<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d) of the
- ------------- Securities Exchange Act of 1934 for the quarterly period ended
September 30, 1998
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 000-24789
SYNERGY 2000, INC.
(Exact name of small business issuer as specfied in its Charter)
Delaware 64-0872630
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2815 Cox Neck Road, Chester, Maryland, 21614
--------------------------------------------
(Address of principal executve offices)
(410) 643-8320
--------------
(Telephone)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------------------ -----------------
As of December 1, 1998, Registrant had outstanding 10,651,500 shares of Common
Stock, $.001 par value.
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SYNERGY 2000, INC.
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997
Consolidated Statements of Operations for the Three and
Nine months ended September 30, 1998 and 1997
Consolidated Statements of Retained Earnings as of December
31, 1997 and September 30, 1998.
Consolidated Statements of Cash Flows for the Nine months
ended September 30, 1998 and 1997.
Consolidated Notes to Financial Statements
ITEM 2. Management 's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II OTHER INFORMATION
EXHIBIT 27 - Financial Data Schedule
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
SYNERGY 2000, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current Assets
Cash $141,232 $137,612
Accounts Receivable 272,841 64,024
Common Stock Subscriptions Receivable 112,500 112,500
---------- --------
Total Current Assets $526,573 $314,136
Equipment, Net 4,532 3,635
Other Assets:
Intangible Assets, Net 936,765 --
Organization Costs, Net 104 136
---------- --------
Total Other Assets 936,869 136
---------- --------
Total Assets $1,467,974 $317,907
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts Payable $44,645 $5,273
Accrued Payroll Taxes 9,020 $10,395
Accrued Income Taxes 51,237 --
---------- --------
Total Current Liabilities 104,902 $15,668
Deferred Income Taxes -- 1,007
Minority Interest in Consolidated Subsidiary 463,728 --
Stockholder's Equity:
Common Stock, Par Value $.001:
Authorized 25,000,000 Shares
Issued and Outstanding 10,651,500 Shares 10,637 10,637
Common Stock Subscribed, 112,500 Shares 112,500 112,500
Capital in Excess of Par Value of Common Stock 726,663 236,663
Retained Earnings 49,544 (58,568)
---------- --------
Total Stockholders' Equity 899,344 301,232
---------- --------
Total Liabilities and Stockholders' Equity $1,467,974 $317,907
========== ========
</TABLE>
See accompanying Consolidated Notes to Financial Statements
<PAGE>
SYNERGY 2000, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
30-Sep 30-Sep
------------------- -------------------
1998 1997 1998 1997
-------- ------- --------- ------
<S> <C> <C> <C> <C>
Fees Billed $458,912 $230,795 $1,458,581 $377,789
Operating Expenses:
Salaries 60,760 54,000 182,280 168,300
Contract Services 406,044 16,987 853,972 33,122
Taxes and Licenses 3,886 2,309 14,476 10,571
Auto and Truck 19 2,260 1,414 5,766
Travel and Business 15,934 48,836 42,718 71,809
Meals and Entertainment 178 3,860 1,455 4,801
Advertising 4,578 7,189 62,838 14,340
Professional Fees 28,392 -- 42,640 13,635
Rent 2,863 -- 8,777 2,250
Telephone 9,793 1,434 20,368 6,280
Supplies 2,583 3,189 11,874 6,328
Insurance 7,121 5,272 27,239 7,845
Postage and Shipping 1,876 271 3,678 1,033
Dues and Publications 38 666 690 1,545
Investor Relations 201 -- 4,617 --
Amortization 24,052 -- 24,052 --
Depreciation 224 -- 668 --
Mscellaneous 3,119 5,203 3,539 5,405
--------- ------- --------- -------
Total Operating Expenses 571,661 151,476 1,307,295 353,030
--------- ------- --------- -------
Net Income (Loss) Before Income Taxes ($112,749) $79,319 $151,286 $24,759
Income Tax (Expense) Benefit 43,934 (18,556) (50,230) (5,228)
--------- ------- --------- -------
Net Income (Loss) Before Minority Interest ($68,815) 60,763 101,056 19,531
Minority Interest in Net Loss $7,717 -- 7,056 --
--------- ------- --------- -------
Consolidated Net Income (Loss) ($61,098) $60,763 $108,112 $19,531
========= ======= ========= =======
</TABLE>
See accompanying Consolidated Notes to Financial Statements
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SYNERGY 2000, INC.
