SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
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 1. CHANGES IN CONTROL OF REGISTRANT
On September 5, 1996, the Registrant acquired all the issued and
outstanding capital stock of ConSyGen, Inc., an Arizona corporation (the
"Acquired Company"), from the stockholders of such corporation, including Robert
L. Stewart, who was then the controlling stockholder of the Acquired Company.
The Acquired Company is engaged in the business of rendering automated software
conversion services, and its assets consist primarily of proprietary software
conversion technology. The Registrant intends to continue to use the assets of
the Acquired Company to render automated software conversion services. In
connection with the acquisition of the Acquired Company, the Registrant issued
an aggregate 13,125,000 shares of its common stock, of which 9,275,000 shares
were issued to the stockholders of the Acquired Company. The number of shares
issued to the stockholders of the Acquired Company in connection with the
acquisition was based upon a determination by the Board of Directors of the
Registrant as to the fair market value of the business of the Acquired Company.
For accounting purposes, the transaction has been treated as a recapitalization
of the Acquired Company, with the Acquired Company being treated as the acquiror
("reverse acquisition").
In connection with the acquisition, the stockholders of the Acquired
Company surrendered 9,275,000 shares of Common Stock, being all the issued and
outstanding capital stock of the Acquired Company, of which 8,187,000 shares
were surrendered by Robert L. Stewart, the former controlling stockholder of the
Acquired Company, who, in connection with the acquisition, acquired control of
the Registrant. The basis of the controlling stockholder's control of the
Registrant is the percentage of the issued and outstanding voting securities of
the Registrant beneficially owned by such person. Following the acquisition, the
former stockholders of the Acquired Company beneficially owned in the aggregate
approximately 69% of the issued and outstanding voting securities of the
Registrant, including 8,187,000 shares owned beneficially by Mr. Stewart (now
the controlling stockholder of the Registrant), which represent approximately
61% of the issued and outstanding voting securities of the Registrant. Carl H.
Canter was the former controlling stockholder of the Registrant, who
relinquished control of the Registrant in connection with the acquisition.
ITEM 2. ACQUISITION OF ASSETS
Please refer to Item 1, Changes in Control of Registrant, for a
description of the transaction in which the Registrant acquired a significant
amount to assets.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
The Board of Directors and Stockholders
ConSyGen, Inc. (An Arizona Corporation)
We have audited the accompanying balance sheet of ConSyGen, Inc. (an Arizona
corporation) as of December 31, 1995 and 1994, and the related statements of
operations, changes in stockholders' deficit, and cash flows for the years then
ended. 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 financial position of ConSyGen, Inc. (an Arizona
corporation) as of December 31, 1995 and 1994, and the results of its operations
and cash flows for the years then ended, 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 Note 10. 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.
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
------
December 31,
--------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Current Assets:
Cash $ 3,419 $ 13,866
Accounts Receivable (Net of Allowance for
Doubtful Accounts of $15,910 in 1994) 1,876 21,347
Debt Issuance Expense (Net of Accumulated
Amortization of $40,000 in 1995) 100,000 -
Prepaid Expenses - 11,502
---------- ----------
Total Current Assets 105,295 46,715
Furniture and Equipment (Net of Accumulated
Depreciation of $84,352 in 1995 and
$73,858 in 1994) 60,517 10,084
Other Assets 6,789 6,789
---------- ----------
Total Assets $ 172,601 $ 63,588
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current Liabilities:
Notes Payable $ 225,311 $ 96,019
Loans Payable 88,000 8,000
Loans Payable - Related Parties 870,010 459,954
Accounts Payable 117,201 103,598
Accrued Liabilities 256,738 166,080
Deferred Revenues 7,386 8,601
---------- ----------
Total Current Liabilities 1,564,646 842,252
---------- ----------
Commitments and Contingencies
Stockholders' Deficit:
Common Stock, $.01 Par Value, 20,000,000 Shares
Authorized, Issued and Outstanding 6,699,994 Shares
in 1995 and 5,999,994 Shares in 1994 67,000 60,000
Additional Paid-In Capital 9,141,719 8,641,703
Accumulated Deficit (10,600,764) (9,480,367)
---------- ----------
Total Stockholders' Deficit (1,392,045) (778,664)
---------- ----------
Total Liabilities and Stockholders' Deficit $ 172,601 $ 63,588
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
