As filed with the Securities and Exchange Commission on
December 31, 1997
Registration No. O-22969
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Amendment No. 1
FORM 10-SB/A
GENERAL FORM FOR REGISTRANTS OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
SYNAPTX WORLDWIDE, INC.
(Name of Small Business Issuer in its charter)
Utah 87-0375342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
385 Airport Road, Suite A, Elgin, Illinois 60123
(Address of principal executive officers) (Zip Code)
Issuer s telephone number: (847) 622-0200
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
<PAGE>
SYNAPTX WORLDWIDE, INC.
FORM 10-SO
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. Description of Business. . . . . . . . . . . . 3
ITEM 2. Management s Discussion and Analysis or
Plan of Operation. . . . . . . . . . . . . . 12
ITEM 3. Description of Property. . . . . . . . . . . . 20
ITEM 4. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . 20
ITEM 5. Directors, Executive Officers, Promoters
and Control Persons. . . . . . . . . . . . . 22
ITEM 6. Executive Compensation . . . . . . . . . . . . 25
ITEM 7. Certain Relationships and Related Transactions 28
ITEM 8. Description of Securities. . . . . . . . . . . 30
PART II
ITEM 1. Market Price of and Dividends on Registrant s
Common Equity and Other Shareholder Matters. 31
ITEM 2. Legal Proceedings. . . . . . . . . . . . . . . 33
ITEM 3. Changes in and Disagreements with Accountants. 33
ITEM 4. Recent Sales of Unregistered Securities. . . . 34
ITEM 5. Indemnification of Directors and Officers. . . 35
PART F/S
Financial Statements . . . . . . . . . . . . . . . . . . 36
PART III
ITEM 1. Index to Exhibits. . . . . . . . . . . . . . . S-1
ITEM 2. Description of Exhibits. . . . . . . . . . . . S-1
Signatures . . . . . . . . . . . . . . . . . . . . . . . S-2
PART I
Registration Summary
The following summary is qualified in its entirety by the more
detailed information and the financial statements including the
notes thereto, appearing elsewhere in this Registration
Statement . Except as otherwise indicated, the information in
this Registration Statement reflects the recapitalization
of the Company (as more fully explained below) whereby through a
reverse merger, the Company s pre-merger shareholders common stock
reflects a 1 for 1.75 stock split of the Common Stock in February,
1997 and in connection with the merger agreement with Worldwide
Applied Telecom Technologies, Inc., a Delaware Corporation,
( WWATT ), the WWATT pre-merger shareholders of its Common Stock
received 3,600,000 shares of the Company s common stock for the
3,271,000 shares of WWATT Common Stock issued and outstanding,
representing a stock dividend of 10.058086% as of the merger date,
March 12, 1997.
ITEM 1.
Description of Business
Synaptx Worldwide, Inc. ("Synaptx" or the "Company") provides
consulting service, marketing, sales and search assistance within
the telecommunications industry. The Company is developing
a national telecommunications sales representative
organization by hiring qualified sales representatives, or by
acquiring successful regional sales representative organizations.
Synaptx also intends to make additional acquisitions of
existing telecommunications companies exhibiting the
potential for growth as equipment manufacturers and software
providers needing developed marketing channels. Except for the
three acquisitions consummated, as described below, and the two
letters of intent, also described below, the Company has no
agreements or understandings regarding such possible future
acquisitions and has no agreements or commitments to obtain any
additional financing. There can be no assurance that financing for
any future acquisitions will be available on terms acceptable to
the Company or that any future acquisitions will be consummated.
The Company was incorporated on June 25, 1981 under the laws
of the State of Utah as Calico Gold Properties, Inc. and initially
engaged in the acquisition and development of mineral resource
prospects. The Company engaged in limited mining operations and
subsequently ceased its operations and became inactive for several
years. In 1995, the Company began to actively investigate and seek
mergers with or acquisitions of operating businesses. In 1996, the
Company changed its name to In-Touch Interactive Multimedia, Inc.
in connection with a previously planned merger that was never
consummated.
On February 10, 1997, the Company entered into a merger
agreement (the "Merger") with WWATT. Pursuant to the terms of the
Merger, the Company effected a reverse stock split of its
outstanding shares of common stock on a one (1) share for one and
three-fourths (1.75) shares, and exchanged 3,600,000 shares of
authorized but previously unissued shares of the Company's common
stock for all the previously issued and outstanding shares of
WWATT. An additional 790,000 shares of the Company's common stock
were issued for services related to the Merger. As a result of the
Merger, WWATT was merged with and into the Company with the Company
being the surviving corporation, and the Company changed its
corporate name to Synaptx Worldwide, Inc. The aforementioned
actions were approved by the Company's shareholders at the Special
Meeting of Shareholders held March 12, 1997. Prior to the Merger,
there was no affiliation between the Company and WWATT, nor between
the officers, directors or principal shareholders of the two
respective entities. For accounting purposes, the transaction has
been treated as a recapitalization of WWATT, or a reverse merger,
with WWATT being treated as the acquirer.
Business Development:
WWATT was initially conceived and organized on November 3,
1995, with the intent to provide a vehicle to acquire emerging high
technology companies in the telecommunications industry. As a
result of its Merger with WWATT, the Company is presently
committed to the acquisition and development of sales
representative organizations and telecommunications equipment
manufacturers and software providers. Acquisition candidates will
typically be undercapitalized, existing companies that already have
developed products or services that offer growth potential.
WWATT completed two acquisitions prior to the Merger,
North American Telco/Cable Representatives, Inc.
("NATCRI"), an independent network of senior executives possessing
professional relationships in the telecommunications industry, and
Maxwell Partners, Inc. ("Maxwell"), an integrated marketing
consulting firm that works exclusively with telecommunications and
information industry clients. Management believes that NATCRI and
Maxwell provide the Company with the marketing and sales support
necessary to provide potential future acquisitions with needed
marketing channels for their products and/or services. As
a result of the Merger, NATCRI and Maxwell became subsidiaries of
the Company.
<PAGE>
Synaptx Access, Inc. (F/K/A North American Telco/Cable
Representatives, Inc.)
North American Telco/Cable Representatives, Inc. which has changed
its name to Synaptx Access, Inc. (hereinafter referred to as
"Access") is an independent network of former senior
executives ( Executive Associates ) whose existing professional
relationships in the telecommunications industry provide the
Company with potential access to industry
decision makers. Access was incorporated in Florida in November
1994 with the dual objectives of increasing sales for smaller
manufacturers and software providers to the telecommunications
industry and enabling larger network providers and manufacturers to
utilize the products and services of smaller firms in a
time-efficient manner. WWATT issued 490,000 shares of its common
stock for the acquisition of Access on June 3, 1996, which shares
were converted into 539,285 shares of the Company s common stock as
a result of the Merger. The acquisition was treated as a pooling
of interests.
Access has developed a multi-level sales strategy
to overcome the challenge of selling to larger
organizations that are being downsized and in which decisions are
made by only a very few senior executives. Access Executive
Associates are expected to orchestrate meetings with
industry decision makers, arrange executive
introductions, and trigger assignment of a targeted company s
representative to review proposed products for
approval and purchase.
Companies where Access Executive Associates have
worked or with whom they have existing relationships include
equipment manufacturers such as Lucent, Nortel (formerly
Northern Telecom), Siemens, and L.M. Ericcson; service
providers such as the regional Bell operating companies (RBOCs),
AT&T, MCI, Sprint, GTE and other independent telephone companies;
competitive access providers and long distance resellers; and
wireless service providers such as Air Touch, Cellular
One, and Skytel.
In order to complement the efforts of its Executive
Associates, Access will strive to develop a national sales
representative organization that will target public and private
network providers, utilities, and original equipment manufacturers.
Success will depend on the hiring of qualified sales
representatives or through the possible acquisition of
regional sales representative firms that typically employ five to
ten employees ( Representatives ). Leads will be generated,
qualified, and tracked through a centralized database.
By taking advantage of senior Executive Associates and
Representatives contacts, management anticipates that
Access will generate a base of new sales opportunities for the
companies it represents ( Access Principals )
whose products and/or services Executive Associates and
Representatives will promote and sell. Access holds annual
sales meetings of its Executive Associates where existing and
potential Access Principals
present their companies
product lines, marketing plans, and sales strategies to the Access
Executive Associates. Access is pursuing a growth
strategy to potentially build a nationwide sales
representative organization by the end of its 1998 fiscal year. By
using its existing network of Executive Associate contacts, Access
intends to approach other equipment manufacturers with
proposals to represent their products to larger customers.
In addition to its sales activities, Access Executive
Associates will investigate, through their professional network
contacts, a variety of executive recruiting opportunities. Access
accepts search assignments on a contingency basis, charging clients
a percentage of a new hire s first-year compensation. Candidates
submitted for client consideration are identified in one of two
ways. In the first scenario, a client may ask Access to fill a
specific position. In this case, the firm contacts members of its
Executive Associates network and alerts them to the client s need.
Alternatively, Access keeps on file and continually updates a
database of resumes from individuals interested in exploring new
professional opportunities. Candidates for a specific position may
well be found from within this collection. During the second
half of its fiscal year ended August 31, 1997, Synaptx placed six
(6) candidates and generated $180,241 in search revenues.
Synaptx Impulse, Inc. (F/K/A Maxwell Partners, Inc.)
Maxwell Partners, Inc. which has changed its name to Synaptx
Impulse, Inc. (hereinafter referred to as "Impulse"), was
the Company's second acquisition, consummated in October
1996, Impulse is an integrated marketing consulting firm
that works with telecommunications and information industry
clients. Founded in 1990, its core services include
strategic and market planning, new product launch planning,
distribution channel analysis and design, communications program
planning and implementation, and event and trade show management.
Past and present clients include AT&T, Lucent Technologies,
Ameritech, BellSouth, SBC Corporation, GTE, Sprint, Motorola,
Microsoft, Nortel, Rochester Telephone, SNET, SPSS, Reltec and
Century Telephone. WWATT issued 690,000 shares of its common stock
for the acquisition of Impulse on October 1, 1996, which shares
were converted into 759,400 shares of the Company s common stock as
a result of the Merger. The acquisition was treated as a purchase.
Access and Impulse will combine to provide the Company's
potential future acquisitions with marketing and sales support.
Management of Access has a network of professional
relationships to facilitate sales of its sister
companies' products, and Impulse can assist these same companies in
developing marketing strategies, distribution channels, and lead-
generating communications programs.
ORAYCOM, Inc.
On June 1, 1997, the Company made its first acquisition of a
telecommunications sales representative company, ORAYCOM, Inc.
located in Carrollton, Texas ("ORAYCOM"). ORAYCOM was acquired
with 142,858 shares of Synaptx common stock. ORAYCOM will operate
as a subsidiary of Access. ORAYCOM is a sales representative to
the private network, public telephone network, cable operating
companies and alternate access provider communication markets.
ORAYCOM currently represents RELTEC and Thomas & Betts in
addition to other clients. For additional information on this
acquisition, see the August 31, 1997 financial statements, footnote
2 in Part F/S.
Employing seven (7) people and operating out of leased office
space in Carrollton, Texas, ORAYCOM s employees are based
in strategic territories to meet their customers needs,
serving North and Southeast Texas, Oklahoma, Arkansas,
Arizona, New Mexico, Nevada and Southern California. Revenues
represent the earning of commissions on its customers (i.e.,
Access Principals) sales. These commissions range from 3.5% up
to 8%, depending on the sophistication of the customers products
and services represented.
The Company intends to make additional acquisitions as
financing and business conditions warrant, although there can be no
assurance that the Company will be able to finalize any future
acquisitions. The Company intends to make its acquisitions with
Synaptx securities, employing tax-free exchanges for the stock of
the to-be-acquired companies. Contingent earn-out payments of the
additional common stock may be earned on
growth-oriented revenue and profit hurdles.
Marketing and Business Strategy
The Company's primary objective is to acquire emerging high
technology companies in the telecommunications industry that have
limited market access, represented by low market share and/or
limited geographic scope. The Company will provide marketing
assistance, access to industry decision makers, an
experienced sales team, management expertise, financial direction
and executive recruiting services in an effort to build revenues
and profits. Because such companies typically service a sharply
defined niche market, they will generally function more as OEM
suppliers than direct competitors to major equipment manufacturers.
The Company's objective is to strengthen each acquisition's income
statement and balance sheet to the point where it can operate as a
self-sustaining subsidiary. Toward this end, the Company has set
the following objectives:
(a) Acquire high technology companies and help them to
maximize their performance;
(b) Achieve industry status and recognition as a growth
facilitator for small and emerging high technology companies
within the telecommunications industry;
(c)Build the Company into a significant participant in the
telecommunications industry; and
(d) Optimize return on investment for stockholders.
The Company's strategy is designed to enable its future
subsidiaries to either sell directly to network providers or
through larger manufacturers on an original equipment manufacturer
(OEM) basis. In some cases, the Company may have the
flexibility to distribute its products through large suppliers that
are burdened with proprietary rather than open standards based
products. To maintain and improve its competitive position, the
Company seeks to acquire companies that develop and introduce, on
a timely and cost-effective basis, new products and product
features that keep pace with technological developments and
emerging industry standards and address the increasingly
sophisticated needs of its customers. In striving toward its
business objectives, the Company intends to implement the following
key strategies:
(a) Acquire firms that are cash flow positive or have the
potential to generate positive cash flows within the
first year following acquisition.
(b) Build, through new employee hires and acquisitions,
a national telecommunications sales representative
organization targeting public and private network providers,
utilities, and original equipment manufacturers;
(c) Identify and acquire small telecommunications suppliers
with unique, proven product lines that have demonstrated
uneven sales success;
(d) Use the Company's expertise to sell products in wider
geographic areas and broader market areas to increase
revenue;
(e) Establish relationships that may potentially lead
to international import and export opportunities;
(f) Establish and operate acquired companies as independent
profit centers, with all intracompany transactions handled on
an arm's length basis; and
(g) Raise performance of subsidiaries to predetermined levels
where they can become self-sustaining businesses.
The above are the stated future goals of the Company, however
there can be no assurance that the Company will be able to
make future material acquisitions or that it will ever achieve its
expressed goals.
Management believes that the cost of building a distribution
network is equal to or greater than the cost of developing a
product. As a result, many small technology companies do not
allocate sufficient resources to develop distribution channels
and thus fail to realize their full potential. The Company intends
to seek out suppliers that possess proven technology but
have been unable to realize their full potential because of limited
sales and marketing skills and/or their inability to raise capital.
The Company's management group and advisors have experience
in the management of suppliers to the telecommunications industry.
Moreover, the Company plans to capitalize on the current trend in
downsizing in larger companies by offering products that replace
labor or perform functions that are likely to be outsourced.
Potential New Acquisitions and Product Lines
The dynamics of the telecommunications industry will dictate
the types of products Synaptx will seek to acquire in the future.
Primary targets will be products that facilitate management of
elements within decentralized, distributed telecommunications
networks and the environments in which they operate. Synaptx will
seek out technology that brings value to its customers in
terms of quality improvements or cost reductions.
Synaptx intends to focus on acquiring companies that compete
in any of the following product-market segments:
(a) Advanced intelligent network software and hardware
platforms;
(b) Emerging broadband transmission technologies (e.g. xDSL);
(c) Wireless transmission and switching technologies,
especially PCS systems;
(d) Network management technologies (software and hardware);
(e) Convergent billing systems that accommodate wireline and
wireless, local and long distance in a single system;
(f) Customer care systems (especially expert software
systems);
(g) Products that maintain the environment in which network
elements are housed such as central office enclosures, outside
plant cabinets, cement vaults, and next generation termination
devices; and
(h) Products with features that include
testing and early warning of network component failures.
Management believes that increasing market competition
demands that new products address the issues of product creation,
product delivery, and product assurance in both public and private
networks. Synaptx will strive to address the needs of emerging
companies and the needs of existing companies that continue to use
embedded legacy maintenance systems. Synaptx will focus on
products that have the ability to respond to a demanding and
changing customer base. Application flexibility will be a critical
product attribute.
In addition to product-oriented acquisitions, the Company will
also endeavor to build through new employees and acquisitions
a nationwide sales representative organization by the end of
1998. It is anticipated that acquired firms will be local or
regional in scope, will generally employ five to ten
representatives, and will bring with them established product
lines that support the Company s strategic direction.
The Company anticipates making future acquisitions by
primarily using its capital stock. If necessary, the Company plans
to finance or seek outside financing for potential requirements of
cash. Although the Company is currently exploring additional
acquisition opportunities, the Company has no agreements regarding
such possible future acquisitions and has no agreement or
commitments to obtain any additional financing. There can be no
assurances that financing for any future acquisitions will be
available on terms acceptable to the Company or at all, or that any
future acquisitions will be consummated.
<PAGE>
On May 16, 1997, the Company signed a letter of
intent ("letter agreement") to acquire a Chicago-based sales
representative organization. Under the proposed terms of the
letter agreement the Company would purchase all of the outstanding
capital stock and pay $2,000,000 in stock and cash. Additionally,
the proposed terms called for an earn-out of additional stock over
the next two years based on the acquiree achieving certain defined
revenues and earnings before income taxes targets. Employment
agreements would also be entered into with the three key managers
of the business.
Although the letter agreement has expired,
negotiations are still in place. At this time, no definitive
agreements have been entered into, and there can be no
assurance that the acquisition will be finalized.
On May 13, 1997, the Company signed a letter of
intent ("letter of intent") to acquire a Minneapolis-based sales
representative organization. Under the proposed terms of this
letter of intent, the Company would purchase all of the outstanding
capital stock. The letter of intent also calls for the development
of mutually agreeable employment agreements with the principals of
the business. Although the letter of intent has expired,
negotiations are still in place. At this time, no specific
terms or definitive agreements have been entered into, and
there can be no assurance that the acquisition will be
finalized.
Competition
The telecommunications industry is highly competitive and
characterized by rapidly changing technologies, evolving industry
standards, frequent new product introductions, and rapid changes in
customer requirements. Synaptx's competitors will vary from market
to market depending upon which companies are acquired and become
Synaptx subsidiaries. Principal competitive factors affecting the
market for subsidiary products include product reputation, quality,
performance, price, professional service, and customer support.
Features such as adaptability, scalability, ability to integrate
with other products, functionality, and ease of use are key product
differentiators. Synaptx intends to empower its subsidiary
companies to compete by using the Access sales team and Impulse s
integrated marketing expertise.
Facilities
The Company's principal place of business is located at 385
Airport Road, Suite A, Elgin, Illinois 60123, and consists of
approximately 8,800 square feet of office space. This facility is
subject to a lease which expires on January 31, 1998. Impulse also
leases office space in Atlanta, Georgia consisting of 2,733 square
feet of space, with a lease expiration date of June 30, 1998.
On August 1, 1997, Impulse signed a lease for office space in
downtown Elgin, Illinois (a northwest Chicago suburb), covering
approximately 19,760 square feet of space. The lease extends for
seven (7) years, commencing January 1, 1998 with occupancy planned
for early January of approximately 15,000 square feet with the
remaining area left unfinished for future expansion, as needed.
Monthly rents start at $10,597 and have a fixed escalation of
approximately three and one-half percent (3.5%) per year on each
anniversary date of the lease. On a straight-line basis, the
monthly cost of the lease is approximately $12,000. This facility
is considered adequate to support the future office space needs for
Impulse and Access and the projected sales representative
organization to be acquired to serve the upper Midwest.
ORAYCOM s office facility covers 2,000 square feet of space
with the lease term extending to July 31, 2002.
Litigation
The Company is not a party to any material pending legal
proceedings and no such action by, or to the best of its knowledge,
against the Company has been threatened.
Employees
As of November 1, 1997 the Company employed 30
full-time and 3 part-time individuals, consisting of
3 executive officers, 24 professional and sales
representatives, and 6 office staff personnel. In addition to its
full-time employees, the Company uses the services of
certain consultants, writers and design professionals on a contract
basis. Management presently anticipates hiring additional
employees as business warrants and as funds become available.
ITEM 2. Management s Discussion and Analysis or Plan of Operation
The following information should be read in conjunction with
the consolidated financial statements and notes thereto appearing
elsewhere in the Form 10-SB/A.
Overview
The Company is a fully integrated service provider of
consulting, marketing, sales advice and implementation strategies
serving customers in the telecommunications industry. These
services include planning marketing programs and developing of
sales and marketing literature for print and electronic media for
which consulting fees are charged and production revenues are
generated, representing certain product lines of customers serving
the telecommunications industry as sales representatives whereby
commission revenues are being earned, and executive placements of
telecommunications industry personnel, primarily for sales and
marketing positions, are being made for which executive placement
fees are being realized as revenues based on an agreed upon
percentage of the salary and other compensation of individuals
hired by our clients. The Company operates in one business
segment. The Company s fiscal year is August 31. Unless otherwise
noted, references to fiscal 1996 or 1997 relate to the
fiscal years ended August 31, 1996 and 1997, respectively.
The Company s objective is to use its knowledge of the
telecommunications industry to acquire and improve equipment
manufacturers and software developers. Targeted acquisition
candidates would include companies that have demonstrated an
ability to envision, design and commercialize unique products.
Once such an entity is acquired, the Company will direct its sales,
marketing and managerial resources toward achieving increased
revenues and earnings. To date, the Company has only acquired
companies that support its core services of consulting, marketing
and sales. They will be the foundation to help
create the potential revenues and earnings growth for
target acquirees.
The Company currently provides consulting services, marketing
support services and the development of collateral marketing
materials, and sales channel advice. Additionally, the Company has
entered the employment search business charging fees for
individuals hired by client companies based on a negotiated
percentage of the new employee s total first year recurring
compensation. Revenues of the Company consist of fees for
professional services which are estimated in advance, quoted,
negotiated and then formalized via contract or purchase order.
These professional fees are therefore structured as fixed price
arrangements which in accordance with the Company s terms and
conditions can be and are regularly billed in advance. Because
these billings often precede the work being performed, revenues are
only recognized as work is performed. Accordingly, any excess of
professional fee billings over professional fees earned are
reflected as a current liability, that is, deferred revenue.
Additionally, the Company bills for collateral material production
and the placement of ads which are marked-up based on industry
standards. These revenues are recorded when the item is produced.
Cost of sales and revenues consist primarily of the cost of
labor in providing professional services representing salaries and
benefits for employees and direct costs for outside independent
professionals, copywriters and designers (sometimes referred to
herein as freelancers ). Production and ad placement costs
represent amounts invoiced from suppliers. If the vendor has not
provided an invoice at the time of revenue recognition, such costs
are accrued at the estimated cost for which the production or ads
were billed.
Selling, general and administrative expenses consist primarily
of marketing and administration expenses which include salaries,
benefits and associated taxes, rent and other general office
expenses.
The Company s ability to continue as a going concern is
contingent upon its ability to secure additional financing,
complete a secondary private placement, and attain profitable
operations. In addition, the Company s ability to continue as a
going concern must be considered in light of the problems, expenses
and complications frequently encountered by entrance into
established markets and the competitive environment in which the
Company operates.
Results of Operations
The following table sets forth, for fiscal years ended
August 31, 1997 and 1996, certain items from the Company s
Consolidated Statements of Operations expressed as a percentage of
net sales. Results for the fiscal years ended 1997 and
1996 include the consolidated operations of Synaptx and Access
(utilizing pooling of interests accounting) while the results
include eleven months of Impulse operations
subsequent to its October 1, 1996 acquisition date and three
months of ORAYCOM operations subsequent to its June 1, 1997
acquisition date, which are not reflected in prior periods
since the acquisitions are presented under the purchase
method of accounting.
Fiscal Years Ended
August 31,
1997 1996
Net Sales and Revenues 100.0% 100.0%
Cost of Sales 71.4% 86.9%
Gross Profit 28.6% 13.1%
Selling, general and
administrative expenses 43.9% 61.2%
Operating loss (15.3%) (48.1%)
Interest expense (1.4%) -
Net loss (16.7%) (48.1%)
Year Ended August 31, 1997 Compared to Year Ended August 31, 1996
The Company s net sales and revenues increased by $3,455,471
or 2,372%, from $145,653 for the fiscal year ended August 31,
1996 ( 1996") to $3,601,124 for the fiscal year ended August 31,
1997 ( 1997"). The acquisition of the Impulse subsidiary in
October, 1996 resulted in the addition of marketing services and
production revenues of $3,155,053 in 1997 or 91.3% of the increase.
Production revenues reflect charges for printing (including the
cost of paper), photography, hiring of models, advertising placed
in various media for which Impulse is able to add a mark-up for
negotiating and monitoring the vendors who provide such services.