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
Capital Total
Common In Excess Retained Stock-
Common Stock of Par Earnings Holders'
Stock Subscribed Value (Deficity) Equity
------- ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1997 10,637 112,500 236,663 (58,568) 301,232
Sales of Subsidiary Common Stock -- -- 490,000 -- 490,000
Net Income -- -- -- 108,112 108,112
------- -------- -------- ------- --------
Balance - September 30, 1998 $10,637 $112,500 $726,663 $49,544 $899,344
======= ======== ======== ======= ========
</TABLE>
See accompanying Consolidated Notes to Financial Statements
<PAGE>
SYNERGY 2000, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
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September 30, September 30,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $101,056 $19,531
Adjustments to Reconcile Net Income (Loss) to Net Cash
Cash Provided by (Used) in Operating Activities:
Depreciation 668 --
Amortization 24,052 32
Dec (Inc) in Accounts receivable (208,817) (37,465)
Inc. (Dec.) in Accounts Payable 39,372 14,950
Inc. (Dec.) in Payroll Taxes (1,375) 15,551
Inc. (Dec.) in Deferred Income Taxes (1,007) --
Inc. (Dec.) in Accrued Income Taxes 51,237 5,228
-------- -------
Net Cash Provided by (Used) in Operating Activities $5,186 $17,827
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Equipment (1,566) --
-------- -------
Net Cash Used in Investing Activities -1,566 --
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Stock -- 138,800
Redemption of Stock -- (74,500)
-------- -------
Net Cash Provided by Financing Activities -- 64,300
NET INCREASE (DECREASE) IN CASH $3,620 $82,127
CASH - BEGINNING 137,612 12,000
-------- -------
CASH - ENDING $141,232 $94,127
======== =======
</TABLE>
See accompanying Consolidated Notes to Financial Statements
<PAGE>
SYNERGY 2000, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
The accompanying unaudited consolidated financial statements of Synergy 2000,
Inc. and subsidiary (the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the regulations of the Securities and Exchange Commission. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. These interim consolidated financial statements should be read in
conjunction with the financial statements and notes for the year ended December
31, 1997.
Organization and Business - The Company is an information systems integrator and
management consulting firm providing value added technology and management
solutions for companies to prepared them tactically and strategically for the
Year 2000 and beyond. The Company offers a variety of products and services for
solving systems' problems related to the Year 2000 and the inability to process
computer application code with date-related fields.
On June 25, 1998, the Company and Argos Technologies, Inc. (an unrelated
company) agreed to form Argos 2000, Inc. for the purpose of marketing Year 2000
compatible policy administration software to the auto insurance industry. The
Company received 51% of the newly issued common stock of Argos 2000, Inc. in
exchange for 200,000 shares of its $.001 par value common stock. This common
stock is not reflected as issed and outstanding in the accompanying unaudited
financial statements since it is eliminated in consolidation. Argos
Technologies, Inc. received 49% of the newly issued common stock of Argos 2000,
Inc., plus certain contingent commissions based on sales, in exchange for Argos
2000, Inc., receiving an exclusive non-transferable, license, throughout the
world, to market certain proprietary software. This transaction was valued at
$960,785 which was the estimated fair value of the common stock issued by Argos
2000, Inc. as of June 25, 1998.
The results of operations presented in the accompanying unaudited consolidated
financial statements include Argos 2000, Inc. from its formation on June 25,
1998 through September 30, 1998, and are insignificant.
Since the Company's clients include all industries, its ability to collect
amounts due from them as a result of extending them credit, is not affected by
economic fluctuations in any particular industry.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its 51% owned subsidiary, Argos 2000, Inc. All
significant intercompany transactions and balances have been eliminated.
Revenue Recognition - Revenue from contract consulting services are recognized
on the percentage-to-completion method. Revenue frm sales of software and
software documentation products is generally recognized upon product shipment
provided that no significant vendor obligations remian and collection of the
resulting receivable is deemed probable.
Depreciation - The company's equipment is depreciated using the straight-line
method. Depreciation expense totalled $668 for the nine months ended September
30, 1998.
<PAGE>
SYNERGY 2000, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
September 30, 1998
Intangible Assets - In June 1998, Argos 2000, Inc, acquired an exclusive,
non-transferable, license, throughout the world, to market a fully automated
year 2000 compatible, policy administration sysatem designed for the auto
insurance industry. This intangible asset is amortized using the straight-line
method over 10 years. Amortization expense totalled $24,020 for the nine months
ended September 30, 1998.
Organization Costs - Organization cost ($215) are being amortized using the
straight-line method over 60 months. Amortization expense charged to operations
amounted to $32 for the nine months ended September 30, 1998. Accumulated
amortization was $111 at September 30, 1998.
Deferred Income Taxes - For income tax reporting, the Company uses accounting
methods that recognize depreciation sooner than for financial statement
reporting and does nt recognize income and certain expenses until received or
paid. As a result, the basis of equipment, accounts receivable, and certain
accrued expenses for financial reporting exceeds its tax basis. Deferred income
taxes have been recorded for the excess, which will be taxable in future periods
through reduced depreciation deductions, and increased income for tax purposes.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 2 - EQUIPMENT
- ------------------
Equipment consists of the following:
Computer Equipment $5,604
Accumulated Depreciation (1,072)
------
$4,532
------
NOTE 3 - INCOME TAXES
- ---------------------
The income tax provision consists of the following:
1998
-------
Current 51,237
Deferred (1,007)
-------
$50,230
-------
The income tax provision differes from the expense that would result from
applying statutory rates to income before income taxes because of nondeductible
meals and entertainment of $727.
