UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark one)
X Annual Report Pursuant to Section 13 or 15(d) of
----- the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 1998
Transition Report Pursuant to Section 13 or 15(d)
------ of the Securities Exchange Act of 1934
Commission File Number 0-22969
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.)
615 Crescent Executive Court, Suite 128, Lake Mary, FL 32746
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (407) 333-2488
168 East Highland Avenue, Suite 300, Elgin, IL 60120-5507
(Former name, former address, and former fiscal year if changed
from last report)
Securities to be registered under Section 12(b) of the Exchange
Act: None
Securities to be registered under Section 12(g) of the Exchange
Act: Common Stock, par value $.001 per
share
(Title of Class)
Check whether the issuer (1) filed all reports required to
be filed under Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports, and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation SB contained in this form, and no
disclosure will be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this form 10-KSB. Yes No X
----- ----
State the issuer's revenue for its most recent fiscal
year:$5,798,184.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and ask prices of such stock
as of November 19, 1998: $7,549,985
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date.
-----------------------------------------------------------------
Class Outstanding as of November 19, 1998
-----------------------------------------------------------------
Common Stock, par value 6,483,284
$.001 per share
-----------------------------------------------------------------
Documents Incorporated by Reference: None
Transitional Small business Disclosure Format. Yes No X
--- ---
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SYNAPTX WORLDWIDE, INC.
FORM 10-KSB
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. Description of Business . . . . . . . . . . . . . . . 3
ITEM 2. Description of Property . . . . . . . . . . . . . . 11
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . 12
ITEM 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . 12
PART II
ITEM 5. Market for Common Equity and Other Shareholder
Matters . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 16
ITEM 7. Financial Statements . . . . . . . . . . . . . . . 22
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . 46
PART III
ITEM 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section
16(a) of the Exchange Act . . . . . . . . . . . . . .47
ITEM 10. Executive Compensation . . . . . . . . . . . . . . 50
ITEM 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . 53
ITEM 12. Certain Relationships and Related Transactions . . 55
PART IV
ITEM 13. Exhibits and Reports on Form 8-K . . . . . . . . . 58
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 60
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RISK FACTORS AND CAUTIONARY STATEMENTS
Forward-looking statements in this report are made pursuant to
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. 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 or implied by the statements,
including, but not limited to, the following: the ability of the
Company to provide for its debt obligations, to provide working
capital needs from operating revenues, to obtain additional
financing needed for any future acquisitions, and other risks
detailed in the Company's periodic report filings with the
Securities and Exchange Commission.
ITEM 1.
DESCRIPTION OF BUSINESS
HISTORY:
Synaptx Worldwide, Inc. ("Synaptx" or the "Company") through its
operating subsidiaries, provides database analysis, consulting,
marketing, and sales services and executive search ("Search")
assistance within the telecommunications industry. The Company
intends to seek acquisitions of existing companies exhibiting the
potential for growth as telecommunications customer management
and software providers needing developed marketing channels.
Except for the acquisitions consummated, as described below, the
Company has no agreements or understandings regarding possible
future acquisitions.
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 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 basis, and exchanged 3,600,000 shares
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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. 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. All share information herein gives effect to the
1-for-1.75 reverse stock split, unless otherwise provided.
During fiscal year 1998, the Company changed its strategy from
one of acquiring and growing mainly distribution companies to one
of acquiring customer management driven companies that enable
network and network equipment providers to identify, acquire, and
maintain customers. This shift is a result of what Management
feels is greater opportunity and a greater chance of achieving
profitable operations on a long-term basis.
The Company's principal executive offices were moved effective
December 1, 1998 to 615 Crescent Executive Court, Suite 128, Lake
Mary, FL 32746 and its telephone number is (407) 333-2488.
PRODUCTS AND SERVICES:
The Company's products and services consist primarily of
supporting the customer management functions of clients in the
telecommunications, data communications and cable TV industries.
Through its Impulse subsidiary, database, consulting, and
marketing services and programs are developed that address the
marketing communications needs of its clients. Services offered
by Impulse include strategic and market planning, database
analysis, new product launch planning, distribution channel
analysis and design, communications program planning and
implementation, event and trade show management, new product
launches and special promotions management. Some of the end
products include marketing collateral materials (i.e. sales
brochures), web site development, ad development and placement in
various media, and trade show booth development and management.
The other significant services being offered are sales
representation offered through the following subsidiaries:
Access, WG Controls, Inc. ("WG") and Primus Marketing Associates,
Inc. ("Primus"). Another sales representative subsidiary,
ORAYCOM, Inc. ("ORAYCOM") was included with these operations
during the fiscal year ended August 31, 1998, but a Letter
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Agreement was reached subsequent to year-end to sell this
operation, see below and Note 15 to the financial statements, in
Part II, Item 7. ORAYCOM was not considered a significant part of
the business. These sales representative operations provide 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).
Operating under cancellable contracts (normal for providing this
service), commissions are paid for sales generated for the
designated products within the assigned territories at rates
ranging from approximately 3.5% to 10%, depending on the
sophistication of the client's products and services represented.
One multi - divisional customer in the telecommunications
industry accounted for approximately 28% of sales in the year
ended August 31, 1998, although no individual division accounted
for more than 15% of the Company's total sales. Receivables from
this customer represented approximately 4% of total receivables
at August 31, 1998. Two multi-divisional customers from the
telecommunications industry represented 21% and 34% of sales in
the year ended August 31, 1997, while a third represented 21%.
Receivables from these three customers represented approximately
14%, 65%, and 2% of total receivables at August 31, 1997,
respectively.
BUSINESS DEVELOPMENT AND STRATEGY:
The mission of the Company is to capitalize on what management
believes is an emerging and relatively overlooked area by network
and network equipment suppliers: customer management. The
telecommunications industry ("Telco Industry") has grown from a
regulated, monopolistic environment to a regulatory-mandated,
competitive environment. As a result of its regulated history,
the Telco Industry is by nature a network-centric industry since
the regulatory environment previously rewarded high quality
universal service. The network providers are, out of necessity,
beginning the movement from a network to a customer focus. New
technologies and regulatory changes mean that having a "pipe"
(i.e. an existing line running into the user's home or business)
to a subscriber is no longer a guarantee of revenue.
Management believes the market for both network and customer
management software and services will grow by approximately 25%
by 2001. In that same period, Management expects the market for
customer management products to grow disproportionately faster.
Management believes there are opportunities for the Company to
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help the network and network equipment suppliers manage their
customer relationships with the blend of software and services to
be offered, to more profitably grow their businesses. Management
intends to emphasize customer interaction and loyalty. The intended
focus will be on developing software and services that enable the
client to identify and enhance the value of the services the client
offers, identify, target, and acquire prospective customers for the
client's services, and ultimately retain desirable customers of
that service.
In support of this strategy, the Company is in the process of
laying the groundwork through acquisitions, alliances and
experienced personnel to bring resources together to meet client
needs in the customer management arena. The Company intends to
make acquisitions of and form alliances with existing
software and services companies exhibiting the potential for
growth as Telco Industry customer management software and service
providers to network providers and network equipment suppliers.
Except for the acquisitions that have been consummated, as
described below, the Company has no agreements or understandings
regarding such possible future acquisitions.
Synaptx Access, Inc.
Access is a network of independent former senior executives
("Executive Associates") whose existing professional
relationships in the Telco 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 Telco 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.
The primary focus of the affiliate network is to provide
introductions and access to key contacts in the companies in
which they have high-level relationships for the other business
units, namely Impulse, Search and the sales representative
companies.
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 addition to its sales activities, Access Executive Associates
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.
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Synaptx Impulse, Inc.
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, US West,
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, valued at $690,000 for the acquisition of Impulse on
October 1, 1996, which shares were converted into 759,401 shares
of the Company's Common Stock as a result of the Merger. The
acquisition was treated as a purchase.
In fiscal 1998, as a result of a refocus of the business and
significant employee turnover, the remaining goodwill related to
the purchase of Impulse, totaling $1,092,894, was determined to
be permanently impaired as defined by Financial Accounting
Standards Board Statement No. 121, "Accounting For the Impairment
of Long-Lived Assets", and was fully written off. For further
discussion, see Note 14 to the financial statements in Part II,
Item 7.
Through combined efforts Access and Impulse will provide the
Company's potential future acquisitions with marketing and sales
support. 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. For additional information on this
acquisition, see Note 2 to the financial statements in Part II,
Item 7.
ORAYCOM, Inc.
On June 1, 1997, the Company made its first acquisition of a
sales representative company, ORAYCOM, Inc. located in
Carrollton, Texas ("ORAYCOM"). ORAYCOM was acquired with 142,858
shares of Synaptx Common Stock, valued at $500,000. ORAYCOM is a
sales representative to the private network, public telephone
network, cable operating companies and alternate access provider
communication markets in the southwest United States. As of
August 31, 1998, ORAYCOM represented RELTEC, Allied Telesyn, and
Thomas & Betts in addition to other clients.
In addition to the Carollton office, ORAYCOM has employees based
in Houston, San Antonio, and Phoenix to serve customers
throughout the southwest United States. Revenues represent
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the earning of commissions on its customers' (i.e., ORAYCOM
Principals) sales. These commissions range from 3.5% up to 8%,
depending on the sophistication of the customers' products and
services represented. For additional information on this
acquisition, see Note 2 to the financial statements in Part II,
Item 7.
On November 13, 1998, the Company entered into a Letter Agreement
with the former sole owner of ORAYCOM to sell 100% of the issued
and outstanding stock of ORAYCOM back to him in a stock for stock
transaction for 80,000 shares of the Company's Common Stock. The
Company does not anticipate any material financial impact from
this transaction, other than the write-off taken in fiscal year
1998 for the impairment of goodwill, totaling $428,054, related
to the original purchase of ORAYCOM. For additional information
on this divestiture, see the August 31, 1998 financial
statements, footnote 15 in Part II, Item 7.
WG Controls, Inc.
On January 1 1998, the Company acquired WG, a sales
representative firm based in Arlington Heights, Illinois. WG was
acquired for 285,715 shares of the Company's Common Stock,
137,143 shares of the Company's Series A, Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock"), and $270,000 in
cash payable as follows: $125,000 on the first anniversary date
of the acquisition, $125,000 on the second anniversary date of
the acquisition, and $20,000 on the third anniversary date of the
acquisition, for a total purchase price of $896,628.
Additionally, at closing, the Agreement called for and the
Company paid $250,000 to key employees related to agreements not
to compete. The Company has converted $100,000 of the $125,000
due on the first anniversary date of the acquisition to a short-term
note, payable over calendar year 1999.
The Series A Preferred Stock provides for annual dividends of
$0.2975 per share or $40,800 per year. However if the Company's
profits are insufficient to pay such dividends, they will be
cumulative and accrued, payable when Company profits are adequate
to fund payment. The preferred shares convert at the rate of one
share of Preferred Stock for .67361 shares of the Company's
Common Stock, or an aggregate of 92,381 shares of Common Stock,
(subject to anti-dilution) when the Company's Common Stock
achieves an average closing price of $5.25 per share for a
consecutive 60 day trading period.
