-----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, CyFkc5j0Mf08QdlTGOo6zYO6/bEwC7zOXaLyb2PjhZQPOb3CqUBWSy4E3u0taZtP T+bm4p7fHreLmaMVMuyjHw== 0000903893-97-000832.txt : 19970603 0000903893-97-000832.hdr.sgml : 19970603 ACCESSION NUMBER: 0000903893-97-000832 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960905 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970602 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSYGEN INC CENTRAL INDEX KEY: 0000844008 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 760260145 STATE OF INCORPORATION: TX FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17598 FILM NUMBER: 97617803 BUSINESS ADDRESS: STREET 1: 10201 S 51ST ST STREET 2: SUITE 140 CITY: PHOENIX STATE: AZ ZIP: 85044 BUSINESS PHONE: 6024964545 MAIL ADDRESS: STREET 1: 10201 S 51ST ST STREET 2: SUITE 140 CITY: PHOENIX STATE: AZ ZIP: 85044 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) September 5, 1996 CONSYGEN, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Exact Name of Registrant as Specified in Its Charter) Texas 0-17598 76-0260145 . . . . . . . . . . . . . . . . . . . . . . . . . . . (State or Other (Commission (I.R.S. Employer Jurisdiction File Number) Identification No.) of Incorporation) 10201 S. 51st Street, Suite 140, Phoenix, AZ 85044 . . . . . . . . . . . . . . . . . . . . . . . . . . . (Address of Principal Executive Offices) (Zip Code) (602) 496-4545 Registrant's telephone number, including area code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Former Name or Former Address, If Changed Since Last Report) ITEM 5. OTHER EVENTS The following are the audited consolidated financial statements of the Registrant and its wholly-owned subsidiary for the 12 month periods ended December 31, 1996 and December 31, 1995. REPORT OF INDEPENDENT ACCOUNTANTS - --------------------------------- The Board of Directors and Stockholders ConSyGen, Inc. (A Texas Corporation) We have audited the accompanying consolidated balance sheet of ConSyGen, Inc. (a Texas corporation) and its subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in stockholders' deficit, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company'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 consolidated financial position of ConSyGen, Inc. (a Texas corporation) and its subsidiary as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring losses from operations and has a working capital and stockholders' deficit. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Notes 10 and 11. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. WOLINETZ, GOTTLIEB & LAFAZAN, P.C. Rockville Centre, New York April 18, 1997 CONSYGEN, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET
ASSETS ------ December 31, ------------------------- 1996 1995 -------- -------- Current Assets: Cash $ 83,204 $ 3,419 Accounts Receivable - 1,876 Debt Issuance Expense (Net of Accumulated Amortization of $139,000 in 1996 and $40,000 in 1995) 50,000 100,000 Prepaid Expenses 10,976 - -------- -------- Total Current Assets 144,180 105,295 Furniture and Equipment (Net of Accumulated Depreciation of $102,583 in 1996 and $84,352 in 1995) 72,513 60,517 Other Assets 5,283 6,789 -------- -------- Total Assets $ 221,976 $ 172,601 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- Current Liabilities: Notes Payable $ 343,507 $ 225,311 Loans Payable 160,000 88,000 Loans Payable - Related Parties 143,877 870,010 Accounts Payable 97,199 117,201 Accrued Liabilities 219,801 256,738 Deferred Revenues - 7,386 -------- -------- Total Current Liabilities 964,384 1,564,646 -------- -------- Commitments and Contingencies Stockholders' Deficit: Common Stock, $.003 Par Value, 500,000,000 Shares Authorized, Issued and Outstanding 13,686,231 Shares in 1996 and 6,699,994 Shares in 1995 41,059 20,100 Additional Paid-In Capital 16,438,365 9,188,619 Accumulated Deficit (17,221,832) (10,600,764) ----------- ---------- Total Stockholders' Deficit (742,408) (1,392,045) ----------- ---------- Total Liabilities and Stockholders' Deficit $ 221,976 $ 172,601 =========== ==========
The accompanying notes are an integral part of the financial statements. CONSYGEN, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS
For The Year Ended ---------------------------------------------------- December 31, ---------------------------------------------------- 1996 1995 1994 -------------- -------------- -------------- Revenues $ 43,552 $ 328,546 $ 790,466 -------------- -------------- -------------- Costs and Expenses: Cost of Sales - 199,561 213,068 Software Development 740,000 492,399 587,552 General and Administrative Expenses 5,767,410 644,204 585,196 Interest Expense 157,210 112,779 59,788 -------------- -------------- -------------- Total Costs and Expenses 6,664,620 1,448,943 1,445,604 -------------- -------------- -------------- Net Loss $ (6,621,068) $ (1,120,397) $ (655,138) ============== ============== ============== Weighted Average Common Shares Outstanding 9,438,062 6,116,661 595,832 ============== ============== ============== Net Loss Per Common Share $ (.70) $ (.18) $ (.11) ============== ============== ==============
