our officers and directors and provisions in our bylaws which provide for indemnification by Synerteck of our officers and directors to the fullest extent permitted by Delaware corporate law. Synerteck's Certificate of Incorporation generally provide that its directors shall have no personal liability to Synerteck or its stockholders for monetary damages for breaches of their fiduciary duties as directors, except for breaches of their duties of loyalty, acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, acts involving unlawful payment of dividends or unlawful stock purchases or redemptions, or any transaction from which a director derives an improper personal benefit. Such provisions substantially limit your ability to hold directors liable for breaches of fiduciary duty. YOU COULD BE DILUTED FORM THE ISSUANCE OF ADDITIONAL COMMON AND PREFERRED STOCK. Synerteck is authorized to issue up to 100,000,000 shares of common stock and 10,000,000 shares of preferred stock. To the extent of such authorization, the Synerteck board of directors will have the ability, without seeking shareholder approval, to issue additional shares of common stock in the future for such consideration as the board may consider sufficient. The issuance of additional common stock in the future may reduce your proportionate ownership and voting power. ITEM 3. CONTROLS AND PROCEDURES The Company's principal executive officer and principal financial officer, based on their evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-14 (c) and 15d-14 (c) of the Securities Exchange Act of 1934) as of June 30, 2005 have concluded that the Company's disclosure controls and procedures are adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries are recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period in which this annual report has been prepared. The Company's principal executive officer and principal financial officer have concluded that there were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls for the quarter ended June 30, 2005, the date of their most recent evaluation of such controls, and that there were no significant deficiencies or material weaknesses in the Company's internal controls. 15 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS On April 8, 2005, the Company entered into a Preferred Stock Purchase Agreement with David Ross, an individual investor. Subject to the terms and conditions of this Agreement, at the closing the investor agreed to purchase and the Company agreed to sell and issue Investor shares of the Company's Series A Preferred Stock, par value $0.001 per share, which will convert into Common Stock of the Company during a three-year period commencing on April 8, 2005 on a 1-for-1 basis. The total consideration paid by the Investor for this stock was $25,000. The Series A Preferred Stock bought is free and clear of all pledges, liens, encumbrances and restrictions. The Company shall only be able to consummate any stock dividend stock split (whether a forward split or reverse split), recapitalization, share capital consolidation with written consent from the investor. The investor is a "sophisticated" investor as defined under Rule 501. No solicitation was made and no underwriting discounts were given or paid in connection with this transaction. The Company believes that this transaction was exempt from registration with the Securities and Exchange Commission pursuant to Sections 3(a)(11) and 4(2) of the Securities Act of 1933. The Company has used the proceeds received from the investor for working capital. On June 13, 2005, the Company converted into common stock certain promissory notes issued by the Company to certain individual investors on March 1, 2004. Subject to the terms and conditions of the conversion agreements, the Company agreed to convert an aggregate amount of $50,000 in principal, plus interest, as accrued, with respect to these notes into an aggregate of 1,500,000 shares of Common Stock of the Company. The Common Stock delivered to the Investors was free and clear of all pledges, liens and encumbrances, but is considered "restricted securities" under the Securities Act of 1933. The investors were "accredited investors" or "sophisticated" investors as defined under Rule 501. No solicitation was made and no underwriting discounts were given or paid in connection with this transaction. The Company believes that these transactions were exempt from registration with the Securities and Exchange Commission pursuant to Section 4(2) of the Securities Act of 1933. The Company has used the proceeds received from the investors for working capital. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 5. OTHER INFORMATION Not applicable. 16 ITEM 6. EXHIBITS: The following documents are filed as exhibits to this Form 10-QSB: INDEX TO EXHIBITS
EXHIBIT NUMBER TITLE OF DOCUMENT ------ ----------------- 3.1 Certificate of Incorporation of Synerteck Incorporated, a Delaware corporation. (1) 3.2 Bylaws of Synerteck Incorporated, a Delaware corporation. (1) 10.1 Services Agreement between the Registrant and Healthcare Enterprise Group PLC.(1) 10.2 Summary of Services Agreement between the Registrant and Moore, Clayton & Co. Inc. (1) 10.3 Services Agreement between the Registrant and SportsNuts, Inc. (1) 10.4 Management and Business Development Agreement between the Registrant and SportsNuts, Inc. (1) 10.5 Sublease Agreement between the Registrant and SportsNuts, Inc. (1) 10.6 Preferred Stock Purchase Agreement dated April 8, 2005 (2) 99.1 Certification by Chief Executive Officer, Clayton Barlow, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 99.2 Certification by Chief Financial Officer, Chene Gardner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 99.3 Certification by Chief Executive Officer Clayton Barlow, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.4 Certification by Chief Financial Officer Chene Gardner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(1) Filed as an Exhibit to Amendment Number 2 to the Company's registration statement on Form 10-SB, filed with the Commission on September 15, 2004. (2) Filed as an Exhibit to Form 8-K, filed with the Commission on April 11, 2005. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYNERTECK INCORPORATED Date: _________________________________ BY: /S/ Chene Gardner ---------------------------- Chene Gardner Chief Financial Officer 18