WG employs eleven people and leases offices in Illinois and
Wisconsin. Revenues represent the earning of commissions on its
customers' sales. These commissions range primarily from 3.5% up
to 10%, depending on the sophistication of the customers'
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products and services represented. WG currently represents
RELTEC, Rohm, and Johanson in addition to approximately 13 other
clients. For additional information on this acquisition, see the
financial statements, footnote 2 in Part II, Item 7.
Primus Marketing Associates, Inc.
On June 1, 1998, the Company acquired Primus, a sales
representative firm based in Minnetonka, Minnesota for 214,286
shares of the Company's Common Stock, valued at $321,429. Primus
is a sales representative firm providing field sales and business
development support for specified product lines and/or
territories for clients under contract which include cable TV and
telecommunications (both voice and data networking) original
equipment manufacturers, located primarily in the north central
section of the United States.
Primus' operations consist of sales representatives who sell to
the private network, public telephone network, cable operating
companies and alternate access provider communication markets.
Primus currently represents RELTEC, Alcoa Fujikara, AMP and
Raytheon in addition to approximately 20 other clients.
Primus employs nine people serving customers in Minnesota, North
Dakota, South Dakota, Iowa, Nebraska, Montana, Wyoming and
Northern Wisconsin. Revenues represent the earning of
commissions on its customers' sales. These commissions range
from 3.5% up to 8%, depending on the sophistication of the
customers' products and services represented. For additional
information on this acquisition, see the financial statements,
footnote 2 in Part II, Item 7.
Strategic Alliance: Direct Services, Inc.
In addition to the acquisitions above, the Company has formed a
strategic alliance with Direct Services, Inc. of Miami, Florida
("DSI"). DSI is currently the key provider of database analysis
services provided by the Company. Though not currently supported
by a long-term contract, the companies worked together throughout
fiscal year 1998 to provide these services and are working toward
formalization of the relationship. This formalization is
expected to occur in December, 1998. Should this relationship
terminate, management believes that such services can be readily
obtained from other sources without an undue interruption in
service.
The above are the stated future goals of the Company, and the
existing subsidiaries and strategic relationships in place to
pursue those goals. However, there can be no assurance that the
Company will ever achieve its expressed goals.
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POTENTIAL NEW ACQUISITIONS AND PRODUCT LINES
The Company intends to make additional strategic acquisitions
that fit its long-term objectives 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 anticipates making future acquisitions by primarily using
its capital stock, employing tax-free exchanges for the stock of
the to-be-acquired companies. 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. 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.
SALES AND MARKETING
The Company markets and sells its products and services through
its professional employees. All the Company's contractual
services and sales relationships are sold by its professional
staff based on past and ongoing relationships with purchasing
decision-makers who normally work in the marketing and sales
organizations of clients. These long-term relationships within
the Telco Industry are the basis for past and future business.
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. The Company's competitors will vary
from market to market depending upon what companies and
technologies are acquired. Principal competitive factors
affecting the market for subsidiary products and services 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.
The Company intends to leverage the Access sales team and
Impulse's integrated marketing expertise to compete in its
various niches.
EMPLOYEES
As of November 1, 1998, the Company employed 40 individuals,
consisting of 4 executives, 30 professionals 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 contractual
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basis. Management presently anticipates hiring additional
employees as business conditions warrant and as funds become
available.
INDUSTRY SEGMENTS
No information is presented as to industry segments. The Company
is presently engaged in the principal business of customer
management services supported by database, consulting, marketing
and sales services.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive offices were moved effective
December 1, 1998 to 615 Crescent Executive Court, Suite 128, Lake
Mary, FL 32746. The lease, the term of which extends for one
year, covers approximately 600 square feet at an approximate
annual rental rate of $10,000.
The Impulse, Access and WG subsidiaries share leased office space
located at 168 E. Highland Ave, Suite 300, Elgin, IL 60120. The
lease covers approximately 19,760 square feet of space. The
lease extends for seven years, from Janaury, 1998 to December,
2004. 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, Access and WG.
WG also leases additional space in Wisconsin to serve customers
in that geographic region. Annual rents are approximately
$2,100. The lease term extends through June 30, 1999.
ORAYCOM's office facility covers approximately 2,000 square feet
of space with a lease term extending to July 31, 2002, at an
annual rental rate of approximately $25,000. In connection with
the sale of ORAYCOM, (see footnote 15 to the financial statements
in Part II, Item 7), this space will no longer be a liability of
Synaptx after the anticipated November 30, 1998 closing of this
sale.
Primus' office facility, in Minnetonka, Minnesota, covers
approximately 2,300 square feet of space under a lease term
expiring on February 28, 2001 at an annual rental rate of
approximately $29,000.
The Company also has two sales offices in California occupying
approximately 1,500 and 2,000 square feet, respectively,
operating on a month-to-month basis for the former and an
expiration date of March 12, 2000 for the latter. Annual rental
rates are approximately $15,000 and $31,000, respectively. With
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the subsequent decision to terminate operations in San Jose,
California, the Company is currently pursuing means to exit the
lease whose term extends to March, 2000. The Company is not
expected to incur material costs in relation to exiting this
lease.
The Company believes its current premises are adequate for
current purposes and if necessary would be able to obtain
alternative or additional space.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any
material pending legal proceedings. The Company has initiated
legal proceedings against a customer for non-payment of invoices
due for consulting services provided in the amount of
approximately $37,000. As the outcome of such action is not
predictable, the receivable has been deemed uncollectible at
August 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in
the fourth quarter of fiscal 1998.
PART II
ITEM 5. MARKET PRICE FOR COMMON EQUITY AND OTHER RELATED
SHAREHOLDER MATTERS
Prior to the filing of its registration statement (Form 10-SB/A),
on December 31, 1997, no shares of the Company's Common Stock had
been registered with the Securities and Exchange Commission (the
"Commission") or any state securities agency of authority. The
Company's Common Stock has been 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.
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The following table sets forth the range of high and low bid
prices of the Common Stock for each fiscal quarterly period.
Prices reported represent prices between dealers, do not
include retail markups, markdowns or commissions and do not
represent actual transactions.
FISCAL YEAR
1998 1997
High Low High Low
---- --- ---- ---
First Quarter $5.00 $2.50 (1) (1)
Second Quarter $3.00 $1.50 (1) (1)
Third Quarter $3.00 $2.00 $ 5.00 $2.00
Fourth Quarter $3.00 $2.00 $ 5.00 $2.00
(1) The price information above was obtained from an
independent quotation service. Although the Company is
aware that its shares did trade on a limited basis during
the first and second quarters commencing in March 1997,
there is no meaningful price information for those periods
and thus none is presented.
The ability of individual shareholders 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
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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 19, 1998 there were 182 holders of record of the
Company's Common Stock. This amount does not take into account
those shareholders whose certificates are held in the name of
broker-dealers or otherwise in street or nominee name.
As of the date hereof, the Company has issued and outstanding
6,483,284 shares of Common Stock. Of this total, 657,211 shares
were issued in transactions more than two years ago. The
remaining 5,826,073 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.
14
<PAGE>
The 5,826,073 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, other than preferred dividends described
below. The Company currently intends to retain and invest future
earnings to finance its operations.
As part of the acquisition of WG in January, 1998, the Company
issued Series A Preferred Stock which provides for annual
dividends of $0.2975 per share or $40,800 per year. If the
Company's profits are insufficient to pay such dividends, they
will be cumulative and accrued for payment when Company profits
are adequate to fund payment. Accordingly, the Company must meet
this obligation before any dividends can be declared for the
benefit of Common Stock shareholders.
TRANSFER AGENT
The Company has designated Interstate Transfer Co., 874 East 5900
South, Ste. 101, Salt Lake City, UT 84707, as its transfer agent.
15
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the
consolidated financial statements and notes thereto appearing
elsewhere in this Form 10-KSB.
RESULTS OF OPERATIONS
The following selected financial information has been derived
from the Company's consolidated financial statements. The
information set forth below is not necessarily indicative of
results of future operations and should be read in conjunction
with the consolidated financial statements and notes thereto
appearing elsewhere in this Form 10-KSB.
The following table sets forth the percentage relationships to
net sales and revenues of principal items contained in the
Company's Consolidated Statements of Operations for the two
fiscal years ended August 31, 1998 and 1997. The percentages
discussed throughout this analysis are stated on an approximate
basis. Results for the fiscal year ended August 31, 1998 include
twelve months of activity for Impulse, Access, and ORAYCOM, and
eight months of activity for WG, subsequent to its January 1,
1998 acquisition date, and three months of activity for Primus,
subsequent to its June 1, 1998 acquisition date. The fiscal year
ended August 31, 1997 includes twelve months of activity for
Access, eleven months of activity of Impulse, subsequent to its
October 1, 1996 acquisition date, and three months of activity
for ORAYCOM, subsequent to its June 1, 1997 acquisition date.
Periods prior to the respective acquisition dates are not
reflected in prior periods since the acquisitions are presented
under the purchase method of accounting.
Fiscal Years Ended
August 31,
1998 1997
---- ----
Net Sales and Revenues 100.0% 100.0%
Cost of Sales 82.6% 71.4%
----- -----
Gross Profit 17.4% 28.6%
Selling, general and
administrative expenses 70.3% 43.9%
----- -----
Operating loss (52.9%) (15.3%)
Interest expense (1.1%) (1.4%)
----- -----
Net loss (54.0%) (16.7%)
Year Ended August 31, 1998 Compared to Year Ended August 31, 1997
16
<PAGE>
The Company's net sales and revenues increased by $2,197,060 or
61.0%, from $3,601,124 for the fiscal year ended August 31, 1997
("1997") to $5,798,184 for the fiscal year ended August 31, 1998
("1998"). The acquisitions of WG in January, 1998, and Primus
in June, 1998 resulted in the addition of $831,924 or 37.9% of
the increase in consolidated revenues. Additionally, ORAYCOM
represented only three months activity in the prior year vs. a
full year in the current fiscal year, resulting in an increase in
commissions earned of $358,371, or 16.3% of the total increase in
consolidated revenues. On a combined basis, marketing services
and production, and database services, had a combined increase in
revenues of $397,889 over the prior year, or 19.0% of the
consolidated increase in revenues. Executive search revenues
decreased by $102,811, or 57.0% from $180,241 in the prior year
to $77,430 in the current year, serving to reduce consolidated
revenues by 4.7%. The remaining increase in revenue is
attributable to additional commissions earned through the Access
sales representative channel in California, under local names
"Advantage Technologies" and "Patterson Communications",
accounting for $711,688 or 32.4% of the increase in consolidated
revenues.