The accompanying notes are an integral part of the financial statements. CONSYGEN, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Additional Total ---------- ----- Common Stock Paid-In Accumulated Stockholders' ------------ ------- ----------- ------------- Shares Amount Capital Deficit Deficit ------ ------ ------- ------- ------- Balance - January 1, 1994 5,499,994 $ 16,500 $5,483,500 $(8,825,229) $(3,325,229) Issuance of ConSyGen-Arizona Common Stock as Payment of Debt 500,000 1,500 498,500 - 500,000 Debt Cancellation by Related Party - - 2,680,210 - 2,680,210 Interest on Loans - - 21,493 - 21,493 Net Loss - - - (655,138) (655,138) --------- -------- ---------- ----------- ----------- Balance - December 31, 1994 5,999,994 18,000 8,683,703 (9,480,367) (778,664) Issuance of ConSyGen-Arizona Common Stock for Services 700,000 2,100 347,900 - 350,000 Interest on Loans - - 67,016 - 67,016 Debt Issuance Expense - - 90,000 - 90,000 Net Loss - - - (1,120,397) (1,120,397) --------- -------- ---------- ----------- ----------- Balance - December 31, 1995 (Carried Forward) 6,699,994 20,100 9,188,619 (10,600,764) (1,392,045) --------- -------- ---------- ----------- -----------
The accompanying notes are an integral part of the financial statements. CONSYGEN, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1996 ,1995 AND 1994 (Continued)
Additional Total ---------- ----- Common Stock Paid-In Accumulated Stockholders' ------------ ------- ----------- ------------- Shares Amount Capital Deficit Deficit ------ ------ ------- ------- ------- Balance - December 31, 1995 (Brought Forward) 6,699,994 $ 20,100 $9,188,619 $(10,600,764) $(1,392,045) Issuance of ConSyGen-Arizona Common Stock for Services 98,000 294 48,706 - 49,000 Issuance of ConSyGen-Arizona Common Stock as Payment of Debt 700,000 2,100 347,900 - 350,000 Donated Capital - Debt Cancellation by Stockholder - - 350,000 - 350,000 Issuance of ConSyGen-Arizona Common Stock for Services 1,777,006 5,331 883,172 - 888,503 Interest on Loans - - 90,802 - 90,802 Effect of Reverse Acquisition 111,231 334 (7,134) - (6,800) Issuance of Common Stock for Services 4,126,352 12,379 4,267,078 - 4,279,457 Issuance of Common Stock as Payment of Debt 173,648 521 1,182,022 - 1,182,543 Donated Capital - Debt Cancellation - - 87,200 - 87,200 Net Loss - - - (6,621,068) (6,621,068) ---------- -------- ----------- ------------ ----------- Balance - December 31, 1996 13,686,231 $ 41,059 $16,438,365 $(17,221,832) $ (742,408) ========== ======== =========== ============ ===========
The accompanying notes are an integral part of the financial statements. CONSYGEN, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS
For The Year Ended ---------------------------------------------------- December 31, ---------------------------------------------------- 1996 1995 1994 -------------- -------------- -------------- Cash Flows From Operating Activities: Net Loss $ (6,621,068) $ (1,120,397) $ (655,138) Adjustments to Reconcile Net Loss to Net Cash Provided (Used) by Operating Activities: Depreciation 18,231 10,494 8,215 Stock Issuance for Services 5,167,961 300,000 500,000 Change in Allowance for Doubtful Accounts - (15,910) - Loss on Abandonment - - 29,016 Amortization of Debt Issuance Expense 99,000 40,000 - Loan Interest - Additional Paid-In Capital 90,802 67,016 21,493 Changes in Operating Assets and Liabilities: Accounts Receivable 1,876 35,381 149,164 Other Assets (9,470) 11,502 2,497 Accounts Payable (26,802) 13,603 9,934 Accrued Liabilities 43,905 90,658 83,357 Deferred Revenues (7,386) (1,215) 8,601 -------------- -------------- -------------- Net Cash Provided (Used) by Operating Activities (1,242,951) (568,868) 157,139 -------------- -------------- -------------- Cash Flows From Investing Activities: Purchases of Furniture and Equipment (30,227) (60,927) (9,594) -------------- -------------- -------------- Net Cash (Used) by Investing Activities (30,227) (60,927) (9,594) -------------- -------------- -------------- Cash Flows From Financing Activities: Proceeds of Debt Financing 1,123,700 - - Proceeds of Loans and Notes Payable 305,396 212,492 50,000 Payments of Loans and Notes Payable (50,000) (3,200) (8,700) Proceeds of Loans Payable - Related Parties 11,271 433,407 324,802 Payments of Loans Payable - Related Parties (37,404) (23,351) (587,175) Repayment of Loans Receivable - Related Parties - - 86,167 -------------- -------------- -------------- Net Cash Provided (Used) by Financing Activities 1,352,963 619,348 (134,906) -------------- -------------- -------------- Net Increase (Decrease) in Cash 79,785 (10,447) 12,639 Cash - Beginning of Year 3,419 13,866 1,227 -------------- -------------- -------------- Cash - End of Year $ 83,204 $ 3,419 $ 13,866 ============== ============== ==============