Standard industry mark-up rates are normally used for these
services. Marketing services and production revenues were primarily
derived from telecommunications industry customers of which three
represented 21%, 21% and 34%, respectively, of total revenues.
Executive placement fee revenues began in the third quarter of
1997, adding $180,241, or 5.2 % of the increase, from this new
revenue source. Most of the remaining increase resulted from the
acquisition of ORAYCOM in June, 1997 which added $119,005 of
commission income, or 3.4% of the increase.
Cost of sales and revenues increased by $2,444,906 in 1997, or
1,932%, from $126,561 in 1996 to $2,571,467 in 1997. The
acquisition of the Impulse subsidiary in October, 1996, results in
the addition of cost of revenues for marketing services and
production revenues of $2,252,403. The Search business added
$33,869 to cost of revenues for Executive placement fees. Most of
the remaining increase resulted from the acquisition of ORAYCOM in
June, 1997 which added $153,558 to cost of revenues for commission
income. As a percentage of net sales and revenues, cost of sales
and revenues decreased from 86.9% in 1996 to 71.4% in 1997.
The Company s gross profit margin, was 28.6% and 13.1% for
1997 and 1996, respectively. The increase in gross profit margin
of 15.5 points in 1997 is attributable to the gross margin on
marketing services and production from the Impulse acquisition
which generated a 28.6% gross margin and executive placement fees
which generated an 81.2% gross margin. These higher gross margin
additional activities were offset by a 29.0% negative gross margin
from the ORAYCOM acquisition.
Selling, general and administrative expenses, including
depreciation and amortization, increased by $1,490,135 in 1997 or
1,626%, from $91,633 in 1996 to $1,581,768 in 1997.
The acquisition of Impulse results in the addition to selling,
general and administrative expenses of $1,011,399. The acquisition
of ORAYCOM resulted in the addition to selling, general and
administrative expenses of $20,703. As a percentage of net sales
and revenues, selling, general and administrative expenses,
including depreciation and amortization, decreased from 62.9% for
1996 to 43.9% for 1997.
<PAGE>
Net interest expense increased from none for the year 1996 to
$50,444 or 1.4% of net sales and revenues for 1997. The increase
in interest expense includes $36,666 from the acquisition of the
Impulse subsidiary whose operations are included herein for the
eleven months since its October 1, 1996 purchase date. The bank
line of credit and note supporting this interest expense bear
interest at the bank s internal rate which approximated 11% during
the period. Additionally, $1,533 of interest expense resulted from
the acquisition of the ORAYCOM subsidiary whose operations are
included herein for the three months from its June 1, 1997
acquisition date. The bank line of credit supporting part of this
interest expense bears interest at 13.25% and capital leases
supporting the remainder bears interest from 14.00% to 26.75%. The
remaining $12,245 results primarily from noncash interest expense
incurred by Synaptx for warrants issued below fair market value
supporting a short-term note borrowing of $40,000 for the period
August 30, 1996 through December 3, 1996 bearing interest at 15.00%
annually. This note was repaid by the due date.
Net Operating Loss
The Company has accumulated approximately $500,000 of net
operating loss carryforwards as of August 31, 1997, which
may be offset against taxable income and income taxes in future
years. The use of these losses to reduce future income taxes will
depend on the generation of sufficient taxable income prior to the
expiration of the net operating loss carryforwards. The
carry-forwards expire in the year 2012. In the event of
certain changes in control of the Company, there will be an annual
limitation on the amount of net operating loss carryforwards which
can be used. No tax benefit has been reported in the financial
statements for the years ended August 31, 1997 or
1996 because there is a 50% or greater chance that the
carryforward will not be utilized. Accordingly, the potential tax
benefit of the loss carryforward is offset by a valuation allowance
of the same amount.
Liquidity and Capital Resources
The Company s principal cash requirements are for selling,
general and administrative expenses, primarily outside consultants
such as independent contractors who provide design, copywriting and
professional marketing and sales consulting services, employee
costs, funding of accounts receivable, capital expenditures and
funding of acquisitions. The Company s primary sources of cash
have been from an initial private placement of the Company s common
stock which raised $753,993 of net proceeds plus cash
derived from operations. The Company is investigating various
sources for additional financing, including both equity infusion
and debt facility arrangements.
During the year ended August 31, 1996, the Company acquired
Access for 541,842 shares of common stock. The transaction was
accounted for as a pooling of interests, therefore the financial
statements have been restated to include the accounts of Access for
the twelve months ended August 31, 1996.
For the year ended August 31, 1996, cash decreased from
$11,342 at the beginning of the year to none at the end of the
year. Net cash provided by operations was $11,658 mainly
attributable to non-cash expense items (depreciation and rent) of
$4,100 and an increase in accounts payable and accrued expenses of
approximately $90,000 offset by the net loss of $72,541 and the
increase in accounts receivable of approximately $10,000.
Net cash used in financing activities was $23,000 primarily
attributable to an advance of $50,000 to Maxwell Partners,
subsequently acquired and renamed Synaptx Impulse, plus an increase
in deferred placement costs of $5,000, and offset by an advance of
$32,000 from an officer.
During the year ended August 31, 1997, the Company s results
included the acquired Impulse subsidiary, for eleven months,
starting from October 1, 1996, the Impulse acquisition date.
Impulse was acquired for 759,401 shares of the Company s common
stock. Also, during the year ended August 31, 1997, the Company s
results included the acquired ORAYCOM subsidiary, for three months,
starting from June 1, 1997, the ORAYCOM acquisition date. ORAYCOM
was acquired for 142,858 shares of the Company s common stock.
For the year ended August 31, 1997, cash increased from none
at the beginning of the year to $58,265 at the end of the year.
Net cash used in operating activities was $445,674 due mainly to
the net loss of $602,555, offset by non-cash depreciation and
amortization expenses of $197,287, and a net increase in non-cash
working capital items of approximately $40,000. This net increase
resulted from the Company's revenue growth for the year ended
August 31, 1997 requiring financing for increased accounts
receivable of $396,760, resulting primarily from the Impulse
acquisition's revenue growth. Additionally, the Company reduced
accrued expenses and taxes by $281,803 and increased other current
assets by $17,896. Offsetting these uses of cash were the
utilization of vendors as a financing source exhibited by an
increase in accounts payable of $391,353 and an increase in
deferred revenues of $264,700, representing work billed in advance
of performance in accordance with contractual terms and conditions.
Net cash used in investing activities was $177,456
attributable to fixed asset additions of $75,607, cash paid for
acquisitions of $43,231, and additions to other long-term assets of
$58,618.
Cash provided by financing activities was $681,395 due
primarily to net proceeds from stock issuance of $769,321, a
$50,000 decrease in advances to Synaptx Impulse, offset by
reductions in both long-term debt of $100,908 (resulting from
acquisitions accounted for under the purchase method of accounting)
and advances from an officer of $32,000.
In March, 1997, the Company raised $753,993 from the
net proceeds of its private placement offering of 1,430,800 shares
of the Company s common stock of which 898,074 shares were issued.
Additionally, in June, 1997 the Company raised $7,828 from the
issuance of 3,591 shares of common stock related to a stock rights
offering allowing existing shareholders to purchase one share of
common stock for every three shares held.
The Company has a revolving line-of-credit with a bank for
$250,000, due to expire May 1, 1998. Furthermore, the Company also
has a $26,107 term note with a maturity date of December 30, 1997.
This term note was subsequently extended to March 1, 1998.
Borrowings under the line-of-credit and the outstanding principal
and interest on the note are collateralized by substantially all of
the Company's assets and bear interest at the bank's floating
interest rate (currently 10.99%). The line-of-credit and the note
are further secured by commercial guaranties of two of the
shareholders and Synaptx.
The Company s current expansion plans are primarily related to
the acquisition of sales representative organizations with the
goal of creating the first nationwide telecommunications sales
representative channel of distribution. Furthermore, acquisition
targets are being identified and preliminary discussions
have ensued for the
potential acquisition of
telecommunications hardware and service providers. These
possible acquisitions are expected to be consummated primarily
for Synaptx stock. However, part of these acquisitions can be
expected to require the use of cash for noncompete agreements with
key employees and possibly past performance liabilities to the
selling shareholders. Management anticipates that cash needed to
finance possible acquisitions in the near term will be generated
from operations which are expected to begin generating cash from
operations beginning in the first quarter of fiscal
1998 and from additional private placement financing. There
can be no assurance that such financing can be obtained.
On August 1, 1997, Impulse signed a lease for office space in
downtown Elgin, Illinois (a northwest Chicago suburb), covering
approximately 19,760 square feet of space. The lease extends for
seven (7) years, commencing January 1, 1998 with occupancy planned
for early January of approximately 15,000 square feet with the
remaining area left unfinished for future expansion, as needed.
Monthly rents start at $10,597 and have a fixed escalation of
approximately three and one-half percent (3.5%) per year on each
anniversary date of the lease. This facility is considered
adequate to support the future office space needs for Impulse and
Access and the projected sales representative organization to be
acquired to serve the upper Midwest. The estimated cost of
relocation of $70,000 is expected to be financed from current
operations.
Recent Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board issued
SFAS No. 128, Earnings Per Share. The new standard simplifies
the methods for computing earnings per share and requires the
preparation of two new amounts, basic and diluted earnings per
share. When the Company adopts SFAS No. 128, it expects to report
the following restated amounts for the fiscal periods:
Basic $ (0.14) $ (0.04)
Diluted $ (0.14) $ (0.04)
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, Reporting Comprehensive Income . The new standard
discusses how to report and display comprehensive income and its
components. This standard is effective for years beginning after
December 15, 1997. When the company adopts this statement, it is
not expected to have a material impact on the presentation of the
Company s financial statements.
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information . This standard requires enterprises to report
information about operating segments, their products and services,
geographic areas, and major customers. This standard is effective
for years beginning after December 15, 1997. When the company
adopts this statement, it is not expected to have a material impact
on the presentation of the Company s financial statements.
Inflation
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
Risk Factors and Cautionary Statements
This Registration Statement contains certain forward-
looking statements. The Company wishes to advise readers
that actual results may differ substantially from such forward-
looking statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially
from those expressed in or implied by the statements, including,
but not limited to, the following: the ability of the Company to
meet its cash and working capital needs, the ability of the Company
to complete material acquisitions of operating companies, and other
risks detailed in the Company's periodic report filings with the
Securities and Exchange Commission.
ITEM 3. Description of Property
The information required by this Item 3, Description of
Property, is set forth in Item 1, Description of Business, of this
Form 10-SB/A.
ITEM 4. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information, to the best of the
Company s knowledge, as of November 17, 1997, with respect
to each person known by the Company to own beneficially more than
5% of the outstanding Common Stock, each director and all directors
and officers as a group.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership(1) of Class(2)
Ronald L. Weindruch * 1,669,218(3) 32.00%
385 Airport Road
Suite A
Elgin, IL 60123
D. Mike Maxwell * 561,667(4) 10.59%
385 Airport Road
Suite A
Elgin, IL 60123
Richard E. Hanik * 77,416(5) 1.48%
385 Airport Road
Suite A
Elgin, IL 60123
William N. Kashul, Sr. * 77,042(6) 1.46%
385 Airport Road
Suite A
Elgin, IL 60123
Peter B. Atwal * 16,509(7) 0.32%
385 Airport Road
Suite A
Elgin, IL 60123
Jerome Rhattigan 269,643 5.18%
1612 Bridgewater Drive
Heathrow, FL 32746
Aegir International
Investments, Inc.(8) 266,692 5.12%
P.O. Box HMI387
Hamilton, Bermuda HMFX
All directors and
executive officers as a 2,401,852(9) 45.85%
group(5 persons in group)
* Director and/or executive officer
Note: Unless otherwise indicated in the footnotes below, the
Company has been advised that each person above has sole
voting power over the shares indicated above.
(1) Share amounts include, where indicated, Common Stock issuable
upon the exercise of certain stock options and stock warrants
held by the Company's directors and executive officers at
exercise prices ranging from $0.0909 to $0.9995 per share
which are exercisable within sixty days.
(2) Based upon 5,208,660 shares of common stock
outstanding on November 17, 1997. Percentage ownership
is calculated separately for each person on the basis of the
actual number of outstanding shares as of November 17,
1997 and assumes the exercise of certain stock options
held by such person (but not by anyone else) exercisable
within sixty days.
(3) Includes 44,024 shares of stock held in the names of Mr.
Weindruch s children. Includes 7,337 shares which
may be acquired by Mr. Weindruch pursuant to the exercise of
stock purchase options exercisable within sixty days at the
average exercise price of $0.9995 per share.
(4) Includes 400,062 shares held by Mr. Maxwell s wife and 66,036
shares held by Mr. Maxwell s children and their spouses, as to
which Mr. Maxwell disclaims any beneficial ownership. Also
includes 7,337 shares which may be acquired by Mr.
Maxwell pursuant to the exercise of stock purchase options
exercisable within sixty days at the average exercise price of
$0.9995 per share, 3,669 shares which may be
purchased by Mr. Maxwell s wife pursuant to the exercise of
stock purchase options exercisable within 60 days at the
average exercise price of $0.9086 per share,
2,019 shares which may be purchased by Mr. Maxwell s daughter-
in-law pursuant to the exercise of stock purchase options
exercisable within 60 days at the average exercise price of
$0.9086 per share, and 82,544 shares which may be
acquired by Mr. Maxwell pursuant to the exercise of stock
purchase warrants exercisable within sixty days at the average
exercise price of $0.9086 per share.
(5) Includes 5,000 shares held in the names of Mr. Hanik s
children. Also includes 7,337 shares which
may be acquired by Mr. Hanik pursuant to the exercise of stock
purchase options exercisable within sixty days at the average
exercise price of $0.9086 per share.
(6) Includes 77,042 shares which may be acquired by Mr.
Kashul pursuant to the exercise of stock purchase options
exercisable within sixty days at the average exercise price of
$0.3245 per share.
(7) Includes 16,509 shares which may be acquired by Mr.
Atwal pursuant to the exercise of stock purchase options
exercisable within sixty days at the average exercise price of
$0.9086 per share.
(8) To the best knowledge of the Company, Aegir International
Investment, Inc. is 99% owned by Harbor Finance, Ltd., a
Bermuda company which is the nominee of a Bermuda law firm
which acts as nominee for the beneficial interest of a
client(s).
(9) Includes 203,794 shares which are issuable upon the
exercise of certain stock options and stock warrants held by
the Company s directors and executive officers at exercise
prices ranging from $0.0909 to $0.9995 per share,
representing an average exercise price of $0.6943 per
share, which are exercisable within sixty days.
ITEM 5. Directors, Executive Officers, Promoters and Control
Persons
Executive Officers and Directors
The executive officers and directors of the Company are as
follows:
Name Age Position
Ronald L. Weindruch. . . 50 President, C.E.O. and
Director
William N. Kashul, Sr. 64 Director
D. Mike Maxwell. . . . . 57 Executive Vice President
and Director
Peter B. Atwal . . . . . 41 Director
Richard E. Hanik . . . . 50 Secretary, Treasurer and
C.F.O.
All directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and
qualified. There are no agreements with respect to the election of
directors. The Company has not compensated its directors for
service on the Board of Directors or any committee thereof, but
directors are reimbursed for expenses incurred for attendance at
meetings of the Board of Directors and any committee of the Board
of Directors. Officers are appointed annually by the Board of
Directors and each executive officer serves at the discretion of
the Board of Directors. The Company does not have any standing
committees.
None of the officers and/or directors of the Company are
officers or directors of any other publicly traded corporation, nor
have any of the directors and/or officers, nor have any of the
affiliates or promoters of the Company filed any bankruptcy
petition, been convicted in or been the subject of any pending
criminal proceedings, or the subject or any order, judgment, or
decree involving the violation of any state or federal securities
laws within the past five years.
The business experience of each of the persons listed above
during the past five years is as follows:
Ronald L. Weindruch is the founder, Chairman and Chief
Executive Officer of Synaptx as well as the founder of Access. Mr.
Weindruch is the former Chairman of the Sanford Airport
Authority in Sanford, Florida. Prior to founding Access in 1994,
he held a variety of senior management positions with Siemens,
including senior vice-president of operations at Siemens Stromberg-
Carlson. Prior to beginning with Siemens in 1984, Mr. Weindruch
served as director of marketing for the Nortel (formerly Northern
Telecom) DMS 100 switching system and was also group director of
business development for Nortel's digital switching group.
Mr. Weindruch holds an M.B.A. degree from George Washington
University and a B.S. degree from the University of
Illinois.
D. Mike Maxwell is Executive Vice President of Synaptx. He
founded Impulse in 1991 which was acquired by WWATT on October 1,
1996. Additionally, he has founded Pet Care, Inc., Paw Island
Limited Partnership, and the National Cellular SAFETALK Center,
Inc. He has over twenty years of marketing and sales experience in
the telecommunications industry, with expertise in marketing
services, market plan development and execution, marketing and
sales training, sales planning and management. Mr. Maxwell has
been in the marketing services business since 1984 when he was
named vice president of sales for Warner-Little Text, a consumer
telecommunications and enhanced subscriber services subsidiary of
Warner Communications. Prior to joining Warner-Little Text, he was
the director of marketing for Consolidated Communications, a
diversified communications company. Mr. Maxwell has served as
chairman of the marketing committee of the U.S. Telephone
Association and is an active member of the International
Engineering Consortium's Executive Advisory Council for the
Business and Marketing Institute. Mr. Maxwell holds a B.A. degree
from Eastern Illinois University.
William N. Kashul, Sr. is President of Kashul Consulting,
Inc., a Chicago-based telecommunications consulting firm. Prior to
forming his firm in 1994, Mr. Kashul was a regional vice president
of Strategic Account Development, North America, for Northern
Telecom, Inc. Mr. Kashul began his telecommunications career in
the U.S. Army in 1953. He joined BTE Automated Electric as an
engineer in 1956 and went to ITT Kellogg as a project engineer in
1959. He joined Stromberg-Carlson as a senior sales engineer in
1967 before going to Northern Telecom in 1972. Mr. Kashul is a
member of the International Engineering Consortium's
Executive Advisory Council and holds an M.B.A. from the University
of Chicago.
Peter B. Atwal has over twenty-two years experience in the
telecommunications and data communications industry and has worked
in research and development, switching systems and operations
support systems. Mr. Atwal is the Chief Technology Officer for ISR
Global Telecom, a network management provider. In this capacity,
he is responsible for development of TMN Toolkit products, turnkey
projects for service platforms, interworking units and network and
element management solutions based on TMN principles and standards.
Mr. Atwal previously worked as a research and development manager
for Siemens, and as a consultant for Logica, Inc. Mr. Atwal holds
a BSC degree in computer science from London University.
Richard E. Hanik is Chief Financial Officer, Secretary and
Treasurer of Synaptx. In 1994 he joined Impulse which was acquired
on October 1, 1996, and was appointed C.F.O. following WWATT s
acquisition of Impulse. Prior to joining Impulse, Mr. Hanik had 11
years of telecommunications business development and financial
experience with Ameritech, in their cellular and paging operations.
While at Ameritech, Mr. Hanik was instrumental in their acquisition
of numerous paging businesses and developed the initial financial
system when cellular operations first began in October, 1983.
Prior to that he spent four years as an Audit Manager with Deloitte
& Touche. Mr. Hanik also held various financial positions at
Chemetron Corporation, then a Fortune 500 company, including
Division Controller and Internal Audit Director. Prior to
Chemetron, he served as Controller of the Illinois Housing
Development Authority and started his career as an auditor with
Arthur Andersen & Co. Mr. Hanik is a member of the American
Institute of Certified Public Accountants and the Illinois Society
of CPAs, and holds a B.A. degree from DePaul University.
<PAGE>
ITEM 6. Executive Compensation
Employee Stock Option Plan
The Board of Directors and a majority of the shareholders of
the Company have approved and adopted the Company s 1996 Stock
Option Plan (the Plan ). The purpose of the Plan is to encourage
stock ownership by management employees of the Company, to provide
an additional incentive for those employees to contribute to the
success of the Company and to provide the Company with the
opportunity to use stock options as a means of recruiting new
managerial personnel where appropriate.
The Plan authorizes the grant of options which qualify as
incentive stock options under Section 422A of the Internal Revenue
Code ( qualified options ), as well as stock options which do not
qualify under that section of the Code ( nonqualified options ).
The Plan is administered by the Board of Directors of the Company.
The Board is authorized to select the individual employees to
receive options under the Plan, the number of shares subject to
each option, the option term and other matters specified in the
Plan.
The Plan provides that the exercise price of any option may
not be less than 100% of the fair market value of the Company s
stock at the date of grant. Options must be granted within ten
years from the date the Plan was approved by the Company s
shareholders.
A maximum of 1,450,000 shares of the Company s common
stock are authorized for issuance pursuant to options granted under
the Plan, subject to adjustments to prevent dilution or enlargement
of rights of participants in certain circumstances. As of
November 17, 1997 there were 636,371 stock options
issued and outstanding under the Plan of which 289,218
are exercisable at an option price per share ranging from
$0.09086 to $3.36 per share and with expiration dates from
October, 1998 through November 2002.
In addition to the shares of the Company's common stock
available under the Plan, the Company has also issued nonqualified
stock options outside of the Plan. In July 1996, nonqualified
options to purchase 33,018 shares of the Company's common stock at
an option price of $0.9086 per share were issued to the outside
members of the Board of Directors for their services. In October
1996, one of the outside directors was granted nonqualified options
to purchase 55,030 shares of the Company's common stock at an
option price of $0.0909 per share for his services in identifying
the Impulse acquisition. As of November 17, 1997, all
88,048 of the nonqualified options are outstanding and exercisable.
Profit Sharing Plan
The Company s subsidiary, Synaptx Impulse, Inc., sponsors a
qualified employee savings plan (commonly referred to as a 401K
plan ) for all eligible employees, including all the officers of
the Company. Participants may make contributions from their gross
pay (limited to 15% of the employee s compensation, as defined),
with Synaptx Impulse, Inc. matching such contributions (subject to
certain limitations) at the rate of 25% of the first 6% of each
participant s contribution. No other deferred compensation plan is
currently in place.
The Company s subsidiary, ORAYCOM, Inc., sponsors a SEP/IRA
plan for all eligible employees. Participants may make
contributions from their gross pay (limited to $9,500 of the
employee s compensation, as defined). ORAYCOM does not
provide a matching contribution. It is anticipated that the
ORAYCOM employees will be phased into an overall Synaptx Worldwide
corporate 401k plan in the near term.
Compensation
The following table sets forth all compensation actually paid
or accrued by the Company for services rendered to the Company for
the years ended August 31, 1995, 1996 and 1997 to the
Company s Chief Executive Officer and Executive Vice President. No
other executive officer of the Company has earned a salary
greater than $100,000 annually for any of the periods depicted.
Summary Compensation Table
Other All
Annual Other
Name and Compen- Compen-
Principal Position Year Salary Bonus sation sation(1)
Ronald L. Weindruch, 1995 $ -0- $ -0- $ -0- $ 21,200
President, C.E.O. 1996 $ 18,000 $ -0- $ -0- $110,500
1997 $108,000 $ -0- $ -0- $126,000
D. Mike Maxwell, 1995 $ -0- $ -0- $ -0- $ -0-
Executive Vice 1996 $ -0- $ -0- $ -0- $ -0-
President 1997 $130,500 $ -0- $ -0- $ -0-
(1) Consulting and commission income.
Employment Agreements
The Company has entered into an employment agreement with its
President and CEO which currently provides for an annual salary of
$122,500 per year. This agreement also provides for an
increase in compensation to $144,000 per year when the consolidated
sales and revenues run rate defined as three consecutive months
reaches $15 million annually, a bonus based on Company s
performance as defined by the Board of Directors and other
incentives upon achieving certain other performance hurdles. The
term of this employment agreement expires August 31, 1998 but
automatically renews on an annual basis, unless acted upon by the
Board. If the employee is terminated without cause, the Company is
liable for three years of regular compensation if this termination
takes place during the initial term and two years of regular
compensation if after the initial term.
The Executive Vice President of the Company has an employment
agreement with a subsidiary of the Company which expires on August
31, 1998 but has an automatic annual renewal provision. This
agreement provides for an annual salary of $137,500 and a
bonus based on the subsidiary s performance (as defined by the
subsidiary s Board of Directors) not to exceed 33% of base
compensation. If the employee is terminated without cause, the
Company is liable for three years of regular compensation if this
termination takes place during the initial term and two years of
regular compensation if after the initial term.