Cost of sales and revenues increased by $2,215,882 in 1998, or
86.2%, from $2,571,467 in 1997 to $4,787,349 in 1998. The
acquisitions of WG in January, 1998, and Primus in June, 1998
resulted in the addition of cost of sales of $642,830, or 29.0%
of the increase in consolidated cost of sales. Additionally,
ORAYCOM represented only three months activity in the prior year
vs. a full year in the current fiscal year, resulting in an
increase of $346,209 or 15.6% of the total increase in
consolidated cost of sales. Cost of sales from marketing
services and production, and database services increased by
$548,712, or 24.7% of the increase in consolidated cost of sales.
Executive search cost of sales increased by $24,804, or 1.1% of
the increase in consolidated cost of sales. The remaining
increase in consolidated cost of sales is attributable to
additional cost of sales on commissions earned through the Access
sales representative channel in California, under local names
"Advantage Technologies" and "Patterson Communications",
accounting for $653,327 or 29.5% of the increase in consolidated
cost of sales.
The Company's gross profit margin, was 17.4% and 28.6% for 1998
and 1997, respectively. The decrease in gross profit margin of
11.2 points in 1998 is attributable to the fact that
approximately 34.5% of consolidated revenues are now generated by
commission sales representative firms vs. only 7.4% in the prior
year. The commission representative firms operate on lower
margins than the Company's other traditional marketing and
consulting businesses.
17
<PAGE>
Selling, general and administrative expenses ("SG & A"),
including depreciation and amortization, increased by $2,495,823
in 1998 or 157.8 %, from $1,581,768 in 1997 to $4,077,591 in
1998. Amortization of goodwill and material non-compete
agreements accounted for $1,826,758, or 73.2% of the increase in
consolidated SG & A costs. This includes $1,520,948 of
write-offs taken on goodwill related to the impairment of
goodwill in relation to FAS 121 for ORAYCOM and Impulse. (For
further discussion of these write-offs, see Notes 14 and 15 to
the Financial Statements, Part II, Item 7). ORAYCOM, with
twelve months of activity in the current year vs. only three
months in the prior year accounted for $103,799, or 4.2% of
the increase. The acquisitions of WG and Primus contributed
$191,801 in SG & A, or 7.7% of the total increase. The
establishment of the Advantage and Patterson profit centers
accounted for $77,541, or 3.1% of the increase. The remaining
increase of approximately $295,900 or 11.9% is mainly
attributable to increased corporate overhead as a result of
administrative efforts in support of additional acquisition
activity.
Net interest expense increased from $50,444 in the prior year, or
1.4% of net sales and revenues to 64,437, or 1.1% for 1998. The
increase of $13,993 is primarily the result of long-term debt to
various officers and employees utilized throughout the year, and
the debt taken on as a result of the WG acquisition.
Subsequent to year end, the Company terminated the operations of
ORAYCOM and Advantage Technologies. See Note 15 to the financial
statements in Part II, Item 7, for further discussion.
NET OPERATING LOSS
The Company has accumulated approximately $1,900,000 of net
operating loss carryforwards as of August 31, 1998, 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
carryforwards expire in the year 2013. 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, 1998 or 1997
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.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to continue as a going concern is
contingent upon its ability to secure additional financing,
complete a 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. Management believes that sufficient capital resources
will be generated from operations, equity investment and
refinancing of outstanding debt to provide necessary working
capital for fiscal year 1999.
The Company's principal cash requirements are for selling,
general and administrative expenses, outside consultants such as
independent contractors who provide design, copywriting,
database, 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 private placements of the
Company's Common Stock which raised $761,821 of net proceeds in
the prior year and $1,128,147 in the current year, plus cash
derived from operations. The Company is investigating various
sources for additional financing, including both equity infusion
and debt facility arrangements, though no representation is made
as to the Company's ability to secure either, or if successful
may be anti-dilutive to existing shareholders.
During the year ended August 31, 1998, the Company's results
include the results of WG for eight months, starting from January
1, 1998, the WG acquisition date. WG was acquired for 285,715
shares of the Company's Common Stock, 137,143 shares of Series A
Preferred Stock, and $270,000, payable over three years. Also,
during the year ended August 31, 1998, the Company's results
include the results of Primus for three months, starting from
June 1, 1998, the Primus acquisition date. Primus was acquired
for 214,286 shares of the Company's Common Stock.
For the year ended August 31, 1998, cash increased from $58,265
at the beginning of the year to $126,532 at the end of the year.
Net cash used in operations was $1,015,637 attributable to the
net loss of $3,131,193, a decrease in accounts payable of
$210,993, and a decrease in deferred revenue of $264,273, offset
by non-cash expense items (depreciation, amortization and
goodwill impairment) of $2,054,418, a decrease in accounts
receivable of $356,742, a decrease in other current assets of
$25,284, and an increase in accrued expenses of $154,378.
Net cash used in investing activities in fiscal 1998 was
19
<PAGE>
$341,490, attributable to net fixed asset additions of $124,114,
additions to other assets of $828, and cash paid for acquisitions
of $216,548.
Net cash provided by financing activities in fiscal 1998 was
$1,425,394 attributable to the issuance of Common Stock of
$1,184,021, increases in short-term and long-term debt of $51,316
and $182,123, respectively, and an increase in bank lines of
credit of $7,934.
In the year ended August 31, 1998, the Company sold 590,016
shares of its Common Stock via private placements, resulting in
net proceeds of $1,128,147. The exercise of outstanding options
and warrants during the current fiscal year resulted in net
proceeds to the Company of $32,755. Additionally, vendors
accepted shares of Common Stock and stock options in lieu of cash
totaling $20,755, warrants valued at $2,500 were issued as
interest to a short term lender, and preferred shares with a par
value of $137 were issued in relation to the WG acquisition.
Total cash therefore, raised as a result of the issuance of stock
was $1,184,021.
During the year ended August 31, 1997, the Company's results
included the 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 in fiscal 1997 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.
20
<PAGE>
Cash provided by financing activities in fiscal 1997 was $681,395
due primarily to net proceeds from stock issuance of $769,321, a
$50,000 decrease in advances to 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 December 15, 1998. The Company intends
to refinance this debt prior to its due date. The Company also
previously had a $26,107 term note that was retired on October
30, 1998, subsequent to the fiscal year end. 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 10.79%). The line-of-credit and the note are further
secured by commercial guaranties of two of the shareholders and
Synaptx.
The Company has various notes payable to related parties (see
Note 11 to the financial statements in Part II, Item 7). These
notes total approximately $140,000 as of the report date and bear
interest at 12%.
The Company's current expansion plans are primarily related to
the acquisition of companies that fit the Company's long-term
strategy of customer management. Acquisition targets are being
identified and preliminary discussions have ensued for the
potential acquisition of companies fitting this framework. 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, working capital of the acquired companies,
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 and from additional private placement financing.
There can be no assurance that such financing can be obtained.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued
21
<PAGE>
SFAS No. 130, Reporting Comprehensive Income. The new standard
discusses how to report and display comprehensive income and its
components. Comprehensive income is defined to include all
changes in equity except those resulting from investments by
owners and distributions to owners. 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.
YEAR 2000 ISSUE
The "Year 2000 Issue" is whether the Company's computer systems
will properly recognize date sensitive information when the year
changes to 2000, or "00." Systems that do not properly recognize
such information could generate erroneous data or cause a system
to fail. The Company has conducted preliminary reviews of its
computer systems and its purchased software programs (including
accounting software) and does not believe the Year 2000 Issue
will pose any significant operational problems for its systems or
software or any significant costs to the Company.
In addition, the Company intends to make similar reviews of the
systems of potential acquisition candidates for any financial or
operational impact the Year 2000 Issue may pose.
INFLATION
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements for Synaptx Worldwide, Inc.
and subsidiaries for the fiscal years ended August 31, 1998 and
1997 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 7
of this Form 10-KSB.
22
<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, 1998
and 1997, 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, 1998 and 1997, 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 20, 1998
23
<PAGE>
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1998 AND 1997
1998 1997
---- ----
ASSETS
CURRENT ASSETS
Cash $ 126,532 $ 58,265
Accounts receivable
(net of allowance
for doubtful accounts
of $37,736 and $0) 918,785 1,001,638
Prepaid expenses and deposits 44,861 44,662
---------- ---------
Total current assets 1,090,178 1,104,565
PROPERTY AND EQUIPMENT 462,725 254,990
Less accumulated depreciation (162,045) (69,041)
---------- ---------
Net property and equipment 300,680 185,949
COSTS IN EXCESS OF NET ASSETS ACQUIRED
(net of accumulated amortization of
$1,878,834 and $129,372) 868,881 1,631,673
OTHER ASSETS 96,839 60,998
---------- ---------
TOTAL ASSETS $ 2,356,578 $ 2,983,185
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 490,726 $ 679,477
Accrued expenses and taxes 438,737 199,644
Notes payable 303,417 295,482
Current portion of
long-term debt 175,521 8,120
Deferred revenue 150,427 414,700
---------- ---------
Total current liabilities 1,558,828 1,597,423
LONG-TERM DEBT, NET OF
CURRENT PORTION 331,502 21,200
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIT)
Cumulative, convertible
preferred stock; $.001 par value;
10,000,000 shares authorized,
137,143 issued and outstanding 137 -
Common stock; $.001 par value;
25,000,000 shares authorized,
6,378,503 and 5,193,660 issued
and outstanding 6,379 5,194
Additional paid in capital 4,284,534 2,052,977
Deficit (3,824,802) (693,609)
---------- ---------
TOTAL stockholders'
equity (deficit) 466,248 1,364,562
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 2,356,578 $ 2,983,185
========== =========
See accompanying summary of accounting policies and notes to
consolidated financial statements
24
<PAGE>
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
1998 1997
---- ----
NET SALES AND REVENUES:
Marketing services
and production $ 2,626,388 $ 3,301,878
Database services 1,092,252 -
Commission income 2,002,114 119,005
Executive placement fees 77,430 180,241
----------- -----------
Total revenues 5,798,184 3,601,124
----------- -----------
COST OF SALES AND REVENUES 4,787,349 2,571,467
----------- -----------
GROSS PROFIT 1,010,835 1,029,657
Selling, general and
administrative expenses 2,023,173 1,384,481
Depreciation and amortization 533,470 197,287
Impairment of goodwill 1,520,948 -
----------- -----------
LOSS FROM OPERATIONS (3,066,756) (552,111)
Interest expense 64,437 50,444
----------- -----------
NET LOSS $(3,131,193) $ (602,555)
CUMULATIVE CONVERTIBLE PREFERRED STOCK
DIVIDEND REQUIREMENTS 27,200 -
----------- -----------
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS $(3,158,393) $ (602,555)
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 5,559,297 4,339,640
=========== ===========
BASIC AND DILUTED
NET LOSS PER SHARE $ (0.57) $ (0.14)
=========== ===========
See accompanying summary of accounting policies and notes to