The accompanying notes are an integral part of the financial statements. CONSYGEN, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
For The Year Ended ---------------------------------------------------- December 31, ---------------------------------------------------- 1996 1995 1994 -------------- -------------- -------------- Supplemental Cash Flow Information: Cash Paid for Interest $ 3,300 $ 24,491 $ 14,919 ============== ============== ============== Cash Paid for Income Taxes $ - $ - $ - ============== ============== ============== Supplemental Disclosure of Non-Cash Financing Activities: Cancellation of Debt into Additional Paid-In Capital - Related Parties $ 350,000 $ - $ 2,680,210 ============== ============== ============== Issuance of Common Stock as Debt Issuance Expense $ 49,000 $ 50,000 $ - ============== ============== ============== Issuance of Common Stock as Payment of Debt - Related Parties $ 350,000 $ - $ 500,000 ============== ============== ============== Debt Issuance Expense as Additional Paid-In Capital $ - $ 90,000 $ - ============== ============== ============== Effect of Reverse Acquisition - Accounts Payable Acquired $ 6,800 $ - $ - ============== ============== ============== Issuance of Common Stock as Payment of Debt $ 1,182,543 $ - $ - ============== ============== ============== Cancellation of Debt into Additional Paid-In Capital $ 87,200 $ - $ - ============== ============== ==============
The accompanying notes are an integral part of the financial statements. CONSYGEN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 1 - Operations and Basis of Presentation ------------------------------------ History of ConSyGen, Inc., (f/k/a C Square Ventures, Inc.) ---------------------------------------------------------- ConSyGen, Inc., a Texas corporation ("ConSyGen-Texas'), was incorporated on September 28, 1988 as C Square Ventures, Inc. ConSyGen-Texas was formed for the purpose of obtaining capital in order to take advantage of domestic and foreign business opportunities which may have profit potential. On March 16, 1989, ConSyGen-Texas (then C Square Ventures, Inc.) completed an initial public offering. On September 5, 1996, ConSyGen-Texas acquired 100% of the issued and outstanding shares of ConSyGen, Inc., a privately held Arizona corporation ("ConSyGen-Arizona") (f/k/a International Data Systems, Inc.). On June 25, 1996, International Data Systems, Inc. changed its name to ConSyGen, Inc. Immediately prior to the acquisition transaction, ConSyGen-Texas effected a 1-for-40 reverse split of its common stock. In connection with the acquisition, ConSyGen-Texas issued an aggregate of 9,275,000 shares of its common stock directly to the stockholders of ConSyGen-Arizona in exchange for all of the issued and outstanding shares of ConSyGen-Arizona. The exchange resulted in ConSyGen-Arizona's stockholders holding a larger portion of voting rights of ConSyGen-Texas than was held by the ConSyGen-Texas stockholders prior to the acquisition (approximately 69% at closing). In connection with the acquisition, outstanding options to purchase 1,275,000 shares of ConSyGen-Arizona's common stock granted under its Non-Qualified Stock Option Plan were terminated and ConSyGen-Texas adopted a new Non-Qualified Stock Option Plan (see Note 9). In addition, ConSyGen-Arizona terminated warrants to purchase 1,000,000 shares of its common stock in connection with the acquisition, and ConSyGen-Texas issued replacement warrants to purchase 1,000,000 shares of its common stock (see Note 9). As a result of the acquisition, ConSyGen-Arizona became a wholly-owned subsidiary of ConSyGen-Texas. The transaction has been treated as a reverse acquisition (purchase) with ConSyGen-Arizona being the acquiror and ConSyGen-Texas being the acquired company. Consequently, only the historical operations of ConSyGen-Arizona are presented for the periods through September 5, 1996. Subsequent to the acquisition, ConSyGen-Texas changed its name to ConSyGen, Inc. (A Texas corporation). ConSyGen-Texas and its wholly-owned subsidiary ConSyGen-Arizona are hereafter collectively referred to as the "Company". Description of Subsidiary Business ---------------------------------- ConSyGen-Arizona was incorporated in Arizona on October 11, 1979. It is currently engaged in the business of rendering automated software conversion services, including "year 2000" conversions in the United States and abroad. Prior to 1996, ConSyGen-Arizona licensed its proprietary computer software used in the hotel