In conjunction with the acquisition of ORAYCOM, Inc. on
June 1, 1997, an employment agreement was entered into between the
Company and ORAYCOM's founder and president, O. Ray
Strickland. Among other things, the agreement provides
for annual compensation of $120,000 per year and a commission
of 5% on all commission revenues generated within the
Southwest U.S. territories that he manages. This employment
agreement extends through June 1, 2000.
The Company, through its subsidiaries, has six other
employment agreements, including one with the remaining officer of
the Company. Four of these agreements provide for annual
salaries ranging from $74,500 to $97,500 and expire on
December 31, 1997 with the exception of one agreement which expires
on August 31, 1998. If the employee is terminated without
cause during the term of their agreement, the Company is
liable for nine months of regular compensation. The remaining
two agreements were entered into as of November 1, 1997 and provide
for annual salaries of $84,000 and $96,000, respectively, and
expire on September 30, 2000. If either of these employees are
terminated without cause during the term of their agreements, the
Company is liable for six months of regular compensation. All of
these employment agreements provide for automatic renewal.
<PAGE>
The aggregate commitment for future salaries, excluding
bonuses, under these employment agreements is approximately
$1,291,000. The following amounts apply to each of the fiscal
years ending August 31: 1998-$706,000, 1999-$300,000, 2000-
$270,000, and 2001-$15,000.
ITEM 7. Certain Relationships and Related Transactions
During the Company's last two fiscal years, there have been no
transactions between the Company and any officer, director, nominee
for election as director, or any shareholder owning greater than
five percent (5%) of the Company's outstanding shares, nor any
member of the above referenced individuals' immediate family,
except as set forth below.
On January 23, 1997, prior to the Merger and pursuant to a
written agreement with Williams Investment Company, the Company,
then known as In-Touch Interactive Multimedia, Inc. ("In-Touch"),
issued an aggregate of 85,716 shares of common stock to three
persons in exchange for various services rendered to In-Touch,
including assisting In-Touch in its search for and investigation of
potential acquisition and merger candidates. The shares were
issued in exchange for services rendered to the Company and,
because at the time of issuance the Company was not engaged in any
business activity and had no assets, the shares were valued at par
value because the common stock was not being actively traded and
par value was deemed the best estimation of fair market value of
the In-Touch common stock as determined by In-Touch prior to the
Merger.
On February 10, 1997, the Company entered into the Merger.
Pursuant to the terms of the Merger, the Company effected a reverse
stock split of its outstanding shares of common stock on a one (1)
share for one and three-fourths (1.75) shares, and exchanged
3,600,000 shares of authorized but previously unissued shares of
the Company's common stock (post-split) for all the previously
issued and outstanding shares of WWATT. The shares were issued
on a proportionate basis to the existing shareholders of WWATT.
Among those receiving shares pursuant to the Merger were: Ronald
L. Weindruch (Director and Officer), 1,661,881 shares; D. Mike
Maxwell (Director and Officer), 466,098 shares; Richard E. Hanik
(Officer), 70,079 shares; and Jerome Rhattigan, 269,643 shares.
An additional 790,000 shares of the Company's common stock was
issued pursuant to an agreement with Solutions Partnership,
Inc. for services related to the Merger. As a result of the
Merger, WWATT was merged with and into the Company with the Company
being the surviving corporation, and the Company changed its
corporate name to Synaptx Worldwide, Inc. The aforementioned
actions were approved by the Company's shareholders at the Special
Meeting of Shareholders held February 10, 1997. For accounting
purposes, the transaction has been treated as a recapitalization of
the Company, or reverse merger. At the time of the transaction,
the Company had only nominal assets and there was no substantive
trading market for its securities. Therefore, the value of the
transaction and the number of shares issued thereby was determined
by mutual negotiation among the parties.
Ronald L. Weindruch, the Synaptx Chairman of the Board of
Directors, who is also its President & C.E.O., received 269,642
shares of the Company s common stock which is equal to 50% of the
common stock issued in the exchange for Access stock, for
his 50% ownership in Access. Also, this individual provides a
significant amount of the services benefiting Access. He
was paid or an accrual was made for services provided and expenses
incurred, as follows:
Total incurred for: August 31, 1997 August 31, 1996
Consulting and commission
expenses $ 111,400 $ 111,500
Expense reimbursement $ 46,500 $38,000
Accrued expenses:
Consulting and commission
expenses 34,800 20,200
Expense reimbursements 12,800 2,700
Additionally, this majority shareholder of WWATT had, as of
August 31, 1996, advanced funds to a company in the form of a
noninterest-bearing loan in the amount of $32,000. The Company has
repaid the loan.
The Company through its acquisition of Impulse is also acting
as guarantor of personal notes to a bank of an officer of the
Company and his wife, a shareholder. These notes, as of August
31, 1997, total $438,400 which includes $257,100
under a mortgage note secured by real estate. The Company
believes that the current fair market value of such real estate is
sufficient to cover the principal amounts associated with these
mortgage notes. The officer and the shareholder are current in
their payments. On December 8, 1997 this guaranty was
subsequently reduced to $130,920, which bears interest at 10.99%
and is due on October 17, 2001. The remaining balance being
guaranteed by the Company is subordinated to the mortgage on the
above described property.
ITEM 8. Description of Securities
Common Stock
The Company is authorized to issue 25,000,000 shares of common
stock, par value $.001 per share, of which 5,208,660
shares are issued and outstanding as of November 17, 1997.
All shares of common stock have equal rights and privileges with
respect to voting, liquidation and dividend rights. Each share of
common stock entitles the holder thereof to (i) one non-cumulative
vote for each share held of record on all matters submitted to a
vote of the stockholders; (ii) to participate equally and to
receive any and all such dividends as may be declared by the Board
of Directors out of funds legally available thereof; and (iii) to
participate pro rata in any distribution of assets available for
distribution upon liquidation of the Company. Stockholders of the
Company have no preemptive rights to acquire additional shares of
common stock or any other securities. All outstanding shares of
common stock are non-assessable.
Preferred Stock
The Company is also authorized to issue 10,000,000 shares of
preferred stock , par value One-Tenth of a Cent ($.001) per share,
which shares of preferred stock may be issued in various series
with terms, rights, voting privileges and preferences to be
determined at the discretion of the Board of Directors at the time
of issuance. All fully paid shares of preferred stock of the
Company shall not be liable to call or assessment. No shares of
Preferred Stock have been issued or are currently outstanding.
Warrants to Purchase Common Stock
The Company also authorized the issuance of 200,006 warrant
certificates to purchase shares of common stock of the Company.
The warrant certificates allow for the purchase of one (1) share of
common stock for every one warrant certificate. The warrants were
issued as follows:
Number of Exercise
Date Expiration Warrant Price
Issued Date Certificates Range
9/1/96 8/31/2001 88,048 $ 0.45431 to
$ 0.90861
2/7/97 2/6/2002 111,958 $ 0.90861 to
$ 1.36292
The Warrant Agreement provides for adjustments to the number
of warrant certificates to prevent dilution of warrant holders
under certain circumstances.
<PAGE>
PART II
ITEM 1. Market Price of And Dividends on the Registrant s Common
Equity and Other Shareholder Matters
Prior to the filing of this registration statement, no
shares of the Company s Common Stock have been registered with the
Securities and Exchange Commission (the "Commission") or any state
securities agency of authority. The Company s Common Stock is
being traded on a limited basis in the over-the-counter market and
quotations are published on the OTC Bulletin Board under the symbol
"SYTX", and in the National Quotation Bureau, Inc. "pink sheets"
under Synaptx Worldwide, Inc. Inclusion on the OTC Bulletin Board
permits price quotations for the Company's shares to be published
by such service.
The following table sets forth the range of high and low bid
prices of the Common Stock for each calendar quarterly period as
reported by the National Quotation Bureau, Inc. ( NQB ). Because
no meaningful trading market existed for the Company s common stock
prior to March 1997, historical price information is set forth
below commencing the first calendar quarter of 1997. Prices
reported by the NQB represent prices between dealers, do not
include retail markups, markdowns or commissions and do not
represent actual transactions.
Calendar year 1997
High Low
First Quarter (1) (1)
Second Quarter (1) (1)
Third Quarter $ 2.00 $ 2.00
Fourth Quarter(2) $ 3.50 $ 1.50
_________________
(1) The price information above was obtained from the NQB.
Although the Company is aware that its shares did trade
on a limited basis during the first and second calendar
quarters commencing in March 1997, the NQB did not have
any meaningful price information for those periods and
thus none is presented.
(2) Through November 30, 1997.
The ability of an individual shareholder to trade their shares
in a particular state may be subject to various rules and
regulations of that state. A number of states require that an
issuer's securities be registered in their state or appropriately
exempted from registration before the securities are permitted to
trade in that state. Presently, the Company has no plans to
register its securities in any particular state. Further, most
likely the Company's shares will be subject to the provisions of
Section 15(g) and Rule 15g-9 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), commonly referred to as the
"penny stock" rule. Section 15(g) sets forth certain requirements
for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the
Exchange Act.
The Commission generally defines penny stock to be any equity
security that has a market price less than $5.00 per share, subject
to certain exceptions. Rule 3a51-1 provides that any equity
security is considered to be a penny stock unless that security is:
registered and traded on a national securities exchange meeting
specified criteria set by the Commission; authorized for quotation
on The NASDAQ Stock Market; issued by a registered investment
company; excluded from the definition on the basis of price (at
least $5.00 per share) or the issuer's net tangible assets; or
exempted from the definition by the Commission. If the Company's
shares are deemed to be a penny stock, trading in the shares will
be subject to additional sales practice requirements on broker-
dealers who sell penny stocks to persons other than established
customers and accredited investors, generally persons with assets
in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must
make a special suitability determination for the purchase of such
securities and must have received the purchaser's written consent
to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules
require the delivery, prior to the first transaction, of a risk
disclosure document relating to the penny stock market. A broker-
dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, and current
quotations for the securities. Finally, monthly statements must be
sent disclosing recent price information for the penny stocks held
in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of
broker-dealers to trade and/or maintain a market in the Company's
common stock and may affect the ability of shareholders to sell
their shares.
As of November 17, 1997 there were 150
holders of record of the Company's common stock, which figure does
not take into account those shareholders whose certificates are
held in the name of broker-dealers. Because of the sparse trading
of the Company's securities and the absence of a current bid and
ask quotation, no trading history is presented herein.
As of the date hereof, the Company has issued and outstanding
5,208,660 shares of common stock. Of this total, 657,211
shares were issued in transactions more than two years ago. The
remaining 4,551,449 shares were issued on or after March
12, 1997. Thus, 657,211 shares of the Company's outstanding common
stock may be sold or otherwise transferred without restriction
pursuant to the terms of Rule 144 ("Rule 144") of the Securities
Act of 1933, as amended (the "Act"), unless held by an affiliate or
controlling shareholder of the Company. Of these shares, the
Company has identified no shares as being held by affiliates of the
Company.
The 4,551,449 shares issued on or after March 12,
1997 and/or presently held by affiliates or controlling
shareholders of the Company may be sold pursuant to Rule 144,
subject to the volume and other limitations set forth under
Rule 144. In general, under Rule 144 as currently in effect, a
person (or persons whose shares are aggregated) who has
beneficially owned restricted shares of the Company for at least
one year, including any person who may be deemed to be an
"affiliate" of the Company (as the term "affiliate" is defined
under the Act), is entitled to sell, within any three-month period,
an amount of shares that does not exceed the greater of (i) the
average weekly trading volume in the Company's common stock during
the four calendar weeks preceding such sale or (ii) 1% of the
shares then outstanding. A person who is not deemed to be an
"affiliate" of the Company and who has held restricted shares for
at least three years would be entitled to sell such shares without
regard to the resale limitations of Rule 144.
Dividend Policy
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that
it will pay cash dividends or make distributions in the foreseeable
future. The Company currently intends to retain and invest future
earnings to finance its operations.
ITEM 2. Legal Proceedings
There are presently no material pending legal proceedings to
which the Company or any of its subsidiaries is a party or to which
any of its property is subject and, to the best of its knowledge,
no such actions against the Company are contemplated or threatened.
ITEM 3. Changes in and Disagreements With Accountants
There have been no changes in or disagreements with
accountants.
<PAGE>
ITEM 4. Recent Sales of Unregistered Securities
The Company's predecessor, WWATT, issued restricted shares of
WWATT common stock starting March 1, 1996. Additionally, shares
were issued to consummate the purchases of Access, Impulse and
ORAYCOM, Inc. on June 3, 1996, October 1, 1996 and June 1, 1997,
respectively. Beginning June 10, 1996, WWATT began offering a
private placement which was consummated March 12, 1997 with
sales to 40 accredited investors. All the above transactions
were adjusted in a stock dividend upon the recapitalization of
WWATT into Synaptx for which 3,600,000 shares of Synaptx common
stock were issued. Additionally, 790,000 shares of Synaptx common
stock were issued to one person, for providing services related to
the recapitalization of WWATT into Synaptx.
On January 23, 1997 pursuant to a written agreement, the
Company issued an aggregate of 85,716 shares of common stock to a
total of three individuals in exchange for various services
rendered to the Company, including assisting the Company in its
search for and investigation of potential acquisition and merger
candidates. These shares were issued in reliance on the exemption
from registration provided by Rule 701 promulgated under the
Securities Act of 1933, as amended (the "Act"), and certificates
representing the shares bear an appropriate restrictive legend.
On June 3, 1997 the Board of Directors of Synaptx authorized
a stock rights offering whereby every shareholder of record as of
May 28, 1997 of Synaptx common stock could purchase one (1) share
of common stock for every three (3) shares held at a price of $2.18
per share. As a result, an offering of 1,682,403 shares were so
offered of which 3,591 were exercised by an aggregate of five
shareholders as of June 30, 1997, the expiration date.
On October 2, 1997, an existing shareholder and the President
of the Company s wholly-owned subsidiary, ORAYCOM, Inc. purchased
15,000 shares of the Company s common stock at $2.00 per share
which approximated the then existing fair market value of the
Company's common stock as determined by the Board of Directors.
On October 22, 1997, the Board of Directors authorized a
second private placement of up to $2,000,000 in either shares of
the Company s common stock at $2.30 per share or of units at $3.00
per unit consisting of one share of the Company s common stock and
a warrant to purchase an additional share of the Company s common
stock at $2.30 per share with an exercisable life of five years.
The period of this offering extends through November 21, 1997 with
the President of the Company authorized to extend this offer,
which he did for 60 more days until January 21, 1998. No shares
have been sold as of the date hereof.
With respect to the issuance and/or sale of the aforementioned
shares except for those issued on January 23, 1997, the Company
relied on the exemption from registration provided by Sections 4(2)
and 4(6) of the Securities Act of 1933, as amended (the
"Act"). The Company has also made available to purchasers
of its common stock its business plan and/or Private Placement
Memorandum. All of the shares issued to the aforementioned persons
bore restrictive legends preventing their transfer except in
accordance with the Act and the regulations promulgated thereunder.
In addition, stop transfer instructions pertaining to these shares
have been lodged with the Company s transfer agent.
ITEM 5. Indemnification of Directors and Officers
As permitted by the provisions of the Utah Revised Business
Corporation Act (the "Utah Act"), the Company has the power to
indemnify an individual made a party to a proceeding because they
are or were a director, against liability incurred in the
proceeding, if such individual acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interest
of the Company and, in a criminal proceeding, where they
had no reasonable cause to believe their conduct was
unlawful. Indemnification under this provision is limited to
reasonable expenses incurred in connection with the proceeding.
The Company must indemnify a director or officer who is successful,
on the merits or otherwise, in the defense of any proceeding or in
defense of any claim, issue, or matter in the proceeding, to which
they are a party to because they are or were a director or officer
of the Company, against reasonable expenses incurred by them in
connection with the proceeding or claim with respect to which they
have been successful. The Company s Articles of Incorporation
empower the Board of Directors to indemnify its officers,
directors, agents, or employees against any loss or damage
sustained when acting in good faith in the performance of their
corporate duties.
The Company may pay for or reimburse reasonable expenses
incurred by a director, officer employee, fiduciary or agent of the
Company who is a party to a proceeding in advance of final
disposition of the proceeding provided the individual furnishes
the Company with a written affirmation that their conduct was in
good faith and in a manner reasonably believed to be in, or not
opposed to, the best interest of the Company, and undertake to
repay the advance if it is ultimately determined that they did not
meet such standard of conduct.
Also pursuant to the Utah Act, a corporation may set forth in
its articles of incorporation, by-laws or by resolution, a
provision eliminating or limiting in certain circumstances,
liability of a director to the corporation or its shareholders for
monetary damages for any action taken or any failure to take action
as a director. This provision does not eliminate or limit the
liability of a director (i) for the amount of a financial benefit
received by a director to which they are not entitled; (ii) an
intentional infliction of harm on the corporation or its
shareholders; (iii) for liability for a violation of
Section 16-10a-842 of the Utah Act (relating to the distributions
made in violation of the Utah Act); and (iv) an intentional
violation of criminal law. To date, the Company has not adopted
such a provision in its Articles of Incorporation, By-Laws, or by
resolution. A corporation may not eliminate or limit the liability
of a director for any act or omission occurring prior to the date
when such provision becomes effective. The Utah Act also permits
a corporation to purchase and maintain liability insurance on
behalf of its directors, officers, employees, fiduciaries or
agents.
Transfer Agent
The Company has designated Interstate Transfer Co., 56 West
400 South, Suite 260, Salt Lake City, Utah 84101, as its transfer
agent.
PART F/S
The financial statements for Synaptx Worldwide, Inc. for the
fiscal years ended August 31, 1997 and 1996 have been
audited to the extent indicated in their report (which contains
an explanatory paragraph regarding the Company s ability to
continue as a going concern) by BDO Seidman, LLP, independent
certified public accountants, and have been prepared in accordance
with generally accepted accounting principles and pursuant to
Regulation S-B as promulgated by the Securities and Exchange
Commission and are included herein in response to Item 15 of this
Form 10-SB/A.
The financial statements for Synaptx Impulse, Inc. for the
fiscal year ended August 31, 1996 have been audited to the
extent indicated in their report by BDO Seidman, LLP, independent
certified public accountants, and have been prepared in accordance
with generally accepted accounting principals.
The financial statements for ORAYCOM, Inc. for the nine months
ended May 31, 1997 have been audited to the extent indicated in
their report by BDO Seidman, LLP, independent certified public
accountants, and have been prepared in accordance with generally
accepted accounting principals.
<PAGE>
Index to Financial Statements
Synaptx Worldwide, Inc. and Subsidiary (f/k/a/ Worldwide
Applied Telecom Technology, Inc.)
Independent Auditors' Report F-2
Consolidated Balance Sheets as of August 31, 1997
and 1996 F-3
Consolidated Statements of Operations for the Years
Ended August 31, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity
(Deficit) for the Years Ended August 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years
Ended August 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
Consolidated Pro Forma Financial Information
Introduction to the Unaudited Pro Forma Consolidated
Financial Information for the Year Ended
August 31, 1997 F-22
Consolidated Pro Forma Statement of Operations for
the Year Ended August 31, 1997 F-23
Notes to Pro Forma Consolidated Financial Statements F-24
Acquisitions
Synaptx Impulse, Inc. (f/k/a Maxwell Partners, Inc.)
Independent Auditors' Report F-25
Balance Sheet as of August 31, 1996 F-26 - F-27
Statement of Operations for the Year Ended
August 31, 1996 F-28
Statement of Stockholders' Deficit for the Year Ended
August 31, 1996 F-29
Statement of Cash Flows for the Year Ended
August 31, 1996 F-30
Notes to Financial Statements F-31
ORAYCOM, Inc.
Independent Auditors' Report F-38
Balance Sheet as of May 31, 1997 F-39
Statement of Operations for the Nine Months Ended
May 31, 1997 F-40
Statement of Stockholder's Equity for the
Nine Months Ended May 31, 1997 F-41
Statement of Cash Flows for the Nine Months Ended
May 31, 1997 F-42
Notes to Financial Statements F-43
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Synaptx Worldwide, Inc.
Elgin, Illinois
We have audited the accompanying consolidated balance sheets
of Synaptx Worldwide, Inc. and subsidiaries as of August 31, 1997
and 1996, and the related consolidated statements of operations,
stockholders' equity (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 consolidated
financial position of Synaptx Worldwide, Inc. and subsidiaries at
August 31, 1997 and 1996, and the results of their operations and
their 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
suffered recurring losses from operations and has a working capital
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 also discussed in Note 1. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
BDO SEIDMAN, LLP
Chicago, Illinois
November 21, 1997
<PAGE>
Synaptx Worldwide, Inc. and Subsidiaries
Consolidated Balance Sheets
August 31, 1997 and 1996
1997 1996
ASSETS
Current assets:
Cash $ 58,265 $ -
Accounts receivable 1,001,638 36,792
Prepaid expenses and deposits 44,662 -
Total current assets 1,104,565 36,792
Property and equipment 254,990 13,100
Less accumulated depreciation (69,041) (1,600)
Net property and equipment 185,949 11,500
Costs in excess of net assets acquired
(net of accumulated amortization
of $129,372) 1,631,673 -
Restricted cash - 10,000
Due from Maxwell Partners - 50,000
Deferred placement cost - 5,000
Other assets 60,998 -
Total assets $ 2,983,185 $ 113,292
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 679,477 $ 56,746
Accrued expenses and taxes 199,644 60,000
Notes payable 295,482 -
Current portion of long-term debt 8,120 -
Due to officer - 32,000
Deferred revenue 414,700 -
Total current liabilities 1,597,423 148,746
Liability to private placement subscribers - 10,000
Long-term debt, net of current portion 21,200 -
Commitments - -
Stockholders' equity (deficit)
Preferred stock; $.001 par value;
10,000,000 shares authorized,
none issued - -
Common stock; $.001 par value;
25,000,000 shares authorized,
5,193,660 and 1,937,022 issued
and outstanding 5,194 1,936
Additional paid in capital 2,052,977 43,664
Deficit (693,609) (91,054)
Total stockholders' equity (deficit) 1,364,562 (45,454)
Total liabilities and stockholders'
equity (deficit) $ 2,983,185 $ 113,292
<PAGE>
Synaptx Worldwide, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Years Ended August 31, 1997 and 1996
1997 1996
Net sales and revenues:
Marketing services and production $ 3,301,878 $ 145,653
Commission income 119,005 -
Executive placement fees 180,241 -
Total revenues 3,601,124 145,653
Cost of sales and revenues 2,571,467 126,561
Gross profit 1,029,657 19,092
Selling, general and administrative
expenses 1,384,481 90,033
Depreciation and Amortization 197,287 1,600
Loss from operations (552,111) (72,541)
Interest expense 50,444 -
Net loss $ (602,555) $ (72,541)
Weighted average shares outstanding 4,339,640 1,937,022
Net loss per share $ (0.14) $ (0.04)
<PAGE>
Synaptx Worldwide, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
For the Two Years Ended August 31, 1997 and 1996
Additional
Common Stock Paid-in
Shares Par Value Capital Deficit Total
Balances, August 31, 1995 539,285 $ 539 $ 29,461 $ (18,513) $ 11,487
Shares issued for assets 1,397,737 1,397 11,703 - 13,100
Expenses incurred for the
Company by the President - - 2,500 - 2,500
Net loss for the year - - - (72,541) (72,541)
Balances, August 31, 1996 1,937,022 1,936 43,664 (91,054) (45,454)
Shares issued for business
acquisitions 902,259 902 1,189,098 - 1,190,000
Sale of common stock-net 901,665 902 760,919 - 761,821
Shares issued for assets 5,503 6 4,994 - 5,000
Reverse Merger into
Public Shell 1,447,211 1,448 (4,698) - (3,250)
Discount on options tied
to acquisition - - 45,000 - 45,000
Discount on stock warrants
tied to debt - - 14,000 - 14,000
Net loss for the year - - - (602,555) (602,555)
Balances, August 31, 1997 5,193,660 $5,194 $ 2,052,977 $(693,609) $1,364,562
<PAGE>
Synaptx Worldwide, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended August 31, 1997 and 1996
1997 1996
Cash flows from operating activities
Net loss $ (602,555) $ (72,541)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 67,915 1,600
Non cash rent expense - 2,500
Amortization 129,372 -
Changes in assets and liabilities net of
assets acquired:
Increase in accounts receivable (396,760) (9,791)
Decrease in other current assets (17,896) -
Increase in accounts payable 391,353 29,890
(Decrease) increase in accrued expenses
and taxes (281,803) 60,000
Increase in deferred revenue 264,700 -
Net cash (used in) provided
by operating activities (445,674) 11,658
Cash flows from investing activities
Additions to property, plant and equipment (75,607) -
Cash paid for acquisitions (43,231) -
Additions to other assets (58,618) -
Net cash used in investing activities (177,456) -
Cash from financing activities
(Reductions in) bank lines of credit (10,018) -
Additions to (Reductions in) long-term debt-net (100,908) -
Decrease (Increase) in restricted cash 10,000 (10,000)
(Decrease) Increase in liability to private
placement subscribers (10,000) 10,000
Decrease (Increase) in deferred placement costs 5,000 (5,000)
Decrease (Increase) in due from Maxwell Partner 50,000 (50,000)
(Decrease) Increase in due to officer (32,000) 32,000
Issuance of common stock-net 769,321 -
Cash provided by (used in) financing activities 681,395 (23,000)
Net increase (decrease) in cash 58,265 (11,342)
Cash at beginning of year - 11,342
Cash at end of year $ 58,265 $ -
<PAGE>
Synaptx Worldwide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Accounting Policies
Operations and Basis of Reporting
Synaptx Worldwide, Inc., formerly known as Worldwide Applied
Telecom Technology, Inc. (the Company ), is a holding company
incorporated in the State of Utah. The Company has three
wholly owned subsidiaries, Synaptx Access, Inc. (F/K/A North
American Telco Cable Representatives, Inc.) ( Access ), which
was incorporated in Florida, Synaptx Impulse, Inc. (F/K/A
Maxwell Partners, Inc.) ( Impulse ), which was incorporated in
Illinois, and ORAYCOM, Inc. ( ORAYCOM ), which was
incorporated in Texas. (Note 2).