consolidated financial statements
<PAGE> 25
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE TWO YEARS ENDED AUGUST 31, 1998 AND 1997
Common Stock
Par
Shares Value Shares
------ ----- ------
BALANCES,
AUGUST 31,
1996 1,937,022 $ 1,936 -
Shares issued
for business
acquisitions 902,259 902
Sale of common
stock-net 901,665 902
Shares issued
for assets 5,503 6
Reverse merger
into public
shell 1,447,211 1,448
Discount on
options tied
to
acquisition
Discount on
stock
warrants
tied
to debt
NET LOSS FOR
THE YEAR
-------- ------- --------
BALANCES,
AUGUST 31,
1997 5,193,660 5,194 -
Shares issued
for business
acquisitions 537,501 537 137,143
Warrants
exercised 31,012 31
Options
exercised 20,544 21
Vendor
settlements
for stock 5,770 6
Vendor
settlements
for options
Warrants
issued
to lender
Private
placement
sales, net 590,016 590
NET LOSS FOR
THE YEAR
--------- --------- ---------
BALANCES,
AUGUST 31,
1998 6,378,503 $6,379 137,143
========= ========= =========
Preferred
Stock
Additional
Par Paid-in Accumulated
Value Capital Deficit Total
----- ------- ----------- -----
BALANCES,
AUGUST 31,
1996 $ - $43,664 $(91,054) $(45,454)
Shares issued
for business
acquisitions 1,189,098 1,190,000
Sale of common
stock-net 760,919 761,821
Shares issued
for assets 4,994 5,000
Reverse merger
into public
shell (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 - 2,052,977 (693,609) 1,364,562
Shares issued
for business
acquisitions 137 1,048,048 1,048,722
Warrants
exercised 14,058 14,089
Options
exercised 18,645 18,666
Vendor
settlements
for stock 10,014 10,020
Vendor
settlements
for options 10,735 10,735
Warrants
issued
to lender 2,500 2,500
Private
placement
sales, net 1,127,557 1,128,147
NET LOSS FOR
THE YEAR (3,131,193)(3,131,193)
--------- --------- ---------- ---------
BALANCES,
AUGUST 31,
1998 $137 $4,284,534 $3,824,802 $466,248
========= ========== ========== ========
See accompanying summary of accounting policies and notes to
consolidated financial statements
26
<PAGE>
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
1998 1997
---- ----
Cash flows from
operating activities
Net loss $ (3,131,193) $ (602,555)
Adjustments to reconcile
net loss to
net cash used in operating
activities:
Depreciation 98,288 67,915
Goodwill amortization 228,514 129,372
Impairment of goodwill 1,520,948 -
Non-compete agreement
amortization 206,668 -
Changes in assets and
liabilities net of
assets acquired:
Decrease (increase) in
accounts receivable 356,742 (396,760)
Decrease (increase) in
other current assets 25,284 (17,896)
(Decrease) increase in
accounts payable (210,993) 391,353
Increase (decrease) in
accrued expenses and taxes 154,378 (281,803)
(Decrease) increase in
deferred revenue (264,273) 264,700
-------- --------
Net cash used in
operating activities (1,015,637) (445,674)
Cash flows from investing activities
Additions to property, plant
and equipment, net (124,114) (75,607)
Cash paid for acquisitions (216,548) (43,231)
Additions to other assets (828) (58,618)
-------- --------
Net cash used in
investing activities (341,490) (177,456)
Cash from financing activities
Additions to (reductions in)
bank lines of credit 7,934 (10,018)
Additions to short-term debt - net 51,316 -
Additions to (reductions in)
long-term debt-net 182,123 (100,908)
Decrease in restricted cash - 10,000
Decrease in liability to
private placement
subscribers - (10,000)
Decrease in deferred placement costs - 5,000
Decrease in due from Impulse - 50,000
Decrease in due to officer - (32,000)
Issuance of common stock-net 1,184,021 769,321
--------- --------
Cash provided by financing
activities 1,425,394 681,395
--------- --------
Net increase in cash 68,267 58,265
Cash at beginning of year 58,265 -
--------- --------
Cash at end of year $ 126,532 $ 58,265
========= ========
See accompanying summary of accounting policies and notes to
consolidated financial statements
27
<PAGE>
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
OPERATIONS
Synaptx Worldwide, Inc., (the "Company"), is a holding company
incorporated in the State of Utah. The Company has five wholly
owned subsidiaries, Synaptx Access, Inc. ("Access"), which was
incorporated in Florida, Synaptx Impulse, Inc. ("Impulse"), which
was incorporated in Illinois, ORAYCOM, Inc., ("ORAYCOM"), which
was incorporated in Texas, WG Controls, Inc. ("WG") which was
incorporated in Illinois, and Primus Marketing Associates, Inc.
("Primus") which was incorporated in Minnesota. (See Note 2).
Impulse is an Elgin, Illinois 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. In fiscal 1998, Impulse
began offering database analysis and software services to major
telecommunications clients.
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.
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, 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)
WG is a sales representative firm based in Illinois 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, located primarily
in the midwestern United States. These clients pay a negotiated
28
<PAGE>
commission on all sales associated with the contracted coverage.
Eight months of WG revenues from its January 1, 1998 acquisition
date are included in fiscal year ended August 31, 1998 results.
(See Note 2)
Primus is a sales representative firm based in Minnesota that
provides field sales and business development support for
specified product lines and/or territories for clients under
contract who include cable TV, telecommunications (both voice and
data networking), and electrical utility original equipment
manufacturers, located primarily in the midwestern United
States. These clients pay a negotiated commission on all sales
associated with the contracted coverage. Three months of Primus
revenues from its June 1, 1998 acquisition date are included in
fiscal year ended August 31, 1998 results. (See Note 2)
BASIS OF REPORTING
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 years
ending August 31, 1996, 1997 and 1998 the Company realized net
losses of $72,541, $602,555 and $3,131,193, respectively. At
August 31, 1998, the Company has a working capital deficit of
$468,650.
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 an additional private placement
equity infusion and 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 raise additional private placement
investment. Failure to secure such financing or to raise
additional private placement investment 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
29
<PAGE>
foreclose on the assets of the Company, which will be prior to
the interests of the holders of Common Stock.
During fiscal year 1998, the Company changed its strategy from
one of acquiring and growing mainly distribution companies to one
of acquiring customer management driven companies that enable
network and network equipment providers to identify, acquire, and
maintain customers. This shift is a result of what Management
feels is greater opportunity and a greater chance of achieving
profitable operations on a long-term basis.
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. Upon consolidation,
significant intercompany accounts, transactions and profits are
eliminated.
REVENUE RECOGNITION
Professional fees, database service revenues, production
billings, commission income and executive placement fees
represent the principal sources of revenue of the Company.
Professional fee and database service 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
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<PAGE>
Cost in excess of net assets acquired ("goodwill") resulting from
the acquisitions of Impulse, ORAYCOM, WG, and Primus is being
amortized on the straight line method over 10 years.
It is the Company's policy to periodically evaluate the carrying
value of its operating assets, including goodwill, and to
recognize impairments when the estimated future net operating
cash flows to be generated from the use of the assets are less
than their carrying value. The Company measures impairment using
a number of factors, which include the future business outlook,
turnover of key personnel and estimated future discounted cash
flows. In fiscal 1998, goodwill related to the purchases of
ORAYCOM and Impulse was fully written off as these assets were
deemed to have been permanently impaired. See Notes 14 and 15
for further discussion.
INCOME TAXES
Synaptx Worldwide, Inc. is a "C" corporation. As of June 3,
1996, Access became a "C" corporation. Impulse, ORAYCOM, WG and
Primus 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. (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 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
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<PAGE>
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
In fiscal 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share.
Statement No. 128 replaces the previously reported primary and
fully-diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options and convertible
securities. Diluted earnings per share is computed similarly to
fully diluted earnings per share. All earnings per share amounts
for all periods presented have been restated to conform to the
requirements of Statement No. 128.
Basic and diluted net loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding,
after giving effect to the stock dividend described below.
Outstanding Common Stock options, warrants and shares of common
stock issuable upon the conversion of preferred stock have been
excluded from the computation as their effect would be
anti-dilutive.
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
32
<PAGE>
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.
NOTE 2. BUSINESS COMBINATIONS
IMPULSE
On October 1, 1996, the Company acquired all of the existing
outstanding Common Stock of Impulse in exchange for 759,401
shares of its Common Stock, valued at $690,000. 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.
See Note 14 for discussion of the Company's decision to write off
the remaining goodwill related to the purchase of Impulse,
totaling $1,092,894, as it was deemed to have been permanently
impaired in compliance with Statement of Financial Accounting
Standards No. 121.
ORAYCOM
On June 1, 1997, the Company exchanged 142,858 shares of its
Common Stock for all of the existing outstanding Common Stock of
ORAYCOM, valued at $500,000. 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
33
<PAGE>
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.
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. In fiscal 1998, 37,500 shares were
issued as additional consideration to the ORAYCOM purchase. This
additional consideration was added to goodwill and subsequently
fully written off. See Notes 14 and 15.
See Note 15 for discussion of the Company's subsequent decision
to sell the ORAYCOM subsidiary. This subsidiary was not
considered a material portion of the Company's consolidated
business.
WG CONTROLS, INC.
On January 1 1998, the Company acquired WG Controls, Inc., a
sales representative firm based in Arlington Heights, Illinois.
WG was acquired for 285,715 shares of the Company's $ .001 par
value Common Stock, 137,143 shares of the Company's $ .001,
Series A, cumulative convertible preferred stock and $270,000 in
cash payable as follows: $125,000 on the first anniversary date
of the Agreement, $125,000 on the second anniversary date of the
Agreement, and $20,000 on the third anniversary date of the
Agreement, for a total purchase price of $896,628. Additionally,
on closing, the Agreement called for the payment of $250,000 to
key employees related to noncompetition agreements.
The Series A Preferred Stock paid at closing provides for annual
dividends of $0.2975 per share or $40,800 per year. If the
Company's profits are insufficient to pay such dividends, they
will be cumulative and accrued for payment when Company profits
are adequate to fund payment. The conversion provision on the
preferred stock calls for the 137,143 preferred shares to be
converted into .67361 shares of the Company's Common Stock or
92,381 shares of Common Stock when the Company's Common Stock
achieves an average closing price of $5.25 per share for a
consecutive 60 day trading period.
WG employs eleven people and previously operated out of leased
34
<PAGE>
office space in both Arlington Heights, Illinois and Milwaukee,
Wisconsin. In August, 1998, WG moved its Illinois operations to
the Company's headquarters in Elgin, IL. In addition to Elgin,
WG has employees based in Milwuakee, Wisconsin to better serve
customers throughout that region. Revenues represent the earning
of commissions on its customers' sales. These commissions range
primarily from 3.5% up to 10%, depending on the sophistication of
the customers' products and services represented. WG will operate
as a subsidiary of Access. WG currently represents RELTEC, Rohm,
and Johanson in addition to approximately 13 other clients.
PRIMUS MARKETING ASSOCIATES, INC.