and airline industries, and provided software maintenance services. During 1989, management formalized plans to focus its efforts on automated conversion services. In 1996 ConSyGen-Arizona discontinued its practice of software licensing and providing maintenance services. ConSyGen-Arizona's future operations are dependent, in part, upon its ability to protect and further develop its proprietary software conversion technology. ConSyGen-Arizona operates in an industry where its competitors have greater capital resources to devote to the development and marketability of their technologies. ConSyGen-Arizona believes that its proprietary software provides fully automated conversion solutions including year 2000 conversion services. CONSYGEN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 1 - Operations and Basis of Presentation (Continued) ------------------------------------ Basis of Presentation --------------------- The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations and has a working capital and stockholders deficit. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in this regard include forming strategic alliances with computer hardware and consulting firms to perform data conversions and "year 2000" conversions using the Company's proprietary technological processes (see Note 10). In addition, in March 1997 the Company raised $1 million in convertible debt financing (see Note 11), and the Company intends to raise additional funds. However, the success of these planned measures cannot be determined at this time. Continuation of the Company is dependent on (1) achieving sufficiently profitable operations and (2) obtaining adequate financing. The financial statements do not include any adjustment relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. NOTE 2 - Summary of Significant Accounting Policies ------------------------------------------ Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of ConSyGen-Texas and its wholly-owned subsidiary, ConSyGen, Inc., an Arizona corporation ("ConSyGen-Arizona"). Significant intercompany accounts and transactions have been eliminated. 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 these estimates. Revenue Recognition ------------------- Revenue is recognized in accordance with Statement of Position 91-1, "Software Revenue Recognition". Accordingly, revenue from software licensing is recognized when delivery of the software has occurred, a signed noncancelable license agreement has been received from the customer and any remaining obligations under the license agreement are insignificant. Revenue related to insignificant obligations is deferred and recognized as the obligations are fulfilled. Revenue from software license fees related to the Company's obligation to provide certain post-contract customer support without charge for the first year of the license is unbundled from the license fee at its fair value and is deferred and recognized straight -line over the contract support period. Revenue from annual or other renewals of maintenance contracts (including long-term contracts) is deferred and recognized straight-line over the term of the contracts. In 1996, the Company discontinued its practice of software licensing and entering into maintenance contracts. CONSYGEN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 2 - Summary of Significant Accounting Policies (Continued) ------------------------------------------ Furniture and Equipment ----------------------- Furniture and equipment is stated at cost, less accumulated depreciation. Deprecation is computed by both straight-line method and accelerated methods over the estimated useful lives of the related assets. Debt Issuance Expense --------------------- Costs associated with the Company's debt financing transactions have been capitalized. These costs include the value of common stock issued, both by the Company or directly from a significant stockholder, as consideration for obtaining various loans. Such costs are being amortized over the terms of the related loans. Product Development ------------------- Under the criteria set forth in Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed", capitalization of software development costs begins upon the establishment of technological feasibility of the product. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenues, estimated economic product lives and changes in software and hardware technology. Amounts related to internal software development that could be capitalized under this statement were immaterial. Employee Stock Plans -------------------- The Company accounts for its stock option and employee stock purchase plans in accordance with provisions of the Accounting Principle Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." In 1995, the Financial Accounting Standards Board released Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock Based Compensation." SFAS 123 provides an alternative to APB 25 and is effective for fiscal years beginning after December 15, 1995. The Company will continue to account for its employee stock plans in accordance with the provisions of APB 25, and therefore will be required to disclose certain pro-forma information in the notes to its financial statements. SFAS 123 is not expected to have an effect on the Company's financial condition or results of operations. Fair Value of Financial Instruments ----------------------------------- The estimated fair value of financial instruments has been determined by the Company using available market information and valuation methodologies. Considerable judgment is required in estimating fair values. Accordingly, the estimates may not be indicative of the amounts the Company could realize in a current market exchange. The carrying amounts of cash, accounts receivable and accounts payable approximate fair value. Earnings Per Share ------------------ The computation of earnings per share is based on the weighted average number of outstanding common shares as adjusted for the 1 for 40 reverse split. Stock issued by ConSyGen-Arizona was converted to the Company equivalent shares using the exchange ratio of 1 for 1 as though the Company has issued the shares at the beginning of the periods. Common stock equivalents have not been included in this calculation since their inclusion would be antidilutive. CONSYGEN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 3 - Loans Payable - Related Parties ------------------------------- Loans payable to related parties with interest imputed at 10% per annum, are due on demand and are unsecured (see Note 8). NOTE 4 - Notes Payable ------------- Notes payable consist of the following: December 31, ------------------------- 1996 1995 -------- -------- Note payable, bearing Interest at 24% per annum, no stated maturity, and unsecured. As additional consideration to the lender for making the loan, the Company granted the lender an option to purchase 100,000 shares of the Company's common stock at $1.00 per share. $ - $ 50,000 Note payable, bearing interest at 10% per annum, no stated maturity and unsecured. As additional consideration to the lender for making the loan, a significant stockholder personally issued to the lender 30,000 shares of his common stock, valued at $1.00 per share. The value of such shares has been capitalized as debt issuance expense. 30,000 30,000 Note payable, bearing interest at 10% per annum, due July 31, 1996 and unsecured. Since August 1, 1996, the Company has been in default under the terms of the Note, and interest has been accruing at the default rate of 18% per annum. As additional consideration to the lender for making the loan, a significant stockholder personally issued to the lender 60,000 shares of his common stock, valued at $1.00 per share. The value of such shares has been capitalized as debt issuance expense. 100,000 100,000 Note payable, bearing interest at the prime rate, original maturity June 30, 1989 and unsecured. 23,000 23,000 Notes payable, bearing interest at 10% per annum, due on demand and unsecured. 23,317 22,311 CONSYGEN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 4 - Notes Payable (Continued) ------------- Notes payable consist of the following: December 31, ------------------------- 1996 1995 -------- -------- Note payable, bearing interest at 10% per annum, payable on demand, and unsecured. As additional consideration to the lender for making the loan, the Company issued 25,000 shares of its common stock to the lender valued at $1.00 per share. The value of such shares has been capitalized as debt issuance expense. $ 25,000 - Note payable, with interest imputed at 10% per annum, and unsecured. 23,190 - Note payable, with interest imputed at 10% per annum and unsecured. 5,000 - Note payable, bearing interest at 10% per annum, payable on demand and unsecured. 84,000 - Note payable, bearing interest at 10% per annum, payable on demand and unsecured. As additional consideration to the lender for making the loan, the Company issued 50,000 shares of its common stock to the lender valued at $1.00 per share. The value of such shares has been capitalized as debt issuance expense. 30,000 - --------- --------- $ 343,507 $ 225,311 ========= ========= CONSYGEN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 5 - Loans Payable ------------- Loans payable consist of the following:
December 31, ------------------------- 1996 1995 -------- -------- Loan payable, with interest imputed at 10% per annum, due on demand and unsecured. $ 52,000 $ 30,000 Loan payable to consultant, non-interest bearing, due on demand and unsecured (see Note 10). - 50,000 Loan payable, non-interest bearing, due on demand and unsecured. 8,000 8,000 Loan payable, with interest imputed at 10% per annum, due on demand and unsecured. 100,000 - --------- --------- $ 160,000 $ 88,000 ========= =========