The consolidated financial statements of the Company
(incorporated on November 3, 1995) are reporting the Company's
initial results for the ten months ended August 31, 1996 and
for the full year ended August 31, 1997.
Access is a consulting and sales representative firm based in
Florida that provides telecommunications and information
industry companies with consulting, field sales and business
development support. Clients are located throughout the United
States.
Access was acquired in June, 1996 and was accounted for as a
pooling of interests. Access' revenues are primarily from
telecommunications companies. Accordingly, all fiscal year
ended August 31, 1996 revenues and all receivables at August
31, 1996 are related to these customers. (See Note 2)
Impulse is a Chicago, Illinois and Atlanta, Georgia based
marketing and advertising agency serving primarily the
telecommunications and information industries throughout the
United States. The firm employs industry professionals with
expertise in market research, strategic and market planning,
marketing communications, sales training and management,
graphic design, database marketing, and web site information
systems development. Eleven months of Impulse revenues from
its October 1, 1996 acquisition date are included in fiscal
year ended August 31, 1997 results. (See Note 2)
ORAYCOM, Inc. is a sales representative firm based in Texas
that provides field sales and business development support for
specified product lines and/or territories for clients under
contract who include cable TV and telecommunications (both
voice and data networking) original equipment manufacturers,
commonly referred to as OEMs, located primarily in the
southwestern United States. These clients pay a negotiated
commission on all sales associated with the contracted
coverage. Three months of ORAYCOM revenues from its June 1,
1997 acquisition date are included in fiscal year ended August
31, 1997 results (See Note 2)
The Company s financial statements are presented on a going
concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of
business.
The Company has experienced recurring losses from operations
as a result of its investment in personnel necessary to
achieve its operating plan which is long-range in nature. For
the ten months ended August 31, 1995 (initial period of
operation), the Company experienced a net loss of $18,513,
For the years ending August 31, 1996 and 1997 the Company
realized net losses of $72,541 and $602,555, respectively. At
August 31, 1997, the Company has a working capital deficit of
$492,858, supported by positive stockholders equity of
$1,364,562.
The Company s ability to continue as a going concern is
contingent upon its ability to secure additional financing and
attain profitable operations. In addition, the Company s
ability to continue as a going concern must be considered in
light of the problems, expenses and complications frequently
encountered by entrance into established markets and the
competitive environment in which the Company operates.
Although the Company is pursuing a secondary private placement
plus the refinancing and expansion of outstanding debt, there
can be no assurance that the Company will be able to secure
financing when needed or obtain such terms satisfactory to the
Company, if at all, or complete its secondary private
placement. Failure to secure such financing or complete its
secondary private placement may result in the Company rapidly
depleting its available funds and not being able to comply
with its payment obligations under its bank loans. In
addition, if the Company is unable to meet its obligations
under its credit agreements, such creditors shall have the
right to foreclose on the assets of the Company, which will be
prior to the interests of the holders of Common Stock.
The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result from the possible inability of the
Company to continue as a going concern.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, (Note 2). Upon
consolidation, significant intercompany accounts, transactions
and profits are eliminated.
Revenue Recognition
Professional fees, production billings, commission income and
executive placement fees represent the principal sources of
revenue of the Company. Professional fee revenues are
generally recognized when fees are earned based on work
performed. Production revenues are recorded as billed with
costs accrued for vendor invoices not yet received.
Commission revenues are recorded as sales are consummated.
Executive placement fees are recognized when an individual
recommended is hired by the client.
Deferred Revenue
Impulse often receives prepayments for professional services
to be rendered. This revenue is deferred and as the services
are provided, a proportionate share of the deferred revenue is
recognized as income.
Property and Equipment; Depreciation
Property and equipment are stated at cost and depreciated over
their estimated useful lives of three to five years using the
straight-line method.
Cost in Excess of Net Assets Acquired
The excess of cost over fair value of net assets of businesses
acquired is being amortized on a straight-line basis over ten
years.
Income Taxes
Prior to the business combination on June 3, 1996, the
Company's wholly owned subsidiary, Access, with the consent of
its shareholders, elected to be taxed as an "S" corporation in
compliance with elections under the Internal Revenue Code.
Accordingly, no liability or provision for federal income
taxes is included in the accompanying financial statements,
nor are any deferred taxes provided for timing differences
between income tax and financial reporting for the stub period
prior to the merger.
Since the acquisition date, Access' results are included with
the Company's results. (See Note 5)
Estimates
The accompanying financial statements include estimated
amounts and disclosures based on management's assumptions
about future events. Actual results may differ from those
estimates.
Recent Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings per Share." The new standard
simplifies the standards for computing earnings per share and
requires presentation of two new amounts: basic and diluted
earnings per share. The Company will adopt this standard when
it reports its operating results for the second quarter ending
February 28, 1998. When the Company adopts SFAS No. 128, it
expects to report the following restated amounts for the
fiscal years ended August 31, as follows:
1997 1996
Basic $ (0.14) $(0.04)
Diluted $ (0.14) $(0.04)
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, Reporting Comprehensive Income . The new
standard discusses how to report and display comprehensive
income and its components. This standard is effective for
years beginning after December 15, 1997. When the company
adopts this statement, it is not expected to have a material
impact on the presentation of the Company s financial
statements.
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information . This standard requires enterprises to
report information about operating segments, their products
and services, geographic areas, and major customers. This
standard is effective for years beginning after December 15,
1997. When the company adopts this statement, it is not
expected to have a material impact on the presentation of the
Company s financial statements.
Financial Instruments
Financial instruments which potentially subject the Company to
concentrations of risk consist principally of temporary cash
investments and accounts receivable. The Company invests its
temporary cash balances in financial instruments of highly
rated financial institutions with maturities of less than
three months.
The carrying values reflected in the balance sheets reasonably
approximate the fair values for cash, accounts receivable,
payables and debt.
Net Loss Per Share
Net loss per share is based on the weighted average number of
shares of common stock outstanding during each year.
Stock Dividend
In February 1997, the Company declared a 10.058% stock
dividend. All share and per share data have been adjusted to
reflect the stock dividend.
Business Reorganization - Reverse Merger
On February 10, 1997, the Company entered into a merger
agreement (the "Merger") with Worldwide Applied Telecom
Technology, Inc., a Delaware corporation, ("WWATT"). Pursuant
to the terms of the Merger, the Company effected a reverse
stock split of its outstanding shares of common stock on a one
(1) share for one and three-fourths (1.75) shares, and
exchanged 3,600,000 shares of authorized but previously
unissued shares of the Company's common stock for all the
previously issued and outstanding shares of WWATT. An
additional 790,000 shares of the Company's common stock was
issued for services related to the Merger. As a result of the
Merger, WWATT was merged with and into the Company with the
Company being the surviving corporation, and the Company
changed its corporate name to Synaptx Worldwide, Inc. The
aforementioned actions were approved by the Company's
shareholders at the Special Meeting of Shareholders held March
12, 1997. Prior to the Merger, there was no affiliation
between the Company and WWATT, nor between the officers,
directors or principal shareholders of the two respective
entities. For accounting purposes, the transaction has been
treated as a recapitalization of the Company, or reverse
merger. Subsequent to the acquisition, all of the Company s
activities have been restated to the prior business endeavors
of WWATT. Had the merger taken place on September 1, 1995,
the pro forma inclusion of Synaptx s operating results would
not have had a significant effect on the consolidated revenues
and net loss of the Company.
NOTE 2. Business Combinations
- - Access
On June 3, 1996, the Company entered into a definitive
agreement with the shareholders holding all of the issued and
outstanding common stock of Access. These shareholders agreed
to exchange all of their outstanding common stock for 539,285
shares of common stock of the Company. The acquisition was
accounted for as a pooling of interests and, accordingly, the
accompanying financial information has been restated to
include the accounts of Access for all periods presented.
Results of the separate entities for the periods preceding the
acquisition are as follows:
<PAGE>
September 1, 1995
through May 31, 1996
Revenues:
The Company $ -
Access 105,773
$ 105,773
Net loss:
The Company 37,713
Access 18,999
$ 56,612
- - Impulse
On July 13, 1996, the Company signed a definitive agreement to
exchange 759,400 shares of its common stock for all of the
existing outstanding common stock of Impulse. The exchange of
common stock was consummated on October 1, 1996. The
acquisition was accounted for using the purchase method of
accounting. Impulse is primarily engaged in marketing to the
telecommunications and information industries. The results of
operations of Impulse are included in the accompanying
financial statements for the eleven months from October 1,
1996 to August 31, 1997 for the fiscal year ended August 31,
1997. The total cost of the acquisition was approximately
$1,304,000, which included the fair value of the net
liabilities assumed from Impulse. The excess will be
amortized on the straight-line method over ten years.
- - ORAYCOM
On June 1, 1997, the Company signed a definitive agreement and
consummated an exchange of 142,858 shares of its common stock
for all of the existing outstanding common stock of ORAYCOM.
In addition, the Company is potentially liable for contingent
consideration (see below). The acquisition was accounted for
using the purchase method of accounting. ORAYCOM is
primarily engaged in representing clients primarily in the
telecommunications (both voice and data networking) and cable
TV industries for which ORAYCOM is paid commissions based on
contractually agreed upon rates for products/services sold.
The results of operations of ORAYCOM are included in the
accompanying financial statements for the three months from
June 1, 1997 to August 31, 1997 for the fiscal year ended
August 31, 1997. The total cost of the acquisition was
approximately $500,000, which exceeded the fair value of the
net assets of ORAYCOM by approximately $414,000. The excess
will be amortized on the straight-line method over ten years.
Additionally, pursuant to the terms of the acquisition, the
former shareholder of ORAYCOM may earn additional purchase
price consideration in the form of additional common stock of
the Company based on the attainment of both commission
revenues and earnings above specified levels by ORAYCOM
beginning June 1, 1997 through August 31, 1999. The
additional consideration is specified as fixed amounts for
monthly attainment of specified commission revenues and
earnings through August 31, 1997 which were not met by
ORAYCOM, thus no additional consideration was earned, and for
the attainment of specified annual commission revenues and
earnings for the subsequent fiscal years ending August 31,
1998 and 1999. If ORAYCOM meets the specified commission
revenues and earnings amounts for the fiscal years ending
August 31, 1998 and 1999, the additional consideration could
amount to $350,000. The additional consideration, if any,
would be added to the costs in excess of net assets acquired
and will be amortized on the straight-line method over the
remaining life of the 10 year amortization period, described
above. As of November 1, 1997, ORAYCOM has not achieved
results which would warrant any issuance of additional
consideration.
If the acquisitions of Impulse and ORAYCOM had occurred on
September 1, 1995, management estimates that, on an unaudited
pro forma basis, the following would have been reported on a
consolidated basis for the years ended August 31:
(Unaudited) 1997 1996
Revenues $4,217,423 $3,473,336
Net loss (805,405) (315,434)
Loss per share $ (0.18) $ (0.11)
Note 3. Property and Equipment
Major classes of property and equipment consist of the
following:
1997 1996
Leasehold improvements $ 7,708 $ -
Furniture and fixtures 73,650 9,400
Computer equipment 173,632 3,700
254,990 13,100
Less accumulated depreciation 69,041 1,600
Net property and equipment $ 185,949 $ 11,500
NOTE 4. Notes Payable and Capital Lease Obligations
Description % Rate Payment Terms 1997 1996
Line of 10.99 Due on demand $250,000 $ -0-
Credit or May 1, 1998,
see (a) below
Term Note 10.99 Due December 30, 26,107 $ -0-
1997, see (a) below
Line of 13.25 Due on demand, see 19,375 -0-
Credit (b) below
Term Note 5.00 Due June, 1997, see 590 -0-
(c) below
<PAGE>
Capital Lease 14.00
to
26.75 Various, see Note 7 28,730 -0-
Shareholder None Due on demand, see
Loan Note 11 -0- 32,000
Total 324,802 32,000
Less current maturities 303,602 32,000
Long-term portion $ 21,200 $ -0-
a) The notes payable consist of borrowings under a revolving
line-of-credit with a bank which was assumed when Impulse was
acquired. Borrowings under the line-of-credit, which is
payable on demand or due May 1, 1998, are collateralized by
substantially all of Impulse's assets and bear interest at the
bank's internal rate (10.99% at August 31, 1997 and 1996).
The total line balance is limited to no more than 65% of
accounts receivable less than 90 days old. The line is
secured by commercial guaranties of two of the shareholders
and Synaptx.
The Company also added a term loan with the same bank with
which the line of credit exists when Impulse was acquired.
This loan is collateralized by substantially all of Impulse's
assets and bears interest at the bank's internal rate of
10.99% at August 31, 1997 and 1996. The loan is due December
30, 1997.
The Company has guaranteed the personal and commercial debt of
a certain shareholder and a Director (who are husband and
wife) of the Company with this bank totaling $438,426 and
$521,927 at August 31, 1997 and 1996, respectively. This
guaranty was subsequently reduced to $130,920.
(b) The notes payable also consist of unsecured borrowings
under a revolving line-of-credit with a bank which was assumed
when ORAYCOM was acquired. Borrowings under the line-of-
credit, which is payable on demand, bear interest at the
bank's internal rate (approximately 13.25% at August 31,
1997). The total line balance is limited to $20,000.
(c) Notes payable also consist of a note payable assumed when
ORAYCOM was acquired. The note was issued in exchange for
furniture and equipment. The note bears interest at 5% per
annum. Subsequent to August 31, 1997, the note was repaid.
NOTE 5. Income Taxes
With the consent of its stockholders, Access elected to be
taxed as an "S" corporation pursuant to the Internal Revenue
Code through June 3, 1996. Under this arrangement, the
stockholders will include the taxable income (loss) of the
Company in their individual tax returns.
As of June 3, 1996, Access became a "C" corporation. Both
Impulse and ORAYCOM also became C corporations as of their
respective acquisition dates. A deferred tax asset was
created as a result of the estimated future tax consequences
of temporary differences between the financial statement and
tax basis of assets given the provisions of the enacted tax
laws. A valuation allowance has been established to fully
reserve for this deferred tax asset. As of August 31, 1997,
the Company has a net operating loss carryforward of
approximately $500,000 which expires at various dates through
2012.
NOTE 6. Employee Benefit Plans
Impulse sponsors a qualified employee savings plan for all
eligible employees. Participants may make contributions from
their gross pay (limited to 15% of the employee s
compensation, as defined), with Impulse matching such
contributions (subject to certain limitations) at the rate of
25% of the first 6% of each participant s contribution.
Employer matching contributions to the plan were approximately
$6,000 and $7,000 for the years ended August 31, 1997 and
1996, respectively.
ORAYCOM sponsors a SEP/IRA plan for all eligible employees.
Participants may make contributions from their gross pay
(limited to $9,500 of the employee s compensation, as
defined). ORAYCOM does not provide a matching contribution.
It is anticipated that the ORAYCOM employees will be phased
into an overall Synaptx Worldwide corporate 401k plan in the
near future.
NOTE 7. Lease Obligations
A subsidiary leases certain office furniture and equipment
under capital lease agreements. The original principal amount
of these capital leases was $36,987. The leases require
monthly installments of $1,112, which includes interest
ranging from 14.0% to 26.75%. The leases which have either 36
or 60 month terms terminate between May, 1998 and June 2002.
The capital leases are secured by the underlying furniture and
equipment.
The following is a schedule by years of future minimum lease
payments required under the leases together with their present
value as of August 31, 1997:
<PAGE>
Year ending August 31, Amount
1998 $12,364
1999 10,985
2000 9,592
2001 5,411
2002 4,058
Total minimum lease payments $42,410
Less amount representing interest (13,680)
Present value of minimum
lease payments $28,730
The Company also leases both office space and equipment under
operating leases which expire at various dates.
Impulse occupies office space in Elgin, Illinois under a lease
expiring January 31, 1998. Rentals are subject to annual
escalation charges based upon increases in operating expenses
and real estate taxes. Impulse signed a lease effective
January 1, 1998 to rent new office space at a different
location in Elgin. The lease term extends to December 2004.
Monthly rents start at $10,598 and have a fixed escalation of
approximately three-and-one-half percent per year. A security
deposit of $21,194 has been paid to the landlord. The
estimated cost of relocation of $70,000 is expected to be
financed from current operations.
On August 1, 1997 the Company entered into a standby letter of
credit with its bank for $50,000 with an expiration date of
March 1, 1998. The purpose of the credit is to secure
relocation of the Company to its new leased premises. The
beneficiary is the landlord. The credit accrues interest at
12%. The balance at August 31, 1997 was $-0-.
In September 1996, Impulse entered into an agreement to lease
office space in Atlanta, Georgia. The lease extends through
June 1998.
ORAYCOM occupies office space under a lease expiring July
2002. An amendment to the lease was entered into on July 8,
1997 for additional space. Rentals are subject to annual
escalation charges based upon increases in operating expenses
and real estate taxes.
As of August 31, 1997, the Company s future minimum lease
payments under operating leases are as follows:
Year ending August 31, Amount
1998 $ 274,400
1999 216,400
2000 192,000
2001 174,500
2002 168,300
2003 & beyond 356,400
Total minimum rent commitments $ 1,382,000
Total rental expense for the Company s facilities and
equipment was approximately $211,800 and $2,500 for the years
ended August 31, 1997 and 1996, respectively.
NOTE 8. Private Placements
From July 1996 through March 1997, the Company sold 898,074
shares (post stock dividend, 816,000 pre-dividend) of the
Company's common stock at $1 per pre-dividend share in a
private placement which resulted in net proceeds of $753,993.
The private placement required that a minimum of $500,000 be
raised. At August 31, 1996, $10,000 was received towards the
purchase of 10,000 shares. Accordingly, this cash was
considered restricted and a liability was established for the
subscribed shares.
Placement costs of $5,000 were incurred as of August 31, 1996.
These costs were offset against the proceeds when the private
placement closed in March, 1997.
On June 3, 1997 the Board of Directors of Synaptx authorized
a stock rights offering whereby every shareholder of record as
of May 28, 1997 of Synaptx common stock could purchase one (1)
share for every three (3) shares held at a price of $2.18 per
share. As a result, an offering of 1,682,403 shares were so
offered of which 3,591 were exercised as of June 30, 1997, the
expiration date.
On October 22, 1997, the board of directors authorized a
second private placement of up to $2,000,000 in either shares
of the Company s common stock at $2.30 per share or of units
at $3.00 per unit consisting of one share of the Company s
common stock and a warrant to purchase an additional share of
the Company s common stock at $2.30 per share with an
exercisable life of five years. The period of this offering
extends through November 21, 1997 with the President of the
Company authorized to extend this offer which he did for 60
more days until January 21, 1998.
NOTE 9. Stock Incentive Plan
The Company has a stock incentive plan (the "Plan") adopted by
the Board of Directors on September 27, 1996 and approved by
the stockholders on January 17, 1997. The Plan has been
subsequently amended by the Board of Directors with approval
by a majority of the then existing shareholders on October 22,
1997 to increase the number of issuable shares under the Plan
and clarify the basis for determining fair market value of
shares in conjunction with setting the exercise price of
options at issuance. The Plan provides for the issuance of
both qualified and nonqualified incentive stock options at an
exercise price approximating the fair market value of the
Company's stock at the date of grant (or 110% of such fair
market value in the case of substantial stockholders). A
total of 1,450,000 shares of the Company's common stock have
been reserved pursuant to the Plan. As of August 31, 1996,
there were no options outstanding under the Plan.
Transactions during the fiscal year ended August 31, 1997 are
summarized as follows:
Number of Price per Weighted Weighted
Shares Share Average Average
Price per Remaining
Share Life-Years
Outstanding as of
August 31, 1996 - - - -
Granted 343,192 $ .09- $ 0.933 3.00
$ 2.18
Exercised - -
Cancelled 15,137 $ .91 $ 0.909
Outstanding as of
August 31, 1997 328,055 $ .09- $ 0.934 3.00
$ 2.18
Exercisable as of
August 31, 1996 -
Exercisable as of
August 31, 1997 168,038 $ 0.747 2.33
In July and October 1996, the Company granted nonqualified
options (included above) to purchase 33,018 and 55,030 shares
of common stock, respectively. The option prices were $.91
and $.09, respectively. All these options remain outstanding
and are exercisable.
On November 1, 1997, the Company issued stock options to
officers, directors and certain employees allowing for the
purchase of 318,500 shares of the Company s common stock under
the Plan expiring November 1, 2002 at exercise prices from
$3.36 to $3.70 per share. Of the authorized shares available
under the Plan, 813,629 remain available for issuance.
The Company applies APB No. 25, Accounting for Stock Issued to
Employees, and related interpretations, in accounting for
options granted to employees. Under APB Opinion 25, because
the exercise price of the options equals the market price of
the underlying stock on the measurement date, no compensation
expense is recognized.
The weighted-average grant-date fair value of stock options
granted to employees and independent contractors and directors
during the year and the weighted-average significant
assumptions used to determine those fair values, using a
modified Black-Sholes option pricing model, and the pro forma
effect on earnings of the fair value accounting for employee
stock options under Statement of Financial Accounting
Standards No. 123 are as follows:
<PAGE>
1997
Grant-date fair value per share $ 3.76
Significant assumptions (weighted-average):
Risk-free interest rate at
grant date 6.00%
Expected stock price
volatility 42.03%
Expected dividend payout -
Expected option life-years(a) 3.00
Net loss:
As reported $(602,555)
Pro forma $(960,000)
Net loss per share:
As reported $ (0.14)
Pro forma $ (0.22)
(a) The expected option life is based on the exercise of
options by their contractual expiration dates assuming that
all options are so exercised since the Company has no
historical option exercise patterns on which to base an
alternative scenario.
The Company has issued 200,006 warrants to various
individuals. The exercise prices of the warrants range from
$.45 to $1.36, with a weighted average price per share of
$0.834. The warrants are exercisable and expire in August
2001 and February 2002, with an expected remaining life of
3.69 years, see (a), above. In accordance with FASB 123, as
described above, the grant date fair market value of the
shares associated with these warrants is $ 3.98 and their
additional impact on the net loss would raise the pro forma
net loss to approximately $(1,590,000) and the pro forma net
loss per share to $(0.37).
NOTE 10. Employment Agreements
The Company has employment agreements with nine employees,
including all three of its officers which expire at various
dates through September 30, 2000. The aggregate commitment
for future salaries, excluding bonuses, under these employment
agreements is approximately $1,291,000. The following amounts
apply to each of the fiscal years ending August 31, as follow:
1998-$706,000, 1999-$300,000, 2000-$270,000, and 2001-$15,000.
These agreements shall be automatically renewed for successive
one-year terms unless canceled by either party at least 30
days prior to the current term's expiration. The agreements
also contain severance provisions from nine months and up to
three years in case of early termination without cause.
NOTE 11. Related Party Transactions
The largest shareholder of the Company who is also the
Chairman of the Board of Directors and the President of the
Company received 269,642 shares (50% of the Company's common
stock issued in the exchange of stock) for his 50% ownership
in Access. Also, this individual provides a significant
amount of the services to Access. For the years ended August
31, he was paid or an accrual was made for services provided
and expenses incurred, as follows:
1997 1996
Total payments for the years
ended
Consulting and commissions
expenses $111,400 $111,500
Expense reimbursements 46,500 38,000
Accounts payable at August 31
Consulting and commissions
expenses 34,800 20,200
Expense reimbursements 12,800 2,700
In 1996, this shareholder advanced funds of $32,000 to the
Company in the form of a noninterest-bearing loan.