On June 1, 1998, the Company acquired Primus Marketing
Associates, Inc., a sales representative firm based in
Minnetonka, Minnesota for 214,286 shares of the Company's $.001
par value Common Stock, valued at $321,429. Primus is a sales
representative firm 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 north central section of the United States.
Primus' operations consist of sales representatives who sell to
the private network, public telephone network, cable operating
companies and alternate access provider communication markets.
Primus currently represents RELTEC, Alcoa Fujikara, Amp and
Raytheon in addition to approximately 20 other clients.
Primus employs nine people and operates out of leased office
space. Primus's employees are based in strategic territories to
meet their customers' needs, serving Minnesota, North Dakota,
South Dakota, Iowa, Nebraska, Montana, Wyoming and Northern
Wisconsin. Revenues represent the earning of commissions on its
customers' sales. These commissions range from 3.5% up to 8%,
depending on the sophistication of the customers' products and
services represented.
If the acquisitions of Impulse, ORAYCOM, WG, and Primus had
occurred on September 1, 1996, 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)
1998 1997
---- ----
Revenues $ 6,915,462 $ 6,540,711
Net loss (3,259,869) (839,847)
Preferred dividends 40,800 40,800
Net loss applicable
to common
shareholders ($3,300,669) ($880,647)
Net loss per common $ (0.57) $ (0.18)
share
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<PAGE>
NOTE 3. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the
following:
1998 1997
---- ----
Leasehold improvements $ 58,598 $ 7,708
Furniture and fixtures 187,126 73,650
Computer equipment 176,819 173,632
Automobiles 40,183 -
--------- ---------
462,726 254,990
Less accumulated depreciation 162,046 69,041
--------- ---------
Net property and equipment $ 300,680 $ 185,949
========== =========
NOTE 4. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Payment
Description % Rate Terms 1998 1997
----------- ------ ------- ---- ----
Line of 10.79 Due on $250,000 $250,000
Credit demand or
Dec 15,
1998, see
(a) below
WG Imputed @ Various, see 249,021 -0-
Acquisition 8.75% Note 2
Debt
Shareholder Various See Note 11 210,100 -0-
& Employee
Loans
Term note 10.79 Due October 26,107 26,107
30, 1998,
see (a)
below
Line of 13.25 Due on 18,218 19,375
Credit demand, see
(b) below
Line of 17.90 Due on 9,092 -0-
Credit demand, see
(b) below
Term notes & Various Various 47,902 29,320
Capital --------- ---------
leases
Total 810,440 324,802
Less current maturities 478,938 303,602
--------- ---------
Long-term portion $ 331,502 $ 21,200
========= =========
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 December 15, 1998, are collateralized by
substantially all of Impulse's assets and bear interest at the
bank's internal rate (10.79% and 10.99% at August 31, 1998 and
36
<PAGE>
1997, respectively). The total line balance is limited to no
more than 65% of accounts receivable less than 90 days old, with
a maximum draw of $250,000. The line is secured by commercial
guaranties of two of the shareholders and Synaptx. The Company
expects to refinance this debt prior to its December 15, 1998 due
date.
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 10.79% and 10.99% at
August 31, 1998 and 1997, respectively. The loan was paid in full
subsequent to year end.
The Company has guaranteed the personal and commercial debt of a
certain Director and shareholder (who are husband and wife) of
the Company with this bank totaling $109,558 and $438,426 at
August 31, 1998 and 1997, respectively.
b) The notes payable also consist of unsecured borrowings under
revolving lines-of-credit with a bank which were assumed when
ORAYCOM and Primus were acquired. Borrowings under the
lines-of-credit, which are payable on demand, bear interest at
the bank's internal rate (approximately 13.25% and 17.90%,
respectively, at August 31, 1998 and 13.25% at August 31, 1997).
The maximum available amounts on these lines-of-credit are
$20,000 and $37,400, respectively.
NOTE 5. INCOME TAXES
The following table sets forth the deferred tax assets and
liabilities resulting from temporary differences between the
financial reporting and tax bases of assets and liabilities:
1998 1997
---- ----
Net operating loss $ 770,000 $ 220,000
carryforwards
Valuation allowance (770,000) (220,000)
for deferred tax --------- ---------
asset
Net deferred tax $ - $ -
asset ========= =========
As of August 31, 1998, the Company has a net operating loss
carryforward of approximately $1,900,000 which may be used to
reduce taxable income and income taxes in future years. The
primary difference between tax and book reporting is
non-deductible goodwill amortization. The carryforwards expire at
various dates through 2013.
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<PAGE>
NOTE 6. EMPLOYEE BENEFIT PLANS
The Company sponsors a qualified employee savings plan for all
eligible employees, commonly referred to as a 401-K plan.
Participants may make contributions from their gross pay (limited
to 15% of the employee's compensation, as defined), with Synaptx
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
$18,000 and $6,000 for the years ended August 31, 1998 and 1997,
respectively.
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 $30,523. The leases require monthly
installments of $916, which includes interest ranging from 14.0%
to 21.08%. 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 capital leases together with their
present value as of August 31, 1998:
Year ending August 31, Amount
--------------------- ------
1999 10,985
2000 9,592
2001 5,411
2002 4,058
-------
Total minimum lease payments $30,046
Less amount representing interest (8,373)
-------
Present value of minimum
lease payments $21,673
=======
The Company also leases both office space and equipment under
operating leases which expire at various dates. As of August 31,
1998, the Company's future minimum lease payments under operating
leases are as follows:
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<PAGE>
Year ending August 31, Amount
------
1999 $ 303,157
2000 250,995
2001 196,083
2002 171,314
2003 153,448
2004 and beyond 207,231
-------
Total minimum rent commitments $ 1,282,228
============
Total rental expense for the Company's facilities and equipment
was approximately $323,800 and $211,800 for the years ended
August 31, 1998 and 1997, 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.
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 2, 1997, the Company sold 15,000 shares to an employee
of the Company for $2.00 per share, realizing total proceeds of
$30,000. This sale was outside of any of the formal private
placements with the price being determined as the market price of
the shares as of that point in time.
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. This offering resulted in proceeds of $119,900 for which
43,000 shares of Common Stock were issued. On May 14, 1998, in
conjunction with the offering of Common Stock at $1.75, as
described below, the Board of Directors approved an option
whereby these investors could convert their investment as if they
had subscribed for Common Stock at $1.75 per share, including
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<PAGE>
conversion of their warrants. All the investors elected to do
so, and as a result, the Company issued 25,516 more shares of
Common Stock, bringing the total Common Stock under this offering
to 68,516 shares.
On May 14, 1998 the Board of Directors approved a third private
placement of up to $1,050,000 in shares of the Company's common
stock at $1.75 per share. This offering resulted in proceeds of
$230,125 for which 131,500 shares of Common Stock were issued.
On June 18, 1998 the Board of Directors authorized a fourth
private placement of up to $2,275,000 originally priced at $1.75,
subsequently repriced at $2.00, in units (minimum
subscription 50,000 units) consisting of one share of the
Company's Common Stock and a callable stock warrant to purchase
the Company's Common Stock at $3.00 per share but callable at
$0.25 per share if the closing trading price of the Company's
Common Stock closes at or above $4.50 per share for ten
consecutive trading days. The period of this offering extended
through September 20, 1998 and was subsequently extended by the
Board of Directors until December 1, 1998 with the President of
the Company authorized to extend this offer for 30 more days or
to December 31, 1998. This offering resulted in proceeds of
$750,000, for which 375,000 shares of Common Stock were issued,
through August 31, 1998, and an additional $290,000 and 219,581
shares subsequent to year end.
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, defined as the average bid and ask price over
the prior five days' trading in which at least 1,000 shares have
traded, of the Company's stock at the date of grant (or 110% of
such fair market value in the case of substantial stockholders).
Options generally vest over two years, with one-third being
vested immediately, one-third vesting on the one year anniversary
of the issuance, and the final one-third vesting on the two year
anniversary date of the issuance. The maximum life of the
options is five years in the case of qualified incentive stock
options and ten years in the case of non-qualified incentive
stock options.
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<PAGE>
A total of 1,450,000 shares of the Company's Common Stock have
been reserved pursuant to the Plan: 893,749 shares issued inside
the Plan and 784,039 shares issued outside the Plan. As of
August 31, 1998, 571,021 are exercisable. Subsequent to year end,
the Board of Directors is considering a resolution, to be voted on
by shareholders, to increase the number of shares available under
the Plan. Transactions during the fiscal years ended August 31, 1997
and 1998 are summarized as follows:
Weighted Weighted
Average Average
Number of Price per Price per Remaining
Shares Share Share Life -Years
-------- --------- --------- -----------
Outstanding as of - $ - $ - -
August 31, 1996
Granted 343,192 $ .09- $ 0.93 2.07
$ 2.18
Exercised - -
Cancelled (15,137) $ .91 $ 0.91
-----------
Outstanding as of 328,055 $ .09- $ 0.93 2.07
August 31, 1997 $ 2.18
Granted 1,469,500 $2.35- $ 2.80 3.91
$ 3.70
Exercised (20,544) $ .91 $ 0.91
Cancelled (99,223) $ .91- $ 2.32
----------- $3.36
Outstanding as of 1,677,788 $.09- $ 2.49 3.65
August 31, 1998 ========= $3.70
Exercisable as of 168,038 $ 0.75 2.33
August 31, 1997 ===========
Exercisable as of 571,021 $ 2.16 3.19
August 31, 1998 =======
In July and October 1996, the Company granted nonqualified
options (included above), outside the Plan, to purchase 33,018
and 55,030 shares of Common Stock, respectively. The option prices
were $.91 and $.09, respectively. An option to purchase 16,509
shares at $.91 has been exercised, with all the remaining options
still outstanding and are exercisable.
In May, 1998, the Company granted nonqualified options (included
above) to purchase 675,000 and 37,500 shares of Common Stock,
outside the Plan. The option prices were $2.55 and $2.81,
respectively. All these options remain outstanding and are
exercisable.
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<PAGE>
On October 28, 1998, the Company issued stock options to certain
employees allowing for the purchase of 142,250 shares of the
Company's Common Stock under the Plan expiring October 28, 2003
at an exercise price of $1.85 per share. Of the authorized
shares available under the Plan, 468,273 remain available for
issuance.
The Company applies APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations, in accounting
for options granted to employees. Under APB Opinion No. 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 directors during the year and the
weighted-average significant assumptions used to determine those
fair values, using a modified Black-Scholes 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:
1998 1997
---- ----
Grant-date fair value per $ 1.05 $ 3.76
share
Significant assumptions
(weighted-average):
Risk-free interest rate at 5.61% 6.00%
grant date
Expected stock price 40.00% 42.03%
volatility
Expected dividend payout - -
Expected option 4.20 3.00
life-years(a)
Net loss:
As reported $(3,131,193) $(602,555)
Pro forma $(4,613,333) $(960,000)
Net loss per share:
As reported $ (0.57) $(0.14)
Pro forma $ (0.83) $(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.