NOTE 4 - STOCKHOLDERS' EQUITY
- -----------------------------
Common Stock Subscribed - On December 31, 1998, 250,000 shares of the Company's
$.001 par value common stock was subscribed to for a total price of $250,000.
For the year ended December 31, 1997, $137,500 of the subscriptions were
received. The remaining $112,500 was outstanding at September 30, 1998.
<PAGE>
SYNERGY 2000, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
September 30, 1998
Net Income Per Share - Net income per common share has not been computed since
it is not significant.
Note 5 - RELATED PARTY TRANSACTIONS.
- ------------------------------------
For the nine months ended September 30, 1998, the Company paid Argos 2000, Inc.,
$72,044 for services provided to the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion
Introduction
The Company's sales are comprised primarily of providing consulting and
management services relating to information systems. It is also a reseller of
software in most instances arising from its consulting services. In additon, a
substantial portion of its sales have been provided from clients and ccustomers
seeking solution to problems relating to the year 2000 (Y2K).
It is anticpated that certain repeat customers will be using the Company for
expanded new program development in both the Y2K area as well as new program
development. The Company is also entering into new areas of consulting and
maintenance whereby the Company's personnel will be developing entirely new
programs for exisitng and new customers, implementing those programs and
maintening that system.
The Company's consulting and management arrangements generally last several
months and generally are not with the same client. The Company's future revenues
are always dependent upon obtaining additonal contracts.
Statement of Operations September 30, 1998 to September 30, 1997 (unaudited)
The Company's revenues or fees billed was approximately $458,912 and $1,458,581
for the three and nine month month periods ended September 30, 1998 compared to
approximately $230,795 and $377,789 for the comparable periods in 1997. These
increases were due primarily to an increase in the number of consulting
arrangements entered into by the Company as well as increased revenues derived
from the sales of software.
The Company's operating expenses during the three and nine month periods ended
September 30, 1998 were approximately $571,661 and $1,307,295 compared to
$151,475 and $353,030 during the comparable periods in 1997. The increased
expenses were primarily attibuted to the increased volume. The Company had net
income of $108,112 for the nine month period ended September 30, 1998 and a
profit of approximately $19,531 in the comparable period in 1997. The increase
in net income is primarily the result of increased volume. The Company incurred
a loss of $61,098 during the quarter ended September 30, 1998 compared to a
profit of $60,763 in the comparable period in 1997. The loss resulted from the
accrual of operating expenses for projects producing fees in subsequent periods.
The Company does not believe the first nine months of 1997 is a representative
period as the Company was just beginning to derive revenues from income
producing activities prior to such period. A substantial portion of its
operations were devoted to start-up activities until 1998.
<PAGE>
The Company is not aware of any trend that will adversely affect its revenues in
1998. The Company relies on programmers and consultants to perform its contracts
and from time to time there have been shortages of such programmers. The Company
has not in the past nor does it anticipate any difficulty in the immediate
future in obtaining programmers. Any change could result in increased fees paid
for outside technical help.
The Company's revenues beyond 1998 are dependent upon its ability to diversify
beyond offering Year 2000 services, which it is currently doing.
Intangible Assets
In June 1998, Argos 2000, Inc, acquired an exclusive, non-transferable, license,
throughout the world, to market a fully automated year 2000 compatible, policy
administration sysatem designed for the automobile industry. This intangible
asset is amortized using the straight-line method over 10 years. Amortization
expense totalled $24,000 for the nine months ended September 30, 1998.
Liquidity and Capital Resources
The Company's working capital was approximately $421,000 as of September 30,
1998 compared to approximately $299,000 at December 31, 1997. The increase was
primarily attributable to the increase in accounts receivable resulting from
increased revenues.
The Company has derived its cash from operations and the sale of shares. The
Company has no commitments for capital expenditures and believes its available
cash is adequate for its present operations for the next twelve months.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
(Registrant) Synergy 2000, Inc.
Date 26-May-99
By /s/ Eli Dabich, Jr.
---------------------------
Eli Dabich, Jr. as President
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Audited
and Unaudited Consolidated Balance Sheet and Statement of Operations as of
December 31, 1997 and for the nine month period ended September 30, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 SEP-30-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<CASH> 137,612 141,232
<SECURITIES> 0 0
<RECEIVABLES> 64,024 272,841
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 314,136 526,573
<PP&E> 4,039 5,604
<DEPRECIATION> 404 1,072
<TOTAL-ASSETS> 317,907 1,467,974
<CURRENT-LIABILITIES> 15,668 104,902
<BONDS> 0 0
0 0
0 0
<COMMON> 10,637 10,637
<OTHER-SE> 290,595 888,707
<TOTAL-LIABILITY-AND-EQUITY> 317,907 1,467,974
<SALES> 0 0
<TOTAL-REVENUES> 480,335 1,458,581
<CGS> 0 0
<TOTAL-COSTS> 478,975 1,307,295
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,360 151,286
<INCOME-TAX> 1,007 50,230
<INCOME-CONTINUING> 353 101,056
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 353 108,112
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