One of the members of the Board of Directors is also the
founder / chief technology officer of the most significant
customer of 1996. This director like all other outside
directors also was granted options to purchase 5,529 shares of
the Company's common stock subsequent to year end. See
Note 9.
Another member of the Board of Directors is the president of
a corporation which is an executive affiliate of the Company
for which he is eligible to receive fees for consulting
services and commissions for sales generated for Access
clients. For the fiscal years ended August 31, 1997 and 1996,
he received consulting fees of $8,750 and $-0-, respectively.
Additionally, he was reimbursed $3,126 and $-0- for expenses
for the same years then ended.
NOTE 12. Significant Customers
A substantial portion of the Company's revenues is generated
from relatively few customers. Two multi - divisional
customers in the telecommunications industry accounted for
approximately 21% and 34% of sales in the year ended August
31, 1997, although no individual division accounted for more
than 4% or 16% of the Company s total sales, respectively. A
third customer accounted for 21% of total sales. Receivables
from these three customers represented approximately 14%, 65%,
and 2% of total receivables at August 31, 1997, respectively.
Two different customers also from the telecommunications
industry represented 55% and 18% of sales in the year ended
August 31, 1996. Receivables from these customers represented
approximately 14% and 37% of total receivables at August 31,
1996, respectively.
Note 13. Commitments
In May 1997, the Company entered into letters of intent to
acquire two telecommunications sales representative
organizations serving the upper Midwest and Northwest United
States. Though no definitive agreements have been entered
into, both acquisitions would be primarily for capital stock.
Note 14. Supplemental Cash Flow Disclosures
During the years ended August 31, 1997 and 1996, the Company
issued 5,503 and 1,397,737 shares of its common stock in
exchange for fixed assets with a value of $5,000 and $13,100,
respectively.
Cash paid during the year for interest was $39,200 and $-0-
for the years ended August 31, 1997 and 1996, respectively.
During fiscal year 1997, the Company purchased all of the
capital stock of Maxwell Partners, Inc., and ORAYCOM, Inc. for
$690,000 and $500,000, respectively. In conjunction with the
acquisition, liabilities assumed were as follows:
1997 1996
Fair value of assets acquired $ 2,453,834 $ -
Cash paid (43,231) $ -
Value of Stock issued (1,190,000) -
Liabilities assumed $ 1,220,603 -
<PAGE>
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Pro Forma Consolidated Financial Statement
Year Ended August 31, 1997
The following unaudited pro forma consolidated statement of
operations for the year ended August 31, 1997 gives effect to the
acquisitions of Synaptx Impulse, Inc. (F/K/A Maxwell Partners,
Inc.) which was made as of October 1, 1996 and of ORAYCOM, Inc.
which was made as of June 1, 1997. The acquisitions were accounted
for using the purchase method of accounting. Accordingly, the
results of operations of the acquired entities have been reflected
since their acquisition dates. The pro forma information has been
prepared as if the acquisitions occurred on September 1, 1996 and
is based on historical financial statements of Synaptx Worldwide,
Inc., Synaptx Impulse, Inc. and ORAYCOM, Inc. from September 1,
1996 to the respective acquisition dates.
The unaudited pro forma statement of operations has been prepared
by management based upon the financial statements of Synaptx
Worldwide, Inc. and the acquired entities. These pro forma results
may not be indicative of the results that actually would have
occurred if the combination had been in effect since inception or
which may be obtained in the future.
<PAGE>
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Pro Forma Statements of Operations
Year Ended August 31, 1997
(Unaudited)
Pro Forma Pro forma
Synaptx Synaptx ORAYCOM Adjustment Consoli-
Worldwide, Inc. Impulse, Inc. Inc. Increase dation
(Decrease)
Revenues $ 3,601,124 $ 164,193 $452,106 $4,217,423
COST OF REVENUES 2,571,467 213,368 392,957 3,177,792
GROSS PROFIT 1,029,657 (49,175) 59,149 1,039,631
EXPENSES:
Selling, general &
administrative 1,384,405 87,956 62,753 1,535,114
Depreciation 67,915 6,000 3,858 77,773
Amortization 129,448 - 41,948 171,396
Interest Expense - Net 50,444 8,479 1,830 60,753
Total Expenses 1,632,212 102,435 68,441 41,948 1,845,036
NET (LOSS) $(602,555) $(151,610) $(9,292) $(41,948) $(805,405)
Weighted average shares
outstanding 4,339,640 170,427 4,518,067
NET (LOSS) PER SHARE OF
COMMON STOCK $ (0.14) $ (0.18)
See accompanying notes to pro forma financial statements
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Pro Forma Financial Statement
NOTE 1. Synaptx Impulse, Inc.
Effective October 1, 1996, the Company acquired all of the
outstanding stock of Synaptx Impulse, Inc. (F/K/A Maxwell
Partners, Inc.,) whose principal operations consist of
strategic and market planning, new product launch planning,
distribution channel analysis and design, communications
program planning and implementation, and event and trade show
management primarily for clients in the telecommunications
industry. The acquisition was consummated for 759,400 shares
of Synaptx common stock, with a fair value at the acquisition
date of $690,000.
The transaction was recorded under the purchase method of
accounting. The total cost of the acquisition was
approximately $1,304,000, which exceeded the fair value of
assets acquired by approximately $1,300,000.
Pro forma adjustment related to the acquisition of Impulse
include an adjustment for amortization of the cost in excess
of fair value of net assets acquired of $10,823.
NOTE 2. ORAYCOM, Inc.
Effective June 1, 1997, the Company acquired all of the
outstanding stock of ORAYCOM, Inc. ORAYCOM is engaged in
representing clients primarily in the telecommunications (both
voice and data networking) and cable TV industries for which
ORAYCOM is paid commissions based on contractually agreed upon
rates for products and services sold. The acquisition was
consummated for 142,858 shares of Synaptx common stock, with
a fair value at the acquisition date of $500,000.
The transaction was recorded under the purchase method of
accounting. The total cost of the acquisition was
approximately $500,000, which exceeded the fair value of
assets acquired by approximately $414,000.
Pro forma adjustment related to the acquisition of ORAYCOM
include an adjustment for amortization of the cost in excess
of fair value of net assets acquired of $31,125.
<PAGE>
Independent Auditors' Report
Synaptx Impulse, Inc.
(f/k/a Maxwell Partners, Inc.)
Chicago, Illinois
We have audited the accompanying balance sheet of Synaptx Impulse,
Inc. (f/k/a Maxwell Partners, Inc.) as of August 31, 1996 and the
related statements of operations, stockholders' deficit and cash
flows for the year 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
audit.
We conducted our audit 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 audit
provides 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 Synaptx
Impulse, Inc. (f/k/a Maxwell Partners, Inc.) at August 31, 1996
and the results of its operations and cash flows for the year then
ended, in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Chicago, Illinois
April 23, 1997
<PAGE>
Synaptx Impulse, Inc.
(f/k/a/ Maxwell Partners, Inc.)
Balance Sheet
As of August 31, 1996
Assets
Current Assets
Cash $ 38
Investment in related party 15,000
Accounts receivable 469,481
Other receivables 1,058
Prepaid expenses and other 12,023
Total Current Assets 497,600
Property and Equipment, less accumulated
depreciation and amortization(Note 1) 122,516
$620,116
<PAGE>
Synaptx Impulse, Inc.
(f/k/a/ Maxwell Partners, Inc.)
Balance Sheet
As of August 31, 1996
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable $ 436,632
Accrued expenses 25,213
Due to related parties (Note 2) 33,250
Due to Synaptx Worldwide (Note 10) 50,000
Notes payable to bank (Note 4) 294,000
Notes payable to shareholders (Note 2) 40,675
Capital lease obligation - current portion
(Note 5) 23,306
Deferred revenue 75,000
Total Current Liabilities 978,076
Capital Lease Obligation - Long-Term (Note 5) 2,173
Total Liabilities 980,249
Shareholders' Deficit
Common stock, no par - 100,000 shares
authorized - 15,150 shares issued
and outstanding (Note 8) 35,000
Deficit (395,133)
(360,133)
$ 620,116
See accompanying summary of accounting policies and notes to
financial statements.
<PAGE>
Synaptx Impulse, Inc.
(f/k/a/ Maxwell Partners, Inc.)
Statement of Operations
For the Year ended August 31, 1996
Revenues $2,900,084
Expenses
Operating 1,173,011
Direct labor 779,606
Selling, general and administrative
(Notes 6 and 7) 982,270
Total expenses 2,934,887
Operating loss (34,803)
Other Income (Expense)
Write-off of related party advances
(Note 2) (53,000)
Interest income 4,707
Interest expense (40,136)
Miscellaneous 1,500
Total other expense (86,929)
Net Loss $(121,732)
See accompanying summary of accounting policies and notes to
financial statements.
<PAGE>
Synaptx Impulse, Inc.
(f/k/a/ Maxwell Partners, Inc.)
Statement of Stockholders' Deficit
For the Year Ended August 31, 1996
Retained Subscrip-
Common Earnings tion
Shares Stock (Deficit) Receivable Total
Balance, at September 1, 1995 15,150 $ 35,000 $(219,336) $(34,000) $(218,336)
Net loss - - (121,732) - (121,732)
Distributions to shareholders - - (54,065) - (54,065)
Payment on subscription receivable - - - 34,000 34,000
Balance, at August 31, 1996 15,150 $ 35,000 $(395,133) $ - $(360,133)
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
Synaptx Impulse, Inc.
(f/k/a/ Maxwell Partners, Inc.)
Statement of Cash Flows
For the Year ended August 31, 1996
Cash Flows From Operating Activities
Net loss $ (121,732)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation 65,000
Changes in assets and liabilities
Increase in accounts receivable (43,610)
Decrease in due from related parties 112,250
Decrease in other receivables 4,747
Decrease in prepaid expenses and other 26,083
Increase in accounts payable 3,916
Increase in accrued expenses 16,010
Increase in due to related parties 33,250
Increase in due to Synaptx Worldwide 50,000
(Decrease) in deferred revenue (160,000)
Net cash used in operating activities (14,086)
Cash Flows From Investing Activities
Capital expenditures (3,553)
Investment in related party (15,000)
Net cash used in investing activities (18,553)
Cash Flows From Financing Activities
Contributions by shareholders 34,000
Distributions to shareholders (54,065)
Payments on capital lease obligation (22,933)
Payments on shareholder loans (99,325)
Increase in line-of-credit, net 174,000
Net cash provided by financing activities 31,677
Net Decrease in Cash $ (962)
Cash, at beginning of year 1,000
Cash, at end of year $ 38
Supplemental Disclosure of Cash Flow Information
Interest paid $ 39,297
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
Synaptx Impulse, Inc.
(f/k/a/ Maxwell Partners, Inc.)
Summary of Accounting Policies
Nature of
Operations Synaptx Impulse, Inc. (f/k/a Maxwell Partners,
Inc.) (the "Company") is a Chicago, Illinois based
marketing and advertising agency serving the
telecommunications and information industries
throughout the continental United States. The firm
employs industry professionals with expertise in
market research, strategic and market planning,
marketing communications, sales training and
management, database marketing and graphic design.
Revenue
Recognition Professional fees and production billings represent
the principal sources of revenue derived from
customers. Professional fees revenue is generally
recognized when fees are earned based on work
performed. Production revenues are recorded as
billed with costs accrued for vendor invoices not
yet received. Salaries and other company costs are
expensed as incurred.
Deferred
Revenue The Company often receives prepayments for
professional services to be rendered. This revenue
is deferred and as the services are provided, a
proportionate share of the deferred revenue is
recognized into income.
Investments During the fiscal year 1996, the Company purchased
a 12.5% interest in Paw Island, a related party of
the Company. This investment is accounted for
using the cost method. Subsequent to year end,
this investment was distributed to the individual
shareholders of the Company.
Property and
Equipment Property and equipment are stated at cost.
Depreciation is computed over the estimated useful
lives of the assets using accelerated methods.
Income Taxes The Company elected "S" corporation status when it
was incorporated and, accordingly, it is not a tax-
paying entity for federal income tax purposes. Its
stockholders have consented to include the losses
of the Company in their individual federal tax
returns.
Estimates The accompanying financial statements include
estimated amounts and disclosures based on
management's assumptions about future events.
Actual results may differ from those estimates.
<PAGE>
Synaptx Impulse, Inc.
(f/k/a/ Maxwell Partners, Inc.)
Summary of Accounting Policies
Financial
Instruments Financial instruments which potentially subject the
Company to concentrations of risk consist
principally of accounts receivable. The accounts
receivable are from major corporations located
throughout the United States and the associated
credit risks are limited. The carrying values
reflected in the balance sheet at August 31, 1996
reasonably approximate the fair values for accounts
receivable and payable.
<PAGE>
Synaptx Impulse, Inc.
(f/k/a/ Maxwell Partners, Inc.)
Notes to Financial Statements
1.Property and
Equipment Major classes of property and equipment consist of
the following:
August 31, 1996
Leasehold improvements $ 10,506
Furniture and fixtures 228,365
Computer equipment 92,752
Vehicle 20,782
352,405
Less accumulated
depreciation 229,889
Net property and equipment $ 122,516
2.Related Party
Transactions The Company has notes payable to shareholders
totaling $40,675 for the year ended August 31,
1996. These notes are payable on demand or
December 28, 1999 and bear interest at 7.48%.
For the last few years, the Company has performed
marketing work for, and subleased rental space to,
two related entities in which the majority
shareholder has an equity interest. Revenues of
$2,577 were derived from sales to related entities
in the year ended August 31, 1996. In addition,
the Company advanced these two entities funds from
time to time. Cash advances of $44,700 were made
to these related entities in the year ended August
31, 1996.
It has been determined that the majority of these
amounts are deemed uncollectible. As such, write-
offs of $53,000 are reflected in the year ended
August 31, 1996. In the future, the Company will
no longer undertake such transactions.
The Company also has $33,250 due to a related party
at August 31, 1996 for amounts advanced.
Rent charged to these affiliates for sublet office
space was $5,835 for the year ended August 31,
1996.
<PAGE>
Synaptx Impulse, Inc.
(f/k/a/ Maxwell Partners, Inc.)
Notes to Financial Statements
During 1996, the Company paid commissions of
$37,500 to the Company of one of the members of the
board of directors of Synaptx Worldwide for the
sale of equipment to a major customer.
3.Significant
Customers A substantial portion of the Company's revenues is
generated from relatively few customers. Two
customers accounted for approximately 28% and 27%
of sales in the year ended August 31, 1996.
Receivables from these customers represented
approximately 14% and 15% of total receivables at
August 31, 1996, respectively.
4.Notes Payable
to Bank The notes payable consist of borrowings under a
revolving line-of-credit with the bank. Borrowings
under the line-of-credit, which is payable on
demand or due May 1, 1998, are collateralized by
substantially all of the Company's assets and bear
interest at the bank's internal rate (10.99% at
August 31, 1996). The total line balance is
limited to no more than 65% of accounts receivable
less than 90 days old. The line is secured by
commercial guaranties of two of the shareholders
and Synaptx Worldwide. As of August 31, 1996, the
balances due under this line are $171,300.
The Company also has a term loan with a balance of
$122,700 at August 31, 1996. This loan is
collateralized by substantially all of the
Company's assets and bears interest at the bank's
internal rate of 10.99% at August 31, 1996. The
loan is due May 31, 1997.
The Company has also guaranteed the personal debt
of shareholders of the Company totaling $447,921 at
August 31, 1996.
In addition, the Company has guaranteed the debt of
a related entity totaling $74,006 at August 31,
1996.
<PAGE>
Synaptx Impulse, Inc.
(f/k/a/ Maxwell Partners, Inc.)
Notes to Financial Statements
5.Capital
Leases In 1994, the Company entered into a capital lease
for various equipment and furniture. The total
principal amount of this capital lease was $63,996.
The lease requires monthly installments of $2,208,
which includes interest at 19.44%, until November
1997. The capital lease is secured by the related
furniture and equipment.
The following is a schedule by years of future
minimum payments required under the lease together
with its present value as of August 31, 1996:
Year ending August 31, Amount
1997 $ 26,508
1998 2,208
Total minimum lease payments 28,716
Less amount representing interest 3,237
Present value of minimum lease payments $ 25,479
6.Employee
Benefit Plans The Company sponsors a qualified employee savings
plan for all eligible employees. Participants may
make contributions from their gross pay (limited to
15% of the employee's compensation, as defined),
with the Company matching such contributions
(subject to certain limitations) at the rate of 25%
of the first 6% of each participant's contribution.
Employer matching contributions to the plan were
approximately $7,000 for the year ended August 31,
1996.
The Company sponsored an incentive plan for the
period December 1, 1995 through November 30, 1996.
The incentive plan is contingent upon the profits
generated by the Company that exceed $40,000 and
performance objectives. Likewise, losses generated
will result in no funds contributed to the
incentive pool. Allocations of the fund are based
upon employee eligibility and individual incen-
tives. No contributions were made to the incentive
plan as of August 31, 1996.
7.Lease
Commitments The Company occupies their premises under a lease
expiring January 31, 1998. An amendment to the
lease was entered on August 30, 1994 for additional
space. Rentals are subject to annual escalation
charges based upon increases in operating expenses
and real estate taxes.
Synaptx Impulse, Inc.
(f/k/a/ Maxwell Partners, Inc.)
Notes to Financial Statements
As of August 31, 1996, the Company's future minimum
lease payments under operating leases are as
follows:
Year ending August 31, Amount
1997 $ 131,220
1998 54,675
Total minimum rent commitments $ 185,895
Rental expense for the Company's facilities
amounted to approximately $121,035 for the year
ended August 31, 1996.
In September 1996, the Company entered into an
agreement to lease office space in Atlanta,
Georgia. The lease extends through June 1998. The
aggregate minimum rental commitment for this period
would be approximately $69,000.
In February 1997, the Company signed a letter of
intent to build out and rent new office space at a
different location. The proposed lease would
extend for seven years commencing in December 1997.
The aggregate minimum rental commitment for this
period would be approximately $1,146,000. A
payment of $2,000 of the total required deposit of
$25,000 has been made and serves as the second
month's rent and security deposit.
8.Common Stock In January 1995, the Company's authorized shares of
common stock were increased from 1,000 shares to
100,000 shares. An additional 15,050 shares of
common stock were issued to selected employees of
the Company.
9.Employment
Agreements In July 1996, the Company entered into employment
agreements with its chief financial officer and
president which extend through December 31, 1997.
The agreements shall be automatically renewed for
successive one-year terms unless cancelled by
either party at least 30 days prior to the current
term's expiration. The agreements provide for an
aggregate annual salary of $225,000 and a
discretionary bonus not to exceed 33% of the
employee's regular compensation for each quarter.
If the employee is terminated without cause, the
Company is liable for three years of regular
compensation if this termination takes place during
the initial term and two years of regular
compensation if after the initial term.
Synaptx Impulse, Inc.
(f/k/a/ Maxwell Partners, Inc.)
Notes to Financial Statements
In July 1996, the Company also entered employment
agreements with three of the Company's shareholders
which extend through December 31, 1997. The terms
are the same as the aforementioned agreements with
an annual salary of $72,000 per shareholder. If
the employee is terminated without cause during the
initial term of their agreement, the Company is
liable for nine months of regular compensation.
10.Acquisition On July 13, 1996, the Company signed a definitive
agreement to exchange all the outstanding common
stock of the Company for 690,000 shares of common
stock of Synaptx Worldwide, Inc. The exchange of
common stock was consummated on October 1, 1996.
As of August 31, 1996, Synaptx Worldwide, Inc. had
advanced $50,000 to the Company in the form of a
noninterest-bearing advance.
<PAGE>
Independent Auditors' Report
To the Board of Directors
Oraycom, Inc.
Carrollton, Texas
We have audited the accompanying balance sheet of Oraycom, Inc. as
of May 31, 1997 and the related statements of operations,
stockholder's equity and cash flows for the nine months 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 audit.
We conducted our audit 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 statement. 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 audit
provides 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
Oraycom, Inc. at May 31, 1997 and the results of its operations
and cash flows for the nine months then ended, in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
Chicago, Illinois
November 21, 1997
<PAGE>
ORAYCOM, Inc.
Balance Sheet
As of May 31, 1997
ASSETS
Current assets:
Cash $ -
Accounts receivable 124,772
Prepaid expenses and deposits 1,095
Total current assets 125,867
Equipment 28,722
Less accumulated depreciation (10,564)
Net equipment 18,158
Other assets 2,380
Total assets $ 146,405
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank line of credit $ 12,500
Accounts payable 5,682
Accrued expenses and taxes 27,876
Short-term debt 590
Capital lease obligations, current 5,320
Total current liabilities 51,967
Long-term portion of capital lease obligations 8,610
Total Liabilities 60,577
Commitments -
Stockholder's equity
Common stock; $.01 par value; 1,000,000 shares
authorized, 70,000 issued and outstanding 700
Additional paid-in capital 300
Retained earnings 84,828
Total stockholder's equity 85,828
Total liabilities and stockholder's equity $ 146,405
See accompanying summary of accounting policies and notes to financial
statements
ORAYCOM, Inc.
Statement of Operations
For the Nine Months Ended May 31, 1997
Commissions earned $ 452,106
Cost of services 392,957
Gross Profit 59,149
Selling, general and administrative expenses 62,753
Depreciation 3,858
Loss from operations (7,462)
Interest expense 1,830
Net loss $ (9,292)
See accompanying summary of accounting policies and notes to financial
statements
ORAYCOM, Inc.
Statement of Stockholder's Equity
For the Nine Months Ended May 31, 1997
Additional
Common Stock Paid-in Retained
Shares Par Value Capital Earnings Total
Balance, August 31, 1996 70,000 $ 700 $ 300 $ 94,120 $ 95,120
Net loss for the period - - - (9,292) (9,292)
Balance, May 31, 1997 70,000 $ 700 $ 300 $ 84,828 $ 85,828
See accompanying summary of accounting policies and notes to financial
statements
<PAGE>
ORAYCOM, Inc.
Statement of Cash Flows
For the Nine Months Ended May 31, 1997
Cash flows from operating activities
Net loss $ (9,292)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 3,858
Changes in assets and liabilities net of assets
acquired:
Increase in accounts receivable (28,313)
Increase in other current assets (867)
Increase in accounts payable 4,137
Increase in accrued expenses and taxes 23,545
Net cash used in operating activities (6,932)
Cash flows from investing activities
Additions to equipment (2,685)
Net cash used in investing activities (2,685)
Cash from financing activities
Borrowings on bank line of credit 12,500
Principal payments on long-term debt (16,980)
Cash used in financing activities (4,480)
Net decrease in cash (14,097)
Cash at beginning of year 14,097
Cash at end of year $ -
See accompanying summary of accounting policies and notes to financial
statements
<PAGE>
ORAYCOM, Inc.
Summary of Accounting Policies
Nature of Operations
ORAYCOM, Inc. (the "Company") is a sales representative firm based in
Texas. The Company provides field sales and business development
support for specified product lines and/or territories for clients under
contract. Clients include telecommunications (both voice and data
networking) and cable TV original equipment manufacturers, commonly
referred to as OEM s, located primarily in the southwestern United
States. These clients pay a negotiated commission on all sales
associated with the contracted coverage.
Revenue Recognition
Revenues consist of commissions earned on the sales of manufacturers
goods to end use customers or distributors. Commissions are earned as a
percentage of sales made and generally range from three percent up to
twelve percent depending on the volume of goods being sold and the
complexity of the product. Revenue is generally recognized when sales
take place which precedes the actual collection of the commission by
approximately sixty days. Therefore, approximately two months of
estimated commissions earned but not collected is recorded as accounts
receivable.
Equipment
Equipment, consisting entirely of office equipment is stated at cost.
Depreciation is computed over the estimated useful lives of the assets,
ranging from thirty-six to sixty months, using the straight line method.
Income Taxes
The Company, with the consent of its sole shareholder, elected to be
taxed as an "S" corporation in compliance with elections under the
Internal Revenue Code. In lieu of corporation income taxes, the
shareholder of an "S" corporation is taxed on his proportionate share of
the company's taxable income. Accordingly, no liability or provision
for federal income taxes is included in the accompanying financial
statements nor are any deferred taxes provided for timing differences
between income tax and financial reporting prior to May 31, 1997.
Since the acquisition date, ORAYCOM s results are included with the
Synaptx Worldwide, Inc. s results as reflected in a planned consolidated
federal income tax return. (See Note 1).