In addition to the options described above, the Company has
issued warrants in conjunction with private placements, private
placement support, and acquisitions, a summary of which is below:
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Weighted Weighted
Average Average
Number of Price per Price per Remaining
Shares Share Share Life -Years
-------- --------- --------- -----------
Outstanding as - $ - $ - -
of August 31,
1996
Granted 200,006 $0.45-1.36 $ .84 2.44
Exercised - -
Cancelled - - -
------------
Outstanding as 200,006 $0.45-1.36 $ .84 2.44
of August 31,
1997
Granted 925,000 $1.75-4.00 $2.93
Exercised (31,012) $0.45-0.91 $ .45
Cancelled - - -
------------
Outstanding as 1,093,994 $0.45-4.00 $2.62 4.22
of August 31, ============
1998
Exercisable as 200,006 $0.84 2.44
of August 31, ============
1997
Exercisable as 1,093,994 $2.62 4.22
of August 31, ============
1998
NOTE 10. EMPLOYMENT AGREEMENTS
The Company has employment agreements with eight employees,
including one with all three of its officers which expire at
various dates through August 31, 2002. The aggregate commitment
for future salaries, excluding bonuses, under these employment
agreements is approximately $1,480,500. The following amounts
apply to each of the fiscal years ending August 31, as follow:
1999-$715,500, 2000-$407,000, 2001-$223,000, and 2002-$135,000.
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 ranging from six months and up to
three years in case of early termination without cause.
NOTE 11. RELATED PARTY TRANSACTIONS
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 consulting services to the Company. He was
paid or an accrual was made for services provided and expenses
incurred, as follows:
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Total incurred for: August 31, 1998 August 31, 1997
--------------- ---------------
Consulting and commission $ 81,700 $ 111,400
Expense reimbursement $ 42,900 $ 46,500
Accrued expenses:
Consulting and commission 4,250 34,800
expenses
Expense reimbursements -0- 12,800
During the fiscal year ended August 31, 1998, various related
parties have advanced the Company funds to meet cash flow needs.
These advances ranged in term from one month to two years and
bear interest rates ranging from 10% - 12%. Total funds advanced
totaled $265,100, of which $210,000 was outstanding as of August
31, 1998. Subsequent to year end, an additional $70,100 was paid
off, leaving a balance due of $140,000 as of the report date.
A company controlled by an officer and director served as the
primary contractor for the leasehold improvements on the new
office space located in Elgin, Illinois. Materials and labor for
services totaled approximately $31,000 of which $4,320 has been
paid by issuance of 2,470 shares of the Company's Common Stock.
The remainder will be paid as cash flow allows.
The Company through its acquisition of Impulse is also acting as
guarantor of a personal note to a bank the same officer and
director and his wife, a shareholder. This note which bears
interest at 10.99% and is due on October 17, 2001 had a balance
of $109,600 as of August 31, 1998.
NOTE 12. SIGNIFICANT CUSTOMERS
One multi - divisional customer in the telecommunications
industry accounted for approximately 28% of sales in the year
ended August 31, 1998, although no individual division accounted
for more than 15% of the Company's total sales. Receivables from
this customer represented approximately 4% of total receivables
at August 31, 1998. Two multi-divisional customers from the
telecommunications industry represented 21% and 34% of sales in
the year ended August 31, 1997, while a third represented 21%.
Receivables from these three customers represented approximately
14%, 65%, and 2% of total receivables at August 31, 1997,
respectively.
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NOTE 13. SUPPLEMENTAL CASH FLOW DISCLOSURES
During the year ended August 31, 1997, the Company issued 5,503
shares of its Common Stock in exchange for fixed assets with a
value of $5,000.
Cash paid during the year for interest was approximately $42,300
and $39,200 for the years ended August 31, 1998 and 1997,
respectively.
During fiscal year 1998, the Company purchased all of the capital
stock of WG Controls, Inc., and Primus Marketing Associates, Inc.
for $896,628 and $321,429, respectively. Additionally, 37,500
shares of Common Stock were issued as a result of additional
earn-out related to a previous purchase. During fiscal year
1997, the Company purchased all of the capital stock of Impulse
and ORAYCOM, Inc. for $690,000 and $500,000, respectively. In
conjunction with the acquisition, liabilities assumed were as
follows:
1998 1997
---- ----
Fair value of assets acquired $ 1,550,866 $ 2,453,834
Cash paid for acquisitions (216,548) (43,231)
Notes payable issued (234,960) -
Value of Stock issued (983,097) (1,190,000)
----------- -----------
Liabilities assumed $ 116,261 $ 1,220,603
=========== ===========
NOTE 14. COSTS IN EXCESS OF ASSETS ACQUIRED
Due to the increasing uncertainty of realization of the goodwill
on the Company's books related to the acquisition of Impulse, the
Company, deeming the value of the asset permanently impaired in
accordance with Statement of Financial Accounting Standard No.
121, "Accounting for the Impairment of Long-Lived Assets", has
taken a non-recurring charge of $1,092,894 to write off the
remaining balance of goodwill related to Impulse. This decision
has been made due to recurring losses from operations resulting
in the refocusing on the direction of the Impulse unit,
significantly different than the focus at the time of acquisition
and significant turnover of key employees.
Additionally, the Company wrote off the goodwill related to
ORAYCOM, amounting to $428,054, as it also was deemed to have
been permanently impaired due to the recurring losses
sustained by ORAYCOM and the subsequent loss of a major customer
representing nearly 40% of ORAYCOM revenues. See Note 15 below
for further discussion of subsequent events related to ORAYCOM.
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NOTE 15. SUBSEQUENT EVENTS
On November 2, 1998, the Company, as a result of repeated and
recurring losses, made the decision to terminate its operations
under the Advantage Technologies name in San Jose, CA. The
Company is not expected to incur material costs related to this
closure.
On November 11, 1998, the Company signed a Letter Agreement to
sell all of the capital stock in ORAYCOM, Inc. to O. Ray
Strickland and O. Ray Strickland IRA, (collectively, the
"Strickland Group"). Mr. Strickland is an employee of the Company
and the General Manager of ORAYCOM, Inc. He was the sole
shareholder of ORAYCOM, Inc. when the Company acquired it from
him in June, 1997. The agreement calls for Strickland Group to
convey to the Company, 80,000 shares of Synaptx stock in exchange
for all of the issued and outstanding shares of ORAYCOM, Inc. and
waiver of the non-compete agreement in place with O. Ray
Strickland. As a result, the Company has taken a charge in
fiscal 1998 of $428,054 to write off the remaining balance of
the goodwill related to the purchase of ORAYCOM. ORAYCOM is not
considered a material subsidiary to the Company's consolidated
business.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with the Company's
accountants on accounting or financial disclosure during the past
two fiscal years.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Executive Officers and Directors
As of August 31, 1998, the executive officers and directors of
the Company were as follows:
NAME AGE POSITION
---- --- --------
Ronald L. Weindruch . . . . 51 President, C.E.O. and
Chairman
William N. Kashul, Sr. . . 65 Director
D. Mike Maxwell . . . . . . 58 Executive Vice President
and Director
Peter B. Atwal . . . . . . 42 Director
James L. McGovern . . . . . 56 Director
William P. O'Reilly . . . . 52 Director
Richard E. Hanik . . . . . 51 Secretary, Treasurer & CFO
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 in cash 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. Certain directors have
been compensated with options in recognition of their service on
the Board, as described further below. Officers are appointed
annually by the Board of Directors and each executive officer
serves at the discretion of the Board of Directors. The Board of
Directors has two standing committees: an audit committee and a
compensation committee.
None of the officers and/or directors of the Company are officers
or directors of any other publicly traded corporation, except for
William P. O'Reilly who is Chairman of the Board, Director and
CEO of Eltrax Systems, Inc. and a Director of Charter
Communications, Inc. and World Access, Inc., 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.
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<PAGE>
The business experience of each of the persons listed above
during the past five years is as follows:
RONALD L. WEINDRUCH has been the President, Chairman and Chief
Executive Officer of Synaptx as well as the founder of Access, in
1994. Mr. Weindruch was the Chairman of the Sanford Airport
Authority in Sanford, Florida from 1993 to 1996. Prior thereto,
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 and served as its President until it 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.
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<PAGE>
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. Currently Mr. Atwal is the Chief
Technology Officer for ISR Global Telecom, a network management
provider. He has been at ISR since 1991. 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, from 1985 - 1991, and as a
consultant for Logica, Inc., from 1977 to 1985. Mr. Atwal holds a
BSC degree in computer science from London University.
JAMES L. MCGOVERN recently retired from Norstan where he was
Executive Vice President and General Manager for the
Communications Systems Division. Norstan is a $300-million
communications systems integrator of voice, data, video, and
image communications products and services focused on business
solutions. McGovern also held a number of key sales management
and General Manager positions at Xerox Corporation. McGovern is a
marketing-oriented, enthusiastic leader with an uncanny ability
to inspire all levels of an organization. His values-based
management philosophy, vision, and leadership qualities have been
key to a successful career in a rapidly changing industry.
McGovern's understanding of the emerging technologies, the
underpinnings of business processes, and the intelligent
application of technology to those processes have earned him an
excellent reputation among Norstan's customers, suppliers, and
business partners. Mr. McGovern holds a B.S. degree from
Northeastern University.
WILLIAM O'REILLY, is Chief Executive Officer of Eltrax Systems,
Inc., and the Chairman of its Board of Directors since August
1995. For the past 15 years, O'Reilly has been a private investor
and entrepreneur. In 1989, O'Reilly formed a group of investors
to acquire Military Communications Center, Inc. ("MCC"), where he
served as Chairman of the Board and Chief Executive Officer from
1989 to 1994 when MCC was sold to Worldcom. In 1986, O'Reilly
founded Digital Signal, Inc., a provider of fiber optic capacity
to long distance carriers in the telecommunications industry.
O'Reilly also founded Lexitel Corporation, a long distance
carrier (which was subsequently acquired by ALC Communications,
Inc.), where he served as Chairman of the Board and Chief
Executive Officer from 1980 to 1984. O'Reilly is currently a
director of Charter Communications, Inc., a builder and operator
of international communication networks, and World Access, Inc.,
an international provider of sophisticated telecommunications
equipment.
49
<PAGE>
RICHARD E. HANIK is Chief Financial Officer, Secretary and
Treasurer of Synaptx. In 1994, he joined Impulse which was
acquired by Synaptx on October 1, 1996, at which time he was
appointed Chief Financial Officer. 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. Effective November 30, 1998, Mr. Hanik left the
Company to pursue other interests.
Compliance with Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
The following table lists the Directors, officers and beneficial
owners of more than 10% of the outstanding Common Stock (each a
"Reporting Person") that failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act during the most
recent fiscal year, the number of late reports, the number of
transactions that were not reported on a timely basis and any known
failure to file a required form by each Reporting Person.