CONSYGEN, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For The Year Ended
------------------------------------
December 31,
------------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Revenues $ 328,546 $ 790,466
------------- --------------
Costs and Expenses:
Cost of Sales 199,561 213,068
Software Development 492,399 587,552
General and Administrative Expenses 644,204 585,196
Interest Expense 112,779 59,788
------------- --------------
Total Costs and Expenses 1,448,943 1,445,604
------------- --------------
Net Loss $ (1,120,397) $ (655,138)
============= ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
CONSYGEN, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Additional Total
---------- -----
Common Stock Paid-In Accumulated Stockholders'
------------ ------- ----------- -------------
Shares Amount Capital Deficit Deficit
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1994 5,499,994 $ 55,000 $5,445,000 $ (8,825,229) $ (3,325,229)
Issuance of Common Stock
as Payment of Debt 500,000 5,000 495,000 - 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 60,000 8,641,703 (9,480,367) (778,664)
Issuance of Common Stock
for Services 700,000 7,000 343,000 - 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 6,699,994 $ 67,000 $9,141,719 $(10,600,764) $ (1,392,045)
========= ======== ========== ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
CONSYGEN, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For The Year Ended
------------------------------------
December 31,
------------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ ( 1,120,397) $ (655,138)
Adjustments to Reconcile Net Loss to Net Cash
Provided (Used) by Operating Activities:
Depreciation 10,494 8,215
Stock Issuance for Services 300,000 500,000
Change in Allowance for Doubtful Accounts (15,910) -
Loss on Abandonment - 29,016
Amortization of Debt Issuance Expense 40,000 -
Loan Interest - Additional Paid-In Capital 67,016 21,493
Changes in Operating Assets and Liabilities:
Accounts Receivable 35,381 149,164
Other Assets 11,502 2,497
Accounts Payable 13,603 9,934
Accrued Liabilities 90,658 83,357
Deferred Revenues (1,215) 8,601
-------------- --------------
Net Cash Provided (Used) by Operating Activities (568,868) 157,139
-------------- --------------
Cash Flows From Investing Activities:
Purchases of Furniture and Equipment (60,927) (9,594)
-------------- --------------
Net Cash (Used) by Investing Activities (60,927) (9,594)
-------------- --------------
Cash Flows From Financing Activities:
Proceeds of Loans and Notes Payable 212,492 50,000
Payments of Loans and Notes Payable (3,200) (8,700)
Proceeds of Loans Payable - Related Parties 433,407 324,802
Payments of Loans Payable - Related Parties (23,351) (587,175)
Repayment of Loans Receivable - Related Parties - 86,167
-------------- --------------
Net Cash Provided (Used) by Financing Activities 619,348 (134,906)
-------------- --------------
Net Increase (Decrease) in Cash (10,447) 12,639
Cash - Beginning of Year 13,866 1,227
-------------- --------------
Cash - End of Year $ 3,419 $ 13,866
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
CONSYGEN, INC.
STATEMENT OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
For The Year Ended
------------------------------------
December 31,
------------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Supplemental Cash Flow Information:
Cash Paid for Interest $ 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 $ - $ 2,680,210
============== ==============
Issuance of Common Stock as Debt Issuance Expense $ 50,000 $ -
============== ==============
Issuance of Common Stock as Payment of Debt -
Related Parties $ - $ 500,000
============== ==============
Debt Issuance Expense as Additional Paid-In Capital $ 90,000 $ -
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
CONSYGEN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - Operations and Basis of Presentation
------------------------------------
ConSyGen, Inc. (the "Company") (formerly known as International
Data Systems, Inc.) is an Arizona corporation engaged in the business of
rendering automated software conversion services, including "year 2000"
conversions in the United States and abroad. During 1989, management formalized
plans to focus its efforts on automated conversion services. Until 1995, the
Company licensed its proprietary computer software used in the hotel and airline
industries, and provided software maintenance services. In 1996 the Company
discontinued its practice of software licensing and providing maintenance
services. The Company's future operations are dependent, in part, upon its
ability to protect and further develop its proprietary software conversion
technology. The Company operates in an industry where its competitors have
greater capital resources to devote to the development and marketing of their
technologies. The Company believes that its proprietary software provides fully
automated conversion solutions, including year 2000 conversion services.