NOTE 6 - Commitments and Contingencies ----------------------------- Leases ------ The Company's corporate offices are leased under a noncancelable operating lease, which expires in 1998. Rental expense aggregated $61,434, $49,884 and $48,144 in 1996, 1995 and 1994, respectively. Future minimum rental payments are as follows: Year Ending December 31, ------------- 1997 $ 55,496 1998 48,630 ---------- $ 104,126 ========== CONSYGEN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 6 - Commitments and Contingencies (Continued) ----------------------------- Legal Proceedings ----------------- From time to time, the Company may be named in legal actions which are incidental to the industry in which the Company operates. Currently, the Company is not a party to any legal proceedings. Regulatory Agency Filings ------------------------- The Company is delinquent with respect to certain filings it is required to make with the Securities and Exchange Commission ("SEC") pursuant to the provisions of the Securities Exchange Act of 1934 ("the 1934 Act"). It is not possible to make a determination as to the consequences of failing to timely file with the SEC under the 1934 Act. The Company is currently in the process of remedying these delinquencies. NOTE 7 - Income Taxes ------------ The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards, No. 109, "Accounting for Income Taxes". Deferred income taxes are provided with respect to differences between results of operations for financial reporting purposes and income tax purposes. In 1996, 1995 and 1994, the Company generated net operating losses. Deferred tax assets and liabilities are recorded based on differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when those differences are expected to reverse. As of December 31, 1996, the Company had a net operating loss carryforward (NOLC) for federal and state income tax purposes of approximately $15,600,000, which begins to expire in 1997. Pursuant to Section 382 of the Internal Revenue Code, due to changes in the ownership of the Company, the utilization of these loss carryforwards may be subject to an annual limitation based on a long-term tax exempt rate. For income tax purposes, the NOLC may be used by the Company to offset future taxable income. However, due to the Company's historical operating results, the Company has placed a 100% valuation reserve on the NOLC and other tax assets. The following table sets forth the components of deferred taxes at December 31, 1996: Accrued Liabilities and Other $ 10,000 Net Operating Loss Carryforwards 5,880,000 Valuation Reserve (5,890,000) ------------ $ -0- ============ CONSYGEN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 8 - Related Party Transactions -------------------------- A significant shareholder, who is also an officer and director of the Company and his relatives and affiliates have advanced funds to the Company on an as needed basis. As of December 31, 1996 and 1995, such shareholder and relatives had outstanding advances of $143,877 and $870,010 (see Notes 3 and 9). NOTE 9 - Stockholders' Deficit --------------------- In February 1994, ConSyGen-Arizona converted $500,000 of a loan payable to a significant shareholder into 500,000 shares of common stock. In addition, an affiliate of a significant shareholder canceled certain loans it had made to ConSyGen-Arizona in the amount of $2,680,210. This amount was credited to ConSyGen-Arizona's additional paid-in capital. In October 1995, ConSyGen-Arizona's board of directors increased the number of its authorized shares of common stock to 20,000,000 and changed the stated par value of such shares from $1 to $.01 per share. All periods presented have been retroactively adjusted to reflect this change. In November 1995, ConSyGen-Arizona issued 700,000 shares of common stock to advisors and consultants of ConSyGen-Arizona as consideration for services rendered, including 100,000 issued to a consultant. For accounting purposes the shares were valued at $.50 per share, which was management's best estimate of fair value at the date of issuance. The accompanying financial statements include a charge of $300,000 for the issuance of such shares, which is included in general and administrative expenses. The remaining $50,000 has been capitalized as debt issuance expense. ConSyGen-Arizona has recognized a financial (imputed) interest charge on loans and notes payable as to which there were originally no stated interest rates. The interest has been charged to operations and credited to additional paid-in capital and is summarized as follows: Year Ended ------------------ December 31, ------------------ 1996 1995 1994 ---------- ---------- ---------- Significant Stockholder $ 72,179 $ 65,516 $ 21,493 Others 18,623 1,500 - ---------- ---------- ---------- $ 90,802 $ 67,016 $ 21,493 ========== ========== ========== In October 1995, ConSyGen-Arizona's Board of Directors approved the Non-Qualified Stock Option Plan (the "Plan"), which covers 1,275,000 shares of ConSyGen-Arizona's common stock. Under the terms of the Plan, the exercise price per share may not be less than the par value of ConSyGen-Arizona's common stock. Options may be granted for terms of up to five years from the date of grant. At December 31, 1995, options to purchase an aggregate of 1,275,000 shares were granted under the Plan. The Plan and all options outstanding thereunder were terminated effective as of September 5, 1996, the closing of the ConSyGen-Texas acquisition. A new non-qualified stock option plan covering 1,500,000 shares was simultaneously adopted by ConSyGen-Texas. At December 31, 1996, options to purchase an aggregate of 1,500,000 shares were outstanding under the new Plan. CONSYGEN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 9 - Stockholders' Deficit (Continued) --------------------- Effective as of the closing of the ConSyGen-Texas acquisition, ConSyGen-Arizona terminated warrants to purchase 1,000,000 shares of its common stock, which were issuable in connection with ConSyGen-Arizona's $1,200,000 debt financing in 1996. ConSyGen-Texas simultaneously reserved for issuance replacement warrants to purchase 1,000,000 shares of its common stock. During 1996, ConSyGen-Arizona issued to a significant shareholder, who is also an officer and director of the Company, an aggregate of 2,477,006 shares of common stock, of which 700,000 were issued in satisfaction of a $700,000 loan payable to such stockholder, and the remaining 1,777,006 shares were issued as compensation for services rendered by such person in his capacity as an officer and director of ConSyGen-Arizona. In addition, 98,000 shares of common stock were issued to certain individuals as consideration for advancing funds to ConSyGen-Arizona. For accounting purposes, all the shares were valued at $.50 per share, which was management's best estimate of fair value at the date of issuance. During 1996 the Company issued to a consultant for services 100,000 shares of common stock valued at $1.00 per share, which was management's best estimate of fair value at date of issuance. Debt Financings --------------- During 1996 ConSyGen-Arizona entered into an agreement with a consultant under which the consultant agreed to assist ConSyGen-Arizona in obtaining financing. In 1996 such consultant assisted ConSyGen-Arizona in raising approximately $1,200,000 in a private placement of debt. The debt bore interest at a rate of 10% per annum, was unsecured, and was to be repaid in one year. As additional consideration to the lenders, ConSyGen-Arizona agreed to issue warrants to purchase an aggregate of 1,000,000 shares of ConSyGen-Arizona's common stock at an exercise price of $5.00 per share. The warrants become exercisable one year from the date of the loan, have a term of two years and are callable upon 60 days notice. In connection with ConSyGen-Texas's acquisition of ConSyGen-Arizona, ConSyGen-Arizona terminated these warrants and ConSyGen-Texas reserved for issuance new warrants to purchase 1,000,000 shares of ConSyGen-Texas common stock on the same terms and conditions. ConSyGen-Arizona issued 100,000 shares of its common stock to the consultant as a retainer for services to be rendered. Such shares were valued at $.50 per share and have been capitalized as debt issuance expense. Such consultant had loaned the Company $84,000 at December 31, 1996. This $84,000 loan was repaid by the Company in March 1997. Following the loan transaction, the Company's consultant transferred common stock of ConSyGen-Texas held by it to the lenders in exchange for ConSyGen-Arizona's debt. As a result of this transaction, ConSyGen-Arizona's obligation to repay the lenders was extinguished and ConSyGen-Arizona became obligated to repay such consultant. On September 5, 1996, ConSyGen-Texas and the consultant agreed that ConSyGen-Texas would issue an aggregate of 200,000 shares of its common stock to such consultant, of which 173,648 shares was in cancellation of ConSyGen-Arizona's debt acquired by the consultant from the lenders and 26,352 shares were as payment for services. CONSYGEN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 9 - Stockholders' Deficit (Continued) --------------------- Acquisition of ConSyGen-Arizona ------------------------------- On September 5, 1996, ConSyGen-Texas, pursuant to an exchange agreement, acquired 100% of the issued and outstanding shares of ConSyGen-Arizona directly from