Estimates
The accompanying financial statements include estimated amounts and
disclosures based on management's assumptions about future events.
Actual results may differ from those estimates.
Financial Instruments
Financial instruments which potentially subject the Company to
concentrations of risk consist principally of accounts receivable. The
carrying values reflected in the balance sheet reasonably approximate
the fair values for accounts receivable, payable, and debt.
<PAGE>
ORAYCOM, Inc.
Notes to Financial Statements
Note 1. Acquisition
On June 1, 1997 the sole shareholder of the Company consummated an
exchange of all the outstanding common stock of the Company for 142,858
shares of common stock of Synaptx Worldwide, Inc. ( Synaptx ). The
Company became a subsidiary of Synaptx.
In conjunction with the acquisition, the Company entered into an
employment agreement with its president for a three year term. The
agreement shall be automatically renewed for successive one year terms
unless canceled by either party at least thirty days prior to the then
current term s expiration. The agreement calls for an annual salary of
$120,000 plus a commission of 5% on all commission revenues generated
within the Southwest U.S. territories that he manages.
Note 2. Significant Customers
A substantial portion of the Company's revenue is generated from
relatively few customers. Three customers accounted for approximately
41%, 36% and 15% of revenues in the period ended May 31, 1997. It is
anticipated that these percentages will decrease as the number of
manufacturers represented grows. These customers represented
approximately 23%, 44% and 33% respectively, of accounts receivable as
of May 31, 1997. The customer representing 15% of revenues and 33% of
receivables terminated its relationship with the Company effective May
31, 1997. The Company anticipates replacing this customer with a
similar manufacturer s line.
Note 3. Notes Payable
Notes payable consist of a note to the former employer of the President
and sole shareholder of the Company. This note was issued in exchange
for furniture and equipment at the time of the Company s inception,
September, 1994. The original amount of the note was $20,000 at 5% per
annum for 36 months. Prior to the acquisition date a significant
principal pre-payment was made. The remaining balance of $590 was
repaid subsequent to year end.
Note 4. Line of Credit
The Company has an unsecured revolving line-of-credit with a bank. The
maximum amount available is $20,000. Borrowings under the line-of-
credit, which is payable on demand, bear interest at the bank s
internal rate (approximately 13.25% at May 31, 1997). As of May 31,
1997, the outstanding balance is $12,500.
Note 5. Capital Leases
The Company leases certain office furniture and equipment under capital
leases. The total principal amount of these capital leases is $18,645.
The leases require monthly installments of $662, which includes interest
ranging from 14% to 26.75%. The leases which have either 36 or 60 month
terms terminate between May, 1998 and June, 2002. The capital leases
are secured by the underlying furniture and equipment.
The following is a schedule of future minimum lease payments required
under the leases together with their present value as of May 31, 1997:
Amount
Year ending May 31, 1998 $ 7,938
Year ending May 31, 1999 5,574
Year ending May 31, 2000 5,574
Total minimum lease payments $19,086
Less amount representing interest 5,156
Present value of minimum lease payments $ 13,930
Note 6. Operating Lease Commitments
The Company occupies office space under a lease expiring July 31, 2002.
An amendment to the lease was entered into on July 8, 1997 for
additional space. Rentals are subject to annual escalation charges
based upon increases in operating expenses and real estate taxes.
Additionally, the Company leases automobiles for use by its sales force.
These leases dated between March 17, 1995 and May 1, 1997 vary in term
from twenty-four to forty-eight months.
As of May 31, 1997, the Company s future minimum lease payments under
operating leases are as follows:
Amount
Year ending May 31, 1998 $ 64,184
Year ending May 31, 1999 55,004
Year ending May 31, 2000 42,524
Year ending May 31, 2001 31,266
Year ending May 31, 2002 25,987
Total minimum operating lease commitments $218,965
Note 7. Employee Benefit Plans
The Company sponsors a SEP/IRA plan for all eligible employees.
Participants may make contributions from their gross pay, limited to
$9,500 of the employee s compensation, as defined. The Company does not
provide a matching contribution.
The Company has historically sponsored an incentive plan for all
eligible employees contingent upon predetermined sales and earnings
goals. As of May 31, 1997, employees had earned bonuses equal to 25% of
annual pay, or a total of $34,687 for the first five months of calendar
1997, one half of which or $17,344 was paid. The remaining balance is
included in accrued expenses and taxes.
Note 8. Supplemental Disclosures of Cash Flow Information
Cash paid for interest was $ 1,830 for the nine months ended May 31,
1997.
<PAGE>
PART III
ITEM 1. Index to Exhibits
The following exhibits are filed with this Registration Statement:
Exhibit No. Exhibit Name
2.1* Merger Agreement and Plan of Reorganization.
3.1(i)* Articles of Incorporation and all amendments
thereto ("P")
3.2(ii)* By-Laws of Registrant ("P")
4.1* Specimen of Common Stock Certificate ("P")
10.1* Lease Agreement on Registrant s principal place of
business ("P")
10.2* Purchase Agreement of Synaptx Access, Inc. f.k.a.
North American Telco / Cable Representatives, Inc.
10.3* Purchase Agreement for Synaptx Impulse, Inc.,
f.k.a. Maxwell Partners, Inc.
10.4* Purchase Agreement for ORAYCOM, Inc.
10.5* Employment Agreement for Ronald L. Weindruch
10.6* Employment Agreement for D. Mike Maxwell
10.7 New Lease Agreement on Principal Place of Business
21.1* Subsidiaries
27. Financial Data Schedule
________________
* Previously filed
2. Description of Exhibits
See Item I above.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange
Act of 1934, the registrant caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly
organized.
SYNAPTX WORLDWIDE, INC.
(Registrant)
By: /S/ Ronald L. Weindruch
(Signature)
Date: December 31, 1997 RONALD L. WEINDRUCH
President
HIGHLAND LOFTS OFFICE LEASE
1. BASIC LEASE PROVISIONS
(a) BUILDING:
HIGHLAND LOFTS 168 East Highland Ave. Elgin, Illinois 60120
(b) LANDLORD AND ADDRESS:
MARKUR DEVELOPMENT CORP., Agent
P.O. Box 671
Elgin, Illinois 60121
(c) TENANT AND CURRENT ADDRESS:
Prior to Commencement of Lease: After Commencement of Lease:
Synaptx Impulse, Inc. Synaptx Impulse, Inc.
(f/k/a Maxwell Partners, Inc.) (f/k/a Maxwell Partners,
Inc.)
385 Airport Road, Suite A 168 E. Highland Ave., Suite
300
Elgin, IL 60123 Elgin, IL 60121
(d) DATE OF LEASE:. August 1, 1997.
(e) LEASE TERM: 7 years
(f) COMMENCEMENT OF TERM: January 1, 1998.
(g) EXPIRATION DATE OF TERM: December 3 1, 2004.
(h) BASE RENT, subject to adjustment as provided herein:
The Base Rent for the purpose of this Lease shall be
determined as follows:
<PAGE>
Months Lease Year Total Per Month
1-12 1 $10,597.00
13-24 2 $10,975.53
25-36 3 $11,370.93
37-48 4 $11,766.13
49-60 5 $12,177.80
61-72 6 $12,603.13
73-84 7 $13,041.22
Lessor agrees that the Base Rent for the first month of the
Lease Tenn shall be abated. However, in the event that this Lease
is terminated before expiration of the full term by a default of
the Tenant, then the rent hereby abated shall be deemed
reinstituted and immediately due and payable.
(i) MEASURABLE AREA OF THE PREMISES: 91,672 Measurable Square
Feet
(j) RENTABLE AREA OF THE BUILDING: 67, 865 Rentable Square Feet
(k) RENTABLE AREA OF THE DEMISED PREMISES: 19,760 Rentable Square
Feet
(l) GOOD FAITH DEPOSIT:
Twenty One Thousand One Hundred Ninety Four ($21,194.00)
Dollars of which $17,000.00 has been paid and balance is due
by September 1, 1997. The failure to make any such payment
shall be deemed an event of default hereunder. All of said
funds shall be held as the Security Deposit until the
termination of this Lease, whether by expiration of its term
or otherwise.
(m) -------------------------------------
(n) SECURITY FOR IMPROVEMENTS
Simultaneously with the execution of this Tenant will deliver
a bank irrevocable demand letter of credit ("LC") in favor of
Landlord as beneficiary thereunder in the original amount of Fifty
Thousand ($50,000.00) Dollars. The issuer, form and substance of
the LC shall be subject to Landlord's reasonable approval
consistent with the terms and conditions stated herein. The LC,
including any extensions or renewals shall be released if and when
the Tenant occupies the demised premises on or before January 31,
1998, and the Demised Premises are completed for occupancy on or
before January 31, 1998.
Any demand under the LC shall be accompanied by a certification
signed by an officer of MARKUR DEVELOPMENT CORP. as agent for the
Landlord that:
the Tenant has not occupied the premises by January 31, 1998 and
that all or a portion of said amount remains unpaid.
All funds received by Landlord shall be deemed to apply to the
Tenant's obligations under this Lease.
2. PREMISES. Landlord hereby leases to Tenant, and Tenant
accepts the demised premises (hereinafter known as "demised
premises' or "premises'), being the entire third (3rd) floor of the
building having the common address of 168 East Highland Avenue,
Elgin, IL (Building" or "Complete, as applicable) and described in
the plan attached hereto as Exhibit "N' in the Building described
in Subsection l(a) for the term and upon the conditions provided in
the Lease, to be occupied and used by the Tenant for general
offices and any other lawful purpose and no other purpose, subject
to the agreements herein contained. Landlord agrees that unless
Tenant shall consent thereto in writing in advance of the creation
of such other tenancy, during the Term of this Landlord will not
rent any portion of the remainder of the Building for any of the
following
uses:
massage parlors; pediatric ob/gyn doctors; music or dance
instruction; betting and gambling facilities; Laundromat or dry
cleaner with plant on premises; day care facilities; business
employing hazardous chemicals; taverns / bars which derive 65% of
income from the sale of alcoholic beverages,
3. TERM, The term of this Lease shall commence on the date
specified in Subsection l(f) (the "Commencement Date") and shall
expire on the date specified in Subsection I (g) (the "Expiration
Date!') unless sooner terminated as otherwise provided in this
Lease.
4. RENT. The Tenant shall pay Base Rent and as specified in
Subsection 1(h) to Landlord as identified or to such other person
or at such other place as Landlord may direct in writing, monthly
in advance on or before the first day of each month of the term
except that the Tenant shall pay the second such monthly
installment on the execution hereof as part of the Good Faith
deposit in Subsection 10). If the term commences other than on the
first day of a month or ends other than on the last day of the
month, the Base Rent for the third month shall be prorated, and
this prorated rent for the portion of the third month in which the
term commences shall be paid on the first day of the third month of
this lease term. All such base rent shall be paid without any set-
off or deduction whatsoever. Unpaid base rent shall bear interest
at the rate set forth in Subsection 27(f), from the date due until
paid. Time is of the essence of this Lease.
5. SERVICES. The Landlord, as long as the Tenant is not in
default under any of the covenants of this Lease, shall furnish:
(a) Heating, Ventilating and Air Conditioning ("HVAC")
Equipment when necessary to provide a temperature condition
required for comfortable occupancy of the demised premises
under normal business operations, daily from 7:00 A.M. to 8:00
P.M. and on Saturdays from 8:00 A.M. to 1:00 P.M., Sundays and
holidays excepted. Tenant at its own cost and discretion will
have control of certain HVAC Equipment including Library area
and will not be subject to "set basic' environmental controls.
For the purpose of this Lease the following shall be deemed to
be adequate for comfortable occupancy:
Summer 76' Fahrenheit with maximum 50% humidity
Winter 70' Fahrenheit with minimum 25% humidity
Wherever heat generating machines or equipment are used by
Tenant in the demised premises which affect the temperature,
otherwise maintained by the HVAC system, Landlord reserves the
right to install supplementary air-conditioning units in the
demised premises and the expense of installation shall be paid
by Tenant. The expense resulting from the operation and
maintenance of the supplementary air conditioning system shall
be paid by the Tenant to the Landlord as additional rent at
reasonable rates fixed by Landlord. The Landlord agrees to
furnish heat to the demised premises, as required by law, on
business days from 7:00 AM. to 8:00 P.M., Saturdays from 8:00
A.M. to 1:00 P.M., Sundays and holidays excepted. If Tenant
requests Landlord to supply heat or air conditioning at times
other than such hours, then upon at least 24 hours advance
notice to Landlord, Landlord will supply the necessary heat or
air conditioning at rates set by Landlord;
(b) Cold water in common with other tenants for drinking,
lavatory and toilet purposes drawn through fixtures installed
by the Landlord, or by Tenant in the demised premises with
Landlord's written consent, and hot water in common with other
tenants for lavatory purposes from regular Building supply.
Tenant shall pay Landlord as additional rent at rates fixed by
Landlord and based upon Landlord's reasonable computation of
any additional consumption based upon Tenant's activities for
water furnished for any other purpose. The Tenant shall not
waste or permit the waste of water. If the Tenant fails to
pay within ten (10) days the Landlord's proper charges for
water, the Landlord, upon not less than ten (10) days' notice,
may, in addition to any other remedy provided in this Lease,
discontinue furnishing that service and no such discontinuance
shall be deemed an eviction or disturbance of Tenant's use of
the demised premises or render Landlord liable for damages or
relieve
Tenant's use of the demised premises or render Landlord
liable for damages or relieve Tenant from any obligation;
(c) Janitor service and customary cleaning in and about the
Building is allowed daily, Saturdays, Sundays and holidays
excepted. The Tenant shall provide any janitor services or
cleaning for the demised premises but subject to the
Landlord's written consent and then only subject to
supervision of Landlord and at Tenant's sole responsibility
and by janitor or cleaning contractor or employees at all
times satisfactory to Landlord. The Landlord will designate
the location for depositing of Tenant's refuse. The Tenant
will provide for the removal of any wastes reasonably deemed
by Landlord to be in excess of normal and customary for such
business purpose. Tenant will separate recyclable or other
wastes if required by local ordinance.
(d) Landlord will provide Tenant with after hours security
passes for use of the elevators. Passenger elevator service
in common with Landlord and other tenants, daily from 7:00
A.M. to 8:00 P.M., Saturdays from 8:00 A.M. to 1:00 P.M.,
Sundays and holidays excepted, and freight elevator service in
common with Landlord and other tenants, daily from 8:00 A.M.
to 5:00 P.M., Saturdays, Sundays and holiday excepted. Such
normal elevator service, passenger or freight, if furnished at
other times shall be optional with Landlord, which approval
shall not be withheld and shall never be deemed a continuing
obligation. The Landlord, however, shall provide limited
passenger elevator service daily at all times such normal
passenger service is not furnished. Operatorless automatic
elevator service shall be deemed "elevator service" within the
meaning of this paragraph. The passenger elevator shall be
used for passenger only and freight elevator for all other
purposes.
(e) Window washing of all windows on the exterior walls of
the Building located in the demised premises, both inside and
out, at such times as shall be required in the Landlord's sole
judgment; but such washing shall not be required more than
once every six months.
(f) It is understood that the parking areas are not
maintained or under the control of the Landlord. Tenant shall
be granted the right to use seventeen (17) of the fifty (50)
covered spaces in the adjacent parking lot which is owned by
the City of Elgin. Tenant recognizes and acknowledges that
such use has been made available for approximately three (3)
years from the time of Lease Commencement. All such parking
privileges may be subject to reasonable regulations of the
City or Landlord. Tenant acknowledges that Landlord has no
control over such parking privileges which are under the
authority of the City.
(g) All electricity used in the premises shall be separately
metered and the Tenant shall pay electric bills directly to
the local electric utility company. Maintenance of fighting
fixtures and replacement of lamps shall be furnished by
Landlord at Tenant's expense, but not less than once per
month, upon request of Tenant.
(h) The Landlord does not warrant that any of the services
above mentioned will be free from interruptions caused by war,
insurrection, civil commotion, riots, acts of God or the
enemy, governmental action, repairs, renewals, improvements,
alternations, strikes, lockouts, picketing, whether legal or
illegal, accidents, inability of the Landlord to obtain fuel
or supplies or any other cause or causes beyond the reasonable
control of the Landlord. Any such interruption of service
shall never be deemed an eviction or disturbance of the
Tenant's use and possession of the premises or any part
thereof, or render the Landlord liable to the Tenant for
damages, or relieve the Tenant from performance of the
Tenant's obligations under this Lease, except that Landlord
will forfeit base rent and any additional rent during such
period where occupancy is disrupted for more than three (3)
days.
(i) Tenant is granted the right to install signage in the
building lobby and listing signage on the face of the
building. Landlord will assist Tenant in gaining necessary
approval from the City. All of such signage shall be subject
to Landlord's written approval which shall not be unreasonably
denied or delayed.
6. CONDITION OF PREMISES. The Tenant's taking possession shall
be conclusive evidence as against the Tenant that the demised
premises were in good order and satisfactory condition when the
Tenant took possession. No promise of the Landlord to alter,
remodel, decorate, clean or improve the demised premises, the
Building or the Complex and no representation respecting the
condition of the demised premises, the Building or the Complex have
been made by the Landlord to the Tenant, unless the same is
contained herein, or made a part hereof, or in a written document
signed by Landlord or its Agent. This Lease does not grant any
rights to air over property.
7. FAILURE TO GIVE POSSESSION. If the Landlord shall be unable
to give possession of the demised premises on the date of the
commencement of the term hereof by reason of any of the following:
(i) the Landlord has not completed its preparation of the demised
premises, (ii) the Landlord is unable to give possession of the
demised premises by reason of the holding over or retention of
possession of any tenant, tenants or occupants, or (ii) for any
other reason, Landlord shall not be subject to any liability for
the failure to give possession on said date. In the event that the
Landlord is unable to deliver the demised premises for either of
the reasons listed as (i) or (ii) in the preceding sentence beyond
December 31, 1997, then Landlord shall pay Tenant the latter's
actual damages therefore, but only if attributable to an act or
omission of the Landlord. Under such circumstances the rent
reserved and covenanted to be paid herein shall not commence until
the demised premises are available for occupancy by Tenant, and no
such failure to give possession on the date of commencement of the
term hereof shall affect the validity of this Lease or the
obligations of the Tenant hereunder, nor shall the same be
construed to extend the term of this Lease. If the demised
premises are ready for occupancy prior to the date of the
commencement of the term hereof and Tenant occupies the premises
prior to said date, Tenant shall pay rental including amounts
stated in Section 5 for the period of occupancy prior to the date
of the commencement of the term hereof at the proportionate rental
to the rent reserved herein. The said demised premises shall not
be deemed to be unready for Tenant's occupancy or incomplete if
only minor or insubstantial details of construction, decoration or
mechanical adjustments remain to be done in the demised premises or
any part thereof, or if special work, changes, alterations or
additions required or made by Tenant in the layout or finish of the
demised premises or any part thereof or shall be caused in whole or
in part by Tenant through the delay of Tenant in submitting plans,
supplying information, approving plans, specifications or
estimates, giving authorizations or otherwise or shall be caused in
whole or in part by delay and/or default on the part of Tenant
and/or its subtenant or subtenants. In the event of any dispute as
to whether the premises are ready for Tenant's occupancy, the
decision of Landlord's architect shall be final and binding on the
parties.
8. USE OF PREMISES. The Tenant shall occupy and use the demised
premises during the term for the purpose above specified in Section
2 and none other;
(a) The Tenant will not make or permit to be made any use of
the demised premises which conflicts with exclusive rights
granted to any other tenant or which directly or indirectly is
forbidden by public law, ordinance or governmental regulation
or which may be dangerous to persons or property, or which may
invalidate or increase the premium cost of any policy of
insurance carried on the Building or covering its operations;
the Tenant shall not do, or pen-nit to be done, any act or
thing upon the demised premises which will be in conflict with
fire insurance policies covering the Building of which the
demised premises form a part. Landlord will notify Tenant of
any such exclusive rights, use of premise when granted to
other tenants within ten (10) days after such leases are
executed. The Tenant, at its sole expense, shall comply with
all rules, regulations or requirements of the local Inspection
and Rating Bureau, or any other similar body, and shall not
do, or permit anything to be done upon said premises, or bring
or keep anything thereon in violation of rules, regulations or
requirements of the Fire Department, local Inspection and
Rating Bureau, Fire Insurance Rating Organization or other
authority having jurisdiction and then only in such quantity
and manner of storage as not to increase the rate of fire
insurance application to the Building,
(b) any sign installed in the demised premises shall be
installed by Landlord at Tenant's cost and in such manner,
character and style as Landlord may approve in writing, which
approval shall not unreasonably be withheld.
(c) the Tenant shall not advertise the business, profession
or activities of the Tenant conducted in the Building in any
manner which violates the letter or spirit of any code of
ethics adopted by any recognized association or organization
pertaining to such business, profession or activities, and
shall not use the name of the Building or complex for any
purpose other than that of business address of the Tenant, and
shall never use any picture or likeness of the Building or
Complex in any circulars, notices, advertisements or
correspondence without the Landlord's express consent in
writing nor in any way do anything to defame, demean or call
the Building, its managers, Landlords or tenants into
disrepute, bad taste or vulgarity;
(d) the Tenant or the Landlord shall not obstruct, or use for
storage, or for any purpose other than ingress and egress the
sidewalks, entrances, passages, courts, corridors, vestibules,
halls, elevators and stairways of the Building;
(e) no bicycle or other vehicle, no dog or other animal or
bird shall be brought or permitted to be in the Building or
any part thereof,
(f) the Tenant or the Landlord shall not make or permit any
noise or odor that is objectionable to other occupants of the
Building to emanate from the demised premises, and shall not
create or maintain a nuisance thereon, and shall not disturb,
solicit or canvass any occupant of the Building or Complex,
and shall not do any act tending to injure the reputation of
the Building or Complex. Tenant shall not prepare or cook any
food upon the demised premises without Landlord's written
approval;
(g) the Tenant shall not install any musical instrument or
equipment in the Building, or any antennas, aerial wires or
other equipment inside or outside the Building, without, in
each and every instance, prior approval in writing by the
Landlord. The use thereof, if permitted, shall be subject to
control by the Landlord to the end that others shall not be
disturbed or annoyed
(h) the Tenant shall not waste water by tying, wedging or
otherwise fastening open any faucet;
(i) no additional locks or similar devices shall be attached
to any door. No keys for any door other than those provided
by the Landlord shall be made. If more than two keys for one
lock are desired by the Tenant, the Landlord may provide the
same upon payment by the Tenant. Upon termination of this
Lease or of the Tenant's possession, the Tenant shall
surrender all keys to the demised premises and shall make
known to the Landlord the explanation of all combination locks
of safes, cabinets and vaults of any such items remaining in
the demised premises as well as any security codes needed for
emergency access;
(j) the Tenant shall be responsible for the locking of doors
in and to the demised premises. Any damage resulting from
neglect of this clause shall be paid for by Tenant;
(k) the Landlord shall at the Tenant's expense, install and
maintain all conduit and cable between (i) the Ameritech
Demarcation Board in the Building and (ii) an agreed point of
entry in the demised premises. Alternatively, Landlord may
authorize a third party contractor to provide this service on
an exclusive basis for the Building, in which case the Tenant
shall pay such contractor directly for such installation and
maintenance. The Tenant acknowledges that making building
cabling the responsibility of a single party is reasonable and
necessary to achieve security, efficiency, coordination and
accountability. Whether building cabling is undertaken by the
Landlord or an exclusive contractor, the Tenant agrees that
neither the Landlord nor the contractor shall be liable for
any loss, cost or damage suffered by the Tenant as a result of
cabling installation and maintenance except to the extent
caused by the negligence or willful misconduct of the party
doing such work and that any such claim shall be limited to
bodily injury, death or physical damage to property, the
Tenant hereby waiving and releasing any claim for
consequential damages resulting from an interruption of
service, except that Landlord will make building access
available on a 24 hours a day basis in case of disruption of
service.