Transactions Known Failures
Reporting Late Untimely to File
Person Reports Reported Required Form
--------- ------- ----------- --------------
James L. McGovern 1 -0- 1
William O'Reilly 2 1 2
William Kashul 2 1 2
Ronald Weindruch 1 -0- -0-
D. Mike Maxwell 2 1 1
All late and missing reports noted above will be filed shortly after
the date of this form 10-KSB.
The Company has taken steps to ensure that all Reporting Persons
are aware of applicable filing requirements, and expects full
compliance with respect to future reportable transactions.
ITEM 10. EXECUTIVE COMPENSATION
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, 1996, 1997 and 1998 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.
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<PAGE>
Summary Compensation Table
ALL
OTHER STOCK
NAME AND PRINCIPAL COMPENSA OPTIONS
POSITION YEAR SALARY BONUS TION ISSUED
---- ------ ----- -------- -------
Ronald L. Weindruch, 1996 $ 18,000 $ -0- $110,500 -
President, C.E.O. 1997 $108,000 $ -0- $126,000 11,006
1998 $122,292 $3,000 $ 81,700 67,500
D. Mike Maxwell, 1996 $ -0- $ -0- $ -0- -
Executive Vice 1997 $130,500 $ -0- $ -0- 11,006
President 1998 $139,242 $3,000 $ -0- 62,500
(All other compensation includes consulting and commission
income)
In addition to cash compensation, the two individuals named above
participate in the Company's stock option plan. The following
table details options granted in fiscal year 1998:
# OF % OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED IN EXER. EXP.
NAME OPTIONS FY 98 PRICE DATE
----------------------- --------- ----------- ---- ------
Ronald L. Weindruch 30,000 2.0% $3.70 11/1/02
Ronald L. Weindruch 37,500 2.6% 2.81 5/18/02
D. Mike Maxwell 25,000 1.7% 3.36 11/1/02
D. Mike Maxwell 37,500 2.6% 2.55 5/18/02
No stock options held by these two individuals were exercised in
the current fiscal year whether the options were issued in the
current year or in years prior.
Employee Stock Option Plan
The Company's 1996 Stock Option Plan, as amended (the "Plan"),
was adopted in 1996 and amended in October 1997 to increase the
number of issuable shares under the Plan and to clarify the basis
for determining fair market value of shares in conjunction with
setting the exercise price of options at issuance. The purpose of
the Plan is to encourage stock ownership by management and
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, defined as the average bid and ask price
over the prior five days' trading in which at least 1,000 shares
51
<PAGE>
have traded. 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 19, 1998 there were 1,035,999 options issued and
outstanding under the Plan of which 546,899 options are
exercisable at an option price per share ranging from $0.09086 to
$3.36 per share and with expiration dates from November, 1999
through October, 2003.
In addition to options granted 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 granted 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. In May,
1998 nonqualified options to purchase 712,500 shares of the
Company's Common Stock at option prices ranging from $2.55 -
$2.81 share were issued to the members of the Board of Directors
for their services, with outside Directors being issued 150,000
shares each and inside Directors being issued 37,500 shares each.
As of November 19, 1998, there were 784,039 of the nonqualified
options outstanding, all of which are exercisable.
Profit Sharing Plan
The Company 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 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.
Employment Agreements
The Company has employment agreements with eight employees,
including all three of its officers which expire at various dates
through August 31, 2002. The aggregate commitment for future
salaries, excluding bonuses, under these employment agreements is
approximately $1,480,500. The following amounts apply to each of
the fiscal years ending August 31, as follow: 1999-$715,500,
2000-$407,000, 2001-$223,000, and 2002-$135,000. These agreements
are 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 ranging from six months and up to three years in case
of early termination without cause.
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ITEM 11. 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 19, 1998, 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.
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
Ronald L. Weindruch * 1,730,387(3) 26.41%
615 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
D. Mike Maxwell * 566,787(4) 8.54%
615 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
William N. Kashul, Sr. * 239,794(5) 3.58%
615 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
Peter B. Atwal * 176,509(6) 2.65%
615 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
James L. McGovern * 177,049(7) 2.67%
615 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
William P. O'Reilly * 250,000(8) 3.74%
615 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
All directors and executive officers as 3,140,526(9) 42.13%
a group (6 persons in group)
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Webbmont Holdings 436,567(10) 6.51%
615 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
* 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 and investment 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 $0.09 to $3.70 per share which
are exercisable within sixty days.
(2) Based upon 6,483,284 shares of Common Stock outstanding on
November 19, 1998. Percentage ownership is calculated separately
for each person on the basis of the actual number of outstanding
shares as of November 19, 1998 and assumes the exercise of
certain stock options and warrants 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 68,506 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 $2.80 per share.
(4) Includes 345,062 shares held by Mr. Maxwell's wife and
68,506 shares held by Mr. Maxwell's children and their spouses,
as to which Mr. Maxwell disclaims any beneficial ownership. Also
includes 65,172 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 $2.39 per
share, 5,503 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 $0.91 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 $0.91 per share.
(5) Includes 223,285 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 $1.93 per
share.
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<PAGE>
(6) Includes 176,509 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 $2.45 per
share.
(7) Includes 6,604 shares held in the names of Mr. McGovern's
children. Also includes 150,000 shares which may be acquired by
Mr. McGovern pursuant to the exercise of stock purchase options
exercisable within sixty days at the average exercise price of
$2.55 per share.
(8) Includes 150,000 shares which may be acquired by Mr.
O'Reilly pursuant to the exercise of stock purchase options
exercisable within sixty days at the average exercise price of
$2.55 per share, and 50,000 shares which may be acquired by Mr.
O'Reilly pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise price of
$3.00 per share.
(9) Includes 838,975 shares which are issuable upon the
exercise of certain stock options held by the Company's directors
and executive officers at exercise prices ranging from $0.09 to
$3.70 per share, representing an average exercise price of $2.38
per share, and 132,544 shares which are issuable upon the
exercise of certain stock warrants held by the Company's
directors and executive officers exercisable within sixty days at
the average exercise price of $1.70 per share which are
exercisable within sixty days.
(10) Includes 221,429 shares which may be acquired by Webbmont
Holdings pursuant to the exercise of stock purchase warrants
exercisable within sixty days at the average exercise price of
$3.00 per share.
Richard E. Hanik, formerly the Secretary and Chief Financial Officer
of the Company is not included above as he is no longer an officer
of the Company as of the date of this filing, although he was as of
the fiscal year end.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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,
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<PAGE>
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 consulting services to the Company. He was
paid or an accrual was made for services provided and expenses
incurred, as follows:
56
<PAGE>
Total incurred for: August 31, 1998 August 31, 1997
--------------- ---------------
Consulting and commission $ 81,700 $ 111,400
Expense reimbursement $ 42,900 $ 46,500
Accrued expenses:
Consulting and commission 4,250 34,800
expenses
Expense reimbursements -0- 12,800
During the fiscal year ended August 31, 1998, various related
parties have advanced the company funds to meet cash flow needs.
These advances ranged interm from one month to two years and bear
interest rates ranging from 10% - 12%. Total funds advanced
totaled $265,100, of which $210,000 was outstanding as of August
31, 1998. Subsequent to year end, an additional $70,100 was paid
off, leaving a balance due of $140,000.
A company controlled by an officer and director of the Company
served as the primary contractor for the leasehold improvements
on the Company's office space located in Elgin, Illinois.
Materials and labor for services totaled approximately $31,000 of
which $4,320 has been paid by issuance of 2,470 shares of the
Company's Common Stock. The remainder will be paid as cash flow
allows.
The Company through its acquisition of Impulse is also acting as
guarantor of a personal note to a bank given by the same officer
and director and his wife, a shareholder. This note which bears
interest at 10.99% and is due on October 17, 2001 had a balance
of $109,600 as of August 31, 1998.
57
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-KSB
(A) EXHIBITS
Exhibit No. Exhibit Name
----------- ------------
2.1 Merger Agreement and Plan of Reorganization previously
filed as Exhibit 2.1 to Form 10-SB/A dated December 31,
1997
3.1 Articles of Incorporation and all amendments
thereto previously filed as Exhibit 3.1(i) to Form
10-SB/A dated December 31, 1997
3.2 By-Laws of Registrant previously filed as Exhibit
3.2(ii) to Form 10-SB/A dated December 31, 1997
4.1 Specimen of Common Stock Certificate previously filed
as Exhibit 4.1 to Form 10-SB/A dated December 31, 1997
4.2 Certificate of Series A Cumulative Convertible
Preferred Stock Certificate
10.1 Lease Agreement on registrant's previous principal
place of business previously filed as Exhibit 10.1 to
Form 10-SB/A dated December 31, 1997
10.2 Purchase Agreement of Synaptx Access, Inc. f.k.a. North
American Telco / Cable Representatives, Inc. previously
filed as Exhibit 10.2 to Form 10-SB/A dated December
31, 1997
10.3 Purchase Agreement for Synaptx Impulse, Inc., f.k.a.
Maxwell Partners, Inc. previously filed as Exhibit 10.3
to Form 10-SB/A dated December 31, 1997
10.4 Purchase Agreement for ORAYCOM, Inc. previously filed
as Exhibit 10.4 to Form 10-SB/A dated December 31, 1997
10.5 Employment Agreement for Ronald L. Weindruch previously
filed as Exhibit 10.5 to Form 10-SB/A dated December
31, 1997
10.6 Employment Agreement for D. Mike Maxwell previously
filed as Exhibit 10.6 to Form 10-SB/A dated December
31, 1997
58
<PAGE>
10.7 New Lease Agreement on Principal Place of Business
10.8 Agreement and Plan of Merger for WG Controls, Inc.
between Synaptx Worldwide, Inc. and the WG Controls,
Inc. shareholders as follows: James M. Gleason, Shirley
Gleason, Michael Concialdi, and James Gammon previously
filed as Exhibit 10.1 to Form 8-K dated March 23, 1998
10.9 Employment Agreement, dated January 1, 1998, between WG
Controls, Inc. and James M. Gleason previously filed as
Exhibit 10.2 to Form 8-K dated March 23, 1998
10.10 Agreement and Plan of Stock for Stock Exchange,
dated June 1, 1998 between Synaptx Worldwide,
Inc. (the "Company") and John Primus and Jannine Primus
previously filed as Exhibit 10.1 to Form 8-K dated
August 14, 1998
10.11 Employment Agreement, dated June 1, 1998, between
Primus Marketing Associates, Inc. and John E. Primus
previously filed as Exhibit 10.2 to Form 8-K dated
August 14, 1998
10.12 Non-compete Agreement, dated June 1, 1998, between
the Company and John E. Primus previously filed
as Exhibit 10.3 to Form 8-K dated August 14, 1998
10.13 Non-compete Agreement, dated June 1, 1998, between
the Company and Jannine E. Primus previously filed
as Exhibit 10.4 to Form 8-K dated August 14, 1998
10.14 Letter Agreement to Sell 100% of ORAYCOM stock
to O. Ray Strickland and O. Ray Strickland IRA
("Strickland Group")
21.1 Subsidiaries
27. Financial data schedule.
59
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly organized.