On September 5, 1996, the Company was acquired by C Square
Ventures, Inc. ("C Square"), a publicly held company incorporated in the state
of Texas, in a stock-for-stock transaction whereby the stockholders of the
Company surrendered all of the issued and outstanding shares of common stock of
the Company in exchange for 9,275,000 shares of C Square stock, representing
approximately 69% of all the issued and outstanding common stock of C Square at
the date of closing. In connection with the acquisition, outstanding options to
purchase 1,275,000 shares of the Company's common stock granted under the
Company's Non-Qualified Stock Option Plan were terminated and C Square adopted a
new Non-Qualified Stock Option Plan (see Note 9). In addition, the Company
terminated warrants to purchase 1,000,000 shares of common stock in connection
with the acquisition, and C Square issued replacement warrants to purchase
1,000,000 shares of common stock of C Square (see Note 10). As a result of the
acquisition, the Company became a wholly-owned subsidiary of C Square. For
accounting purposes, this transaction has been treated as a reverse acquisition
(purchase), with the Company being the acquiror and C Square being the acquired
company. Subsequent to the acquisition, C Square changed its legal name to
ConSyGen, Inc. (a Texas corporation) (see Note 10).
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. As indicated in Note 10, 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. In addition, the Company and C
Square had raised an aggregate of approximately $2.2 million in debt financing,
of which approximately $1.2 million was converted into equity, and the Company
and C Square intend 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
adjustments 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.
CONSYGEN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 2 - Summary of Significant Accounting Policies
------------------------------------------
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 unbounded from the license fee at
its fair value and is deferred and recognized on a straight-line basis over the
contract support period. Revenue from annual or other renewals of maintenance
contracts (including Long-Term contracts) is deferred and recognized on a
straight-line basis over the term of the contracts. In 1996, the Company
discontinued its practice of software licensing and entering into maintenance
contracts.
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.
CONSYGEN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 2 - Summary of Significant Accounting Policies: (Continued)
-------------------------------------------
Recently Issued Accounting Standards
------------------------------------
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", which is required to be adopted by the Company in 1996, is not expected to
have a material effect on the Company's financial position or its results of
operations upon adoption. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", is required to be adopted by the
Company in 1996. Pursuant to the provisions of Statement of Financial Accounting
Standards No. 123, the Company will continue to account for transactions with
its employees pursuant to Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Therefore, this Statement is not
expected to have a material effect on the Company's financial position or its
results of operations when adopted.
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.
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).
CONSYGEN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 4 - Notes Payable
-------------
Notes payable consist of the following:
December 31,
---------------------------
1995 1994
-------- --------
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 $ 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 -
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 -
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. 22,311 23,019
-------- --------
$225,311 $ 96,019
======== ========
CONSYGEN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 5 - Loans Payable
-------------
Loans payable consist of the following:
December 31,
---------------------------
1995 1994
-------- --------
Loan payable, bearing interest at 10% per
annum, due on demand and unsecured. $ 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
-------- --------
$ 88,000 $ 8,000
======== ========
NOTE 6 - Commitments and Contingencies
-----------------------------
Leases
------
The Company's corporate offices are leased under a noncancelable
operating lease, which expires in 1998. Rental expense was $49,884 and $48,144
in 1995 and 1994, respectively. Future minimum rental payments are as follows:
Year Ending
December 31,
--------------
1996 $ 52,067
1997 55,496
1998 48,630
-----------
$ 156,193
===========
CONSYGEN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
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.
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 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, 1995, the Company had a net operating loss
carryforward (NOLC) for federal and state income tax purposes of approximately
$11,807,000, which begins to expire in 1996.
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, 1995:
Accrued Liabilities and Other $ 10,000
Net Operating Loss Carryforwards 3,265,000
Valuation Reserve (3,275,000)
-----------
$ -0-
===========
CONSYGEN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
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, 1995, such shareholder and his
relatives had outstanding advances of $870,010 (see Notes 3, 9 and 10).
NOTE 9 - Stockholders' Deficit
---------------------
In February 1994, the Company 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
the Company in the amount of $2,680,210. This amount was credited to the
Company's additional paid-in capital.
In October 1995, the Company's board of directors increased the
number of authorized shares of common stock of the Company 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, the Company issued 700,000 shares of common stock
to advisors and consultants of the Company as consideration for services
rendered, including 100,000 issued to a consultant (see Note 10). 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.
The Company 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,
------------------------
1995 1994
---------- ----------
Significant Stockholder and
Affiliates $ 65,516 $ 21,493
Others 1,500 -
---------- ----------
$ 67,016 $ 21,493
========== ==========
CONSYGEN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 9 - Stockholders' Deficit (Continued)
---------------------
In October 1995, the Board of Directors approved the Non-Qualified
Stock Option Plan of the Company ("the Plan"), which covers 1,275,000 shares of
the Company's common stock. Under the terms of the Plan, the exercise price per
share may not be less than the par value of the Company'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 C Square acquisition (see
Note 10). A new non-qualified stock option plan covering 1,500,000 shares was
simultaneously adopted by C Square.