(1) shades, draperies or other forms of inside window
covering must be of such shape, color and material as approved
and installed by the Landlord and shall remain in space at the
termination of the lease;
(m) the Tenant shall not overload any floor. Safes,
furniture and all large articles shall be brought through the
Building and into the demised premises at such times and in
such manner as the Landlord shall direct and at the Tenant's
sole risk and responsibility. The Tenant shall list all
furniture, equipment and similar articles to be removed from
the Building, and the list must be approved by the Landlord
before building employees will permit any article to be
removed;
(n) unless the Landlord gives advance written consent in each
and every instance, the Tenant shall not install or operate
any steam or internal combustion engine, boiler, machinery,
refrigerating or heating device or air-conditioning apparatus
in or about the demised premises, or carry on any mechanical
business therein, or use the demised premises for housing
accommodations or lodging or sleeping purposes, or do any
cooking therein or install or permit the installation of any
vending machines, (except for a refrigerator of less than 15
cu ft, a vending machine and a microwave oven in the employee
break room) or use any illumination other than electric light,
or use or permit to be brought into the Building any
inflammable oils or fluids such as gasoline, kerosene, naphtha
and benzene, or any explosive or other articles hazardous to
persons or property including firearms or other weapons;
(o) the Tenant shall not place or allow anything to be
against or near the glass or partitions, doors or windows of
the demised premises which may diminish the light in, or be
unsightly from the exterior of the Building, public halls or
corridors;
(p) the Tenant shall not install in the demised premises any
equipment which uses an unusual amount of electricity without
the advance written consent of the Landlord. "Unusual amount
of electricity" shall mean any one or all of the following:
(1) use of a lighting system which requires more electricity
than the standard lighting fixtures provided in the Building
by the Landlord; (2) the electrical load of electrical
equipment (other than lighting) used in the premises exceeding
an average of two watts per square foot of the premises; (3)
electricity which is not at a nominal 120 volts; (4)
electrical circuits with a capacity exceeding 20 amperes; (5)
electricity used for equipment and/or accessories not normal
for ordinary office use. If Landlord consents to such use of
an unusual amount of electricity, the Tenant shall ascertain
from the Landlord the maximum amount of electrical current
which can safely be used in the demised premises, taking into
account the capacity of the electric wiring in the Building
and the demised premises and the needs of the other tenants in
the Building and shall not use more than such safe capacity.
The Landlord's consent to the installation of electric
equipment shall not relieve the Tenant from the obligation not
to use more electricity than such safe capacity;
(q) in addition to all other liabilities for breach of any
covenant of this Section 8, the Tenant shall pay to the
Landlord all damages caused by such breach and shall also pay
to the Landlord as additional rent an amount equal to any
increase in insurance premium or premiums caused by such
breach. Any violation of this Section 8 may be restrained by
injunction. The Tenant shall be liable to the Landlord for
all damages resulting from violation of any of the provisions
of this Section 8. The Landlord shall have the right to make
such reasonable rules and regulations as the Landlord or its
agent may from time to time adopt on such reasonable notice to
be given as the Landlord may elect. Nothing in this Lease
shall be construed to impose upon the Landlord any duty or
obligation to enforce provisions of this Section 8 or any
rules and regulations hereafter adopted, or the terms,
covenants or conditions of any other lease as against any
other tenant, and the Landlord shall not be liable to the
Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees.
9. CARE AND MAINTENANCE. Subject to the provisions of Section
13, the Tenant shall, at the Tenant's own expense, keep the demised
premises in good order, condition and repair during the term. If
the Tenant does not make repairs promptly and adequately, the
Landlord may, but need not, make repairs, and the Tenant shall
promptly pay the cost thereof The Tenant shall pay the Landlord for
overtime and for any other expense incurred in the event repairs,
alterations, decorating or other work in the demised premises are
not made during ordinary business hours at the Tenant's request.
10. ALTERATIONS. There shall be no painting or decorating, carpet
installation, or erection of any partitions, any alterations in or
additions to the demised premises or any nailing, boring or
screwing into the ceilings, walls or floors, without the Landlord's
prior written consent in each and every instance which shall not be
unreasonably withheld. All such work shall be performed by or
under the direction of Landlord, but at the cost of Tenant. The
Landlord's decision to refuse such consent shall be conclusive.
All additions, decorations, fixtures, hardware, non-trade fixtures
and all improvements, temporary or permanent, in or upon the
demised premises, whether placed there by the Tenant or by the
Landlord, shall, unless the Landlord requests their removal, become
the Landlord's property (Tenant will supply Landlord with a
Schedule of such items to be included, within 60 days after
occupancy by Tenant) and shall remain upon the demised premises at
the termination of this Lease by lapse of time or otherwise without
compensation or allowance or credit to the Tenant. If, upon the
Landlord's request for removal, the Tenant does not remove said
additions, decorations, fixtures, hardware, non-trade fixtures and
improvements, the Landlord may remove the same and the Tenant shall
pay the cost of such removal to the Landlord upon demand.
11. ACCESS TO PREMISE:. The Tenant shall permit the Landlord to
erect, use and maintain pipes, ducts, wiring and conduits in an
through the demised premises. The Landlord and Landlord's
agents shall have the right to enter upon the premises, to inspect
the same, to perform janitorial and
cleaning services and to make such decorations, repairs,
alterations, improvements or additions to the common areas of the
premises, the Building or the Complex as the Landlord may deem
necessary or desirable, and the Landlord shall be allowed to take
all material into and upon said demised premises that may be
required therefor without the same constituting an eviction of the
Tenant in whole or in part and the rent reserved shall in no way
abate (except as provided in Section 12) while said decorations,
repairs, alterations, improvements, or additions are being made, by
reason of loss or interruption of business of the Tenant, or
otherwise, except that to the extent feasible, work that is
disruptive to tenant's business due to noise, dirt, dust, fumes and
the like shall be scheduled and performed during non-business
hours. If the Tenant shall not be personally present to open and
permit an entry into said demised premises, at any time, when for
any reason an entry therein shall be necessary or permissible, the
Landlord or Landlord's agent may enter the same by a master key, or
may forcibly enter the same, without rendering the Landlord or such
agents liable therefore (if during such entry Landlord or
Landlord's agents shall accord reasonable care to Tenant's
property), and without in any manner affecting the obligations and
covenants of this Lease. Nothing herein contained, however, shall
be deemed or construed to impose upon the Landlord any obligations,
responsibility or liability whatsoever, for the care, supervision
or repair of the Building, the Complex or any part thereof, other
than as herein provided. The Landlord shall also have the right at
any time, without the same constituting an actual or constructive
eviction and without incurring any liability to the Tenant
therefor, to change the arrangement and/or location of entrances or
passageways, doors and doorways, and corridors, elevators, stairs,
toilets or public parts of the Building, and to close entrances,
doors, corridors, elevators or other facilities. The Landlord
shall not be liable to the Tenant for any expense, injury, loss or
damage resulting from work done in or upon, or the use of, any
adjacent or nearby building, land, street or alley.
12. UNTENANTABILITY. If 50% of the demised premises or 25% or
more of the Rentable
Area of the Building is made untenantable by fire water damage or
other casualty, Landlord may elect:
(a) to terminate this Lease as of the date of the fire or casualty
by notice to the Tenant
within sixty (60) days after that date, or
(b) proceed with all due diligence to repair, restore or
rehabilitate the Building or the
demised premises, in which event this Lease shall not
terminate.
In the event the Lease is not terminated pursuant to this
provision, rent shall abate on a per them basis during the period
of untenantability. In the event of the termination of this Lease
pursuant to this section, rent shall be apportioned on a per them
basis and paid to the date of the fire or other casualty. In the
event that the demised premises are partially damaged by fire or
other casualty but are not made wholly untenantable, then Landlord
shall, except during the last year of the term hereof, proceed with
all due diligence to repair and restore the demised premises in a
good and workmanlike manner and the rent shall abate in proportion
to the nonusability of the demised premises during the period of
untenantability which repairs shall be subject to Tenant's
reasonable approval. If a portion of the demised premises are made
untenantable as aforesaid during the last year of the term hereof,
Landlord or Tenant shall have the right to terminate this Lease as
of the date of the fire or other casualty by giving written notice
thereof to the other within thirty (3 0) days after the date of
fire or other casualty, in which event, the rent shall be
apportioned on a per them basis and paid to the date of such fire
or other casualty.
In the event the premises or the Building is damaged by fire
or other casualty resulting from the act or neglect of Tenant, its
agents, contractors, employees or invitees, Tenant shall not be
released from any of its obligations hereunder including, without
limitation, its duty to repair the premises and its liability to
Landlord for damages caused by such fire or other casualty and its
duty to pay rent, which rent shall not be abated. Tenant
acknowledges that Landlord shall be entitled to the full proceeds
of any insurance coverage, whether carried by Landlord or Tenant,
for damage to alterations, additions, improvements or decorations
provided by Landlord at Landlord's expense either directly or
through an allowance to Tenant (whether by rent abatement or
otherwise).
Notwithstanding anything to the contrary herein set forth,
Landlord shall have no duty pursuant to this Section 12 to repair
or restore any portion of the alterations, additions or
improvements in the premises or the decorations thereto except to
the extent that such alterations, additions, improvements and
decorations were provided by Landlord, at Landlord's cost, at the
beginning of the term or during the term of this lease if the
aggregate cost thereof exceeded $1,000.00.
13. INSURANCE.
(a) The Landlord shall maintain insurance covering the
Complex (including
Landlord's Work in the Premises) against loss, damage or
destruction by fire and the
perils specified in the standard extended coverage
endorsement.
(b) Tenant, at Tenant's expense, shall purchase and maintain
insurance during the entire term of the Lease for the benefit
of Tenant and Landlord (as their interest may appear) with
terms, coverage and in companies satisfactory to Landlord.
Tenant agrees to adjust the amounts or type of coverage set
forth herein if the customs or standards in the office leasing
community change during the term of this Lease, but initially
Tenant shall maintain the following coverage in the following
amounts: (i) Commercial General Liability Insurance on an
occurrence basis with a minimum limit of liability in an
amount of $1,000,000 for bodily injury, personal injury, or
death to any one person and $1,000,000 for bodily injury,
personal injury or death to more than one person, and
$1,000,000 with respect to damage to property including water
and sprinkler damage for each occurrence; (ii) insurance
against fire, with extended coverage and vandalism and
malicious mischief endorsements, in an amount adequate to
cover the full replacement value of all leasehold
improvements, Tenant's personal property, machinery,
equipment, moveable partitions, office furniture, trade
fixtures, and wall and floor coverings in the premises. Such
insurance shall be written on an "all risks" of physical loss
or damage basis, for the full replacement cost value of the
covered items and in amounts that meet any coinsurance clauses
of the policies of insurance; and (iii) Workmen's Compensation
insurance in not less than the statutory amounts outlined by
the State of Illinois.
(c) The policy referred to in Subsection 13(b) (i) shall name
Landlord, the beneficiaries of Landlord and their respective
agents and employees as additional insureds and shall not
provide for deductible amounts in excess of $1,000.00. Each
policy referred to in Subsection 14 (b) shall be issued by one
or more responsible insurance companies reasonably
satisfactory to Landlord and shall contain the endorsement
that such insurance may not be canceled or amended without
thirty (30) days' prior written notice to Landlord and its
beneficiaries.
(d) Tenant shall deliver to Landlord certificates of
insurance of all policies and renewals thereof to be
maintained by Tenant hereunder, not less than ten (10) days
prior to the commencement of the term and not less than ten
(10) days prior to the expiration date of each policy.
14. SUBROGATION. The parties hereto agree to use good faith
efforts to have any and all fire, extended coverage or any and all
material damage insurance which may be carried endorsed with a
subrogation clause providing substantially as follows: "This
insurance shall not be invalidated should the insured waive in
writing prior to a loss any or all fight to recovery against any
party for loss occurring to the property described herein"- and
each party hereto hereby waives all claims for recovery from the
other party for any loss or damage to any of its property insured
under valid and collectible insurance policies to the extent of any
recovery collectible under such insurance such to the limitation
that this waiver shall apply only when it is either permitted or,
by the use of such good faith efforts could have been so permitted
by the applicable policy of insurance.
15. EMINENT DOMAIN: if the Building, or a substantial part
of the demised premises, shall be lawfully taken or condemned for
any public or quasi-public use or purpose, or conveyed under threat
of such condemnation, the term of this Lease shall end upon, and
not before, the date of the taking of possession by the condemning
authority. Tenant has the right to assert any claim(s) available
under applicable law. Current rent shall be apportioned as of the
date of such termination. If any part of the Building, other than
the demised premises or any part of the Building not constituting
a substantial part of the demised premises, shall so be taken or
condemned, or if the grade of any street or alley adjacent to the
Building is changed by any competent authority and such taking or
change of grade makes it necessary or desirable to substantially
remodel or restore the Building, the Landlord shall have the right
to cancel this Lease upon not less than ninety (90) days notice
prior to the date of cancellation designated in the notice. No
money or other consideration shall be payable by the Landlord to
the Tenant for the right of cancellation, and the Tenant shall have
no right to share in the condemnation award or in any judgment for
damages caused by the change of grade.
16. ASSIGNMENT-SUBLETTING. (a) Tenant shall not assign,
hypothecate, mortgage, encumber, or convey this Lease or any
interest under it; allow any transfer thereof or any lien upon
Tenant's interest by operation of law or otherwise; sublet the
whole or any part of the demised premises; or permit the use of the
demised premises by anyone other than Tenant and its employees,
independent freelance contractors, Tenant's parent company
employees or employees of any of its subsidiaries, so long as under
Tenant's supervision utilized for a similar use.
If Tenant is a corporation, any dissolution, merger,
consolidation or reorganization of Tenants, parent company or the
sale or transfer of a controlling percentage of the capital stock
of Tenant, whether by a single transaction or event or by
cumulative transactions or events shall be deemed an assignment of
this Lease, and shall be subject to the restrictions set forth
above. If Tenant is a partnership, a withdrawal or change,
voluntary, involuntary or by operation of law, of any partner or
partners owning 5 1% or more of the partnership interest, whether
by a single transaction or event or by cumulative transactions or
events, or the dissolution of the partnership shall be deemed an
assignment of the Lease and shall be subject to the restrictions
set forth above.
(b) Tenant shall not sublet the whole or any part of the
premises without Landlord's prior written consent. In the event
Tenant intends to sublease all or any portion of the premises,
Tenant shall take the following actions:
(i) Tenant shall first notify Landlord in writing of its
intention to sublet prior to any advertising of same,
hiring of brokers or contacting of potential subtenants.
Such notice shall identify the space proposed to be
sublet, which space must be a legally leasable unit in
compliance with all applicable ordinances and codes, and
shall state the date on which Tenant requests that the
sublet commence, which date shall be no less than one
hundred eighty (180) days from the date of Tenant's
notice.
(ii) Landlord shall have thirty (30) days following the
receipt of such notice to notify Tenant whether it elects
to recapture the space Tenant has proposed to sublet.
Landlord's failure to send such notice within such thirty
(30) day period shall be deemed to mean Landlord has not
elected to recapture the space.
(iii) In the event the Landlord elects to recapture
the space, it shall notify Tenant of its intent by
service of a written notice of cancellation terminating
that portion of the Lease covering the space Landlord has
chosen to recapture, which may include all or any lesser
portion of the space Tenant has proposed to sublet. In
such event Landlord agrees that the space not recaptured
by Landlord shall be a legally leasable unit. Landlord
and Tenant shall pay 50% of all costs of any construction
necessary to accomplish the division of the space. The
termination of the Lease as to the recaptured space shall
be effective on the date specified by the Tenant in its
notice pursuant to Subsection 16 (i) and (ii).
(iv) In the event that Landlord elects to recapture any
proposed sublet space under these provisions, the Base
Rent, Rentable Area of the Premises and Measurable Area
of the Premises as provided in Section I above shall be
adjusted as of the termination date designated in the
cancellation notice, referred to in the first sentence of
the preceding sub-paragraph (iii) above and this Lease as
so amended shall continue thereafter in full force and
effect.
(v) In the event that the Landlord elects not to
recapture part or all of the proposed sublet space,
Landlord shall so notify Tenant as set forth in (ii)
above. Provided Tenant is not in default under the Lease
and has fully complied with the terms of this Section 16,
Tenant may then proceed to contact potential subtenants
and shall have the option to sublet the non-recaptured
space in accordance with the following provisions:
(A) Tenant shall bear all costs and expenses associated
with the subletting including, without limitation, any
and all costs and expenses incurred by Landlord (if any).
(B) Upon locating a suitable potential subtenant, Tenant
shall notify Landlord in writing. Such notice shall
state the name and address of the proposed subtenant and
shall include a true and complete copy of the proposed
sublease. Tenant shall also deliver to Landlord copies
of all financial statements, credit reports and other
such information in its possessions relating to the
prospective subtenant. At Landlord's request, Tenant
shall promptly secure and deliver any additional
information Landlord deems necessary in order to evaluate
the potential subtenant.
(C) Landlord shall have fifteen (15) days from the date
of its receipt of the last information provided by Tenant
on the proposed subtenant during which to evaluate such
subtenant and decide whether to consent to the sublease.
Landlord shall notify Tenant of its decision in writing,
and, in the event that Landlord does not consent to the
sublease, its notice thereof to Tenant shall include an
explanation of its reasons for denying consent. In the
event that Landlord consents to the sublease, Tenant may
execute the sublease and collect all rents due thereunder
subject to the provisions of subparagraph (D) below and
subject to the subtenant's agreement to comply with all
the terms of this Lease as they apply to the sublet
space.
(D) Following the execution of any sublease to which
Landlord has consented and throughout the term thereof,
Tenant shall pay Landlord fifty percent (50%) of all
amounts received by Tenant in connection with subletting
in excess of the rent for the sublet space Tenant is
obligated to pay Landlord hereunder, but only after
Tenant has recaptured its incremental costs and expenses
associated with affecting the sublease including any
construction costs.
(E) The use for which the premises or any part thereof
may be sublet shall be only for lawful office use which
is in keeping with the general character of the Building
and Complex, which is not extra-hazardous on account of
fire and which does not conflict with exclusive rights
granted to any other tenant.
(F) The granting consent by Landlord to Tenant for
subletting of the premises or any part thereof shall not
release Tenant from direct and primary liability under
this Lease for the performance of all of the covenants,
duties and obligations of Tenant hereunder, and Landlord
shall retain its rights to enforce the provisions of this
Lease against Tenant or any subtenant without demand upon
or proceeding in any way against any other person.
Consent to a particular sublease shall not be deemed a
consent to any other or subsequent transaction.
17. WAIVER OF CLAIMS AND INDEMNITY. To the extent permitted by
law, the Tenant releases the Landlord, its beneficiaries, and their
respective agents and servants from, and waives all claims for,
damage to person or property sustained by the Tenant or any
occupant of the Building, Complex or premises resulting from the
Building, Complex or premises or any part of either or any
equipment or appurtenance becoming out of repair, or resulting from
any accident in or about the Building or Complex, or resulting
directly or indirectly from any act or neglect of any tenant or
occupant of the Building or Complex or of any other person,
including Landlord's agents and servants excluding willful acts or
gross negligence of Landlord, its servants or agents. This Section
17 shall apply especially, but not exclusively, to the flooding of
basements or other subsurface areas, and to damage caused by
refrigerators, sprinkling devices, air-conditioning apparatus,
water, snow, frost, steam excessive heat or cold, falling plaster,
broken glass, sewage, gas, odors or noise, or the bursting or
leaking of pipes or plumbing fixtures, and shall apply equally
whether any such damage results from the act or neglect of the
Landlord or of other tenants, occupants or servants in the Building
or Complex or of any other person, and whether such damage be
caused or result from any thing or circumstance above mentioned or
referred to, or any other thing or circumstance whether of a like
nature or of a wholly different nature excluding willful acts or
gross negligence of Landlord, its servants or agents. If any such
damage, whether to the demised premises or to the Building or
Complex or any part thereof, or whether to the Landlord or to other
tenants in the Building or Complex, results from any willful or
gross negligence of the Tenant, its employees, agents, invitees and
customers, the Tenant shall be liable therefor and the Landlord
may, at the Landlord's option, repair such damage and the Tenant
shall, upon demand by Landlord, reimburse the Landlord forthwith
for the total cost of such repairs. The Tenant shall not be liable
for any damage caused by its act or neglect if the Landlord or a
tenant has recovered the full amount of the damage from insurance
and the insurance company has waived its right of subrogation
against the Tenant. All property belonging to the Tenant or any
occupant of the premises that is in the Building, the Complex or
the premises shall be there at the risk of the Tenant or other
person only, and the Landlord shall not be liable for damage
thereto or theft or misappropriation thereof.
Tenant agrees to indemnify and save the Landlord, its
beneficiaries, and their respective agents and employees harmless
against any and all claims, demands, costs and expenses, including
reasonable attorney's fees for the defense thereof, arising from
Tenant's occupancy of the demised premises or from any breach or
default on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed pursuant to the
terms of this Lease, or from any act or negligence of Tenant, its
agents, servants, employees or invitees, in or about the demised
premises. in case of any action or proceeding brought against
Landlord, its beneficiaries, or their respective agents or
employees by reason of any such claim, upon notice from Landlord,
Tenant covenants to defend such action or proceeding by counsel
reasonably satisfactory to Landlord.
Landlord agrees to indemnify and save the Tenant, its
beneficiaries, and their respective agents and employees harmless
against any and all claims, demands, costs and expenses, including
reasonable attorney's fees for the defense thereof, arising from
Landlord's ownership of the demised premises or from any breach or
default on the part of Landlord in the performance of any covenant
or agreement on the part of Landlord to be performed pursuant to
the terms of this Lease, or from any act or negligence of Landlord,
its agents, servants, employees or invitees, in or about the
demised premises. In case of any action or proceeding brought
against Tenant, its beneficiaries, or their respective agents or
employees by reason of any such claim, upon notice from Tenant,
Landlord covenants to defend such action or proceeding by counsel
reasonably satisfactory to Tenant.
18. MORTGAGE-GROUND LEASE. Landlord may execute and deliver a
mortgage or trust deed in the nature of a mortgage, both sometimes
hereinafter referred to as "Mortgage" against the Building, the
Complex or any interest thereon, and may sell and lease back the
underlying land on which the Building is situated, or which forms
a part of the Complex. This Lease and the rights of Tenants
hereunder shall be and are hereby made expressly subject and
subordinate at all times to any such Mortgage and/or ground lease,
now or hereafter existing and all amendments, modifications and
renewals thereof and extensions, consolidations or replacements
thereof, and to all advances made or hereafter to be made upon the
security thereof. Tenant agrees to execute and deliver such
further instruments subordinating this Lease to said mortgage or
ground lease as may be requested in writing by Landlord from time
to time. So long as Tenant's rights to continued use of demised
premises pursuant to this Lease, are not adversely affected.
Should any Mortgage affecting the Building or Complex be foreclosed
or if any ground or underlying lease be terminated:
(a) The liability of the mortgagee, trustee or purchaser at
such foreclosure sale or the liability of a subsequent
Landlord designated as Landlord under this Lease shall exist
only so long as trustee, mortgagee, purchaser or Landlord is
the owner of the Building or Complex and such liability shall
not continue or survive after further transfer of ownership.
(b) Upon request of the mortgagee or trustee, Tenant will
attorn, as Tenant under this Lease, to the purchaser at any
foreclosure sale thereunder, or if any ground or underlying
lease be terminated for any reason, Tenant will attorn as
Tenant under this Lease to the ground lessor under the ground
lease and will execute such instruments as may be necessary or
appropriate to evidence such atonement.
Tenant covenants and agrees to give any mortgagee and/or trust
deed holder, by Certified or Registered Mail, a copy of any notice
of default served upon the Landlord, provided that prior to such
notice Tenant has been notified in writing, (by way of notice of
assignment of rents and leases, or otherwise) of the address of
such mortgagee and/or trust deed holder with specific reference
made to this Section 18 of this lease which shall be repeated in
such letter. Tenant further covenants and agrees that if Landlord
shall have failed to cure any default within thirty (30) days after
Tenant gives notice of the default, the mortgagee and/or trust deed
holder shall have an additional thirty (30) days within which to
cure such default or if such default cannot be cured within that
time, then such additional time as may be necessary if within such
thirty (30) days, any mortgagee and/or trust deed holder has
commenced and is diligently pursuing the remedies to cure such
default (including but not limited to commencement of foreclosure
proceedings, if necessary to effect such cure), in which event the
Lease shall not be terminated while such remedies are being so
diligently pursued.