SYNAPTX WORLDWIDE,INC.
(Registrant)
By: /S/ RONALD L. WEINDRUCH
-----------------------------
Date: December 10, 1998 RONALD L. WEINDRUCH
CEO, President, Chairman,
& Principal Financial Officer
In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates
indicated.
Name Position Date
---- -------- ----
CEO, President,
Chairman, &
Principal Financial
/s/ Ronald L. Weindruch Officer December 10, 1998
----------------------- ------------------- -------------------
Ronald L. Weindruch
/s/ William N. Kashul Director December 10, 1998
----------------------- --------------- -------------------
William N. Kashul, Sr
/s/ D. Mike Maxwell Director December 10, 1998
----------------------- --------------- -------------------
D. Mike Maxwell
/s/ Peter B. Atwal Director December 10, 1998
------------------------ --------------- -------------------
Peter B. Atwal
/s/ James L. McGovern Director December 10, 1998
------------------------ --------------- -------------------
James L. McGovern
/s/ William P. O'Reilly Director December 10, 1998
------------------------ --------------- -------------------
William P. O'Reilly
60
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
4.2 Certificate of Series A Cumulative Convertible
Preferred Stock Certificate
10.14 Letter Agreement to Sell 100% of ORAYCOM stock
to O. Ray Strickland and O. Ray Strickland IRA
("Strickland Group")
21.1 Subsidiaries
27. Financial data schedule.
NUMBER 001 96,001 SHARES
CUMULATIVE CONVERTIBLE PREFERRED STOCK
SERIES A
SYNAPTX WORLDWIDE, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF UTAH
This certifies that James M. Gleason is owner of ninety-six
thousand and one (96,001) shares of fully paid and nonassessable
cumulative convertible preferred stock, Series A ("Preferred
Stock") of Synaptx Worldwide, Inc. (the "Corporation"),
transferable on the books of the Corporation by the holder in
person or by duly authorized attorney upon surrender of this
certificate, properly endorsed.
The Preferred Stock represented by this certificate is
entitled to an annual dividend of no dollars and twenty-nine
point seventy-five cents ($0.2975) per share payable out of the
net profits of the Corporation before any dividend is paid on the
common stock (other than a dividend payable in common stock) of
the Corporation. If net profits in any year are not sufficient
to pay this dividend, either in whole or in part, then any unpaid
portion of the dividend will become a charge against the net
profits of the Corporation, and will be paid in full out of the
net profits of the Corporation in subsequent years before any
dividends are paid on the common stock of the Corporation in
those years.
The Preferred Stock represented by this certificate is
entitled to vote at meetings of the shareholders of the
Corporation, but is not entitled to participate in the profits of
the Corporation beyond its fixed, preferential annual dividend.
In accordance with section 1.4.1 of the Agreement between
the Corporation and James M. Gleason, Shirley Gleason, Michael
Concialdi and James Gammon dated January 1, 1998, the Preferred
Stock represented by this certificate has a right of conversion
into the common stock of the Corporation at zero point six seven
three six two (0.67362) shares of the common stock of the
Corporation for every one (1) shares of Preferred Stock held
("Conversion") with a minimum of 13,714 shares of Preferred Stock
convertible in any single transaction, unless the holder is
redeeming their remaining balance of Preferred Stock. If a
Conversion results in fractional shares of common stock of the
Corporation, such fractional shares will be rounded up or down to
a whole share amount of common stock. The Corporation has the
option to call a Conversion of all or any part of the Preferred
Stock if the common stock of the Corporation achieves a closing
price average for a consecutive sixty (60) day trading period of
five dollars and twenty-five cents ($5.25) (the "Call Option").
In Witness Whereof, the Corporation has caused this
certificate to be signed by its duly authorized officers and
sealed with the seal of the Corporation this 1st day of January,
1998.
/s/ Ronald L. Weindruch
-------------------------------------
Ronald L. Weindruch, President
/s/ Richard E. Hanik
-------------------------------------
Richard E. Hanik, Secretary
November 11, 1998
Mr. O. Ray Strickland, President
ORAYCOM, Inc.
2625 N. Josey Lane, #101
Carrollton, TX 75006
Re: Letter Agreement to Sell Back
100% of Capital Stock of ORAYCOM
to O. Ray Strickland and O. Ray
Strickland IRA
Dear Ray,
Per our conversation, here is the Letter agreement to sell 100%
of the capital stock of ORAYCOM back to you individually and your
IRA.
Background:
----------
On June 1, 1997, Synaptx Worldwide, Inc. (the "Company")
purchased all of the capital stock of ORAYCOM, Inc. ("ORAYCOM")
from O. Ray Strickland ("Strickland") for 142,858 shares of the
Company's (SYTX) common stock. Strickland subsequently gifted
14,750 of those shares to existing employees, leaving him with
128,108 shares from the original transaction. Additionally,
Strickland holds 67,136 shares of Synaptx stock in his IRA
account ("Strickland IRA"), acquired via normal purchase and as
additional consideration to the original sale of ORAYCOM. He
also holds additional shares individually (i.e. outside his IRA),
acquired via normal purchase.
Strickland has a five year non-compete agreement with the Company
(SYTX).
Intention:
---------
It is the intention of the Chairman of the Company, Ronald
Weindruch, ("Weindruch") to sell, and Strickland and Strickland
IRA (collectively, "Strickland Group") to purchase 100% of the
capital stock of ORAYCOM from the Company (SYTX), in effect
selling ORAYCOM back to its prior owner. The transaction will be
consummated at the close of business November 30, 1998.
Following is a description of the general conditions regarding
some of the major assets and liabilities of ORAYCOM, as agreed
upon by Weindruch and Strickland Group.
Employees:
---------
Synaptx will honor all commitments to employees through November
30, 1998, the period through which ORAYCOM is a subsidiary of
Synaptx. This includes all earned salaries, unreimbursed
expenses, and accrued unpaid bonuses through November 30, 1998.
Effective November 30, 1998, any employment relationship, either
express or implied, between O. Ray Strickland and Synaptx
Worldwide, Inc. and/or any of its subsidiaries will terminate.
The employment contract with Strickland will be mutually
terminated on November 30, 1998. Strickland will be entitled to
receive his accrued override earned through November 30, 1998
pursuant to his employment contract. This override will be paid
no later than December 20, 1998. All earn-out provisions of the
original purchase agreement, are deemed to be null and void as of
November 30, 1998.
Accounts Payable/Expenses:
-------------------------
The Company (SYTX) will pay all unpaid invoices (including
accrued late fees, finance charges, penalties, etc....) for
services rendered by outside vendors and suppliers through
November 30, 1998. In the event that an invoice overlaps
ownership periods (e.g. telephone bills), the Company will make
an allocation and pay the amount pertaining to the period prior
to November 30, 1998. All expenses and payables incurred after
that date will be the responsibility of Strickland Group.
Accounts Receivable/Revenues:
----------------------------
The Company (SYTX) is entitled to receive the next normal monthly
commission check from each of the following principals: Reltec,
Thomas & Betts, Allied Telesyn, Great Lakes, Electroline,
Comsonics, Tempo, Harmonic Lightwaves, and CSP. In addition, one
of ORAYCOM's principals, AMP, is currently behind in payment
several months. Therefore, the Company is entitled to receive
all back commissions up to and including payment through November
30, 1998. Both parties agree to forward the receipt of
commissions to the other party in the case of a misdirected
payment by a principal. All commission receipts subsequent to
those mentioned above will become the property of Strickland
Group.
Wells Fargo Line of Credit:
--------------------------
Strickland Group agrees to assume responsibility for the line of
credit at Wells Fargo with an approximate principal balance of
$18,600. The Company (SYTX) agrees not to make additional
principal draws on the line. The Company is responsible for
paying interest current through November 30, 1998.
Leases:
------
Strickland Group agrees to assume the responsibility for the
lease covering the Josey office space. The Company (SYTX) will
pay the lease current through November 30, 1998.
Strickland Group agrees to assume responsibility for the leases
on autos driven by Steve Roach, Steve Snyder and Strickland. The
Company (SYTX) will pay the leases current through November 30,
1998.
The Company (SYTX) agrees to continue assuming the liability for
the remaining two autos currently being billed to ORAYCOM,
specifically the autos being driven by Ben Estes in Arizona, and
Rick Montes in California.
Strickland agrees to assume the leases on the furniture and
computer system in the Carollton, TX office. The Company (SYTX)
will pay the leases current through November 30, 1998.
Consideration:
-------------
In consideration of the above, Strickland Group will give to the
Company (SYTX) 80,000 shares of Capital stock of the Company
(SYTX), payable as follows:
At closing - 67,136 shares
No later than January 15, 1999 - 12,864 shares
In the event the remaining shares are not conveyed to the Company
(SYTX) by January 15, 1999, the Company (SYTX) has the right to
demand immediate payment in cash of $25,728, or Strickland Group
will be in default.
In consideration of the above, Synaptx will agree to terminate
the non-compete agreement in place with Strickland, allowing him
to pursue continuation of ORAYCOM as an ongoing entity.
Ray, please sign your agreement so we can move this agreement
along quickly.
Sincerely,
\s\ Ronald L. Weindruch
Ronald L. Weindruch
Chairman & CEO
I agree to the terms noted in the Letter Agreement to purchase
100% of ORAYCOM, Inc. Capital Stock back from Synaptx and agree
to move toward final resolution by November 30, 1998.
\s\ O. Ray Strickland
--------------------------- -----------------------
O. Ray Strickland Date,
Individually and on behalf of
ORA Strickland, IRA.
Exhibit 21.1
Subsidiaries
------------
State of % of
Name Incorporation Ownership
---- ------------- ---------
Synaptx Access(1) Florida 100%
Synaptx Impulse(2) Illinois 100%
Oraycom, Inc. Texas 100%
W.b. Controls, Inc. Illinois 100%
Primus Marketing
Associates, Inc. Minnesota 100%
1. Formerly known as North American Telco Cable Reps, Inc. ("NATCRI")
2. Formerly known as Maxwell Partners, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SYNAPTX WORLDWIDE, INC. FORM 10-KSB FOR THE PERIOD ENDED AUGUST 31, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<CASH> 127
<SECURITIES> 0
<RECEIVABLES> 957
<ALLOWANCES> 38
<INVENTORY> 0
<CURRENT-ASSETS> 1,090
<PP&E> 463
<DEPRECIATION> (162)
<TOTAL-ASSETS> 2,357
<CURRENT-LIABILITIES> 1,559
<BONDS> 0
0
1
<COMMON> 6
<OTHER-SE> 460
<TOTAL-LIABILITY-AND-EQUITY> 2,357
<SALES> 5,798
<TOTAL-REVENUES> 5,798
<CGS> 4,787
<TOTAL-COSTS> 4,787
<OTHER-EXPENSES> 4,078
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> (3,158)
<INCOME-TAX> 0
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<EPS-PRIMARY> (.57)
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</TABLE>