the stockholders of ConSyGen-Arizona. Immediately prior to the acquisition, ConSyGen-Texas effected a 1 for 40 reverse split of its common stock. In connection with the acquisition, ConSyGen-Texas issued an aggregate of 9,275,000 shares of its common stock in exchange for all of the issued and outstanding shares of ConSyGen-Arizona. The exchange resulted in ConSyGen-Arizona's shareholders holding a larger portion of the voting rights of ConSyGen-Texas than was held by the ConSyGen-Texas stockholders prior to the acquisition (approximately 69% at closing). The transaction has been treated as a reverse acquisition (purchase) with ConSyGen-Arizona being the acquiror and ConSyGen-Texas being the acquired company. Subsequent to the acquisition, ConSyGen-Texas changed its legal name to ConSyGen, Inc. Upon the closing of the acquisition, ConSyGen-Texas issued 3,850,000 shares of common stock to various consultants for services rendered. Such shares were registered under the Securities Act of 1933, as amended, pursuant to a Registration Statement on Form S-8. In addition, ConSyGen-Texas issued 150,000 shares of common stock to a consultant for services rendered. These 4,000,000 shares were valued at $1.00 per share, which was management's best estimate of fair market value at the time of issuance. The accompanying financial statements include a change of $4,000,000 for the issuance of such shares, which is included in general and administrative expenses. NOTE 10 - Strategic Alliances ------------------- The Company's sales and marketing strategy is to enter into alliances with system integrators that provide computer related services to end-users. In general, under these arrangements, the systems integrator will contract with the Company to provide conversion services, including Year 200 correction services, to the integrator's customers. The Company believes that this approach affords it the opportunity to have its services marketed to a wide range of potential customers. The Company has entered into such alliances with several major corporations, including Unisys Corporation, Strategia Corporation, Agiss Software Corporation, SCB Computer Technology, and Millenium Enterprises. NOTE 11 - Subsequent Events ----------------- In March 1997, ConSyGen-Texas raised $1,000,000 before deducting finder's fees of $100,000 through a private placement of convertible notes (the "Notes") in the principal amount of $1,000,000. The Notes are unsecured, bear interest at the rate of 6% per annum, are payable in March 2000, and are convertible into common stock of ConSyGen-Texas. The principal amount of the Notes are convertible into common stock of ConSyGen-Texas at a rate equal to the lesser of (1) $10.85 per share (115% of the closing bid price of the common stock on March 21,1997); or (2) that price which is equal to 70% of the average closing bid price of the common stock for the five trading days preceeding the date of conversion. ConSyGen-Texas is obligated to register the shares of common stock issuable upon conversion of the Notes, under the Securities Act of 1933, as soon as practicable after the closing date. ConSyGen-Texas is obligated to pay certain penalties if the underlying share are not registered under the Securities Act of 1933 within 90 days of the date of Closing. ConSyGen-Texas may compel conversion of the Notes at any time after the expiration of six months after the effective date of the Registration Statement. The Notes are redeemable, at a price equal to 130% of the principal amount of the Notes, in the event that the price of ConSyGen-Texas' common stock is less than the bid price on March 21, 1997. CONSYGEN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 11 - Subsequent Events (Continued) ----------------- In March 1997 the Company granted options to an officer of the Company to purchase up to 400,000 shares of common stock at an exercise price of $8.875 per share. The options expire after 10 years from the date of grant. At the date of grant, options to purchase 100,000 shares vested immediately and the remaining balance vests in equal monthly installments commencing one year from the date of grant. ITEM 7. EXHIBITS (a) Financial Statements of Business Acquired. (b) Exhibits. Exhibit No. Description of Exhibit 27 Financial Data Schedule 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 hereunto duly authorized. ConSyGen, Inc. -------------------------------- (Registrant) Date: June 2, 1997 /s/Ronald I. Bishop ------------------- Ronald I. Bishop (President) EXHIBIT INDEX EXHIBIT NO. DESCRIPTION OF EXHIBIT 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 83204 0 0 0 0 144180 175096 102583 221976 964384 0 0 0 41059 (783467) 221976 43552 43552 0 0 6507410 0 157210 (6621068) 0 (6621068) 0 0 0 (6621068) (.70) 0
-----END PRIVACY-ENHANCED MESSAGE-----