19. CERTAIN RIGHTS RESERVED BY THE LANDLORD. The Landlord
reserves and may exercise the following rights without affecting
Tenant's obligations hereunder:
(a) to change the name or street address of the Building or
Complex;
(b) to install and maintain a sign or signs on the interior
or exterior of the Building or Complex;
(c) to have access for the Landlord and other tenants of the
Building to any mail chutes located on the demised premises
according to the rules of the United States Post Office;
(d) to designate all sources furnishing sign painting and
lettering, unless Landlord maintains all toilets within Base
Rent, lamps and bulbs used on the demised premises,
(e) to decorate, remodel, repair, alter or otherwise prepare
the demised premises for reoccupancy if Tenant vacates the
demised premises prior to the expiration of the term;
(f) to retain at all time pass keys to the demised premises;
(g) to grant to anyone the exclusive right to conduct any
particular business or undertaking in the Building or Complex
with the exception of Paragraph 2;
(h) to exhibit the demised premises to others upon
commercially reasonable allowance notice;
(i) to close the Building after regular working hours and on
the legal holidays subject, however, to Tenant's right to
admittance, under such reasonable regulations as Landlord may
prescribe from time to time, which may include by way of
example but not of limitation, that persons entering or
leaving the Building identify themselves to a watchman by
registration or otherwise and that said persons establish
their right to enter or leave the Building;
0) to approve the weight, size and location of safes or
other heavy equipment or articles, which articles may be moved
in, about, or out of the Building or premises only at such
times and in such manner as Landlord shall direct and in all
events, however, at Tenant's sole risk and responsibility;
(k) to take any and all measures, including inspections,
repairs, alterations, decorations, additions and improvements
to the premises, the Building or to the Complex, as may be
necessary or desirable for the safety, protection or
preservation of the demised premises, the Building or the
Complex or the Landlord's interest, or as may be necessary or
desirable in the operation of the Building or Complex.
The Landlord may enter upon the demised premises and may
exercise any or all of the foregoing rights hereby reserved without
being deemed guilty of an eviction or disturbance of the Tenant's
use or possession and without being liable in any manner to the
Tenant and without abatement of rent or affecting any of the
Tenant's obligations hereunder, subject to Landlord's reasonable
notice thereof
20. HOLDING OVER. If the Tenant retains possession of the demised
premises or any part thereof after the termination of the term or
any extension thereof, by lapse of time or otherwise, the Tenant
shall pay the Landlord the monthly rent, at double the rate payable
for the month immediately preceding said holding over (including
amounts for Taxes and Expenses, as applicable), computed on a per
month basis, for each month or part thereof (without reduction for
any such partial month) that the Tenant thus remains in possession,
and in addition thereto, Tenant shall pay the Landlord all damages
in excess of said rent, taxes and expenses as included in this
Section, consequential as well as direct, sustained by reason of
the Tenant's retention of possession. Alternatively, at the
election of Landlord expressed in a written notice to the Tenant
and not otherwise, such retention of possession shall constitute a
renewal of this Lease for one (1) year, on the same terms and
conditions, except that the rent shall be the greater of market or
125% of the latest rent plus all adjustments applicable for such
year in accordance with Section 5 hereof The provisions of this
paragraph do not exclude Landlord's rights or re-entry or any other
right hereunder.
21. LANDLORD'S REMEDIES. All rights and remedies of the Landlord
herein enumerated
shall be cumulative, and none shall exclude any other right or
remedy allowed by law.
(a) If any involuntary action or proceeding under any
section or section of any bankruptcy act in any court or
tribunal shall adjudge or declare Tenant insolvent or unable
to pay Tenant's debts, or if any voluntary petition or similar
proceeding under any section of any bankruptcy act shall be
filed by Tenant in any court or tribunal to declare Tenant
insolvent or unable to pay Tenant's debts, then and in any
such event Landlord may, if Landlord so elects but not
otherwise, and with or without notice of such election, and
with or without entry or other action by Landlord, forthwith
terminate this Lease, and notwithstanding any other provision
of this Lease, Landlord shall forthwith upon such termination
be entitled to recover damages in an amount equal to the then
present value of the Base Rent specified in Section I of this
Lease, as adjusted, pursuant to Section 5, for the residue of
the stated term thereof, less the present value of the fair
rental value of the premises for the residue of the stated
term.
(b) If the Tenant defaults in the payment of rent, and the
Tenant does not cure the default within five (5) days after
demand for payment of such rent or if the Tenant defaults in
the prompt and full performance of any other provisions of
this Lease, and the Tenant does not cure the default within
twenty (20) days after written demand by the Landlord that the
default be cured (unless the default involves a hazardous
condition, which shall be cured forthwith) or if the leasehold
interest of the Tenant be levied upon or be attached by
process of law, or if the Tenant makes an assignment for the
benefit of creditors or admits its inability to pay its debts,
or if a receiver be appointed for any property of the Tenant,
or if the Tenant abandons the premises, then and in any such
event the Landlord may, if the Landlord so elects but not
otherwise, and with or without notice of such election, and
with or without any demand whatsoever, either forthwith
terminate this Lease and the Tenant's right to possession of
the premises, or without terminating this Lease, forthwith
terminate the Tenant's right to possession of the premises.
(c) Upon any termination of this Lease, whether by lapse of
time or otherwise, or upon any termination of the Tenant's
right to possession without termination of the Lease, the
Tenant shall surrender possession and vacate the premises
immediately, and deliver possession thereof to the Landlord,
and hereby grants to the Landlord full and free license to
enter into and upon the premises in such event with or without
process of law and to repossess the premises and to expel or
remove the Tenant and any others who may be occupying or be
within the premises and to remove any and all property
therefrom; using force as may be necessary, without being
deemed in any manner guilty of trespass, eviction or forcible
entry or detainer, and without relinquishing the Landlord's
right to rent or any other right given to the Landlord
hereunder or by operation of law.
(d) If the Tenant abandons the premises or otherwise entitles
the Landlord so to elect, and the Landlord elects to terminate
the Tenant's right to possession only, without terminating the
Lease, the Landlord may, at the Landlord's option, enter into
the premises, remove the Tenant's sign and other evidences' of
Tenant and take and hold possession thereof as in Subsection
(c) of this Section 21 provided, without such entry and
possession terminating the Lease or releasing the Tenant, in
whole or in part, from the Tenant's obligation to pay the rent
hereunder for the full term, and in any such case the Tenant
shall pay forthwith the Base Rent specified in Section I of
this Lease as adjusted in accordance with Section 5, for the
residue of the stated term plus any other sums then due
hereunder less the present value of the fair rental value of
the demised premises for such period. In the alternative,
upon and after entry into possession without termination of
the Lease, the Landlord shall use its best efforts to relet
the premises or any part thereof for the account of the Tenant
to any person, firm or corporation for such rent for such time
and upon such terms as the Landlord in the Landlord's sole
discretion shall determine, and the Landlord shall not be
required to observe any instruction given by the Tenant about
such reletting. In any such case, the Landlord may make
repairs, alterations and additions in or to the premises, and
redecorate the same to the extent deemed by the Landlord
necessary or desirable, and the Tenant shall, upon demand, pay
the cost thereof, together with the Landlord's expenses of the
reletting. If the consideration collected by the Landlord
upon any such reletting for the Tenant's account is not
sufficient to pay monthly the full amount of the rent reserved
in this Lease, together with the costs of repairs,
alterations, additions, redecorating and the Landlord's
expenses, the Tenant shall pay to the Landlord the amount of
each monthly deficiency upon demand. If the Landlord, in
attempting to mitigate the damages caused by Tenant's removal
from the premises, leases to another entity ("New Lease") for
longer than the remainder of the term of this Lease, the
rental for the remainder of the term of this Lease for
purposes of this Section shall be deemed to be the average
rental payments under the New Lease for the remainder of the
term of this Lease. "Average rental payments under the New
Lease" shall be deemed to mean rental payments (net of
abatements and rent credits) under the New Lease, after
deducting the costs of leasing the demised premises,
including, but not limited to, expenses incurred in repairing,
altering or redecorating the premises, broker's costs, and
attorney's fees in connection with the New Lease, divided by
the number of months in the New Lease. All rentals and other
costs under the New Lease shall be discounted to the due dates
of payments due under this Lease, at the prime rate then in
existence at The First National Bank of Chicago or bank of
similar size if The First National Bank of Chicago is no
longer in existence at the time this provision becomes
operational. Notwithstanding anything in this subsection to
the contrary, in no event shall Landlord be required to pay
Tenant any excess of the rent it receives under the New Lease
over the rent hereunder.
(e) The Tenant hereby constitutes and irrevocably appoints
any attorney of any court to be the true and lawful attorney
of the Tenant, and, in the name, place and stead of the
Tenant, to appear for and on behalf of the Tenant in any court
of record at any time, and from time to time, after default
hereunder in any suit or suits brought against the Tenant for
the enforcement of any rights hereunder by the Landlord, to
waive the issuance and service of process and trial by jury,
and, from time to time, to confess judgment or judgments in
favor of the Landlord and against the Tenant for any rent and
interest thereon due hereunder by the Tenant to the Landlord,
for costs of suit and for a reasonable attorney's fee in favor
of the Landlord to be fixed by the court, and to release all
errors that may occur or intervene in such proceedings,
including the issuance of execution upon any such judgment,
and to stipulate that no appeal shall be prosecuted from such
judgment or judgments, or that no proceedings in chancery or
otherwise shall be filed or prosecuted to interfere in any way
with the operation of such judgment or judgments or of any
execution issued thereon or with any supplemental proceedings
taken by the Landlord to collect the amount of any such
judgment or judgments, and to consent that execution on any
judgment or decree in favor of the Landlord against the Tenant
may issue forthwith.
(f) Any and all property which may be removed from the
premises by the Landlord pursuant to the authority of the
Lease or of law, to which the Tenant is or may be entitled,
may be handled, removed or stored by the Landlord at the risk,
cost and expense of the Tenant, and the Landlord shall in no
event be responsible for the value, preservation or
safekeeping thereof The Tenant shall pay to the Landlord, upon
demand, any and all expenses incurred in such removal and all
storage charges against such property so long as the same
shall be in the Landlord's possession or under the Landlord's
control. Any such property of the Tenant not retaken from
storage by the Tenant within thirty (30) days after the end of
the term, however terminated, shall be conclusively presumed
to have been conveyed by the Tenant to the Landlord under this
Lease as a bill of sale without further payment or credit by
the Landlord to the Tenant.
(g) Tenant hereby grants to Landlord a first lien upon the
interest of Tenant under this Lease to secure the payment of
moneys due under this Lease, which lien may be enforced in
equity; and Landlord shall be entitled as a matter of right to
have a receiver appointed to take possession of the demised
premises and relet the same under order of court. In addition
to any statutory lien for rent in Landlord's favor, Landlord
shall have and Tenant hereby grants to Landlord a continuing
security interest for all rentals and other sums of money
becoming due hereunder from Tenant upon all goods, wares,
equipment, fixtures, furniture, inventory, accounts, contracts
rights, chattel paper and other personal property of Tenant
situated on the Premises, and such property shall not be
removed therefrom without the consent of Landlord until all
arrearages in rent as well as any and all other sums of money
then due to Landlord hereunder shall first have been paid and
discharged. In the event of a default under this Lease,
Landlord shall have, in addition to any other remedies
provided herein or by law including without limitation the
right to sell the property described in this Article at public
or private sale upon five (5) days' notice to Tenant. Tenant
hereby agrees to execute such financing statements and other
documents necessary or desirable in Landlord's discretion to
perfect the security interest hereby created. Any statutory
lien for rent is not hereby waived, the express contractual
lien herein granted being in addition and supplementary
thereto.
(h) The Tenant shall pay upon demand all the Landlord's
costs, charges and expenses, including the fees of counsel,
agents and others retained by the Landlord in any litigation,
negotiation or transaction in which the Tenant causes the
Landlord, without the Landlord's fault, to become involved or
concerned specifically including, without limitation, any
litigation required by Landlord to enforce its rights or
remedies pursuant to this Lease.
22. DEFAULT UNDER OTHER LEASE. If the term of any lease, other
than this Lease, made by the Tenant for any demised premises in the
Building or Complex shall be terminated or terminable after the
making of this Lease because of any default by the Tenant under
such other lease, such fact shall empower the Landlord, at the
Landlord's sole option, to terminate this Lease by notice to the
Tenant.
23. SURRENDER OF POSSESSION. Upon the expiration or other
termination of the term of this Lease, Tenant shall quit and
surrender to Landlord the premises, broom clean, in good order and
condition, ordinary wear excepted, and Tenant shall remove all of
its property. Landlord shall remove all telephone and other
communication cable from the plenum areas, wall cavities and rises
at Tenant's expense.
If the Tenant does not remove its property of every kind and
description from the demised premises prior to the end of the term,
however ended, the Tenant shall be conclusively presumed to have
conveyed the same to the Landlord under this Lease as a bill of
sale without further payment or credit by the Landlord to the
Tenant and the Landlord may remove the same and the Tenant shall
pay the cost of such removal to the Landlord upon demand.
Not later than sixty (60) days before this Lease terminates or
Tenant vacates the premises, Tenant shall give Landlord written
notice of its intended departure and shall schedule a joint
inspection with Landlord -of the premises in preparation for
Tenant's vacating of the premises. At such joint inspection,
Landlord shall prepare a list of the following items for Tenant to
resolve before vacating the premises:
1) repairs and restorations that will need to be made to the
premises before vacating, if any;
2) equipment and/or fixtures that may be removed, and a
procedure that must be followed in order to remove such items
from the Building, which may include a "check out" procedure
with an employee of Landlord at the Building;
3) equipment and/or fixtures that may not be removed from
the premises because they rightfully belong to Landlord.
Tenant shall have ten (10) days after receipt of said list
from Landlord to notify Landlord of any discrepancies it notes on
said Est. If Tenant does not so notify Landlord, said list shall
be binding on Tenant, and shall be binding upon Landlord except to
the extent that, because of hidden problems, Landlord could not
reasonably ascertain whether certain repairs and/or restoration
would be needed until vacating of the premises. In any event, if
Tenant fails to arrange such joint inspection, any list of needed
restoration or repairs prepared by Landlord as a result of
Landlord's inspection at or after Tenant's vacating the premises
shall be conclusively deemed correct for purposes of determining
Tenant's responsibility for repairs and restoration.
Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of the term of this
Lease.
24. NOTICES. Notices shall be in writing.
(a) Notices shall be effectively served by Landlord upon
Tenant if addressed to Tenant's
President, General Manager, or Chief Financial Officer in any
one of the following manners:
(i) By delivery to Tenant, or a representative of Tenant; or
(ii) By forwarding through Certified or Registered Mail,
postage prepaid, to Tenant at the address shown in Subsection
l(c), in which case the time of mailing shall be the time of
notice.
(b) Notices shall be effectively served by Tenant upon
Landlord when addressed to
Landlord and served either:
(i) Upon an officer of Landlord; or
(ii) -----------------
(iii) By forwarding through Certified or Registered Mail,
postage prepaid, to Landlord at the address shown in
Subsection l(b).
The addresses for notices shall be those addresses shown in
Section I or if notified in writing of another address by either
party, at such latter address. light, (subject to Tenant's
reasonable approval) upon thirty (30) days written notice, to
relocate Tenant to another location in the Complex at no cost or
expense to Tenant and upon the condition that the new premises
designated by Landlord shall be substantially as desirable as the
demised premises with respect to layout and location and shall not
be smaller in area than the demised premises.
26. GOOD FAITH DEPOSIT. Tenant agrees to deposit with Landlord,
upon the execution of this Lease, the sum set forth in Subsection
I (I) above as security for the full and faithful performance by
Tenant of each and every term, provision, covenant, and condition
of this Lease. Landlord shall have no obligation to segregate the
amount so deposited from its other funds. If Tenant defaults in
respect to any of the terms, provisions, covenants and conditions
of this Lease including, but not limited to, payment of the
Adjusted Monthly Base Rent, Landlord may use, apply, or retain the
whole or any part of the security so deposited for the payment of
any such rent in default, or for any other sum which the Landlord
may expend or be required to expend by reason of Tenant's default
including, without limitation, any damages or deficiency in the
reletting of the demised premises, whether such damages or
deficiency shall have accrued before or after any re-entry by
Landlord. If any of the deposit shall be so used, applied or
retained by Landlord at any time or from time to time, Tenant shall
promptly, in each such instance, on written demand therefor by
Landlord, pay to Landlord such additional sum as may be necessary
to restore the deposit to the original amount set forth in
Subsection 1(m). If Tenant shall fully and faithfully comply with
all the terms, provisions, covenants, and conditions of this Lease,
the deposit, or any balance thereof, shall be returned to Tenant
after the following:
(a) the time fixed as the expiration of the term of this
Lease;
(b) the removal of Tenant from the demised premises;
(c) the surrender of the demised premises by Tenant to
Landlord in accordance with this Lease; and
(d) the time required for any other charges due pursuant to
the Lease to have been computed by Landlord and paid by
Tenant.
Except as otherwise required by law, Tenant shall not be
entitled to any interest on the aforesaid deposit. If the absence
of evidence satisfactory to Landlord of an assignment of the right
to receive the deposit or the remaining balance thereof, Landlord
may return the deposit to the original Tenant, regardless of one or
more assignments of this Lease. If Tenant receives notice of sale
of the Building or Complex and a notice to atorn to the new
Landlord, it shall look solely to the new Landlord for return of
the deposit.
27. MISCELLANEOUS.
(a) No receipt of money by the Landlord from the Tenant after
the termination of this Lease or after the service of any
notice or after the commencement of any suit, or after final
judgment for possession of the demised premises shall
reinstate, continue or extend the term of this Lease or affect
any such notice, demand or suit.
(b) No waiver of any default of the Tenant hereunder shall be
implied from any omission by the Landlord to take any action
on account of such default if such default persists or be
repeated, and no express waiver shall affect any default other
than the default specified in the express waiver and that only
for the time and to the extent therein stated.
(c) The words "Landlord" and "Tenant", wherever used in this
Lease shall be construed to mean plural where necessary, and
the necessary grammatical changes required to make the
provisions hereof apply either to corporations or individuals,
men or women, shall in all cases be assumed as though in each
case fully expressed.
(d) Each provision hereof shall extend to and shall, as the
case may require, bind and inure to the benefit of the
Landlord and the Tenant and their respective heirs, legal
representative, successors and assigns in the event this Lease
has been assigned with the express written consent of the
Landlord.
(e) Submission of this instrument for examination does not
constitute a reservation of or option for the premises. The
instrument does not become effective as a lease or otherwise
until executed and delivered by both Landlord and Tenant.
(f) All amounts (unless otherwise provided herein, and other
than the Adjusted Monthly Base Rent, which shall be due as
hereinbefore provided) owed by the Tenant to the Landlord
hereunder shall be deemed additional rent and be paid within
ten (10) days from the date the Landlord renders statements of
account therefor. All such amounts (including Adjusted
Monthly Base Rent and additional rent) shall bear interest
from the date due until the date paid at the rate of 2% above
the prime rate of interest of The First National Bank of
Chicago in effect on the date of payment, or at the maximum
legal rate of interest, allowed by law, if such maximum legal
rate is applicable and lower.
(g) All riders attached to this Lease and initialed by the
Landlord and the Tenant are hereby made a part of this Lease
as though inserted in this Lease.
(h) The headings of sections are for convenience only and do
not limit or construe the contents of the sections.
(i) If the Tenant shall occupy the premises prior to the
beginning of the term of this Lease with the Landlord's
consent, all the provisions of this Lease shall be in full
force and effect as soon as the Tenant occupies the premises.
(j) Should any mortgage, leasehold or otherwise, require a
modification or modifications of this Lease, which
modification or modifications will not bring about any
increased cost or expense to Tenant or in any other way
substantially change the rights and obligations of Tenant
hereunder, then and in such event, Tenant agrees that this
Lease may be so modified.
(k) The Tenant represents that the Tenant has dealt directly
with and only with NONE as broker in connection with this
Lease, and that insofar as the Tenant knows no other broker
negotiated this Lease or is entitled to any commission in
connection therewith. Tenant indemnifies and holds Landlord,
its beneficiaries, and their respective agents and employees
harmless from all claims of any other broker or brokers who
claim to have dealt with Tenant in connection with Lease.
(1) The Tenant agrees that from time to time upon not less
than ten (10) days prior request by the Landlord, the Tenant
will deliver to the Landlord a statement in writing certifying
(a) that this Lease is unmodified and in full force and effect
(or if there have been modifications that the same is in full
force and effect as modified and identifying the
modifications), (b) the dates to which the rent and other
charges have been paid, and (c) that so far as the person
making the certificate knows, the Landlord is not in default
under any provisions of this Lease.
(m) The Landlord's title is and always shall be paramount to
the title of the Tenant, and nothing herein contained shall
empower the Tenant to do any act which can, shall or may
encumber such title.
(n) The laws of the State in which the demised premises are
located shall govern the validity, performance and enforcement
of this Lease.
(o) If any term, covenant or condition of this Lease or the
application thereof to any person or circumstance shall, to
any extent, be invalid or unenforceable, the remainder of this
Lease, or the application of such term, covenant or condition
to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby
and each term, covenant or condition of this Lease shall be
valid and enforced to the fullest extent permitted by law.
(p) Landlord and Tenant agree that to the extent permitted by
law, each shall and hereby does waive trial by jury in any
action, proceeding or counterclaim brought by either against
the other on any matter whatsoever arising out of or in any
way connected with this Lease.
(q) There are no oral agreements between Landlord and Tenant
affecting this Lease, and this Lease supersedes and cancels
any and all previous negotiations, arrangements, brochures,
agreements and understandings, if any, between Landlord and
Tenant or displayed by Landlord to Tenant with respect to the
subject matter of this Lease.
(r) In the event the original Landlord hereunder, or any
successor Landlord of the Complex, shall sell or convey the
Complex, all liabilities and obligations on the part of the
original Landlord, or such successor Landlord, under this
Lease accruing thereafter shall be terminated, and thereupon
all such liabilities and obligations shall be binding upon the
new Landlord. Tenant agrees to atorn to each such new
Landlord.
(s) The term "Landlord", as used in this Lease, means
DEVELOPMENT, CORP., agent and the legal entity which owns the
beneficial interest in Harris Bank & Trust Company of
Barrington Trust No. 11-521 1, which holds legal title to the
Complex, and any liability or obligation of Landlord under
this Lease shall be limited to its assets held in such trust
and no Landlord of the beneficial interest in such trust shall
be individually or personally liable for any claim arising out
of this Lease.
Only upon execution of this Lease shall the Lease of May 29,
1997, be rendered null and void.
IN WITNESS WHEREOF, the parties hereto have executed this
Lease the date first above written.
LANDLORD
MARKUR DEVELOPMENT, CORP., as Agent
for the owners of the beneficial
interest in Harris Bank Bar
By:
Its:
President
ATTEST
By:
Its:
Executive Vice President
TENANT
By
Its
President
ATTEST
By
Its
Chief Financial Officer
<PAGE>
EXHIBIT A
BUILD OUT FOR SYNAPTX IMPULSE
1) Build out private office denoted on the Rienke Office Interior
Plan dated 1/7/97. Included are office shown as "Board Room",
War Room #1, War Room #2, and War Room #3.
2) Build out room denoted as library on 1/7/97 ROI Plan including
individually controlled HVAC system.
3) A partition wall will be built from approximate point J-7 to
F-7 with one man door to be located by tenant. The area from
line 7 to line 8, 9, & 10 shall be unfinished space with
minimal code required lighting and heating equipment only.
Floors, walls, and ceiling to be painted in a single color.
4) Supply and install six (6) power poles to service a maximum
of 25 to 30 office cubes. Each pole will contain three (3)
electrical circuits and a one-inch data conduit.
5) All hardwood maple flooring will be ground, sanded, and sealed
with a varnish. It is understood with the age of the flooring
distressed marks may still be evident upon completion.
6) Recondition and reinstall in existing locations 75 of the
large round light fixtures, painted in a single color to be
chosen by tenant and landlord.
7) Repaint existing tin ceiling in a single flat latex enamel
color to be chosen by tenant and landlord.
8) All brick walls and wood timbers to be sandblasted and
cleaned.
9) Bathroom will be built out as per the plan by Direct Design
dated 4/17/97.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE SYNAPTX WORLDWIDE, INC. AND
SUBSIDIARIES FINANCIAL STATEMENTS FOR THE YEAR ENDED
AUGUST 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 58,265
<SECURITIES> 0
<RECEIVABLES> 1,001,638
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,104,565
<PP&E> 254,990
<DEPRECIATION> 69,041
<TOTAL-ASSETS> 2,983,185
<CURRENT-LIABILITIES> 1,597,423
<BONDS> 21,200
0
0
<COMMON> 5,194
<OTHER-SE> 2,052,977
<TOTAL-LIABILITY-AND-EQUITY> 2,983,185
<SALES> 3,301,878
<TOTAL-REVENUES> 3,601,124
<CGS> 2,571,467
<TOTAL-COSTS> 2,571,467
<OTHER-EXPENSES> 1,581,768
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,444
<INCOME-PRETAX> (602,555)
<INCOME-TAX> 0
<INCOME-CONTINUING> (602,555)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (602,555)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