The Company terminated warrants to purchase 1,000,000 shares of the
Company's common stock, which were issuable in connection with the Company's
$1,200,000 debt financing in 1996, effective as of the closing of the C Square
acquisition. C Square simultaneously reserved for issuance replacement warrants
to purchase 1,000,000 shares of C Square common stock (see Note 10).
NOTE 10 - Subsequent Events
-----------------
Conversion of Loans Payable to Equity
-------------------------------------
During 1996, the Company 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 $700,000 in
loans 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 the Company. In addition, 98,000 shares of common
stock were issued to certain individuals as consideration for advancing funds to
the Company. 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.
Debt Financings
---------------
During 1995 the Company entered into an agreement with a consultant
under which the consultant agreed to assist the Company in obtaining financing.
In 1996, such consultant assisted the Company 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, the Company agreed to issue warrants to purchase
an aggregate of 1,000,000 shares of the Company'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 C Square's acquisition of the Company, the Company terminated
these warrants and C Square reserved for issuance new warrants to purchase
1,000,000 shares of C Square common stock on the same terms and conditions. The
Company 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 (see Note 9). As of December
31, 1995, such consultant had loaned the Company $50,000 (see Note 5), which was
repaid in 1996. In addition, the consultant had loaned the Company $84,000 at
December 31, 1996. This $84,000 loan was repaid by the Company in March 1997.
CONSYGEN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 10 - Subsequent Events (Continued)
-----------------
Following the loan transaction, the Company's consultant
transferred common stock of C Square held by it to the lenders in exchange for
the Company's debt. As a result of this transaction, the Company's obligation to
repay the lenders was extinguished and the Company became obligated to repay
such consultant. On September 5, 1996, C Square and the consultant agreed that C
Square would issue an aggregate of 200,000 shares of its common stock to such
consultant, of which 173,648 shares was in cancellation of the Company's debt
acquired by the consultant from the lenders and 26,352 shares were as payment
for services.
In March 1997, C Square 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 C Square. The principal amount of the Note is convertible into
common stock of C Square 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 preceding the date of conversion. C Square 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. C Square is obligated to pay certain penalties if the underlying
shares are not registered under the Securities Act of 1933 within 90 days of the
date of Closing. C Square 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 C Square's common stock is
less than the bid price on March 21, 1997.
Acquisition by C Square Ventures, Inc.
--------------------------------------
On September 5, 1996, C Square Ventures, Inc. ("C Square"), a
publicly held Texas corporation, pursuant to an exchange agreement, acquired
100% of the issued and outstanding shares of the Company directly from the
stockholders of the Company. Immediately prior to the acquisition, C Square
effected a 1 for 40 reverse split of its common stock. In connection with the
acquisition, C Square issued an aggregate of 9,275,000 shares of its common
stock in exchange for all of the issued and outstanding shares of the Company.
The exchange resulted in the Company's shareholders holding a larger portion of
the voting rights of C Square than was held by the C Square stockholders prior
to the acquisition (approximately 69% at closing). The transaction has been
treated as a reverse acquisition (purchase) with the Company being the acquiror
and C Square being the acquired company. Subsequent to the acquisition, C Square
changed its legal name to ConSyGen, Inc.
Upon the closing of the acquisition, C Square 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, C Square 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.
CONSYGEN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 10 - Subsequent Events (Continued)
-----------------
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.
(b) Exhibits.
Exhibit No. Description of Exhibit
2 Plan of Acquisition*
27 Financial Data Schedule
* Previously filed as Exhibit to Form 8-K to which this Form 8-K/A-1 relates.
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
2 Plan of Acquisition*
27 Financial Data Schedule
* Previously filed as Exhibit to Form 8-K to which this Form 8-K/A-1 relates.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3419
<SECURITIES> 0
<RECEIVABLES> 17786
<ALLOWANCES> 15910
<INVENTORY> 0
<CURRENT-ASSETS> 105295
<PP&E> 144869
<DEPRECIATION> 84352
<TOTAL-ASSETS> 172601
<CURRENT-LIABILITIES> 1564646
<BONDS> 0
0
0
<COMMON> 67000
<OTHER-SE> (1459045)
<TOTAL-LIABILITY-AND-EQUITY> 172601
<SALES> 328546
<TOTAL-REVENUES> 328546
<CGS> 199561
<TOTAL-COSTS> 199561
<OTHER-EXPENSES> 1136603
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112779
<INCOME-PRETAX> (1120397)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1120397)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1120397)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
